August 18, IN THE MATTER OF THE TSX VENTURE EXCHANGE INC. AND ROGER BRIAN ASHTON SETTLEMENT AGREEMENT

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1 Offer of Settlement August 18, IN THE MATTER OF THE TSX VENTURE EXCHANGE INC. AND ROGER BRIAN ASHTON SETTLEMENT AGREEMENT 1.0 INTRODUCTION 1.1 Staff of the TSX Venture Exchange Inc. (the Exchange ) and Market Regulation Services Inc. ( RS ) have investigated the conduct of Roger Brian Ashton ( Ashton ), during the relevant period an approved person and president of Georgia Pacific Securities Corporation ( Georgia ), in connection with the conduct of Georgia and its employee Darren Hunter Bell ( Bell ). 1.2 The Exchange has jurisdiction to hold hearings and make determinations for conduct which occurred prior to November 29, 1999 and which the Exchange considers to have been an infraction as defined in the by-laws and rules (together, Requirements ) of the Vancouver Stock Exchange (the VSE ).

2 1.3 Staff s investigation has identified matters that constitute infractions by Ashton under the Requirements of the VSE. 1.4 Staff and Ashton have negotiated this Settlement Agreement pursuant to Exchange Rule E.1.12 on the basis of the facts set out below in Part This Settlement Agreement will be presented to a Disciplinary Hearing Panel of the Exchange for the Panel s approval. 1.6 Staff and Ashton jointly recommend that the Disciplinary Hearing Panel approve this Settlement Agreement. 2.0 ADMITTED FACTS AND INFRACTIONS 2.1 Ashton agrees the facts set out in this Part 2.0 are true and further admits that he committed and is liable for the infractions referred to. Background The conduct of Ashton, Georgia and its employee Bell that is the subject of this settlement agreement occurred during the period between and during February 1999 and November 29, 1999 (the Relevant Period ) During the Relevant Period, the Requirements of the VSE included those requirements set out in the attached Schedule A During the Relevant Period Bell was an investment adviser at Georgia and Georgia was a member of the VSE and, later, the Exchange. Georgia was registered as an investment dealer and underwriter under the Securities Act (BC) (the Act ). Georgia was obliged, among other matters, to establish and apply prudent business procedures for dealing with clients in accordance with the Act and regulations and exchange requirements, to ensure that all its employees 2

3 complied with exchange requirements, and to diligently supervise all accounts handled by its registered representatives Ashton commenced his employment in the securities industry in He joined Georgia as an investment adviser in September He became president of the firm and was president of the firm during the Relevant Period. Ashton worked at Georgia until February 2001 at which time he transferred to another member firm. During the Relevant Period, Ashton was an approved person under the Requirements of the VSE and, later, the Exchange. He is currently registered as a trading officer of another member firm Ashton had authority over, and responsibility for, supervision of approved persons and employees of Georgia including Bell, and was responsible at Georgia for ensuring compliance by approved persons and employees with the Act and the Requirements of the VSE As the senior officer of Georgia, and a director of the firm, Ashton bore added responsibility for the conduct of Georgia's business and its management, including ensuring that Georgia s compliance procedures were effective. Trading and other Conduct Georgia and its employee Bell acted for accounts for nine clients (the Client Accounts ) that had purchased and accumulated large share positions in illiquid securities of junior issuers (the Unpaid Securities ). Securities of junior issuers held in the Client Accounts were used as equity against the purchases. Settlement was not made in accordance with the requirements of the VSE for any of the purchases of the Unpaid Securities, and the related debits in the Client Accounts became overdue immediately after settlement date During the Relevant Period, approximately 164 trades were executed through four of the Client Accounts in the securities of various issuers (the Senior 3

4 Securities ) whose securities were listed and quoted on the Toronto Stock Exchange, the New York Stock Exchange and the NASDAQ (together, the Blue Chip Trades ). The Blue Chip Trades consisted of a purchase followed by the sale of the shares purchased in the same issuer. During the Relevant Period, none of the Client Accounts had invested in Senior Securities prior to the Blue Chip Trades. In respect of the Blue Chip Trades: the majority of the trades resulted in no economic benefit to the client; the Client Accounts were always in a debit position prior to the execution of the buy Blue Chip Trade; at the time of the trades, the Client Accounts carried a debit position that was at least 9 business days, and up to 20 business days, overdue; and each Blue Chip Trade sale caused the account debit position to be re-aged, thereby postponing payment for the debits in the Client Accounts The Client Accounts suffered losses during the Relevant Period, estimated at approximately $108,000. The pattern of loss and non-economic trading is consistent with executing the Blue Chip Trades for the sole purpose of re-aging debits and not for economic gain On February 3, 1999, the Examiners Department of the VSE issued Georgia a deficiency letter (the Deficiency Letter ) directing Georgia to discontinue the practice of debit re-aging by buying and selling securities with insufficient equity in cash accounts. The attention of Georgia and its management, including Ashton, was specifically drawn by the Deficiency Letter to accounts for which Bell was the investment adviser Georgia, through its employee Bell, continued to conduct the Blue Chip Trades after receipt of the Deficiency Letter. 4

5 On February 19, 1999, the VSE Examiners Department issued an Interpretation Bulletin (the VSE Bulletin ) that stated: Trading done to avoid or artificially delay settlement A Member may expect disciplinary responses if they engage in any of the following: A practice is made of selling and then buying on the same day, or shortly thereafter, the same or similar share position in a total dollar amount that approximates the outstanding balance and lacks economic benefit; the effect of which is to re-age the outstanding balance. A practice is made of buying and then selling, on the same day, or shortly thereafter, a sufficient quantity of highly liquid securities, which is not in keeping with the general nature of trading in the account, and lack economic benefit, the effect which is to re-age the outstanding balance Georgia, through its employee Bell, continued to conduct the Blue Chip Trades after the VSE Bulletin was issued Georgia through its employee Bell effected or participated in the Blue Chip Trades when he knew or ought to have known that his clients did not have the ability or bona fide intention to properly settle the transactions and for the purpose of deferring payment for the Unpaid Securities Georgia knew or ought to have known that the effect of the Blue Chip Trades would be to defer payment for the Unpaid Securities which conduct was inconsistent with the just and equitable principles of trade, and detrimental to the 5

