The Alberta Securities Commission has ordered lifetime market bans and a $650,000 administrative penalty against Milowe Brost for his conduct with others amounting to fraud on investors in Strategic Metals Corp.

On Feb. 16, 2007, an ASC panel determined that Brost, Strategic Metals and its directors had engaged in a fraud on investors in Strategic Metals and had illegally sold Strategic Metals’ securities, raising a total of $36.5 million, including $24.6 million from Alberta investors. After considering submissions regarding sanctions, the panel concluded proceedings on July 10, 2007 with orders against each of the respondents.

In its decision, the ASC panel concluded Brost was “at the centre of this fraudulent scheme” to lure public investors into putting money into securities of Strategic Metals, essentially a shell of a company whose main but undisclosed function was to finance Gary Sorenson’s offshore mining ventures. As a result, the panel believed Brost “warrants the most significant sanction of any of the individual Respondents,” and “that Alberta investors and the Alberta capital market are at risk if there is any prospect of Brost regaining access to the capital market.”

The ASC panel ordered that Brost be permanently banned from trading (with some exceptions), be permanently banned from becoming or acting as a director or officer of any issuer and pay a $650,000 administrative penalty. Brost had argued before the panel that a director and officer ban against him ought apply only to reporting issuers, and particularly that he not be prohibited from continuing to act as a director and officer of The Institute for Financial Learning Group of Companies Inc. (IFFL), a private issuer. In its decision, the ASC panel rejected Brost’s argument, saying, “Brost’s apparent belief that the public ought to continue looking to and paying him – an initiator of a large and successful fraudulent scheme – for guidance on investing took the panel aback.” The panel concluded, “that Brost not only does not recognize the seriousness of his misconduct, but is also prepared shamelessly to overlook it.”

The ASC panel also imposed the following sanctions against Strategic Metals and its directors:

  • Strategic Metals Corp. is cease traded and denied exemptions until such time as it has filed a prospectus with and received a receipt from the ASC’s Executive Director;
  • Edna Forrest and Bradley Regier are permanently banned from acting as a director or officer of any issuer, banned from trading in securities and exchange contracts and denied the use of all exemptions for 20 years, and must pay a $200,000 administrative penalty;
  • Carol Weeks is banned from acting as a director or officer of any issuer, banned from trading in securities or exchange contracts and denied the use of all exemptions for 15 years, and must pay a $65,000 administrative penalty; and
  • Capital Alternatives Inc. is permanently banned from trading in securities and exchange contracts, permanently prohibited from using exemptions under Alberta securities laws, and must pay a $200,000 administrative penalty.

The significant sanctions levied against Forrest, Regier and Weeks, the directors of Strategic Metals, considered their relative lack of experience in the capital market. The panel stated, “This was, above all, a case of fraud and deceit. We do not accept that experience or training in the operation and laws governing the capital market are necessary to teach the difference between dealing honestly and fairly with investors or deceiving them.” The panel found each of the three participated in disseminating falsehoods and failed to provide important facts to investors.

Costs of the investigation and hearing totalling approximately $132,000 were ordered against the respondents.