ALBERTA SECURITIES COMMISSION

DECISION

Citation: Ironside, Re, 2007 ABASC 824 DATE: 20071107

J. Gordon Ironside and Robert W. Ruff

Panel: Glenda A. Campbell, QC James E. Allard James A. Millard, QC

Appearing: R.S. Abells, QC

for Commission Staff S. Carscallen, QC and L.Y. Pan

for the Respondent J. Gordon Ironside J.B. Laycraft for the Respondent Robert W. Ruff

Dates of Hearing and Argument:

May 11, 14 and 15, June 6 and 28, July 10 and 16, 2007

Date of Decision: November 7, 2007

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I. INTRODUCTION [1] This proceeding brings to an end a lengthy hearing (the Hearing) into a battery of allegations levelled by staff (Staff) of the Alberta Securities Commission (the Commission) against two Calgary oil industry executives, J. Gordon Ironside (Ironside) and Robert W. Ruff (Ruff) (together, the Respondents) in a Notice of Hearing issued June 26, 2001. The purpose of the Hearing, as disclosed in the Notice of Hearing, was for the Commission to consider whether the Respondents acted in a manner contrary to the Securities Act (then, S.A. 1981, c. S-6.1; now, R.S.A. 2000, c. S-4) (the Act) and the public interest and whether it was in the public interest to make orders that would remove the Respondents from the Alberta capital market in a certain manner and require them to pay an administrative penalty. We also were to consider whether it was appropriate to make orders for costs of the investigation and Hearing against the Respondents. [2] This was a bifurcated Hearing. The first part of the Hearing considered the merits of Staff's allegations, which focused on public disclosure made by Blue Range Resource Corporation (Blue Range) from April 1, 1997 to December 12, 1998 (the Relevant Period). That segment of the Hearing ended with our decision on December 21, 2006 (the Merits Decision) – Re Ironside, 2006 ABASC 1930. We concluded that both Ironside and Ruff had contravened Alberta securities laws and acted contrary to the public interest. To summarize, our Merits Decision stated (at paras. 3-4):

We find that Blue Range's public disclosure during the Relevant Period painted a materially misleading picture of its operations and financial position, contrary to Alberta securities laws. Certain public information did not reflect Blue Range's true economic condition or give market participants all of the necessary and relevant information to enable a fair and accurate assessment of Blue Range. We also find that the Respondents, as senior officers (and Ironside in his position as a director) [of] Blue Range were responsible for the preparation and dissemination of information concerning Blue Range to the public. Accordingly, we find that the Respondents were responsible for Blue Range's violations of Alberta securities laws and acted contrary to the public interest, all as detailed below.

[3] The second part of the Hearing – dealing with sanction and costs – consisted of evidence called by the Respondents over three days. This included testimony from Ironside and from a number of individuals who provided their views as to the character and reputation of the Respondents as a result of their interaction with them. We also received into evidence 23 letters of reference speaking to Ironside's good conduct and character. Finally, all parties delivered extensive written arguments on sanction and costs, and Staff and counsel for Ruff made additional oral submissions. [4] This is our decision and the reasons therefor on sanction and costs orders against the Respondents under sections 198, 199 and 202 of the Act. We use the sections of the current Act for ease of reference. Except for the maximum available administrative penalty (discussed below), there have been no other relevant substantive changes since June 2001.

[5] This decision, including references to defined terms, should be read together with the Merits Decision. In providing our reasons for the orders we are making, we discuss in this decision those facts and findings from the Merits Decision that we believe are particularly relevant to the issues before us. We emphasize that the facts and findings set out in the Merits Decision are not altered or refined by this decision. [6] Addressing the sanctions against the Respondents sought by Staff as set out in the Notice of Hearing, we considered whether it was in the public interest that sanction orders be issued that:

• under section 198(1)(b) (then section 165(1)(b)) the Respondents cease trading in securities;

• under section 198(1)(c) (then section 165(1)(c)) any or all of the exemptions

contained in Alberta securities laws do not apply to the Respondents;

• under sections 198(1)(d) and (e) (then sections 165(1)(d) and (e)) the Respondents resign from any position they hold as a director or officer of any issuer, and they be prohibited from becoming or acting as a director or officer of any issuer;

• under section 199(1) (then section 165.1(1)) "the Respondents pay an

administrative penalty of not more than $100,000.00 each for each contravention or failure to comply with a provision of the Act or [Commission] Rules"; and

• were otherwise warranted in the circumstances.

[7] We also considered Staff's request under sections 202(1) and (2) (then sections 167.1(1) and (2)) that the Respondents pay the costs of the investigation or the costs of or related to the Hearing. [8] For the reasons that follow, we found that it was in the public interest to make the following sanction orders and appropriate to make the following costs orders against each of the Respondents. [9] Briefly, we are ordering that:

• Ironside is denied the use of all the exemptions under the Alberta securities laws, and he cannot act as a director or officer of any issuer, in each case permanently, subject to the exception set out in our order below; and he must pay an administrative penalty of $180,000;

• Ruff cannot act as a director or officer of any issuer for ten years; and he must pay an administrative penalty of $50,000.

[10] In addition to these sanctions, we are ordering Ironside to pay $675,000 and Ruff to pay $175,000 towards the costs of the investigation and Hearing. II. MERITS DECISION [11] In the Merits Decision, we made findings against the Respondents in four principal areas. The factual background to those findings was discussed in great detail in the Merits Decision and we do not repeat it here. We do believe it helpful to review briefly our primary findings against the Respondents and the facts that most pertain to those findings. [12] The Respondents also made extensive submissions relating to the number and nature of allegations made by Staff and compared them to the allegations proven by Staff, emphasizing the Respondents' success in refuting a number of the allegations in the Notice of Hearing. Those submissions are more properly dealt with in the costs portion of this decision. A. Findings on Blue Range's Financial Statements (the GAAP Issues) [13] We found that Blue Range's 1998 Audited Annual Financial Statements and 1999 Second Interim Financial Statements were not prepared in accordance with GAAP and contained misrepresentations, primarily because Blue Range failed to properly classify three Leases as capital leases. The miscategorization of the Leases was a consequence of a failure to subject the financial statements to a proper audit, resulting in statements that materially understated Blue Range's long-term debt. We found those deficiencies were caused directly by the Respondents, who took deliberate steps to ensure that Blue Range's auditor did not have access to all relevant information in order to exercise its professional judgment and perform a proper audit. We stated in the Merits Decision (at paras. 536-41, 618-19):

We find that Ironside lied to KPMG when he told them [there] were no Options. We find that Ruff aided Ironside in his deception of KPMG in failing to tell KPMG about the Options and in misdirecting KPMG in their examination of the appropriate accounting treatment for Leases 2 through 6. We find that the Respondents engaged in a deliberate scheme to deceive KPMG designed to ensure that KPMG concurred with Former Management's decision that Leases 2, 3, 4, 5 and 6 could be classified and accounted for as operating leases in the 1996, 1997 and 1998 Audited Annual Financial Statements. We find that KPMG did not have all of the relevant, material information about the Leases when it completed the 1996, 1997 and 1998 Audits. We find that KPMG was denied the ability to exercise its professional judgment in evaluating the accounting treatment Former Management applied to the Leases. These are very serious findings. There can be no dispute as to the crucial role played by auditors in public companies. The relationship between the company and its external auditors is one necessarily based on trust. Auditors assume that when they conduct an audit, management has been and will be forthright and provide them with all the

information necessary to assist the auditors in forming their independent opinion on the financial statements. . . .

The Respondents betrayed that trust and assumption of good faith. They deliberately concealed relevant documents and misled KPMG. The Respondents were the CEO and CFO of a publicly-traded company. The Respondents were chartered accountants, both of whom had been involved with public companies. They well knew the crucial role of management disclosure in the auditing of financial statements. They well knew the importance of producing accurate financial statements for their securityholders, potential securityholders, creditors and other stakeholders. By their actions the Respondents thwarted KPMG's ability to assess independently Former Management's assertion that Blue Range's financial statements were presented fairly in accordance with GAAP. We do not expect, accept or tolerate this behaviour from directors and officers of any issuer. . . .

The Respondents, as Blue Range's CEO and CFO, were directly responsible for Blue Range's filing of its financial statements during the 1998 and 1999 fiscal years. The Respondents directed the preparation of Blue Range's 1996, 1997 and 1998 Audited Annual Financial Statements and 1999 Second Interim Financial Statements. Those financial statements were not made up in accordance with GAAP, and they materially understated Blue Range's long-term debt. The Respondents deliberately denied KPMG critical information in its assessment of Former Management's categorization of Leases 2 through 6. The Respondents directly undermined KPMG's ability to determine independently whether the Leases had been properly accounted for under GAAP and to reach its conclusion on fair presentation of the 1998 Audited Annual Financial Statements. In our view the Respondents – particularly Ironside – used duplicity in their financial reporting to the public. The evidence revealed the lengths the Respondents went to conceal from the public Blue Range's true debt load. They deceived KPMG in order to receive the desired accounting treatment for the Leases.

[14] Thus we found the Respondents were responsible for Blue Range filing financial statements in contravention of Alberta securities laws and contrary to the public interest. B. Findings on Blue Range's Production and Reserves Reporting [15] We set out the production and reserves reporting issues in the Merits Decision (at paras. 622-24):

For some time, Blue Range altered its publicly reported natural sales gas reserves and production volumes by adding 8.9% to reserves and 13.6% to production. During the Hearing, the Respondents described those additions as 'heat adjustments'. The adjustments and rationale were not communicated to the regulators or the market, including securityholders and analysts. What is in dispute is whether Blue Range's reporting practice departed from conventional reporting practices in the oil and natural gas industry. Staff argued that reporting on a

sales gas basis was standard in the industry; the Respondents claimed that there was no such standard and, therefore, that Blue Range's disclosure was not problematic. In the result, Staff alleged that Blue Range misrepresented its estimates of natural gas reserves and actual production volumes in its 1998 Annual Report and misrepresented its actual production volumes in its 1999 First and Second Interim Reports. Staff alleged that the Respondents caused Blue Range to file these public disclosure documents that contained such misrepresentations.

[16] In the Merits Decision we concluded (at paras. 952-54):

. . . Blue Range's reporting of its reserves and production was markedly different from industry practice and affected important components of the information used by the market in valuing and forecasting the future performance of oil and gas companies and in making comparisons among peer companies. We found no legitimate basis for this divergent reporting practice. Even had it been legitimate, Former Management failed to disclose the manner in which Blue Range reported its reserves and production volumes. Had it done so, that news – unexpected by the capital market – would have had to be analyzed, understood and evaluated as to its acceptability. That process alone, involving surprise and uncertainty, would itself reasonably be expected to move the market price of Blue Range's securities. We are therefore satisfied, and we find, that the very fact that Blue Range applied an unusual, possibly unique method for volumetric reporting of its reserves and production would reasonably be expected by an objective observer to have a significant effect on the price or value of the Blue Range securities, and it was therefore material. The failure to make that disclosure constituted a misrepresentation by omission. Accordingly, we find that Blue Range's public disclosure of its reserves estimates and production volumes in its 1998 Annual Report, and of its production volumes in its 1999 First Interim Report and 1999 Second Interim Report, contained misrepresentations.

[17] We found that both Ironside and Ruff authorized, permitted or acquiesced in Blue Range publishing misrepresentations of its reserves estimates and production volumes in its 1998 Annual Report and of its production volumes in its 1999 First Interim Report and 1999 Second Interim Report. As set out in the Merits Decision, we also found both Ironside and Ruff to have acted contrary to the public interest in this regard (at paras. 1010-11):

Ironside, as the president, CEO and a Director of Blue Range played the predominant role in these matters. His responsibilities touched on virtually all aspects of Blue Range's operations. We find him instrumental in causing Blue Range to make misrepresentations in its 1998 Annual Report and its 1999 First and Second Interim Reports. We also find that his conduct was contrary to the public interest. As such, we find that this allegation against Ironside is sustained. Ruff, although unquestionably in a subordinate role to Ironside, was responsible for Blue Range's misrepresentations of its production volumes in its 1999 First and Second Interim Reports and was culpable in the misrepresentations made by Blue Range of its reserves estimates and production volumes in the 1998 Annual Report. We find that Ruff's conduct fell well below the standard expected of an effective and responsible CFO

of a public company. We find his conduct in these matters to have been contrary to the public interest. We find that this allegation against Ruff is sustained.

[18] We found that during the Relevant Period Blue Range had overstated and thereby misrepresented its reserves estimates and production volumes in a myriad of public disclosures and that Ironside and Ruff, as the senior officers, bore responsibility for such misrepresentations. C. Findings on Blue Range's Production Forecasts [19] A number of allegations involved Blue Range's reporting of its production forecasts or estimates and changes made by management to those forecasts and estimates in 1998. We found that Blue Range misrepresented by omission its estimated production of natural gas and liquids in its October 1998 News Release. We further found that Blue Range's failure to disclose in the Directors' Circular that its production estimates had materially changed since its last published forecast was a misrepresentation in that document. In the Merits Decision, we stated (at paras. 1132-33, 1139-40):

In our view, when Blue Range took the opportunity to voluntarily issue the October 1998 News Release with the expressed purpose of announcing 'Updates of Recent Operating Results and Activities' it had the duty to update previously disclosed information that had become inaccurate because of intervening events. In this case, the evidence is clear that the estimate of future natural gas and liquids production made in the 1998 Annual Report and the July 1998 Financial Results News Release no longer reflected Blue Range's planned course of action, could not still be considered sound and reliable, and did not reflect a reasonable belief by Former Management in such forecast. Blue Range had a duty to so advise the public.

Public companies have an obligation to give balanced information, not providing only favourable news to the market. The October 1998 News Release was clearly slanted to provide only good news. That Blue Range was announcing 'production increases' was clearly misleading in the face of Former Management's and the Board of Directors' awareness that a further reduction to production estimates was necessary. By omitting to include in the October 1998 News Release the revised production estimates or otherwise alerting the public that estimates for Blue Range's average 1999 production were lower than originally anticipated and disclosed, the statement 'production increases' was misleading.

. . .

For the reasons discussed above, we found that the reasons for changes in Blue Range's production estimates, and the changes themselves, were material changes in Blue Range's operations that required compliance with the timely disclosure requirements of the Act. By the date of the Directors' Circular, Blue Range had not complied with those requirements. The obligation to disclose these material changes remained outstanding.