6 interests of the VSE and the public and constituted an infraction under Bylaw 5.01(2); Infractions by Ashton During the Relevant Period, Ashton, as the senior officer of Georgia, knew or ought to have known that the conduct of Georgia and its employee Bell was contrary to the Requirements of the VSE and Ashton is vicariously liable under VSE By laws 5.07(2) and (3) for Bell s misconduct and liable for the failure of supervision as he failed to: a) ensure that Georgia and its employee Bell carried out business and effected or participated in trading in compliance with VSE requirements in contravention of VSE Rule F.2.08; b) diligently supervise or ensure supervision of accounts handled by Bell in contravention of VSE Rule F.1.01; and c) establish and apply prudent business procedures to ensure that Georgia adhered to the principles of good business practices in its business affairs and compliance by Georgia and its employee Bell with the Requirements of the VSE which conduct constituted an infraction under VSE By law 5.01(2). 3.0 DISPOSITION AGREED UPON 3.1 Ashton hereby agrees to the imposition of the following sanctions: Upon acceptance and approval of this Settlement Agreement, Ashton shall make the following voluntary payments to the Exchange: (i) a fine in the amount of $30,000; and 6

7 (ii) $5,000 as a contribution to costs of the investigation Ashton shall not act as a supervisor or in a supervisory capacity with any Member or Participating Organization for one year from the date of approval of this Settlement Agreement. 4.0 DETERMINATION BY DISCIPLINARY HEARING PANEL 4.1 This Settlement Agreement is binding and final upon its acceptance, approval and execution by all members of a hearing panel constituted under Rule E.1.00 for the purpose of determining whether this Settlement Agreement is reasonable or not. 4.2 In the event that the hearing panel does not approve this Settlement Agreement, the Exchange may proceed with the hearing of the matters addressed herein before a separate hearing panel constituted for that purpose under Rule E OTHER MATTERS 5.1 Publication Ashton acknowledges and agrees that the Exchange and RS shall notify the public and media of the hearing referred to in Part 4 and, if approved, the terms of this Settlement Agreement in such manner and by such media as the Exchange and RS see fit. 5.2 Record Ashton agrees that the disposition of the matter as agreed upon as set forth in this Settlement Agreement shall be included in the permanent record of 7

8 the Exchange pertaining to Ashton. 5.3 Waiver Ashton waives any right he may have, under the Rules of the Exchange, any applicable legislation, or otherwise, to a hearing, hearing and review, judicial review or appeal in connection with, or incidental to, this Settlement Agreement. 5.4 Adherence Ashton agrees that neither he, nor anyone on his behalf, will make any public statement inconsistent with this Settlement Agreement. 5.5 Failure to Comply Ashton agrees that, in the event that he fails to comply with any of the terms of this Settlement Agreement, the Exchange or RS may enforce this settlement in any manner it deems appropriate and may, without limiting the generality of the foregoing, suspend Ashton s access to and ability to trade on the Exchange or the TSX without hearing until the Exchange determines that Ashton is in full compliance with all terms of this Settlement Agreement. IN WITNESS WHEREOF the parties have signed this Settlement Agreement as of the dates noted below. Dated at Vancouver on the 22nd_ day of July,

9 H. Roderick Anderson Roger Brian Ashton Witness Signature Roger Brian Ashton Name of Witness Dated at on the day of July, TSX VENTURE EXCHANGE INC. Per: Linda Hohol 9

10 Per: Sharon Pel This foregoing Settlement Agreement is hereby accepted and approved this day of August, 2003, by the following hearing panel constituted to review the terms thereof: Per: Stephen Gill Panel Chair Per: Bill Wright Panel Member Per: Debi Hewson Panel Member 10

11 SCHEDULE A VSE Requirements During the Relevant Period By-law 5.01(2) Infractions Infraction in this by-law means: any conduct, proceeding or method of business not expressly provided for in the by-laws, rules or regulations which is unbecoming or inconsistent with just and equitable principles of trade or detrimental to the interests of the Exchange or the public. By-law No Vicarious Liability (2) (a) Any partner, director or officer of a Member may be found liable for the conduct, business, or affairs of the Member if he had responsibility for same and therefore subject to any penalties as if he had engaged in that conduct business or affairs.. (3) (a) An approved person or employee of a member who has authority over, supervises or is responsible to the Member for any approved person or employee of the Member, may be found liable for the conduct, business, or affairs of the supervised, approved person or employee and therefore subject to any penalties as if he had engaged in that conduct business or affairs.. 11

12 Rule F Accounts Due Diligence 1 Every Member is required through a designated partner or director or officer or in the case of a branch office, a manager reporting directly to the partner, director or officer to: a. use due diligence to learn the essential facts relative to every client, every order, every cash or margin account accepted or carried by him and every person holding power of attorney over any account accepted or carried by him; b. diligently supervise all accounts handled by his registered representatives; VSE Rule F Compliance by Employees All approved persons shall comply with Exchange requirements. For greater certainty, all of the provisions of this Rule F which apply to Members in their dealings with clients, shall also apply to all approved persons and employees of the Member. Each Member shall ensure that all its employees, directors and officers and all the partners in the Member comply with Exchange requirements. 12