EDITORIAL AND OPINION — Expect more media scrutiny, not less — Eye on Toronto

Jack Geller, acting chairman of the Ontario Securities Commission (OSC), has criticized the media for creating “a feeding frenzy” over Bre-X Minerals and the issue of whether or not there is gold at its Busang project in Indonesia. Geller needs to know, however, that he should expect more media scrutiny, not less, now that junior companies are flocking in droves to the Toronto Stock Exchange.

Geller may want to commiserate with the British Columbia Securities Commission (BCSC), which gets plenty of attention from Vancouver business writers specializing in the goings-on of the Vancouver Stock Exchange (VSE).

Such watchfulness is a relatively new phenomenon for the BCSC. In years gone by, it was the VSE that bore the brunt of media attacks as various scams orchestrated by unsavory characters were exposed.

That all changed a few years ago when the government set up a commission to look into ways of improving the credibility of the securities market and the “reputation” of the VSE. At this point, it became known that the BCSC was sitting on hundreds of cases that VSE officials had turned over to it for investigation and possible action.

But while those cases and various complaints from investors were ignored, the BCSC spent years and millions of dollars on its own high-profile case against mining promoter Murray Pezim.

Initially, Pezim was alleged to have engaged in insider trading while one of his companies was drilling the Eskay Creek gold project near Stewart, B.C.

When this case fell apart for lack of evidence, the central allegation transformed into a breach of fiduciary duty relating to a transaction whereby Pezim’s flagship company bought shares in his junior company that was drilling Eskay Creek.

That case also dissolved, since the company bought the shares in order to provide funds for the junior’s work program at a time when no else was much interested.

It is no small irony that Pezim, arguably the greatest promoter since Joseph Hirshhorn, was eventually nailed for disclosure violations relating to assay results from a particularly spectacular hole at Eskay Creek. Regulators alleged that Pezim sat on assay results (impressive ones, we might add), though his geologists provided compelling evidence that this was not the case. As is normal industry practice, the company waited to receive all assay certificates before they were collated and released as a single hole.

That explanation was not good enough for the prosecuting lawyers, who argued that each assay certificate signified a “material change” and that those partial results ought to be disclosed immediately. The commission’s argument was accepted even though, as it later turned out, the hole in question was isolated from the main deposit, never figured in the minable reserves calculation and never constituted a “material change.”

While that episode is water under the bridge, the fact remains that securities commissions, not exchanges, are the senior regulators. The onus of enforcement, therefore, falls primarily on their shoulders. Exchanges, however, also have a role to play in vetting prospectuses and monitoring other disclosure documents.

Media scrutiny of the TSE and OSC will increase in the years ahead as more juniors seek listings on the senior exchange. Although the vast majority of those companies are hard-working and honest, it only takes one bad apple to spoil the barrel.

As it stands, the VSE has better guidelines on assaying and corporate disclosure than the TSE and, arguably, tougher listing requirements. As a result of having witnessed every trick in the book at one time or another, the VSE also has more sophisticated market surveillance.

All this just goes to show that real progress can be made in spite of, or perhaps because of, a constantly vigilant media.