A material change is clearly a material fact and therefore we find that the failure to disclose in the Directors' Circular the revisions made to estimates for Blue Range's production over fiscal 1999, and the reasons, was a misrepresentation under Alberta securities laws.

[20] We found both Respondents responsible for the misrepresentations in the October 1998 News Release but only Ironside responsible for the misrepresentation in the Directors' Circular (Merits Decision at paras. 1147-48, 1150-51):

In the circumstances of this case, the Respondents, as Blue Range's CEO and CFO, respectively, . . . were responsible for Blue Range permitting misrepresentations in the October News Release.

We find that Ironside, as a director, was responsible for the misrepresentation in the Directors' Circular that there had been no material changes in the business or affairs of Blue Range since June 30, 1998. In the matter of the Directors' Circular, Ruff was not a director and although he may have been a source of information to the Directors in the preparation of the Directors' Circular and bear some responsibility for its defects, we have no evidence as to the extent of his involvement in those matters. We therefore do not find him responsible for the misrepresentation of material changes in the Directors' Circular. . . .

It is apparent that the Respondents thought the changes to their production estimates were of sufficient importance to make the announcements at the 1998 AGM and November 1998 Presentation. The Respondents did make public the changes in estimates for Blue Range's production for the 1999 fiscal year although they failed to ensure dissemination and notice to the regulators as required under the Act. We accept that the obligation to disclose changes to estimates was not as well understood in 1998 as it is today. Thus, while we find the Respondents responsible for Blue Range's failures in this regard, the above-noted facts will be taken into consideration when we assess whether it is in the public interest to make any orders against the Respondents. We heard no satisfactory explanation as to why the October 1998 News Release was drafted without including the information that had been discussed the day before at the October 1998 Board Meeting. We find that the Respondents, and most particularly Ironside, as a director who had been privy to those discussions, appear to have taken no care to ensure that the October 1998 News Release presented a balanced picture of Blue Range's current production prospects and anticipated results. We find Ironside directly responsible for the issuance of the October 1998 News Release that contained misrepresentations. We find that Ruff, as the CFO and a senior officer with responsibility for Blue Range's continuous disclosure obligations, had a duty to ensure that news releases issued by Blue Range were scrupulously accurate and provided a balanced discussion of the facts being disclosed. Ruff thus also failed in his oversight duties.

D. Findings on Blue Range's Gas Marketing Activities [21] There were two separate categories of allegations on this point: first, optimistic statements regarding Blue Range's ability to capture expected higher natural gas prices; and second, the sufficiency of Blue Range's disclosure of its gas marketing activities. [22] We did not sustain most of Staff's allegations relating to Blue Range's gas marketing activities. However, we did conclude that the Directors' Circular contained a misrepresentation because it omitted to disclose as a material fact Blue Range's business practice of over-contracting its production such that it was required to purchase natural

gas in the open market to meet its contractual obligations. We explained our reasons for so finding in the Merits Decision (at paras. 1304-06): We find that Blue Range's continuing practice of purchasing significant volumes of

natural gas in the open market to fill contractual demands was a material fact that the Directors should have disclosed to Blue Range's securityholders and the market in the Directors' Circular.

In the Directors' Circular, the Directors discussed Blue Range's gas marketing activities. The Directors' Circular specifically mentioned two of Blue Range's recent natural gas hedging transactions that had positive implications for its BC production. However, the Directors failed to disclose that Blue Range had consistently been required to purchase natural gas in the open market of some 30,000 GJ/d to meet its marketing obligations. The Directors failed to disclose in the Directors' Circular that, since August 1998, Blue Range had consistently lost money by engaging in this activity.

In our view, this incomplete disclosure was not a fair and balanced presentation of Blue Range's gas marketing activities. The good news was announced; the bad news was not. In the result, we find that the disclosure in the Directors' Circular in relation to Blue Range's gas marketing activities omitted material facts that were required to be stated or necessary for the Directors' statements as to Blue Range's marketing activities not to be misleading. There was a 'half truth' in the Directors' Circular.

[23] We found Ironside responsible for the Directors' Circular's failure to disclose this material fact. In the absence of sufficient evidence, we concluded that Ruff ought not to be found responsible for these failures to make disclosure in the Directors' Circular. We explained our reasoning in the Merits Decision (at paras. 1314-16):

We find that the Directors were required to disclose as a material fact in the Directors' Circular Blue Range's practice of purchasing significant volumes of natural gas on the spot market for the purpose of satisfying its contractual requirements. Their failure to so do resulted in the Directors' Circular containing a misrepresentation under the Act. Ironside, as a director and as a senior officer, was responsible to ensure that appropriate disclosure was made. He did not do so. Ruff was not a director nor responsible for the gas marketing activities of Blue Range. It seems to us likely that he would have been a key source of information to the Directors in preparation of the Directors' Circular and therefore bear a measure of responsibility for its defects. However, in the absence of specific evidence on that point, we do not find him responsible for the misrepresentation of Blue Range's gas marketing activities in the Directors' Circular.

E. Conclusions on Allegations [24] In addition to our findings on specific allegations, we provided general concluding remarks in the Merits Decision on the totality of our findings and the Respondents' conduct (at paras. 1527-30):

Fair, accurate and timely disclosure of material information by those who seek and use public investors' money is a cornerstone of Canada's market-centred system of securities

regulation. Adherence by reporting issuers to mandatory disclosure requirements is essential to informed decision-making by investors and other capital market participants. The disclosure required by Alberta securities laws is designed to provide investors – whether in respect of a primary distribution of securities, trading in the secondary market or a specific corporate transaction – with the information necessary to facilitate informed investment decisions. It thereby promotes investor confidence and the integrity of the capital market. As is evident in our summary of findings, the public information disseminated by Blue Range during the period under examination in the Hearing and, particularly during the last half of 1998, fell short, by a wide margin, of what was required. This was not the fair, accurate and timely disclosure demanded by Alberta securities laws and to which capital market participants were entitled. We saw examples of material information not being disclosed when required, or at all, and examples of disclosure presented in such a way (including omissions of material information) as to be misleading. The result, individually and cumulatively, was that the public was misled as to the true picture of Blue Range's operations and financial position during 1998. We have found that the Respondents – both senior officers of Blue Range and, in Ironside's case, also a director – were responsible for the public dissemination of information by the company. It was their duty to ensure that Blue Range's disclosed information was accurate and timely and gave a fair and balanced portrayal of the company's operations and financial position. We conclude that the Respondents failed in that duty. In so doing they were responsible for Blue Range's contraventions of Alberta securities laws. Their actions were contrary to the interests of then-current or prospective investors in Blue Range, and also contrary to the broader public interest.

[25] We believe these comments are germane to consideration of the appropriate nature and duration of the sanction orders to be issued against each of the Respondents. III. PARTIES' POSITIONS ON SANCTION [26] Not surprisingly, Staff and the Respondents differed widely in their submissions regarding appropriate sanctions based on our findings in the Merits Decision. We deal with costs separately, as costs orders are not "sanctions". A. Staff [27] Staff recommended that it would be appropriate in these circumstances to order significant sanctions against each of the Respondents. Staff argued that it was incumbent on the Commission to demonstrate to market participants the consequences to senior officers and directors who show indifference to and disdain for the proper functioning of the Alberta capital market and who compromise their duties to act honestly and in good faith in favour of their own self-interest. [28] Staff argued that it is necessary to protect the public from the risk of future misconduct by the Respondents by permanently prohibiting their future access to the Alberta capital market. They suggested we accomplish this by permanently banning both Respondents from acting as directors or officers of any issuer, and from using any of the exemptions under Alberta securities laws. Staff also suggested that general deterrence

might require that the Respondents cease trading in all securities (other than securities held in RRSP accounts or accounts in their name only or in the name of immediate family members and traded through a registered representative and through the facilities of an exchange). [29] Staff submitted that the seriousness of the misconduct, the senior offices and positions of trust occupied by the Respondents, the importance of the oil and gas sector to Alberta's capital market and the prominence of this case warranted unprecedented administrative penalties totalling $3 million against Ironside (apparently $1 million for each of three major categories of contraventions) and $1 million against Ruff. It was Staff's view that only such significant penalties would provide the appropriate measure of deterrent effect and restore public confidence in the Alberta capital market. B. The Respondents [30] While there were slight differences in their positions, both Respondents contended that the public interest would be served by minimal sanctions being imposed by the Commission. 1. Ironside [31] Ironside submitted that in making any sanction orders against the Respondents we ought to be mindful of the particular circumstances surrounding this Hearing. He specifically noted the extensive publicity attendant on this Hearing and that "Ironside has already been vilified in the press as the 'poster boy' for how not to conduct oneself as a director and officer." He further noted that the allegations raised by Staff in the Notice of Hearing covered virtually every aspect of Blue Range's operations and reporting practices as an oil and gas producer, necessitating a detailed defence that was ultimately successful in exonerating the Respondents of 28 of the 39 allegations. He also asked the Panel to be mindful and take into account that in 1998, unlike today, there were no clear rules for reporting natural gas. [32] Ironside opposed Staff's recommendation that he essentially be removed from accessing the Alberta capital market permanently by prohibiting him from serving as a director or officer of any issuer. Ironside contended that such measures were simply "too draconian in the circumstances of this case". He argued that a ban on acting as a director or officer for two years (or less) would be sufficient, given his new and thorough understanding of disclosure requirements and taking into account his de facto inability to serve as a director or officer since the Notice of Hearing or even earlier due to unfavourable publicity surrounding the demise of Blue Range – a period of some eight years. He also submitted that it was inappropriate to order a denial of exemptions because this case did not involve findings of trading infractions such as illegal distributions, abusive trading practices, market manipulation or insider trading that have in previous cases resulted in significant or permanent denial of exemptions. He contended that such market access bans would "exclude Ironside from the industry in which he has worked in [sic] for his entire career".

[33] Ironside submitted that no administrative penalty should be ordered in these circumstances given that administrative penalties are designed to serve as an important deterrent for the specific offender, for others who might be inclined to act similarly, or both (specific and general deterrence). He claimed that he had learned much about proper disclosure requirements, so that specific deterrence in his case was unnecessary. He also proffered that the notoriety of the Hearing has in itself provided the necessary element of general deterrence by alerting directors and officers of reporting issuers to the necessity of strict compliance with securities disclosure requirements. Thus, in Ironside's view, no further general deterrence is required. [34] Moreover, the Respondents took issue with the quantum of the administrative penalty sought by Staff, arguing that the quantum sought was unduly punitive, unprecedented and unlawful. [35] First, Ironside contended that Staff's attempt to seek the maximum administrative penalty is neither appropriate nor permitted by law because Ironside would be penalized by the retroactive or retrospective application of legislation not in existence at the time of issuance of the Notice of Hearing nor during the conduct of the Hearing itself. [36] Second, Ironside argued that the quantum sought by Staff is disproportionate and unprecedented, being "almost double all the penalties recovered over the last seven years by the [Commission] from all respondents". [37] In conclusion, Ironside submitted that the sanction orders sought by Staff are unfair, "out of proportion" and "too severe" for the allegations proven and demonstrate the same level of invective shown by Staff against the Respondents throughout the Hearing. 2. Ruff [38] Ruff's position largely mirrored that advanced by Ironside. Ruff, too, argued that Staff's suggested sanctions are clearly punitive and excessive, and "go far beyond what is necessary or appropriate to achieve the required general and specific deterrence". [39] Ruff contended that the well-publicized nature of the allegations and protracted proceedings have prevented him from securing any position as a director or senior employee of any public company and that his future prospects for senior employment in the oil and gas industry or with a public company have been effectively eliminated. Ruff further stated that he has no intention of participating in the capital market in the future. Ruff submitted that these facts negate the need for the Commission to take any additional steps to protect the investing public from his future activities. Ruff also suggested that public awareness of the consequences he had already suffered negated the need for any general deterrence measures by the Commission. Ruff further urged the Panel to consider the "huge evolution in reporting and disclosure requirements in the public markets since 1998" and the fact that market participants are much more aware of disclosure standards and requirements than in the past. While Ruff stated that in his view

"no non-financial sanctions are appropriate", he was prepared to provide an undertaking to "not in the future be employed in a senior position with any oil and gas company or public issuer" and "not to participate in the public markets in any way other than by trading in his RRSP account and by trading through a broker on his personal stock portfolio". [40] Ruff concurred with Ironside's contention that Staff's proposed administrative penalty based on amendments made to the Act approximately one and one-half years after all the evidence had been heard is unfair and punitive. Ruff submitted that no administrative penalty would be appropriate but that, if so ordered, the "penalty not be in excess of a small fraction of the $100,000.00 maximum". [41] In summation, Ruff asked that the Panel take into consideration his regret about his conduct, his ruined career and the enormous financial and personal setbacks suffered by him as a result of these proceedings. IV. ANALYSIS AND DISCUSSION OF APPROPRIATE SANCTION ORDERS A. Available Sanctions [42] In an enforcement proceeding before the Commission, the Act provides the Commission with the power to impose a number of administrative sanctions, specifically here, as discussed below, limiting access to the capital market and imposing a direct, monetary sanction. 1. Market Access Bans [43] Section 198 of the Act authorizes the Commission to make a number of orders that effectively restrict a wrongdoer's ability to access the capital market. Such orders provide both specific and general deterrence – to protect the market from the specific respondents and to reinforce to others the perils of engaging in similar misconduct. Market access bans include the power to bar a respondent from: trading in or purchasing securities or exchange contracts; using any of the exemptions contained in Alberta securities laws; and acting or continuing to act as a director or officer of any issuer. To make any such orders, the Commission must be satisfied that it is in the public interest to do so. There need be no finding that the respondent has contravened a specific provision of Alberta securities laws.

