BUSINESS

THE CROWN’S CASE

FORMER BRITISH COLUMBIA PREMIER WILLIAM BENNETT GOES ON TRIAL ON CHARGES OF INSIDER TRADING

HAL QUINN May 1 1989
BUSINESS

THE CROWN’S CASE

FORMER BRITISH COLUMBIA PREMIER WILLIAM BENNETT GOES ON TRIAL ON CHARGES OF INSIDER TRADING

HAL QUINN May 1 1989

THE CROWN’S CASE

FORMER BRITISH COLUMBIA PREMIER WILLIAM BENNETT GOES ON TRIAL ON CHARGES OF INSIDER TRADING

BUSINESS

The court docket posted last week at the entrance to the provincial courthouse in Vancouver’s seedy East End listed a typical daily gamut of cases—assault, possession of cocaine and heroin, impaired driving, theft under $200 and even murder. But also listed on the 12 pages of computer printouts were insider-trading charges involving three of the most prominent names in British Columbia: former premier William Bennett, his brother Russell, and Harbanse Singh (Herb) Doman, founder and controlling shareholder of Doman Industries Ltd., of Duncan, B.C. Meanwhile, on the littered sidewalk in front of the courthouse, derelicts jostled in what is normally their preserve with as many as 11 television camera crews and as many as 30 journalists assigned to cover the largest insider-trading trial in Canadian securities history.

Inside, in a crowded 75-seat room on the courthouse’s third floor, the former premier, 57, his 60-year-old brother, and Doman, 56, pleaded not guilty to charges arising from the sale of Doman Industries shares on the Toronto Stock Exchange (TSE) last year. Outside the court, too,William Bennett protested his innocence. The Crown alleged that they had received privileged insider information about the logging company that was not available to the public. Doman and Russell Bennett were also charged in court last week with offences stemming from Bennett’s purchase of Doman Industries shares last summer. If convicted of violations of British Columbia’s Securities Act, the three defendants each face maximum penalties of five years in jail or $100,000 in fines. And on June 29, a trial date is scheduled to be set for the Bennett brothers in Toronto, where they face similar charges. If they are convicted of violating Ontario securities laws, they face the prospect of even harsher penalties—up to two

years in jail and fines of three times the value of any financial gains that the court finds are illegal, or $1 million, whichever is greater.

The charges stem from a joint investigation by B.C. and Ontario securities regulators into the Nov. 4, 1988, sale of 517,996 Doman Industries shares by the Bennetts—sons of former B.C. premier V. A. C. Bennett—and longtime friends and associates of Doman’s. According to evidence given to the court, the shares were sold minutes before the TSE halted trading in the shares of the Vancouver Island-

based company. Crown prosecutor Robert Wright admitted last week that his evidence is “in its entirety, circumstantial.” Still, the Crown alleged that Doman told the Bennetts on Nov. 4 that a proposed takeover of his company by the U.S. lumber giant LouisiannaPacific Corp. (LPC) had been withdrawn. That, according to Wright, allowed the Bennetts to sell $5.9 million worth of Doman Industries shares before the public announcement that the takeover was off. According to signed admissions of fact submitted to the court

last week, the Bennetts sold all their shares, most of them for $11.37 each. The Bennetts also acknowledged making a combined profit of $2.1 million on the sale of their shares, which had climbed from around $7.50 when the Bennetts bought them last summer. When trading in the stock resumed three days later on Nov. 7, the price of Doman Industries shares dropped back to $7.50.

The most crucial evidence for the prosecution centres on several Nov. 4 telephone calls to Doman’s office in Duncan, B.C., from LPC chairman Harry Merlo in Portland,

Ore., and from Doman’s office to Russell Bennett’s offices in Kelowna, B.C. According to telephone company log sheets and testimony given at the trial, the calls were made in rapid succession, and were quickly followed by orders from the Bennetts to their stockbrokers and the subsequent sale of their Doman shares. The court was told that the first call, from Merlo to Doman at 9:52 a.m., came after a twohour meeting between Merlo and LPC executives at which the decision was made to withdraw LPC’s $12-pershare takeover offer for Doman Industries. Doman would have realized up to $65 million in cash and shares if the deal had gone through.

But Merlo—a longtime friend of Doman—testified last week that LPC decided not to make the $200 million purchase because of lowerthan-expected revenue figures for Doman Industries.

Telephone records of U.S.

West Inc., introduced by the Crown as evidence, show that Merlo’s call to Doman lasted 15 minutes. Merlo testified that he told Doman of LPC’s decision and advised him to inform TSE officials of the decision and ask them to halt trading in Doman Industries shares. And Robert Grant, a B.C. Tel manager, testified on April 18 that at 10:09 a.m.—two minutes after the call from Merlo ended—a five-minute call from Doman’s office was placed to Russell Bennett’s offices in Kelowna. According to the Bennetts’ own admission, at 10:17 a.m. Russell Bennett’s 188,696 Doman Industries shares were sold on the TSE and at 10:21 a.m., William Bennett’s 179,300 shares and the 150,000 in the accounts of his wife, Audrey, and their four sons were also sold. The TSE halted trading in

Doman Industries shares at 11:13 a.m., more than an hour after the alleged conversation between Merlo and Doman. At 1:35 p.m., Doman issued a news release announcing the withdrawal of the LPC takeover bid.

Telephone records also hold the key to the Crown’s case against Doman on a second series of insider-trading charges. The charges were laid in court last week in connection with Russell Bennett’s purchases of Doman Industries shares which began last August. According to Wright, Doman allegedly began providing what the prosecutor termed “privileged information” to Bennett prior to those purchases. Last week, Wright told Provincial Court Judge Wallace Craig that he intended to produce evidence that will show that on Aug. 24, 1988, Merlo and Doman met to discuss the takeover bid, and that Bennett began purchasing large volumes of Doman shares on Aug. 25.

According to the chronology outlined by Wright, on I Oct. 17, Bennett phoned Doman at his home and talked to him for 20 minutes. Shortly after 8 a.m., Bennett sold 100,000 Doman Industries shares. The shares, which traded between $5 to $6 in early 1988, rose to $8 in September and to over $10 in October. When Bennett issued his sell order, they traded at around $11.50.

Prosecutors in Ontario said that they still plan to try the two Bennett brothers on insider-trading charges arising from the sale of their shares on the TSE on Nov. 4. The Ontario charges were laid on Feb. 4. Because Canada’s Charter of Rights and Freedoms says that no one may be tried twice for the same offence, some legal experts have questioned whether the Bennetts will ever face ÜÜ charges in Ontario.

In Vancouver, the defence is scheduled to begin presenting its case this week, but attorneys for the three accused have yet to indicate whether or not their clients will take the stand. Outside the courtroom last week, the former premier said, “My lawyer has instructed me not to talk about the case, but I can say I’ve done nothing wrong and I’m not guilty.” The trial is expected to continue for another two weeks.

HAL QUINN

with

JOHN PIFER

in Vancouver