Showdown at the VSE

You might call it “Death Wish II.” It seems like an appropriate title for the suicidal drama unfolding between two key players in British Columbia’s securities industry.

The British Columbia Securities Commission alleges that the Vancouver Stock Exchange’s foremost stock promoter, Murray Pezim, with insider trading. With trading volumes low and little hope of some new excitement to stimulate action, the allegations come at a time when both sides can least afford it. No matter what the outcome, the VSE will be the loser, and that will be a blow to Pezim, to the securities commission and particularly to the entire junior resource sector. What hurts the VSE hurts their ability to raise money — and that is tough enough already.

Whatever it’s called, the confrontation is unlikely to produce any clear-cut winners. If this were a remake of “Gunfight at the O.K. Corral,” both Wyatt Earp and Doc Holliday would end up shooting themselves in the foot.

This showdown, however, has taken on dimensions that go beyond the two main players. What is being argued is what course the Vancouver Stock Exchange will take in the future. It is almost as if the veracity of the allegations brought against Pezim is immaterial. The question is: who is the more powerful — the promoters or the regulators.

The province’s securities chief, Superintendent of Brokers Wade Nesmith, is under pressure to clean up the VSE’s image, and to do that he has to call them as he sees them. The VSE is seen by some as little more than a gambling casino where a few “insiders” rake off untold profits. Those who say Nesmith is correct to come down hard on alleged improprieties believe the VSE has to be squeaky clean if it expects to fill a niche as the world’s premier forum for raising risk capital.

Pezim, who has often been the subject of speculation about infringement of trading rules in the past, must be presumed innocent until proven guilty. He is understandably concerned about the allegations when the tendency of the public is to condemn by rumor. Proof is not necessary. Just being accused can irreparably damage a reputation.

Nesmith has the power of the securities commission behind him. Pezim represents up to 20% of the VSE total trading volume.

It might well have been that Nesmith expected Pezim to take the allegations quietly and receive a slap on the wrist. Then business-as-usual could resume. Nesmith would have demonstrated his ability to stand up to the street’s most visible promoter while Pezim could have continued raising money for his 58 junior mining companies.

It didn’t happen that way. The allegations have taken on sufficient dimensions to make it the topic of conversation on Howe Street. And the street is already divided on who will come out on top. Those who feel the VSE needs to “clean up its act” are rooting for Nesmith to hang tough. Those who like the VSE’s “wild and woolly” reputation for raising risk capital say promoters like Pezim are the lifeblood of the industry. Taming them would condemn the VSE to a future of mediocrity.

Regardless of who blinks first in this showdown, the VSE will be the loser. Already the allegations have come like a bucket of cold water on those trying to raise money for exploration in the Eskay Creek area of British Columbia this summer. Eskay is the major gold exploration play in the province — indeed of the whole country. Junior mining companies are already dealing with a triple whammy of low gold prices, timid investors and the sudden death of a federal grant that acted as an incentive for investment in junior stocks. Eskay was the VSE’s best hope for a respectable year on the exchange. To jeopardize efforts to raise money for Eskay may be the final nail in the coffin for the VSE in 1990.

Perhaps this is one instance where Vancouver can take a lesson from Ontario’s securities’ watchdogs. The Ontario Securities Commission tends to conduct lengthy investigations but eventually end the matter by imposing minor penalties on some lesser offences and accepting a “contribution” from the individual named. The truth of the major allegations may never be determined.

A similar approach would allow the British Columbia Securities Commission to save face and let Pezim continue to do what he does best — generate a securities industry to justify the commission’s existence.

It might not be the best way to instil confidence, but it could be a way to let the VSE put this episode behind it.