2. Administrative Penalty (a) General Principles

[44] Section 199 of the Act authorizes the Commission to order that a person or company pay a specified sum of money – an "administrative penalty" – to the Commission. There are two prerequisites: first, a finding of a contravention of, or failure to comply with, any provision of Alberta securities laws; and second, a determination that an administrative penalty is in the public interest. Thus, unlike its discretion under section 198 of the Act, the Commission's discretion to order an administrative penalty is confined to circumstances in which there has been a finding of a contravention of Alberta

securities law – that is, the Act, the regulations (including the Commission Rules) or any decisions made by the Commission or Executive Director. (b) Quantum of Administrative Penalty (i) Background [45] Paragraph 1.4 of the Notice of Hearing stated that Staff was asking the Commission to consider:

whether, pursuant to [section] 165.1(1) of the [former] Act, the Commission should order that the Respondents pay an administrative penalty of not more than $100,000.00 each for each contravention or failure to comply with a provision of the Act or [Commission] Rules;. . .

[46] At the time the Notice of Hearing was issued (June 26, 2001), the maximum administrative penalty was $100,000 for each contravention or failure, as provided in section 165.1 of the former Act (S.A. 1981, c. S-6.1):

165.1(1) If the Commission, after a hearing,

(a) determines that a person or company has contravened or failed to comply with any provision of the Alberta securities laws, and (b) considers it to be in the public interest to make the order,

the Commission may order the person or company to pay an administrative penalty of not more than $100 000 in the case of an individual or not more than $500 000 in the case of any other person or company for each contravention or failure to comply. (2) The Commission may make an order pursuant to this section notwithstanding the imposition of any other penalty or sanction on the person or company or the making of any other order by the Commission related to the same matter.

[47] Section 165.1 of the former Act was renumbered as section 199 effective January 1, 2002, when the current Act (R.S.A. 2000, c. S-4) came into force. Apart from that renumbering, the provision in force on the first day of the Hearing (October 21, 2002) was identical to the section 165.1 in effect at the time the Notice of Hearing was issued. [48] On June 8, 2005 (almost three months after written argument on the merits was completed), section 199 of the Act was amended to read:

199(1) If the Commission, after a hearing,

(a) determines that a person or company has contravened or failed to comply with any provision of the Alberta securities laws, and (b) considers it to be in the public interest to make the order,

the Commission may order the person or company to pay an administrative penalty of not more than $1 000 000 for each contravention or failure to comply. (2) The Commission may make an order pursuant to this section notwithstanding the imposition of any other penalty or sanction on the person or company or the making of any other order by the Commission related to the same matter.

[49] Oral arguments on the merits of Staff's allegations in this matter were presented by the parties in September 2005 – approximately three months after the maximum administrative penalty for each contravention or failure was increased from $100,000 to $1 million. However, none of the parties mentioned that amendment in their submissions. [50] A further amendment occurred effective July 1, 2006, bringing section 199 of the Act into its present form:

199(1) If the Commission, after a hearing,

(a) determines that

(i) a person or company has contravened or failed to comply with any provisions of Alberta securities laws, or (ii) a director or officer of a person or company or a person other than an individual authorized, permitted or acquiesced in a contravention or failure to comply with any provision of Alberta securities laws by the person or company,

and

(b) considers it to be in the public interest to make the order,

the Commission may order the person or company to pay an administrative penalty of not more than $1 000 000 for each contravention or failure to comply. (2) The Commission may make an order pursuant to this section notwithstanding the imposition of any other penalty or sanction on the person or company or the making of any other order by the Commission related to the same matter.

[51] On the first day of the sanction phase of the Hearing, counsel for Staff for the first time advised the Panel and the Respondents that:

We will be seeking the imposition of an administrative penalty in significant amounts. Broadly, the maximum amount is a million dollars per breach of the Act. We will be seeking an order in the nature of a 3-million-dollar administrative penalty against Mr. Ironside and [$]1 million from Mr. Ruff.

[52] The Respondents protested that it would be contrary to law and fairness for the Panel to consider this higher maximum administrative penalty.

(ii) Presumption Against Retrospectivity Does Not Apply [53] Generally, legislation may not be applied retrospectively; that is, new legislation may not be applied to earlier acts. This is the presumption against retrospectivity. However, in our view, the law is settled that the imposition of an administrative penalty under section 199 of the Act by the Commission does not attract the application of the presumption against retrospectivity because it is not a punitive measure. This Commission in Re Capital Alternatives Inc., 2007 ABASC 482, recently reviewed the purpose of an administrative penalty (at paras. 29-30):

. . . Stated simply, an administrative penalty sends the message, to the particular respondent and to other market participants, that future conduct similar to that being sanctioned is not tolerated and will come at a direct financial cost. Trading and director-and-officer bans combine aspects of direct protection of investors and the capital market with specific and general deterrence. An administrative penalty is more directly a measure of specific and general deterrence, although designed also to achieve investor and capital market protection.

Securities enforcement proceedings typically involve allegations of financial or economic misconduct or, at least, conduct motivated by economic or financial considerations. Market participants are therefore known to be at least partially motivated by money. A monetary sanction will thus often serve as an obvious, direct and effective measure of specific and general deterrence.

[54] In that case, the Commission, after considering authorities including Brosseau v. Alberta (Securities Commission), [1989] 1 S.C.R. 301, and Re Morrison Williams Investment Management Ltd. (2000), 7 A.S.C.S. 2888, concluded that, in those circumstances, "the presumption against retrospective application [did] not bar the imposition of an administrative penalty greater than the maximum $100 000 that was in place until 8 June 2005" (at para. 32). The Commission decided that the new maximum applied when considering the appropriate quantum of administrative penalty. [55] We do not find the circumstances here identical to those in Capital Alternatives, but we do concur with its conclusion that we are not precluded by the principle of the presumption against retrospectivity from considering the new maximum for administrative penalties. [56] However, in the unique circumstances of this case – including the unusual fact that Staff unnecessarily specified in the Notice of Hearing (and never amended that specification) the precise quantum of the administrative penalty they would seek – we consider it appropriate to treat the specified $100,000 as the maximum administrative penalty per contravention or failure allowable here. (iii) Conclusion [57] We found that the Respondents had contravened a provision of the Act and the associated provision of the Commission Rules – section 149 (previously sections 120 and 121) of the Act and section 144 of the Commission Rules – in two instances. The balance of our findings was that the Respondents had engaged in conduct contrary to the

public interest. In the result we consider $200,000 ($100,000 for each of two contraventions of Alberta securities laws) as the maximum administrative penalty allowable in these circumstances against each Respondent under section 199 of the Act. B. Sanctioning Principles 1. Public Interest Proceeding [58] The Supreme Court of Canada in Brousseau described the purpose of securities regulation (at para. 32):

Securities acts in general can be said to be aimed at regulating the market and protecting the general public. This role was recognized by this Court in Gregory & Co. v. Quebec Securities Commission, [1961] S.C.R. 584, where Fauteux J. observed at p. 588:

The paramount object of the Act is to ensure that persons who, in the province, carry on the business of trading in securities or acting as investment counsel, shall be honest and of good repute and, in this way, to protect the public, in the province or elsewhere, from being defrauded as a result of certain activities initiated in the province by persons therein carrying on such a business.

[59] Justices Sopinka and Iacobucci provided further elaboration in British Columbia Securities Commission v. Branch, [1995] 2 S.C.R. 3 at para. 59:

. . . , the Securities Act is essentially a scheme of economic regulation which is designed to discourage detrimental forms of commercial behaviour. The provisions provided by the legislature are pragmatic sanctions designed to induce compliance with the Act. After all, the Act is really aimed at regulating certain facets of the economy and business. This has obvious implications for the nation's material prosperity: Thomson Newspapers. As such, the effective implementation of securities legislation depends on the willingness of those who choose to engage in the securities trade to comply with the defined standards of conduct. . . .

[60] Regulation of capital market activities by securities regulatory authorities such as the Commission is achieved by exercise of their public interest jurisdiction. Justice Iacobucci's description of the regulatory nature of securities enforcement proceedings in Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission), 2001 SCC 37 at paras. 41-43, 45, sets out the following parameters that are considered by securities regulatory authorities in their determination of the sanction to impose on a wrongdoer:

However, the public interest jurisdiction of the [Ontario Securities Commission (OSC)] is not unlimited. . . . Two aspects of the public interest jurisdiction are of particular importance . . . [First, the] jurisdiction is animated in part by both of the purposes of the [Ontario Securities Act (OSA)] described in s. 1.1 [of the OSA], namely 'to provide protection to investors from unfair, improper or fraudulent practices' and 'to foster fair and efficient capital markets and confidence in capital markets'. Therefore, in considering an order in the public interest, it is an error to focus only on the fair treatment of investors. The effect of an intervention in the public interest on capital market efficiencies and public confidence in the capital markets should also be considered.

Second, it is important to recognize that s. 127 [of the OSA] is a regulatory provision. In this regard, I agree with [the lower court] that '[the] purpose of the [OSC's] public interest jurisdiction is neither remedial nor punitive; it is protective and preventive, intended to be exercised to prevent likely future harm to Ontario's capital markets'. . . . Furthermore, the above interpretation is consistent with the scheme of enforcement in the [OSA]. . . . the purpose of an order under s. 127 [of the OSA] is to restrain future conduct that is likely to be prejudicial to the public interest in fair and efficient capital markets. The role of the OSC under s. 127 [of the OSA] is to protect the public interest by removing from the capital markets those whose past conduct is so abusive as to warrant apprehension of future conduct detrimental to the integrity of the capital markets: Re Mithras Management Ltd. (1990), 13 O.S.C.B. 1600. In contradistinction, it is for the courts to punish or remedy past conduct under ss. 122 and 128 of the [OSA] respectively: See D. Johnston and K. Doyle Rockwell, Canadian Securities Regulation (2nd ed. 1998), at pp. 209-11.

. . .

In summary, pursuant to s. 127(1) [of the OSA], the OSC has the jurisdiction and a broad discretion to intervene in Ontario capital markets if it is in the public interest to do so. However, the discretion to act in the public interest is not unlimited. In exercising its discretion, the OSC should consider the protection of investors and the efficiency of, and public confidence in, capital markets generally. In addition, s. 127(1) [of the OSA] is a regulatory provision. The sanctions under the section are preventive in nature and prospective in orientation. Therefore, s. 127 [of the OSA] cannot be used merely to remedy [OSA] misconduct alleged to have caused harm or damages to private parties or individuals.

[61] Consistent with these interpretations of the Commission's role in exercising its public interest powers under sections 198 and 199 of the Act, our focus is always the protection of the public and the integrity of the Alberta capital market. In contemplating an appropriate sanction in particular circumstances, the Commission assesses what measures are required to protect investors and the efficiency of our capital market by preventing the recurrence of the misconduct at issue. Thus, the sanction orders we make are not intended to punish respondents for their past conduct, but rather serve to deter the particular respondents (specific deterrence) and others (general deterrence) from repeating the misconduct. The appropriateness of considering these general sanctioning principles is well established in authorities already referred to and in, for example, Re Cartaway Resources Corp., 2004 SCC 26 at paras. 52-62; and Re Podorieszach, 2004 ABASC 567 at para. 17. 2. Relevant Factors [62] In addition to these general principles, we also consider a number of other factors in determining the nature and duration of the sanction orders we impose in a particular case. In Re Lamoureux, [2002] A.S.C.D. No. 125 at para. 11 (affirmed on other grounds 2002 ABCA 253) the Commission set out a non-exhaustive list of factors that we consider in making sanction orders under what are now sections 198 and 199 of the Act. They include:

• the respondent's experience and activity in the capital market; • the seriousness of the misconduct and the respondent's recognition or

acknowledgement of that misconduct; • the harm suffered as a result of the respondent's misconduct – by particular

investors and by the capital market in general; • the benefit received by the respondent; • the risk to investors and the capital market were the respondent to continue

to operate in the capital market; • the need to deter the respondent and other like-minded market participants

in the particular circumstances; • any mitigating factors; and • previous decisions made in similar circumstances.

[63] We also consider the extent of the respondent's role in the misconduct, whether the misconduct was a single transgression or a series of recurring acts, and whether the respondent's preferred occupation increases the likelihood of future misconduct. These all factor in determining an order that fairly reflects the seriousness of the misconduct in the context of the respondent's participation in the misconduct. [64] We consider these sanctioning principles in light of our findings and the Respondents' particular circumstances. C. Sanctioning Considerations

1. Capital Market Experience and Activity [65] The Respondents attempted to present themselves as somewhat naïve and inexperienced in capital market activities. Both men contended that their experience was primarily gained as a result of their time at Blue Range and, at least in Ironside's case, that he was "largely self-taught". Ironside claimed that he was a "neophyte" in the area of public company and natural gas reporting and that much of his knowledge in these areas had been acquired during the course of his preparation for the Hearing. He explained that "the main benefit I've achieved as a result of this whole process is I received a PhD in disclosure practices". Ruff stressed that his relevant experience as a senior executive with a public oil and gas company at the time of the Big Bear take-over was approximately four years. [66] We rejected their characterizations during the first phase of this Hearing (for example, see paras. 983-84 and 995-96 of the Merits Decision) and we reject them now. Both men testified extensively before the Panel and we were able to form our own direct impressions of each man's intellectual ability and experience in the matters they had engaged in at Blue Range. [67] Ironside is a chartered accountant with a legal education. His career has been based in Calgary, mostly in senior executive officer roles at Blue Range. Some of the

witnesses opined as to Ironside's level of comprehension of the oil and gas industry. They described him as smart and analytical, with a thorough knowledge of business and the industry. [68] In considering his capital market experience, we noted that, for the years leading up to and including the Relevant Period, Ironside was virtually the sole external spokesperson for Blue Range – he was the primary presenter representing Blue Range at CAPP conferences, securityholder meetings and meetings with analysts. Three market analysts who had followed Blue Range testified that they dealt almost exclusively with Ironside. It was apparent that Blue Range's CFO (Ruff) and COO played minor roles in any investor relations functions. We have no doubt that these interactions and Ironside's intellect combined to give him a strong understanding by the time the Relevant Period commenced of the disclosure important to the capital market in judging a public oil and gas company's performance. [69] Our conclusion was further reinforced by Ironside's membership and stature, dating from October 1998 (two months before his departure from Blue Range), in "The Executive Committee" (TEC). TEC was described by a witness as a worldwide organization "of senior people who meet monthly for the purpose of, of working together and, and enjoying professional development". [70] The same witness testified that Ironside contributed "significantly" to TEC:

[Ironside] has a great mind for -- you know, his training as a lawyer, his training as a chartered accountant give him a facility that most, most folks, frankly, don't have. So he's a fellow who you can go to for interpretations and who will bring interpretations to you. But my experience is he has added a lot to me and my business over the years with his observations and, and often his highly technical interpretations of things that I should possibly be considering.

