Lessons to learn in regulatory debacle

Dear Sir, Re: ONTARIO SECURITIES COMMISSION (OSC) and AMERON OIL AND GAS LTD et al. The news that Gaye Knowles was forced to settle with the OSC in the case originally brought against him and others, including Ameron, Mx-IV, Anthony Howorth and Giorgio Knowles in April 2010 has raised a number of issues concerning the management and use of International Business Companies, both in the Bahamas and elsewhere. This matter has had an adverse effect on the Bahamas, on the directors of the IBC involved and on their reputations, as a temporary cease trade order was imposed in April 2010, and reissued several times. Finally, in March 2011, there was an order restraining myself, and Gaye Knowles and Giorgio Knowles, from securities trading until the hearing of the case on the merits. The matter has taken over a year now to reach its conclusion. All this was published on the OSC web site, notwithstanding that the laws of Canada follow English law, and that a person is innocent unless proven guilty. This had an adverse consequence on my business of servicing clients who trade on the Ontario exchanges, and other exchanges. I am pleased to say that through my vigorous defense of my actions, and my representations as to the legal position of Ameron, the Bahamas International Business Company at the heart of the issue, and the fact that Gaye Knowles decided to accept a penalty on reduced charges, on February 22 the OSC staff withdrew all the allegations against Ameron, MX-IV, Anthony Howorth and Giorgio Knowles. This has been a costly exercise and very time consuming. I travelled to Toronto to a hearing to be interviewed before an OSC Comissioner, in order to cooperate in bringing the culprits who caused the fraud to justice. And although I requested assistance from the Securities Commission of the Bahamas on the May 11 and July 25, as I considered this an unwarranted and vicious attack on the model of the IBC and the Bahamas, I received no answer from them. Also no answer from the Bahamas Financial Services Board. The cost to Gaye Knowles and myself exceeds $20,000. To pursue the others involved for damages caused to us would cost more legal fees, and cannot be afforded. As the case is not a vourt case, but rather the regulator hearing the matter in front of one or more Commissioners, who are authorised to impose penalties for "acting against the public interest" on facts obtained by their own staff, and on allegations made by their own staff, it is hardly a fair system to ensure the laws of Canada and the constitutional rights of individual defendants are protected. Appeals to the Higher Courts involve great expense. This case involved the raising of funds in Canada using a Prospectus of 64 pages, and a Subscription Agreement, neither of which was approved by, seen by or known to the directors of the Bahamas IBC, Ameron Oil and Gas Ltd, and a so-called Bahamas Partnership to be established with Ameron as managing partner. None of this was approved by or known to the Ameron directors and officers. Use of IBCs by third parties to achieve nefarious ends is not unknown, and there are other cases in the United Kingdom and Canada where such directors are being pursued, and where such directors never authorised, participated or knew of such uses, namely to raise funds without the approval of the necessary regulatory authorities in the relevant jurisdictions. In this case, Gaye Knowles, as director and president of Ameron, was able to provide evidence that he specifically told the promoters of the proposed intention to have Ameron participate in marketing a proposed Oil Well Drilling operation in Kentucky that Ameron would not commence business until all regulatory approvals and legal opinions had been obtained by lawyers instructed by the promoters. He was also able to show that all the Bahamas requirements regarding the beneficial owner of the IBC had been met. Also, that the company never commenced business or appointed any lawyers or paid any fees other than to the Government of the Bahamas, and that the company had no assets and no liabilities at the material time. Nonetheless, the OSC alleged that all the defendants, who included the promoters and their salesmen, were charged with the same breaches of the Ontario Securities Act, including fraud and "acquiescing" in the raising of funds in Canada using a prospectus that had incorrect factual information, was never seen or approved by Ameron, its directors and officers, and was not signed by them. Unfortunately, Mr Knowles signature was used in a letter included in the Prospectus, against his strict instructions. A similar letter from an oil expert was included without permission. The fact that Ameron, and the non-existent Bahamian Partnership whose units were being sold, never commenced business, and never knew of the publication of any prospectus or subscription agreement, never saw a draft or final version of them, was not accepted by the OSC, who claimed that the directors should have exercised greater care to see that such information was not used or made public, including that they should have known that a website in Ameron's name was also used without their knowledge or approval. The OSC claimed that "acquiescing" included "unknowingly acquiescing". This is not defined in this way in Websters Dictionary. Also the Bahamas Securities Regulations 2010 Section 141(1) state:- "Directors and Officers (1) Notwithstanding any other provisions of Securities laws..................................... any Director or Officer of the person who knowingly or recklessly authorised, permitted or acquiesced in the offence is also guilty of the offence and liable to the same penalty specified for it." The fact is that the promoters of the alleged fraud agreed to plead guilty to certain charges. They had induced investors to wire money to third party accounts, and to lawyers' escrow accounts, both in Canada and the Bahamas. They used such funds contrary to the so-called prospectus, all without the knowledge of Ameron and its directors and officers. Ameron never opened any bank accounts or received any funds, apart from payments to the financial service corporation responsible for the incorporation and management of the company. Gaye Knowles was also able to prove that he obtained all the required documentation from the shareholder of Ameron, who it appears instructed his brother to carry out the management control of the proposed project to market the Oil wells. I am happy to say, that as a result of my fighting this case, Gaye Knowles was able to negotiate the reduced charge against him of acting against the public interest in not taking reasonable steps to understand the business that the promoters were proposing to conduct using Ameron; taking steps to ensure that his signature was not used to solicit investors; and that the regulatory approvals were not obtained prior to the promoters using Ameron to promote securities sales. The failure of lawyers in two countries to obtain regulatory approvals, and yet to allow the promoters to raise funds on the basis that the investors were exempted from the requirements of the Ontario Securities Act, and knowing that funds were being raised, itself raises serious concerns. It is not known if any actions are being taken against them. I am pleased to say, that as a result of my vigorous defense of all the allegations against Ameron, Mx-IV and its directors and officers, the staff of the Ontario Securities Commission have withdrawn all allegations against us, having accepted Gaye Knowles' agreement to settle. Gaye Knowles could not afford to fight this case any further, and has accepted the penalty of a five years ban on selling or partaking in any new issues in Ontario. He agreed that as the managing director of Ameron, he was responsible for the operations and due diligence for the IBC. I have replied to your inquiry at length, as I regard this case as having lessons for the managers of International Business Companies, not only in the Bahamas, but elsewhere. The regulatory environment has become a nightmare, and a costly one at that. But the basic need to deal only with reputable clients and to continue to check their every move is becoming essential. This is not understood by many clients who consider nominee directors as only responsible to do the clients bidding. Yours Sincerely Anthony Howorth, BA (Oxon in Law) ; ACIB (Trustee). FORMER Director of Ameron Oil and Gas Ltd


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