Complaints, Lawyer Discipline and Public Hearings

Decision of the hearing panel on facts and determination

Samuel Theodore Gray Cole

Vancouver, BC

Called to the bar: October 1, 2011

Hearing dates: February 22-26 and April 12, 2021

Decision issued: October 13, 2021 (2021 LSBC 40)

Panel: Geoffrey McDonald, Chair, Ralston Alexander, QC and Cyril Kesten

Counsel: Lisa Ridgedale and Leah Shepherd for the Law Society; Patrick Sullivan for Samuel Theodore Gray Cole

FACTS

Samuel Theodore Gray Cole’s client asked him to draft a letter of intent to acquire a company that produced briefcases and luggage. They corresponded and planned to complete the acquisition through a reverse takeover by a shell company trading on a public stock exchange.

Cole’s client identified a potential shell company listed on the TSX Venture Exchange that might be appropriate for the acquisition and asked Cole for advice. The company described its principle business as being the acquisition and exploration of mineral properties. Cole replied to the client and suggested a five-step plan for the acquisition, including: to resume trading on the shell and see how the price settles after a few days; to announce the seed round to recapitalize the shell; to close the seed and clean up payables on the shell; to announce the deal and halt the stock, following which money from the seed could be lent to the shell company; and to close the acquisition round and hold funds in escrow, to be released on closing of the acquisition.

Over the course of the next month, Cole continued to correspond with his client on moving forward with the acquisition. His client was added to the board of the shell company. The corporate records were transferred to Cole’s law firm and his law firm became the solicitors for the shell company. The shell company issued a press release intending to raise $700,000 through a private placement to acquire a new project or business. Cole made written submissions to the TSX Venture Exchange seeking conditional approval of the seed financing through the planned private placement. On one of the forms attached to the written submissions, he confirmed the transaction will not involve or form part of a series of transactions that may result in a change of business or a reverse takeover. Cole testified he did not prepare the letter but agreed he had reviewed the letter and its attachments and it was sent under his signature.

A listed issuer services analyst responded and advised the private placement could proceed as long as there will be no insiders participating, given the amount is over $500,000, as per the directive of the securities regulator. Cole forwarded this email to his client. Cole’s client testified he called Cole immediately by telephone and Cole suggested using the client’s girlfriend as a nominee to purchase shares. Cole testified that no such phone call occurred and at no time did he counsel his client to illegally circumvent the directive by purchasing shares through a nominee.

The client’s girlfriend purchased shares in the shell company and the client provided the funds. One of the purchases had to be refunded partially and Cole asked his client to whom the funds should be refunded. The client’s girlfriend had to fill out a personal information form and file it with the TSX Venture Exchange and Cole advised her to answer no to all of the questions on the form, including confirming that the transaction would not involve or form part of a series of transactions that may result in a change of business or reverse takeover. He later notarized the form and submitted it. It was confirmed that the company could proceed with the private placement.

The shell company issued a press release drafted by Cole announcing the private placement with gross proceeds of $700,000 and that its business continued to be mining-related and it was seeking a new qualifying project. A few weeks later, the company announced it had entered into a letter of intent to acquire the company that produced briefcases and luggage and this acquisition would be a change of business for the company. In the months following, the shell company completed the reverse takeover of the company and Cole helped negotiate the transfer of shares from the client’s girlfriend to the client.

DETERMINATION

The panel found Cole counselled his client to circumvent the regulator’s directive by having his girlfriend take part in private placement financing based on the following: his client had intended to take part in private placement financing in the outset; Cole was well aware of his client’s intentions and had reviewed the proposals; emails showed that the client regularly sought Cole’s advice about every aspect of this acquisition and the reasonable expectation was that he would contact Cole immediately after learning he was prohibited from participating in the private placement; and Cole continued to work on the acquisition after being prohibited from taking part in the private placement financing.

The panel also found Cole facilitated his client to indirectly take part in the private placement financing as he personally assisted his client’s girlfriend with the purchase and his law firm accepted the funds for the purchase from his client. The panel dismissed the allegation that he failed to make reasonable inquiries of his client’s representations as it found Cole was fully informed of the acquisition and the filings he made and proceeded anyway.

The panel determined Cole committed professional misconduct.

2021 LSBC 40 Decision on Facts and Determination