[71] Although Ironside had already been a member of TEC for approximately two years when the witness joined, it was clear that Ironside was held in high regard. This suggested to us that Ironside brought considerable skills and experience with him. We do not believe it reasonable to conclude that his experience and business acumen had developed at TEC in those two years. We believe that he possessed many of those same attributes during the Relevant Period. [72] We do find that Ruff's levels of oil and gas industry and general business knowledge were not as highly developed as Ironside's. However, Ruff took on the office of CFO of a publicly-traded company with the attendant responsibility for preparation and release of continuous disclosure information, including, most notably for our purposes, financial statements and annual reports.

[73] Regardless of their level of capital market experience, the essential facts here are that both men lied to Blue Range's auditor and were responsible for misrepresentations in Blue Range's public disclosure. Both men were chartered accountants with practical accounting experience. It is inconceivable that they were unaware that their actions were wrong, even if they were unfamiliar with specific sections of the Act. Their actions were contrary to the most basic standards that the public expects – and that we demand – of CEOs and CFOs. [74] These factors justify significant sanctions against Ironside and significant, although lesser, sanctions against Ruff. 2. Seriousness of the Misconduct and the Respondents' Acknowledgement (a) Seriousness of the Misconduct [75] Both Respondents accurately pointed out that they had not been found to have engaged in illegal distributions, abusive trading practices, manipulation of stocks, insider trading or fraud. We did, however, find that the Respondents were responsible for Blue Range releasing inaccurate disclosure that distorted its true financial and operational situation. In the result, the capital market was deceived as market participants were not provided with the information they needed to make informed investment decisions regarding Blue Range. These were findings of serious capital market misconduct. [76] One of the most egregious aspects of this situation was the non-conformity with GAAP, which resulted from Ironside's and Ruff's deliberate and calculated plan to deceive Blue Range's auditor and influence its audit to maintain their desired treatment. Ironside used his positions as a director and the CEO of Blue Range to override normal accounting and control procedures in order to carry out his plans. He also enlisted Ruff as his willing cohort. In their dealings with Blue Range's auditor, Ironside and Ruff abused the trust and confidence that an auditor necessarily places in management during the conduct of an audit. [77] Another of our more serious findings was that Blue Range failed to inform the market that it used a unique methodology for external reporting of its natural gas reserves estimates and production results. That methodology was unique because it departed from industry practice. As we noted in our Merits Decision, Ironside understood the importance and effect of such concealment (for example, see paras. 943, 948 and 995-96). We noted, however, that our findings on production estimates although serious were less so because the obligation was not as well understood during the Relevant Period. [78] The evidence established that Ironside was the mastermind behind most of the disclosure practices implemented at Blue Range. Ironside was clearly the dominant player within Blue Range who made all the operational and strategic corporate decisions. Ruff was in a subordinate role and answered to Ironside. Unfortunately, to his detriment, Ruff blindly followed Ironside's instructions.

[79] While we acknowledge that this is Ruff's first offence and we took notice of the evidence attesting to both Respondents' reputation and character, those facts do little to mitigate the seriousness of the violations. The Respondents' conduct could hardly be less consistent with the role and responsibility the public expects of senior executives and directors who direct the activities of public issuers. [80] In our view, the findings made against the Respondents fall within the most serious categories of contraventions. The Respondents occupied positions of responsibility and trust. They were relied on to ensure compliance with regulatory requirements. Protecting the public interest and ensuring confidence in the integrity of our capital market require complete intolerance of deliberate violations of securities laws by persons who have been appointed as directors or occupy senior management positions. [81] The seriousness of our findings calls for significant, meaningful sanctions. (b) Full Answer and Defence [82] Both Respondents appeared to suggest that the Commission would be inclined to impose harsher, disproportionate sanctions than would be the usual case because the Respondents had mounted a full, extensive and vigorous defence to the allegations in the Notice of Hearing. The Respondents' concern is unfounded. We fully recognize and encourage respondents' lawful right and ability to defend themselves against allegations made against them. We do not equate presenting a solid defence with failing to acknowledge either the seriousness of or the culpability for actions ultimately proven by Staff. If we believe that a respondent has harmed the efficiency of the hearing process by mounting or maintaining an unwarranted defence, we address that situation when assessing costs, not when determining appropriate sanctions. (c) Ironside's Acknowledgement (i) Panel's Concerns [83] The Panel was surprised, disturbed and concerned by Ironside's steadfast refusal to accept our findings that Blue Range disclosed misleading, untrue and inaccurate information to the public and that he was predominantly responsible for these failures by Blue Range as well as our corresponding criticisms of his performance in his role as an officer and director of a public company. [84] It was clear from Ironside's testimony and general attitude during the sanction phase of the Hearing that he learned much about good corporate governance and reporting issuers' disclosure obligations during the course of the Hearing. However, despite his verbal assurances that he has learned from this experience, he remains dogged in his determination to manipulate past facts to support his view that he did nothing wrong. [85] We found most telling, as an indication of Ironside's future commitment to good corporate governance and adherence to securities regulatory requirements, his responses to questions asked by Staff during cross-examination. Staff gave Ironside repeated

opportunities to acknowledge that what he had done did not reflect good corporate behaviour and that, if he had had the benefit of the knowledge acquired during the course of the Hearing and the perspective of the Panel's reasons for decision on his behaviour, he would have made different decisions. [86] Instead, Ironside minimized (in our view, completely denied) his own culpability. He continued to maintain that – except for a ten-minute conversation in which he discussed bargain purchase options with Blue Range's auditor (we will return to that point) – he had done nothing wrong. He still rejected any suggestion that Blue Range's disclosure and his actions were misleading or deceptive. He maintained that matters were handled properly at Blue Range and that our conclusions were wrong. Ironside cast all of his actions as naïve misunderstandings of requirements or confusion in the state of the law. He also continued to suggest that not he, but others (including New Management, although they assumed control only after the Relevant Period) were responsible for Blue Range's disclosure problems. [87] Ironside attempted to portray himself as victim, not perpetrator. In that, he is wrong. (ii) Specific Indications of No Acceptance or Remorse [88] The following excerpts from Ironside's testimony during this sanction phase are indicative of Ironside's lack of acceptance of our findings, along with his lack of understanding of or remorse for his misconduct. These excerpts also demonstrate Ironside's continued pattern of obfuscation and attempted manipulation. GAAP Issue [89] Concerning the GAAP issue and Blue Range's mischaracterization of the Leases, Ironside spoke to his future conduct in the following exchange with his counsel:

Q Sir, another issue that was addressed adversely to you, at least with respect to three of the six leases, was the characterization of equipment and facilities leases. Can you, sir, describe how you would handle these matters, those particular matters, that particular issue in the future were you to be an officer and director? A Yes, I can. Section 3065 of the [Handbook] is a -- is a very grey area. There is [sic] obviously two different interpretations: You can have capital lease treatment, you can have operating lease treatment. The Panel decided that three of the leases were validly transacted as operating leases and three weren't. That's where we are right now. Now, what I would do today if I got involved in the same kind of situation. . . . I would prepare all the documentation and I would provide it to our auditors and I would ask the auditors for an opinion. . . .

What I have learned is it's not -- it's not enough to believe the leasing company when they tell you that there's an opinion as to the categorization of transactions. I would make sure that I have those transactions and those opinions in writing, and then later on,

if there was a concern raised by a shareholder or third party, then I would have the protection of those opinions, but I'd be very careful to do that, . . .

[90] This excerpt demonstrated to us Ironside's persistent and continuing attempts to deny or avoid responsibility for his actions by either manipulating the facts or shifting blame to others. [91] Ironside assured us that in future he would ensure that a company's auditor would be provided all relevant information when asked to opine on a questionable area of accounting interpretation. However, as he acknowledged during the Hearing, he knew during the Relevant Period that Blue Range's auditor in conducting a proper audit would scrutinize management's accounting treatment applied to the Leases and that Blue Range's auditor was relying on senior management to provide it with all information material to the transactions under review. Despite that knowledge and corresponding responsibility, he withheld material information from the auditor. This does not reflect any understanding as to the correct course of action and we are not persuaded by Ironside's declared commitment to follow the correct course in future. [92] Ironside also attempted to blame Canada West for his own misconduct, suggesting that it was Canada West's fault for telling him the Leases were operating, not capital. He will not acknowledge that it was because he lied to and concealed information from Blue Range's auditor that the appropriate accounting treatment was not applied to the Leases, with the result that Blue Range's 1998 Audited Annual Financial Statements and 1999 Second Interim Financial Statements contained misrepresentations and were not prepared in accordance with GAAP. [93] More remarkable was Ironside's steadfast refusal to accept our finding that he had taken deliberate steps to mislead Blue Range's auditor. This was evident from the following exchange with Staff:

Q Sir, did you withhold the options, the existence of the options from the auditors?

A Those options were not given to the auditors.

Q You didn't give them to the auditors, right, . . .

A No, I did not.

Q And they were misled in the result, weren't they; you knew that? A Well, that's still a question for determination. And the reason I say that is that I

received a copy of a letter in September 1999 where the auditors indicated in no uncertain terms that they were not intentionally misled, so I'm, I'm confused – I'm confused about where the auditors were.

The problem is, you never called them to deal with that issue. Now, the Panel

was left with the – making a decision regarding what the state of mind of KPMG was. I

didn't have the chance to interview them. You did. I didn't. All I have is what their – all I have is what the written, written record shows.

Q The Panel held that you took very deliberate steps to ensure that KPMG would

not discover the existence of Options 2 through 6. Do you accept that as being true? A I'm not here to – I'm not here to argue with the Panel. . . .

Q . . . accept that as true or do you deny it? A I deny it. Q They found that you lied to your auditors. Do you accept that as true or do you

deny it?

A I deny it. [94] Once again Ironside attempted to distort the facts to support his position. His answer seemed to suggest that the issue was whether Blue Range's auditor believed Ironside had intended to mislead it by withholding the Options. He ignored the fact that he did not provide the Options to the auditor when he well knew that GAAP and GAAS require senior management to provide all relevant material to the auditor so that it can perform an independent audit. He ignored the fact that he and Ruff denied to the auditor that the Options existed even when the auditor specifically questioned them on the topic. He ignored the fact that his focus on there being no "bargain purchase options" did not make the Options immaterial. [95] It also appeared to us that he attempted to marginalize our finding and excuse his deception by suggesting that he would have conducted his defence differently had Staff specifically alleged in the Notice of Hearing that he had lied to Blue Range's auditor. As we stated in the Merits Decision, the question of whether a company's auditor had been denied access to material, relevant information during the course of an audit was clearly within the scope of our consideration of whether the Leases had been properly accounted for under GAAP. Reserves Disclosure [96] Ironside, when asked by his counsel how he, if acting as a director or officer of a public oil and gas company, would handle future disclosure of reserves and production information to the public, responded:

A Well, I guess the proper answer for that is that I would move from where we were in nineteen -- from 1987 to 1998. We had certain practices which we followed on a consistent basis. Based on the decision, those practices -- this Panel's considered those practices to be inappropriate.

[97] This excerpt demonstrated to us Ironside's refusal to acknowledge our finding that Blue Range's reporting of its natural gas reserves estimates and production results was misleading disclosure. He characterizes our decision on his reserves and production reporting misconduct as a disagreement between him and the Panel as to whether Blue Range's practices were appropriate. In fact, our Merits Decision stated that our primary concern was not that Blue Range utilized a unique reporting method but rather that Blue Range (with the Respondents bearing responsibility) failed to disclose to the market that it reported its natural gas volumes in a manner that was unique and had the effect of materially overstating its reserves estimates and production volumes. Production Forecasts [98] With respect to disclosure of material changes in production forecasts, Ironside told us that today he would act as follows: Q Let's go on to the question of dissemination of changes in production forecasts,

another area where you have been criticized by the Panel. Can you address, sir, how you would grapple with that problem or that issue in the future, if you were a board -- member of a board or an officer? A Well, the first thing I would do is, is that I would make sure that the, the company I was involved with made a realistic forecast, . . . . . .

A . . . And so I'm aware, back in 1998, what we did. We believed the practice that was followed was to give the information to the analysts, to have shareholders' meetings, and give the information out, but I recognize that there's a -- that things have changed, and today that might be -- might well be considered to be selective disclosure. So the practice I would follow is to make sure that our shareholders, existing/potential shareholders, and the public was [sic] well aware of the state of the company's forecast.

[99] Ironside told us that he would follow current practices that make clear that selective disclosure of material information is unacceptable. However, selective disclosure of material facts by Blue Range was not the issue before us (nor, we note, was selective disclosure acceptable even during the Relevant Period although its application has been clarified since then). Ironside failed to appreciate that, as noted in the Merits Decision, we explicitly considered Blue Range's disclosure in light of the standards applicable during the Relevant Period. We found there that the October 1998 News Release contained misrepresentations and was misleading because of the omission of negative material facts about expected future production. Gas Marketing [100] Ironside was asked by his counsel how he would handle reporting a public company's gas marketing activities if he were its director and officer. Ironside responded:

A I guess the issue comes down to, is it comes down to the directors' circular. If we go back to the findings in the -- in the Panel's decision, and I guess what I would do is, is you'd have to -- you'd have to do as much as was done at Blue Range and more. . . .

. . . I would make sure that I was always aware of the status -- the status of the contract portfolio. I would demand more of the people I worked with. I would want that information brought forth, I would want to know if, in fact, someone in the company was following a practice of buying gas at a higher price and selling at a lower price, particularly when that was not expected to occur. So I would expect my staff to bring that information to my attention.

One of the things I can't control is, is the actions of others if I don't know, so I'd make it my practice to, to be more in tune with, with what was happening. . . .

[101] Once again Ironside continued to demonstrate a lack of understanding or an unwillingness to acknowledge his failure to comply with his regulatory duties. It was not the gas marketing activities undertaken by Blue Range that contravened Alberta securities laws but rather Ironside's failure, as a director, to disclose in the Directors' Circular that Blue Range was engaged in a significant business activity which – contrary to what the public had been advised in previous public disclosure – had not been discontinued. General [102] We found in the Merits Decision that the public disclosure made by Blue Range during the Relevant Period was deficient in some fashion and that Ironside, as the guiding mind and primary decision-maker, was responsible for Blue Range's failures. Despite our many findings in this regard, Ironside was only prepared to admit to us that he was responsible for one transgression he made during a brief, ten-minute meeting. He testified:

Q . . . Do you feel responsible for all of the financial and emotional cost which you have sustained throughout these proceedings; is any of it your fault, in your opinion? A What I look back about [sic] my conduct in, in a ten-minute meeting in 1997, I'll, I'll accept responsibility for my actions at that particular point in time.

Q A ten-minute meeting in 1997, you accept what? A I'll, I'll be accountable for the results of that meeting and the results that have come as a result of an extensive Notice of Hearing, an extensive process, an extensive investigation, and an expensive -- and extensive hearing. . . . A When I look back at those ten minutes, I realize that, in those ten minutes, that is what this is all about, and I -- and today my conduct in those ten minutes would have been considerably different. Leading up to those ten minutes would have been different, as well.

Q Well, what was it -- what are you referring to when you talk about the ten minutes in 1997? A There was a meeting in June of 1997 with KPMG where the issue about the options was being discussed. Q But what was it about that ten-minute meeting that you say was your fault?

A I referred in that meeting to there not being any bargaining [sic] purchase options. Now, on reflection, knowing that there was options, [sic] if I had the opportunity to do it again, which I did have in . . . early 2002 with Lexxor, I would have provided those -- that information to those people and let them reach their own conclusions, as opposed to -- as opposed to acting differently.

[103] When questioned by his counsel as to his greatest regret about the Blue Range experience, Ironside stated:

A My biggest regret is I listened to Mr. Tonken in November and December of 1998. When he gave me qualified opinions about having financing, I believed him. I believed he had the money and he had indicated he had the experience, which I knew from his career. My biggest regret is, is that -- is that I believed him. I believed he had the financing. . . .

[104] Ironside's final remarks to the Panel were devoted not to expressions of remorse or regret for his misdeeds, but rather once again focused on blaming Tonken – part of New Management – for Blue Range's demise. In doing so, he not only attempted again to evade responsibility, but also disregarded our repeated admonitions that this Hearing was not an inquisition into Big Bear's take-over bid for Blue Range. Ironside's professed "regret" was wholly irrelevant to "the Blue Range experience" and to the allegations made and sustained during this Hearing. Apart from the fact that the take-over of Blue Range was "hostile" – meaning that it did not matter what Ironside thought of Tonken – Ironside's "greatest regret" reinforced the other evidence in proving that Ironside will not acknowledge the failures he displayed as the CEO and a director of Blue Range and what the consequences were to investors, the capital market and confidence in that market. (iii) Conclusion on Ironside's Acknowledgement [105] We conclude that Ironside remains unrepentant and unwilling to accept that he acted improperly and that by virtue of his position as a director and the CEO of Blue Range – a public company – he caused it to issue untruthful or misleading information to the public. Although he claimed to want to comply with Alberta securities laws in the future, he obviously does not believe that he violated them in the past. This is not the behaviour of one who can be trusted to act in the public interest. We believe that Ironside's version of "compliance" in the future may well involve repetition of his past actions, which he still believes were largely acceptable, despite our findings. This heightens our concern that, if allowed to in the future, Ironside would continue his attempts to make subtle, fine distinctions as justification for unacceptable conduct in the Alberta capital market.

[106] We are, therefore, not persuaded that Ironside's future conduct – were he to be in a similar position – would be in keeping with necessary responsibilities toward investors and the capital market. To the contrary, we are satisfied from his past actions and continued justifications and deflections that were Ironside to act once again as a senior officer or director there is a very serious risk that he would engage in similar unacceptable conduct. He thus continues to present an extremely serious threat to the integrity of the Alberta capital market and public confidence in that market in general if allowed to continue to participate in that capital market. Serious sanctions are required to ensure that Ironside does not have that opportunity.

(d) Ruff's Acknowledgement [107] Ruff did not testify during the sanction phase of the Hearing so we did not have the benefit of his direct testimony on this point. [108] Ruff acknowledged in the written submissions provided to the Panel that the Panel's findings were serious, although he correctly emphasized that he did not earn a profit, manipulate stock or participate in a fraud – all of which he submitted were more serious matters than his transgressions. He also stressed that his role in the majority of the allegations – except for the GAAP, Leases and auditor area – was secondary to Ironside's. Ruff contended that he was in a difficult position when he joined Blue Range as CFO, thereby assuming a position previously held by Ironside. Further, he explained that, although he was a member of Blue Range's management team, he was not a member of the Blue Range Board and not in a position to effect changes to existing practices, such as Blue Range's natural gas reporting practices. [109] Ruff admitted during the first phase of the Hearing that he and Ironside lied to Blue Range's auditor, although he never gave a satisfactory explanation for either Respondent's behaviour. He attributed his own lying to being in shock at Ironside's actions and stated that Ironside's behaviour was "out of character". We continue to have the concern we expressed in the Merits Decision – that Ruff sought to divert some of the blame for his failure to tell Blue Range's auditor the truth about the Options when he suggested to us that the auditor knew about the Options but knowingly put the incorrect statement regarding the Options in its 1997 Audit Report. Ruff also suggested to us that the lie was not material because he had exercised his professional judgment and was satisfied that all the Leases could be accounted for as operating leases under GAAP. [110] Ruff also represented that he has no intention of participating in the capital markets in the future. [111] We appreciate that Ruff, who was not a director and who took his instructions from and was accountable to Ironside, may well have found himself in a difficult situation. However, those who accept a position as CFO must be vigilant in carrying out their duties, and be prepared to act independently and express views that might differ dramatically from those of others within the organization. CFOs have a legal

responsibility for public disclosure. They must take their disclosure duties seriously and execute them scrupulously. In this case, we found that Ruff failed in his responsibilities as Blue Range's CFO. [112] We believe that Ruff did acknowledge, to a degree, both the seriousness of the allegations proven in this Hearing and his role in the misconduct. We see that recognition reflected in Ruff's professed decision not to participate in future in the Alberta capital market, which we have assumed would include no longer acting as either an officer or director. [113] Because of that recognition, we believe Ruff is less likely to repeat such misconduct – or other contraventions of securities laws – in the future, but we are obliged to ensure that this will be the case. [114] Overall, we again conclude that significant sanctions (although less than those appropriate for Ironside) are warranted against Ruff. 3. Harm Stemming from the Misconduct [115] The Respondents submitted that Staff had not demonstrated any real harm to investors and to the integrity of the capital market occasioned by the Respondents' misconduct – such as any noticeable effect on the value of Blue Range's common shares. [116] In our view, it is not enough for a respondent to show that no identifiable market participant has been harmed by the respondent's failure to comply with Alberta securities laws. We must also consider the possibility of harm to investors and the capital market in general. [117] A sound and reliable disclosure system is fundamental to the operation, integrity and strength of the capital market. High disclosure standards for public issuers foster investor confidence and thereby contribute to a fair and efficient market. Disclosure also assists the market in valuing accurately a public issuer's share price. However, the disclosure standards will provide inadequate protection if investors are unable to trust in and rely on the integrity and honesty of those who are appointed to serve as directors or occupy senior management positions within a public issuer. The public rightly depend on directors and senior executives to comply with regulatory requirements and to be honest and truthful in the public disclosure they make. It is serious when an officer or director of a public issuer causes it to fail consistently in complying with disclosure requirements. [118] Misconduct like the Respondents' therefore damages investor confidence and, ultimately, the capital market's credibility. When investors are not willing to invest in the capital market, investment capital and liquidity are lost. [119] In this context, the Respondents' misconduct calls for a serious and meaningful sanction against each of them.

4. Benefit Received by the Respondents [120] There was no evidence that Ironside or Ruff received any financial benefit from their misconduct, other than through their continued employment with Blue Range. This generally means a lesser sanction is warranted and we have taken this into consideration. 5. Risk to the Capital Market and Need for Deterrence [121] As noted, the Commission will consider the need for both specific and general deterrence in crafting the appropriate sanctions in a particular case. A primary consideration for specific deterrence is the level of risk the particular respondent poses to the capital market in the absence of Commission intervention. (a) Specific Deterrence [122] We look to the Respondents' past conduct as a strong predictor of what their future conduct might be, absent the corrective action recommended by Staff. [123] As discussed earlier, Ironside has neither admitted wrongdoing nor recognized the seriousness of his misconduct. When asked by his counsel as to whether there is anything more that needed to be done to deter him from contravening Alberta securities laws in the future, Ironside stated:

A . . . there's nothing that's been done that would, would deter me from, from not following the rules. I would be honour bound to follow those rules. I know what those rules are in respect of reserves and production reporting, I know what the rules are and the lines have been drawn on leases, and I know what the rules are in terms of selective disclosure, and I know what the rules are in terms of marketing disclosure. I've learned that as a result of this extensive, long-term process. So would I be deterred? I -- the, the main deterrence for me would be that I've learned from this process, I've learned what the rules are, many of which I had -- as I talked about before, I've had to learn along the way. I believed the leasing company when they said that these were properly structured as operating leases. I believed that. I wouldn't do that today. I'd get a third-party opinion in writing, so if we came to this again, that opinion would be supported not only by the writer of the opinion, but by the auditing firm that was given to, to support the transactions. . . . A . . . I understand the rules much better than I did in 1997 and 1998. And yes, I want to comply with the rules. They're, they're meant to protect the capital markets, they're meant to protect investors and all stakeholders, and yes, I would comply with those rules.

[124] Our difficulty with Ironside's explanation is that he claimed to believe that he knew and complied with Alberta securities laws during the Relevant Period. Consequently, he persisted at the sanction phase in treating his transgressions as a misunderstanding, a problem with unclear rules, or the fault of others. Ironside's testimony indicated to us that he has yet to understand or accept our findings in the Merits Decision. He has failed to convince us that he would not commit similarly

motivated and justified misdeeds in new circumstances in the future. We recognize that Ironside presented significant "good character" evidence during the sanction phase of this Hearing. We accept those opinions are honestly held and acknowledge that Ironside has made some valuable contributions to the community. However, the facts remain that he acted contrary to Alberta securities laws and to the public interest, and that we have strong reasons to fear a repeat of such misconduct in the future. [125] It is imperative that Ironside understand his actions were unacceptable for an officer and director. Because he has yet to appreciate this, we fear a repeat of this or similar misconduct. We also note that Ironside was the subject of enforcement proceedings by this Commission in 1991 for failure to file insider trading reports. At that time, he provided a written undertaking to the Commission that he would thereafter comply with the Act and regulations passed pursuant to the Act, including the specific provisions of the Act that related to the filing of insider trading reports. During the sanction phase of the Hearing, Ironside suggested that the undertaking was limited in scope, was irrelevant to the allegations in this case and did not demonstrate any previous pattern of conduct to be taken into account in determining the appropriate sanction for him. As we have stated in previous decisions, we consider prior exposure to securities regulatory proceedings and sanction to be a relevant consideration as a predictor of future compliance with securities laws. We would expect someone involved in enforcement proceedings in the past to be particularly cautious in ensuring future adherence to securities laws. Ironside's conduct in this Hearing demonstrated to us that he has learned nothing of the importance of complying with securities laws from his history. Accordingly, we conclude that a significant measure of specific deterrence for Ironside is critical. [126] As for Ruff, we believe the greatest danger he presents to investors and the capital market is if he once again finds himself in the sphere of influence of a dominant personality, similar to that of Ironside. This is a not insignificant danger, although we suspect that the events of the past few years have had a greater impact on his willingness to flout Alberta securities laws than the experience has had on Ironside. Ruff has also suggested that given his age and the notoriety of these proceedings, he has no prospect of returning to a senior position with an oil and gas or public company and he has agreed to undertake not to take on such a position. We also note that Ruff has not previously been sanctioned by any securities regulatory authority and that he also provided significant evidence of "good character". [127] We appreciate Ruff's candour and gesture. However, we still find it necessary to ensure that he is made subject to a measure of specific deterrence. (b) General Deterrence [128] Ironside testified that general deterrence was unnecessary here because of the widely reported and protracted notoriety of the Hearing, along with changes in Alberta securities laws since the Relevant Period. Specifically, he stated:

A . . . the most important things are, in a decision, are the -- are the categorization of sale and leaseback transactions. Now, this Panel has, has ruled that three of them were fine and three of them were wrong. And so the industry, industry now knows, based on this decision, where the line is, where that gray area has been discerned in terms of that outcome. So industry has been reluctant in the junior oil and gas sector, it's been reluctant since, since early in 1999 to the present to deal with these type [sic] of transactions. So the notoriety, public market's protection, well, I think there's a -- there's a very solid basis for people to make decisions in terms of accounting practices and disclosure.

In the case of reserve and production reporting, National Instrument 51-101 makes it abundantly clear what the standards are. Those standards together with the notoriety in this particular case have set the stage for more than adequate disclosure of those two areas. A . . . selective disclosure is the issue [surrounding dissemination of production estimates]. We believe that we made the disclosure, we -- I learned as a result of this process we didn't go far enough. Now the rules are, are quite -- after, after the Air Canada decision and this decision, the investment community knows what the rules are, plus there is policies [sic] out there that explain to people. So it's my understanding companies are more fastidious in terms of disclosure practices. When there's changes [sic], they report them.

. . . A Well, in 1997 and 1998 and November 1998, Blue Range had a very complicated marketing portfolio. Now, today companies that size and smaller don't have that. It's because the market has changed. The Enrons of the world who were the middlemen in those days have disappeared together with the Dukes and others, and we've gone back to a state where almost like the Aggregator situation that formerly existed before in the 1990 era, we've gone back to another level where typically junior oil and gas companies don't have longer term contracts, they typically don't have transportation directly or indirectly, and they, they basically deal with short-tem arrangements, and they typically, in many cases, don't hedge.

In terms of hedging, any company, whether it be small or large, is subject to a whole new set of rules under GAAP regarding the levels of disclosure, complicated rules that require a CFO's interpretation or an auditing firm's interpretation. So the rules themselves in the reporting circuits simply are greater today than they were in 1998.

[129] It is true that this has been a well-publicized Hearing and that there have been changes or clarifications in the laws applicable to some of the issues dealt with in this Hearing. However, the former does not provide the measure of general deterrence that we believe necessary in this case and the latter are not "deterrents". General deterrence is effected by imposing a sanction that sends a clear message to other individuals situated in roles similar to the positions the Respondents held as senior officers and directors of public issuers. The message is that misconduct such as that engaged in by the Respondents – for example, lying to an issuer's auditor during the course of an audit or issuing misleading news releases – will be dealt with severely. We believe it is necessary to impose significant sanctions in this case to encourage similarly-situated individuals to ensure accurate, timely and compliant disclosure.

(c) Conclusion on Deterrence [130] In the circumstances of this case and in carrying out our mandate to protect investors and the capital market, significant specific and general deterrence measures are required to confirm that the Commission will not tolerate or accept conduct such as that exhibited by the Respondents in their influential and responsible positions with a public issuer as senior officers and additionally, in Ironside's case, as a director. 6. Mitigating Factors [131] Staff submitted that there were no mitigating factors. [132] The Respondents appeared to suggest that Staff's conduct of the case was inappropriate and that such conduct should be considered as a mitigating factor in the Respondents' favour. Ruff acknowledged that the proceedings were "highly adversarial", with no offers of settlement or significant compromise on facts by the Respondents that could be taken as a mitigating consideration. However, Ruff contended that was not solely the Respondents' fault, as "Staff's initial tactic was to vastly overcharge the Respondents", making settlement or compromise difficult. Ironside pointed to volumes of material gathered, copied and distributed at the Respondents' expense as evidence that the "Respondents [b]rought [e]fficiency to the Hearing". Ironside also voiced concern that Staff's "give no quarter" approach and unwillingness to accept any responsibility for the protracted length of the Hearing would lead the Panel to impose more onerous sanctions. [133] The Respondents clearly had the right to conduct their case as they saw fit and to provide full answer and defence to the allegations in the Notice of Hearing. They exercised that right to the fullest extent. However, as we stated in the Merits Decision (at para. 1009):

It was overwhelmingly apparent that significant parts of the Respondents' submissions, testimony and other evidence were intended to confuse and obfuscate the issues.

[134] Nothing about the Respondents' conduct of the case could, in our view, be construed as a mitigating factor in considering sanctions. [135] As for the materials provided by the Respondents – the evidence binders – we do not agree that is a mitigating factor, regardless of how thorough the research involved or helpful certain of them may have been. That is more properly a consideration relating to costs. [136] We conclude that all parties, including Staff, made this Hearing much more complex, lengthy and adversarial than was necessary. While the blame for this does not rest solely with the Respondents, neither does Staff's behaviour translate into a mitigating factor for the Respondents.

[137] Ironside testified that the press coverage of the Hearing had been devastating to him and his family and placed enormous stress on them. He believed that the relentless media coverage has probably permanently damaged his ability to seek comparable employment in the oil and gas industry in the future. Ruff expressed similar sentiments in his written argument. It may be the case that the Respondents suffered severe consequences as a result of their conduct and our findings with respect to that conduct. They may be unemployable in certain occupational fields in the future. Such consequences are not, however, mitigating factors. Rather, they are points of which we remain cognizant when determining the overall appropriate sanctions. [138] We conclude that there are no mitigating factors in this case. 7. Previous Decisions [139] As this Commission has stated many times, previous decisions relating to sanction are usually not helpful because of the different circumstances in each case. In some situations, previous cases may give guidance as to the general range of appropriate sanctions. Here, however, we did not find previous decisions to be particularly useful, for the reasons discussed below. [140] Staff attempted to equate the Respondents' misconduct here to that found in Re Ryckman (1996), 5 A.S.C.S. 223, and Re Eron Mortgage Corp., [2000] 7 B.C.S.C.W.S. 22 (varied on appeal – see Biller v. British Columbia (Securities Commission), 2001 BCCA 208). Staff stated that Ironside's and Ruff's misconduct was "as serious, public and deliberate" as in those authorities. [141] In Ryckman, this Commission held that those respondents created a "deliberate, pervasive, well planned and contrived" market manipulation scheme (at para. 55) to their benefit and to the capital market's detriment. In that case, this Commission permanently denied exemptions to all respondents, imposed 18-year cease-trade bans on all respondents and gave an 18-year director-and-officer ban to the individual respondent. [142] The British Columbia Securities Commission (BCSC) characterized the Eron case as one of massive fraud and misplaced and abused trust, causing investor losses of over $170 million and substantially enriching the respondents. The BCSC gave permanent sanctions (denial-of-exemptions and a director-and-officer ban) to one individual respondent and ten-year bans in the same categories to the other. [143] The Respondents took exception to being classified in the same category as market manipulators and fraudulent actors. They pointed out that they had not personally benefited from the misconduct that we found in the Merits Decision. [144] In oral argument, Staff attempted to persuade us that there was fraud-like behaviour by Ironside and Ruff, such that we should still consider the fraud-type decisions (such as Ryckman and Eron) when making our sanction determinations in this case. Staff acknowledged that we had not made a finding of fraud in the Merits Decision,

but contended that the facts we found led to a conclusion of fraud such that the Respondents could not rely on a lack of fraud or market manipulation to justify lower sanctions. Staff emphasized that they were not asking us for a finding of fraud at this stage, but only to refrain from stating in this sanction decision that there was no fraud-like misconduct. [145] We found Staff's argument confusing. The Notice of Hearing set out the allegations. The Merits Decision addressed those allegations. Fraud and market manipulation were neither alleged nor found against Ironside or Ruff. We are not here to make additional findings on the merits of the allegations or to make "non-findings" of fraud, market manipulation or otherwise. This phase of the Hearing deals solely with sanction based on the findings in the Merits Decision. Therefore, the previous decisions referred to the Panel are not relevant. [146] We do, however, believe that Ironside's and Ruff's misconduct here was extremely serious. That, combined with the other factors discussed, indicates that appropriate sanctions against them would be at the high end of the range of sanctions, with lower sanctions applicable to Ruff than those applicable to Ironside. D. Conclusion on Appropriate Sanctions 1. General [147] The Alberta capital market is a regulated market. The Commission has been charged with the statutory responsibility to oversee the regulation of the Alberta capital market. Core to our regulatory function is the need to ensure that the public is given fair, accurate and timely disclosure of material information regarding an issuer and its securities. Those responsible for the actions of a public issuer must be diligent in providing truthful disclosure about that issuer's affairs and otherwise complying with regulatory requirements. Truthful disclosure maintains public confidence in the integrity of our capital market. The Commission holds accountable those who fail in these duties or abuse the positions with which they have been entrusted. This may mean a restriction or termination of their continued participation in the capital market. Participation in the capital market is a privilege, not a right. [148] We believe it necessary to demonstrate clearly that misconduct such as we found here by senior officers and directors in the affairs of a public issuer is a serious offence that will not be countenanced in our capital market. Members of the investing public are entitled to depend on senior officers and directors of issuers to be honest and ethical and to provide a fair and balanced portrayal of the issuer's financial position and operations. We believe that a strong sanction imposed on the Respondents will inform senior management and boards of directors of public issuers involved in the Alberta capital market of the importance of instilling a culture of compliance with Alberta securities laws and the importance of implementing practices and procedures that support fair, accurate and timely disclosure by public issuers of material information to the market. A strong market is, in large part, the result of investor confidence fostered by the high disclosure standards applicable to public issuers.

[149] To protect the public interest, we find it necessary to ensure that the Respondents not enjoy certain types of access to the Alberta capital market for a certain period. Given Ironside's background, experience, previous history of regulatory misconduct and refusal to recognize the seriousness of his misdeeds, we consider that the protection of the public interest and the need for specific and general deterrence require that Ironside never again act in the position of a director or officer of any issuer, or enjoy the privilege of engaging in capital-raising activities in the exempt market. In the case of Ruff, while we believe that his misdeeds also warrant some measure of specific and general deterrence, the extent of his restricted market access will be less than that ordered for Ironside for the reasons set out throughout our analysis. [150] We also find it necessary to order significant administrative penalties to make clear to the Respondents and to other senior executives and directors of public issuers that non-compliance with Alberta securities laws will attract a significant, direct, personal financial cost. Given the nature of our findings and the significant market access bans ordered, we believe that ordering Ironside to pay an administrative penalty of $180,000 and Ruff $50,000 will provide sufficient deterrence. [151] We do, however, believe the public interest is not jeopardized by permitting Ironside to trade in or purchase securities listed on an exchange, as principal, through an account maintained by a registrant who has first been provided with a copy of this decision. [152] For the above reasons, we therefore consider the following orders necessary to protect the public interest and public confidence in the integrity of the Alberta capital market:

2. Ironside [153] With respect to Ironside, we order:

• under section 198(1)(c) of the Act, that all of the exemptions contained in the Alberta securities laws do not apply to him permanently, except that this order will not preclude him from trading in or purchasing securities over an exchange as principal through accounts maintained with a registrant who has first been provided with a copy of this decision;

• under sections 198(1)(d) and (e) of the Act, that he resign any position he holds as a director or officer of any issuer and he is prohibited permanently from becoming or acting as a director or officer (or both) of any issuer; and

• under section 199 of the Act, that he pay an administrative penalty of $180,000.

3. Ruff [154] With respect to Ruff, we order:

• under sections 198(1)(d) and (e) of the Act, that he resign any position he holds as a director or officer of any issuer and he is prohibited for ten years from becoming or acting as a director or officer (or both) of any issuer; and

• under section 199 of the Act, that he pay an administrative penalty of $50,000. V. COSTS A. Costs Sought [155] In addition to seeking sanction orders, Staff also sought orders under section 202 of the Act that the Respondents pay costs of the investigation and Hearing. Staff submitted documentation that indicated that costs of the investigation ($261,088) and Hearing ($1,973,728) amounted to a total of $2,234,816. Staff advised that copies of original documents were available for inspection at Staff offices. While recognizing that they were not completely successful in proving all of the allegations made in the Notice of Hearing, Staff submitted that it was both "justified and required in this case" for the Commission to order that a significant amount of these costs be paid by the Respondents. [156] The Respondents reviewed the documents available for inspection and provided to us copies of the back-up documents to Staff's costs claim. The Respondents argued that, as most of the invoices had been redacted to delete descriptions of the work done for the costs claimed and Staff called no witness to speak to the matter of costs, Staff failed to establish any evidentiary basis for their costs claim. Alternatively, as expanded on below, the Respondents urged us to reduce significantly the costs claimed by Staff, set off the costs or order costs of the Respondents be paid by Staff. B. General Legal Principles [157] Section 202 of the Act gives the Commission the discretion to order a respondent to pay the costs of an investigation and hearing if the Commission is satisfied that either the respondent has not complied with any provision of Alberta securities laws or has not acted in the public interest. Sections 191.1 and 191.2 of the Commission Rules permit the Commission to include certain specified costs, within limits, for the investigation and the hearing, respectively. Within the allowable categories and limits of costs, the Commission has discretion to adjust the costs claimed by Staff. [158] Sections 191.1 and 191.2 of the Commission Rules provide:

191.1 Costs re investigations – Where the Commission or the Executive Director orders under section 202(1) of the Act that the costs of the investigation be paid by a person or company whose affairs were the subject of an investigation, the costs awarded may include one or more of the following:

(a) not more than $50 per hour for each staff member engaged in the investigation; (b) the actual amount of the fees and disbursements of a person appointed or

engaged under section 28, 41 or 43 of the Act to a daily maximum of $2000; (c) the actual amount of the witness examination costs; (d) the actual amount of the court reporters' fees; (e) the actual cost of the transcripts;

(f) the costs of legal services to a maximum of $300 per hour for each lawyer involved;

(g) the disbursements and the incidental costs incurred in respect of the investigation.

191.2 Costs re hearing – Where the Commission or the Executive Director orders under section 202(2) of the Act that the costs of or related to a hearing be paid by a person or company whose affairs were the subject of the hearing, the costs awarded may include one or more of the following:

(h) not more than $50 per hour for time spent by each staff member of the

Commission in respect of the hearing or on matters preliminary to the hearing; (i) the actual amount of the fees and disbursements paid to a person appointed or

engaged under section 28, 41 or 43 of the Act to a daily maximum of $2000; (j) the reasonable costs of witnesses, other than a witness referred to in clause (b),

required to attend at the hearing; (k) the reasonable costs for the services of a lawyer acting as counsel to a daily

maximum of $2000; (l) the costs to the Commission to administer the hearing, including fees paid to

Commission members, court reporter fees, transcripts and disbursements required to conduct a hearing to a maximum of $2500 for each day or partial day of hearing;

(m) the reasonable costs incurred for each expert or person engaged as an advisor assisting in the hearing to a maximum of $300 per hour.

[159] The purpose of the Commission's power to award costs against a respondent is to provide for recovery of costs incurred by the Commission in conducting its enforcement activities. Those activities are crucial to the Commission's public interest mandate to foster a fair and efficient capital market in Alberta and investor confidence in that market. This Commission recently discussed its power to award costs in Capital Alternatives at paras. 111-13:

As a preliminary point, costs are distinct from sanctions. An order for costs is nothing more than a mechanism for recovery of certain costs that have been expended in an enforcement investigation or hearing. Decisions to order costs turn not on a reapplication of the sanctioning factors discussed above, but rather on whether or to what extent the respondent contributed to the investigation and to the efficient resolution, one way or the other, of the allegations. This is not to say that respondents ought not to mount a defence if they wish; doing so is not, by itself, properly viewed as impeding the efficient resolution of a matter. The Commission has not, traditionally, ordered full recovery of costs. However, it has the power to do so, within the limits set by the [Commission] Rules. We think it appropriate to recognize that the Commission, as a self-funding regulatory body, derives its financial resources from market participants. Costs incurred by Staff in investigations and enforcement hearings may therefore be considered to be borne, at least indirectly, by market participants. In general, we believe that it is appropriate that a respondent, who has been found to have contravened the Act or acted contrary to the public interest, pay at least some of the costs of the investigation and hearing. That is not an invariable rule, and even where we make such an order the quantum of the order will vary from case to case. The extent to which a respondent's conduct in an investigation or

hearing has tended to facilitate (or impede) the resolution of issues and moderate (or exacerbate) the cost of doing so can be highly pertinent to the determination of appropriate costs orders. Indeed, we believe that a respondent's contribution (or otherwise) to the effectiveness of an investigation and the resolution of allegations will generally be the principal determinant of costs orders.

[160] An order for costs thus shifts to a culpable respondent some of the burden that would otherwise be borne indirectly by innocent and uninvolved market participants. [161] Based on these principles, we find it appropriate in this case for each of the Respondents to pay a portion of the costs of the investigation and Hearing. [162] The Respondents argued that we must be careful not to award costs of such magnitude that they would deliver "a crushing financial blow" as "exorbitant [costs] may deny an investigated person a fair chance to dispute allegations of professional misconduct" – see K.C. v. College of Physical Therapists of Alberta (1999), 244 A.R. 28 at para. 94 (C.A.). We agree that it would be inappropriate to inhibit a respondent's potential defence by creating an environment in which excessive costs awards are feared. We are also cognizant, as was recognized by the Ontario Court of Appeal in Donnini v. Ontario Securities Commission (2005), 76 O.R. (3d) 43 at para. 86, that a "costs award, especially a massive one, is about real money for a real person". At the same time, it is not appropriate to reduce a costs award to the point at which respondents become undeterred from abusing the hearing process. For all these reasons we review the costs claimed by Staff to determine whether the categories and amounts of the costs are in accordance with the Commission Rules, supportable and, in the circumstances, reasonable. [163] We now turn to the specific assessment issues relating to the types and quanta of costs. C. Specific Issues Relating to Costs 1. No Authority to Order Costs Payable to the Respondents [164] The Act does not authorize a panel conducting an enforcement hearing to order costs incurred by a respondent to be paid by Staff. The Commission, as a creature of statute, has no power to make any orders unless expressly given it under the Act. [165] The Respondents referred to St. Peters Estates Ltd. v. Prince Edward Island (Land Use Commission) (1991), 2 Admin. L.R. (2d) 300 (P.E.I.S.C. (T.D.)), in claiming that costs may be awarded against an administrative tribunal. However, that was a case where a court determined that it had the power to award costs against an administrative body that had acted improperly. That case does not give us authority to award costs against Staff. [166] Accordingly, we reject the Respondents' contention that we can and should order Staff to pay some of the Respondents' costs or set off the Respondents' own extensive costs against the amount we might otherwise order against the Respondents. We are not,

however, precluded from considering the level of efficiency or exacerbation that Staff brought to these proceedings in our final assessment of the costs to be ordered against the Respondents. 2. Division between Investigation and Hearing Costs [167] Staff allocated time and expenses "prior to July 2001" to the investigation and after that (we assume from July 1, 2001 onwards) to the Hearing. The Respondents appeared not to dispute that division; nor do we. Accordingly, we examine costs up to June 30, 2001 under section 191.1 of the Commission Rules and costs on and after July 1, 2001 under section 191.2 of the Commission Rules. 3. Scope of Investigation Costs [168] The Respondents noted that the initial investigation order that led to this Hearing was an order to examine the conduct of both Blue Range and Big Bear. The Respondents argued that "[a]ny investigation costs related to Big Bear are not appropriate costs to be levied against the Respondents". We agree. Although Staff's costs documentation did not distinguish between work done relating to Big Bear and that relating to Blue Range – specifically, the Respondents – Staff did state that they only claimed investigation costs relating to the Respondents' activities. [169] In our view, some costs associated with matters that were part of the investigation but not part of the hearing may properly find their way into the amount of the costs awarded against a respondent, if the investigative activities lead to an allegation being made and proven. This is because such information helps form the knowledge base from which Staff draw when conducting the hearing. For example, this might include costs related to time spent interviewing an individual who provided relevant information used in the hearing even if that individual did not appear as a witness in the hearing. This Commission recently commented in Capital Alternatives (at para. 120):

An investigation is by its nature a process of exploration, with the outcome unknown at the outset. . . . [Section] 202 of the Act [does not require] us, with hindsight, to dissect an investigation to identify and isolate only the specific investigative activity and results (and the costs thereof) ultimately used in relation to the hearing.

[170] Thus, we are of the view that investigative costs reasonably incurred that lead to allegations ultimately proven are properly recoverable against a respondent who is the subject of the hearing.

4. Components of Investigation Costs [171] Section 191.1 of the Commission Rules sets out amounts that may be awarded for certain costs incurred during the course of an investigation. Several of these categories provide for the "actual amount" to be recovered: fees and disbursements for certain appointees (daily maximum $2,000); witness examination costs; court reporters' fees; and transcript costs. Disbursements and unspecified "incidental costs" may also be awarded.

Recoverable fees for Staff members are a maximum of $50 per hour and for legal services "a maximum of $300 per hour for each lawyer involved". [172] Staff claimed investigation costs totalling $261,088 as follows:

• Commission investigators – $9,590; • Legal services – $26,060 (Commission) and $176,577 (other); • Appointed experts – $5,223; and • Incidental costs – $43,638.

(a) Staff Investigators [173] Staff claimed costs of $9,590 for 191.8 hours of investigative work spent by three Staff investigators. The schedule supplied by Staff set out the partial names, hours, rates and total charges for the three Staff investigators on the dates incurred. The schedule also included some daily breakdown of the number of hours for each investigator. However, there was no indication of the details of the type of work done or the investigated party to which the work related. Staff explained that the chief investigator Lawrie did not record time, so no claim was made at all for his time, giving the Respondents the benefit of the omission. As noted, Staff also represented that only the costs of the investigation of the Respondents were included in Staff's claim for investigation costs. [174] The Respondents pointed out investigators' costs were less than 1% of Staff's costs claimed. The Respondents seemed to suggest that costs for Staff investigators should have been higher and speculated Staff's outside counsel (Abells) had been involved in the investigation without proper disclosure. On the other hand, the Respondents were concerned that investigation costs related to Big Bear had been included in these costs. [175] We consider that 191.8 hours was reasonable given the length of the investigation, the complexities of the subject matters involved in the Hearing and the fact that no claim was made for Lawrie's time. We also accept Abells' representation that no costs were included that related to the investigation of Big Bear. We find that the $50 per hour for each investigator claimed by Staff was a reasonable hourly rate and permitted by the Commission Rules. [176] Abells was involved to some extent in the investigation as was reflected in his statements of account, for which Staff have made a separate claim under another category. We see nothing untoward with the involvement of legal counsel in an investigation in general (in our experience, such involvement is warranted) or in this investigation in particular. [177] At this stage of our analysis, we conclude that costs claimed of $9,500 for time spent by Staff investigators in the investigation of this matter are both reasonable and permitted by the Commission Rules.

(b) Legal Services (i) Internal Counsel [178] Staff claimed $26,060 as costs incurred for Commission internal legal services. Staff provided a schedule with partial names, dates, hourly rates and totals for three Commission lawyers working during the investigation period. The hourly rates charged varied, presumably based on each lawyer's relative experience, but all were less than the $300 allowable hourly maximum under section 191.1 of the Commission Rules. The number of hours expended ranged from 6 to 67.6 hours for a total of 129.6 hours. Again, however, no time sheets or docket descriptions were given as to the services provided or whether the services related to matters dealt with at the Hearing on which Staff was successful. [179] We have no reason to doubt Abells' representation that the lawyers identified spent the hours claimed on legal matters relating to the investigation of this matter. Abells is an officer of the court who well understands his professional responsibilities. We accept that 129.6 hours were spent by internal legal counsel on matters related to this investigation. We have no reason to conclude that these hours were either excessive or unreasonable. We also have no reason to believe that the hourly rates ascribed to each lawyer were unreasonable. [180] At this stage of our analysis, we conclude that costs claimed of $26,000 for internal legal services provided during the course of the investigation are both reasonable and permitted by the Commission Rules. (ii) External Counsel [181] Staff claimed for costs incurred as a result of retaining outside legal counsel in the amount of $176,577. This amount comprised legal fees for services rendered by Abells (Staff's primary counsel at the Hearing), associates of Abells who did not appear at the Hearing, and disbursements (such as in-house photocopying, long-distance charges, courier costs, computer search costs and postage). [182] In support of this claim, Staff provided copies of the statements of account rendered to the Commission from the outside law firm. The statements of account directed to the attention of the Executive Director for payment noted that the legal services were rendered in connection with "Blue Range Resource Corporation" and identified the dates services were rendered, the responsible lawyer, hourly rates, time spent per day and total amount owing. The hourly rate was $250 for Abells, with rates varying from $65 to $200 per hour for time spent by his associates. Abells spent 632 hours; his associates spent 90.8 hours. The total hours claimed from July 2000 until June 22, 2001 were 722.80. The statements of account redacted the description of the legal services provided by the external law firm members. [183] Once again we have no reason to doubt Abells' representation that external legal costs claimed related to legal services provided during the investigation of this matter. We also noted that the statements of account had been reviewed by the Executive

Director as evidenced by his initials under a stamp "Approved for Payment" and were presumably paid by the Commission. We accept that external lawyers spent some 722 hours on matters related to this investigation. We have no reason to conclude that these hours were either excessive or unreasonable. The hourly rates charged by the external lawyers did not exceed those allowable under the Commission Rules and we have no reason to believe that the hourly rates ascribed to each lawyer were unreasonable. [184] At this stage of our analysis, we conclude that costs claimed of $176,500 for external legal services rendered during the course of the investigation are both reasonable and permitted by the Commission Rules.

(c) Appointed Experts [185] Staff claimed $5,223 for services provided by Deloittes as an expert appointed under section 28 of the Act. In support of their claim, Staff supplied a copy of Deloittes' invoice directed to the attention of Lawrie at the Commission. It indicated that two accountants spent 16.6 hours at an hourly rate of $405 and $425, respectively. Staff indicated that they had adjusted the invoice to claim a reduced amount because they could not calculate the daily maximum allowable under section 191.1(b) of the Commission Rules. Apparently Deloittes had not performed a daily breakdown of its professional fees. As a result, Staff used the $300 per hour maximum designated for an "expert" used during the hearing, which reduced the fee claimed by some $1,770. In the circumstances, we accept Staff's approach as reasonable and to the benefit of the Respondents. However, there is an apparent typographical error in Staff's claim and the amount claimed should be $5,203. [186] The Respondents objected to these costs because Deloittes' invoice referred to, among other tasks, preparing a "review report for the six months ended September 30, 1998", which the Respondents said was neither used nor relied upon during the Hearing. [187] We are satisfied that the services performed by Deloittes generally assisted Staff in preparing for and understanding the GAAP issues. While it may be that some of the services performed by Deloittes related to allegations not proven, that concern is addressed later when we adjust the costs to reflect such matters. [188] At this stage of our analysis, we conclude that costs claimed of $5,200 for Deloittes' expert opinion provided during the course of the investigation are both reasonable and permitted by the Commission Rules. (d) Incidental Costs [189] Under "Incidental costs", Staff claimed costs of $43,638 relating to expert advice provided by four companies which had not been appointed as experts under section 28 of the Act. Also included in this category were costs of reproduction and printing. The Respondents protested the inclusion of these costs for various reasons. We discuss each of the specific charges that are included in this category.

(i) North Country Energy (North Country) [190] In support of this claim, Staff provided copies of four invoices submitted to the Commission in connection with services provided by North Country from December 2000 until June 2001. The invoices totalling $18,750 detailed the services provided to the Commission. Upon review of the invoices it appeared that two of the invoices related solely to services provided in connection with the marked-to-market allegation and part of a third invoice included two hours related to that issue. Staff were unsuccessful in proving the allegation that related to disclosure of Blue Range's marked-to-market position. Accordingly, we deducted from the amount claimed in respect of North Country the invoice for $2,125, the invoice for $7,375 and $500 from the December 31, 2000 invoice, leaving costs of $8,750. [191] At this stage of our analysis, we conclude that Staff's costs claimed of $8,700 in respect of services rendered by North Country during the investigation are both reasonable and permitted by the Commission Rules. (ii) Paddock Lindstrom (PLA) [192] Staff claimed costs of $1,153 for retaining PLA. In support of this claim, Staff provided copies of two invoices submitted to the Commission in connection with services provided by PLA. One invoice indicated a fee of $1,053.95 for services rendered in connection with a "Constant Dollar Report for Oct 1/98 BRRC Evaluation". The other invoice indicated that it was for costs of reproducing reserves report summaries. [193] Although there was no issue in the Hearing about constant dollar reporting of reserves values, we believe that these services provided by PLA were part of PLA's contribution to Staff's understanding of the preparation of reserves reports, which related to a significant finding in this Hearing. While it may be that some of the services performed by PLA related to matters not the subject of the Hearing, that concern is addressed later when we adjust the costs to reflect such matters. [194] The cost for reproducing Blue Range's reserves report summaries clearly related to an allegation ultimately proven by Staff and thus we allow it. [195] Therefore, at this stage of our analysis we conclude that costs claimed of $1,100 in respect of services rendered by PLA during the investigation are both reasonable and permitted by the Commission Rules. (iii) Risk Advisory [196] Staff claimed costs of $14,000 in respect of services rendered by Risk Advisory. In support of this claim, Staff provided a copy of Risk Advisory's invoice that had been submitted to the Commission for its "Mark-to-Market Review of Blue Range Resources Transactions". [197] We agree with the Respondents that this cost ought to be deducted because the marked-to-market allegation was not proven by Staff. In the result, costs of $14,000 are

disallowed and will not be considered as part of the potentially recoverable investigation costs. (iv) Avid Oil & Gas Ltd. (Avid) [198] Staff claimed costs of $9,132.50 in respect of services rendered by Avid. In support of this claim, Staff provided copies of two invoices that had been submitted to the Commission by Avid. Both contained the description "For services rendered by Brooklands Resource Management Ltd. (Norman Johnson) in connection with your review of Blue Range Resource Corporation" for the months of January to April, 2001 and August to September, 2001. [199] While there was mention of Avid during the Hearing, without more we are uncertain as to the connection between these services provided and the allegations that were ultimately proven in the Hearing. Thus, we agree with the Respondents that these costs ought not to be allowed to form part of the investigation costs. Moreover, the $552.50 August to September amount was outside the investigation period as set by Staff and which we accepted. [200] In the result, costs of $9,132.50 are disallowed and will not be considered as part of the potentially recoverable investigation costs.

(v) Riley Reproductions & Printing Ltd. (Riley) [201] Staff claimed costs of $602.85 in respect of services rendered by Riley. In support of this claim, Staff provided a copy of one invoice that had been submitted to the Commission by Riley for reproduction and binding charges. [202] The Respondents argued that the invoice lacked sufficient description to be allowed. [203] We are prepared to rely on Staff's representation that the copying and binding charges were for materials related to the investigation. [204] At this stage of our analysis, we conclude that costs claimed of $600 paid to Riley during the course of the investigation are both reasonable and permitted under the Commission Rules. (e) Conclusion on Investigation Costs [205] In conclusion, Staff had claimed investigation costs totalling $261,088. After considering the supporting documentation, we concluded that $227,600 (rounded down for simplicity) as costs of the investigation of this matter could be the subject of an order under section 202 of the Act. 5. Components of Hearing Costs [206] Section 191.2 of the Commission Rules sets out amounts that may be awarded for certain costs incurred during the course of a hearing. The costs allowed are similar to

those recoverable for an investigation although there are differences. For example, hearing-related legal services are to be "reasonable" but to a maximum of $2,000 per day for a lawyer acting as counsel during the hearing and not the unrestricted $300 per hour for each lawyer involved in the investigation. [207] Staff claimed Hearing costs totalling $1,973,728 as follows:

• Appointed experts – $100,921; • Legal services – $254,381 (internal) and $1,062,276 (external); • Hearing administration fees:

o Commission Member fees – $189,308; o Court reporter – $171,849; and

• Non-appointed experts – $194,993. (a) Appointed Experts [208] Staff claimed costs totalling $100,921 for two experts appointed under section 28 of the Act – Deloittes ($18,990) and C. LeGeyt Consulting (LeGeyt Consulting) ($81,931). In support of this claim, Staff provided copies of invoices submitted to the Commission. [209] Costs recoverable in respect of services rendered by Deloittes, as an expert appointed under the Act, are the actual fees and disbursements, but capped at $2,000 per day. As was the case with investigation costs, Deloittes' invoice disclosed the number of hours spent over the billing period but did not break down the hours on a daily basis. Staff accordingly applied section 191.2(m) of the Commission Rules, which capped the hourly rate of each expert at $300 per hour. This resulted in a total deduction of some $4,455. We accepted Staff's methodology in assessing these costs as reasonable. [210] The Respondents argued that we should not accept any of Deloittes' costs as the invoices did not provide sufficient detail to relate the services rendered to the evidence given by Gerlach and the usefulness of Gerlach's testimony on the findings made by the Panel on the GAAP issues. [211] We do not agree that the costs attributable to Deloittes should be disallowed. Testimony given by Gerlach was relevant to the GAAP issues, which related to allegations ultimately proven by Staff. We are of the view that the Respondents' concerns as to the usefulness of Gerlach's testimony to the Panel in light of our findings that three of the six Leases were incorrectly accounted for are best addressed in our assessment of what proportion of the potentially recoverable costs are to be paid by the Respondents. At this stage of our analysis, we accept that costs claimed of $18,900 paid to Deloittes for services rendered during the Hearing are reasonable and permitted under the Commission Rules. [212] We agree with the Respondents that they should not be responsible for the costs of a Staff expert who was found by the Panel not to be an expert and on whose expertise the

Panel did not rely in making their findings. We therefore deny the costs attributable to LeGeyt Consulting during the Hearing in the amount of $81,931. [213] In the result we allow $18,900 as potentially recoverable costs for appointed experts during the Hearing. (b) Legal Services (i) Internal Counsel [214] Staff claimed $254,381 as costs incurred for Commission internal legal services during the Hearing. In support of these costs claimed, Staff provided similar back-up documentation as they had for investigation-related legal costs. Staff indicated that the fees claimed for any lawyer during the Hearing were capped at $2,000 per day. Again, however, no time sheets or docket descriptions were given as to the services provided or whether the services related to allegations that Staff were successful in proving at the Hearing. [215] For the reasons already given in accepting investigation-related legal costs, we accept that the amount of $254,300 claimed by Staff for internal legal services rendered during the Hearing is reasonable and permitted by the Commission Rules. (ii) External Counsel [216] Staff claimed $1,062,276 as costs incurred as a result of retaining outside legal counsel (primarily Abells) to act on behalf of Staff during the Hearing. This amount consisted of legal fees for services rendered by Staff counsel as well as for his associate who did not appear at the Hearing. It also included disbursements (such as in-house photocopying, long-distance charges, courier costs, computer search costs and postage). [217] In support of these costs claimed, Staff provided similar back-up documentation from the outside law firm as they had for investigation-related legal costs. Staff indicated that the fees claimed for external counsel during the Hearing were capped at $2,000 per day. Again, however, external counsel's statements of account had redacted the description of the legal services provided by the external law firm members in connection with the Hearing. Thus, it was impossible to ascertain which services related to allegations that Staff were successful in proving at the Hearing. As in other areas, we address this deficiency when we determine what proportion of the potentially recoverable costs the Respondents are responsible for paying. [218] For the reasons already given in accepting investigation-related legal costs, we accept that the external lawyers spent the hours identified on services provided during the Hearing. We have no reason to conclude that these hours or the hourly rates were excessive or unreasonable. As required by the Commission Rules, Staff adjusted these costs to cap the amount claimed by each lawyer to $2,000 per day.

[219] Thus, at this stage of our analysis, we conclude that costs claimed of $1,062,200 for external legal services rendered during the course of the Hearing are both reasonable and permitted by the Commission Rules. (c) Hearing Administration Fees [220] Staff claimed for Hearing administration costs of $361,157, which consisted of $189,308 for Panel member fees and $171,849 for "Court reporter" charges. The latter costs are more appropriately described as court reporter fees, transcript and photocopy charges. In support of this claim, Staff provided copies of time dockets and invoices that had been submitted to the Commission. [221] Under section 191.2(l) of the Commission Rules, such "costs to the Commission to administer the hearing" are to a maximum of $2,500 per hearing day. Staff's careful calculations did not exceed that cap. We accept Staff's calculation methodology. [222] We reject the Respondents' contention that the photocopy charges of some $21,000 are not sufficiently detailed to ensure that they relate to the Hearing. Extensive documentation was involved in this case; we accept Staff's representation that those charges were for the Hearing and they are, in our view, reasonable charges. [223] Fees paid to panel members during a hearing are properly recoverable under the Commission Rules. However, parking charges for Commission members are not "fees paid to Commission members" so we deducted $2,400 from the total amount claimed under this category. This reduces the total amount of these costs to $358,757. [224] At this stage of our analysis, we conclude that costs claimed of $358,700 paid by the Commission to administer the Hearing are reasonable and permitted under the Commission Rules. (d) Other Experts (i) Special Counsel [225] Staff claimed costs of $6,500.46 paid to specialized external legal counsel in connection with an interlocutory application made by the Respondents during the course of the Hearing. In support of this claim, Staff produced a copy of the detailed statement of account that the law firm had rendered to the Commission. [226] The Respondents contended that these costs ought to be disallowed because they related to certain alleged disclosure problems for which they argued Staff were responsible. We disagree. These costs were incurred as a result of an unsuccessful interlocutory application brought by the Respondents during the Hearing process. We view the retention of special counsel as justified in the circumstances. We accept that special counsel spent the hours identified on services provided during the Hearing. We have no reason to conclude that these hours were either excessive or unreasonable. We conclude that costs claimed of $6,500 paid by the Commission for special counsel are reasonable and permitted by the Commission Rules.

(ii) North Country [227] Staff claimed costs of $179,799.68 paid to North Country in connection with services provided during the Hearing. In support of this claim, Staff provided copies of invoices submitted to the Commission. Those detailed the hours spent and services provided to the Commission. We accept that North Country spent the hours at the hourly rates identified on services provided during the Hearing. We have no reason to conclude that these hours were either excessive or unreasonable. [228] In this case, Costeloe appeared before us and we considered his expert opinion as well as materials produced by him. Staff were successful in proving some of the allegations in the area in which he was tendered as an expert. The Respondents repeated their earlier concerns about North Country's work – that it was incomplete and unreliable. We decline to require that all of a witness's evidence be found ultimately relevant and useful before we will treat it as a cost properly recoverable. As noted previously, the Respondents' concern on this point is best dealt with in our assessment of the proportion of the potentially recoverable costs that each Respondent is responsible to pay. [229] At this stage of our analysis, we conclude that Staff's claim for costs of $179,700 in respect of services rendered by North Country during the Hearing is reasonable and permitted by the Commission Rules. (iii) PLA [230] Staff claimed costs of $8,693 paid to PLA in connection with services provided during the Hearing. In support of this claim, Staff provided a copy of the invoice submitted to the Commission that detailed the hours spent and services provided to the Commission. [231] Once again the Respondents argued that there was insufficient information about the documents referred to in the invoice to know if they were related and useful. Lindstrom from PLA appeared as a witness during the Hearing and reference was made to reserves reports prepared by PLA for Blue Range. Staff was successful in proving allegations that involved areas discussed by Lindstrom during his testimony before the Panel. [232] At this stage of our analysis, we conclude that Staff's claim for costs of $8,600 in respect of services rendered by PLA during the Hearing is reasonable and permitted by the Commission Rules.

(e) Conclusion on Hearing-related Costs [233] In conclusion, Staff had claimed hearing-related costs totalling $1,973,728. After consideration of Staff's supporting documentation, we conclude that hearing-related costs of $1,888,900 (rounded down for simplicity) could be the subject of an order under section 202 of the Act.

6. Recoverable Costs [234] We now consider what proportion of the amount of potentially recoverable costs the Respondents ought to be responsible to pay under section 202 of the Act. [235] This was a highly complex, lengthy and adversarial Hearing. In the context of costs, we believe our comment on the parties' conduct from the Merits Decision (at para. 13) warrants repeating:

The parties conducted themselves in a singularly, and in the Panel's view, unnecessarily adversarial manner. All parties' attitudes and refusals to concede obvious points contributed substantially to the complexity and duration of these proceedings.

[236] In the circumstances of this case, we are not persuaded that the Respondents should be ordered to pay the full amount of the potentially recoverable costs of $2,116,500. We considered several factors in deciding to reduce the quantum of costs the Respondents would be ordered to pay under section 202 of the Act. Our more notable considerations included:

• Staff bear a measure of responsibility for the complexity and protracted length of the Hearing, which obviously contributed to the magnitude of the potentially recoverable costs. For example, Staff: o failed to initiate any meaningful discussions with the Respondents during

the investigation phase that might have contributed to a narrowing of the allegations;

o utilized a badly drafted and confusing Notice of Hearing that set out a myriad of allegations, some of which we saw as being more in the nature of particulars than alleged contraventions (for example, the alleged failure to disclose the list of gas marketing contracts);

o failed to cull any of the allegations in the Notice of Hearing at any stage of the Hearing, including during or after the Respondents' non-suit application; and

o raised issues that were not part of the allegations and attempted to explore areas irrelevant to the allegations in the Notice of Hearing;

• Staff were only partly successful in proving the allegations set out in the Notice of Hearing. However, contrary to the Respondents' characterization of success, we viewed Staff as largely successful in that Staff proved allegations in the four areas that we considered to be most serious: the GAAP allegations; the Production and Reserves reporting allegations; the Production Forecasts allegations and the Gas Marketing allegations. In respect of the two other serious areas of alleged contraventions – the Banking and Liquidity allegations – Staff were unsuccessful. The Respondents should not bear responsibility for investigation and Hearing costs associated with failed allegations. Consequently, some adjustment to all categories of the costs incurred must be made in recognition of the failed allegations;

• Staff's failure to describe adequately the work performed for some of the costs claimed, such as legal costs, makes it impossible for the Panel to ascertain with certainty that the claimed costs do not include services rendered in connection with allegations in the areas that Staff were not successful in proving. Because we cannot accurately determine what those costs are, we have made a very conservative estimate to satisfy ourselves that the Respondents pay only the reasonable costs attributable to the allegations proven against them;

• the Respondents provided relevant documentation, most notably the 54 chronological binders, that assisted the Panel and the efficiency of the Hearing process;

• in respect of Ruff, Ruff's contribution to the Respondents' excessive tactics was less than Ironside's;

• in respect of Ruff, fewer allegations related to and were proven against Ruff than related to and were proven against Ironside; and

• Staff accepted that the Respondents should pay only a portion of the costs. [237] Although we have concluded that costs should be reduced for the above reasons, we are of the view that it is appropriate for each Respondent to pay a significant portion of the recoverable investigation and Hearing costs to the extent those costs related to the allegations that were sustained against them. In making this determination, while mindful of the Respondents' right to mount a full answer and defence to the allegations in the Notice of Hearing, we considered the Respondents' conduct during the investigation and Hearing and our ultimate determination of the allegations in the Hearing. In our view, the Respondents' conduct contributed significantly to the protracted length, cost and complexity of the Hearing. Notable factors in our view that weighed in favour of the Respondents paying a significant portion of the recoverable costs included:

• persistently and improperly endeavouring to divert the Hearing from the allegations in the Notice of Hearing and convert these proceedings into an inquiry into Big Bear and its management;

• attempting to mislead the Panel by obfuscating the issues; • not conceding obvious points that related to the merits of the allegations in the

Notice of Hearing; • presenting voluminous documentation of no relevance to the allegations before

the Panel; and • making numerous motions and applications in the pre-Hearing period and

during the Hearing that were found to be without merit. [238] For all of the reasons given, we consider in the first instance that a total of 50% of the potentially recoverable costs should be recovered from the Respondents. That would

amount to approximately $1,058,000. The magnitude of this sum however, is such as to cause us concern that orders to that effect could be perceived as unintended deterrents to other respondents in other cases in defending themselves. To avoid such a result, while still recovering a significant portion of the otherwise potentially recoverable costs, we conclude that it is appropriate to order payment of costs totalling $850,000. In our view, it is appropriate to apportion $675,000 to Ironside and $175,000 to Ruff. [239] Accordingly, we order under section 202 of the Act that Ironside pay $675,000 and Ruff pay $175,000 towards the costs of the investigation and Hearing of this matter. [240] The Hearing is now concluded. November 7, 2007 For the Commission:

"original signed by" Glenda A. Campbell, QC

"original signed by" James E. Allard

"original signed by" James A. Millard, QC