November 7, 1996
Canada's Tarnished City Applies Some Polish
Eric Ellis, Vancouver
Vancouver's sharemarket has been called the scam capital of the world. Eric Ellis took an insider's tour, and found out what officials are doing to change its image.
GOT a good idea? Then the Vancouver Stock Exchange is where you want to be.
It doesn't even have to be a good idea. The recent history of the exchange suggests any old concept is all one needs to get a float away on this notorious bourse. Some of the rubbish that has taken off on the VSE in recent years would make even the most colourful of Perth mining entrepreneurs blanch with embarrassment, perhaps explaining why some of them have listings here.
Among the more memorable ideas to rise suddenly and fall even more abruptly in recent years:
* A spray that purportedly protected toilet seats and telephone from the AIDS virus.
* A cone-shaped electrical head device to cure baldness.
* An archaeological mission to find King Solomon's mines.
* An aquaculture group that claimed to have grown a 2kg cultured pearl in a Honolulu shopping mall.
One company, Axagon Resources, saw its shares rise elevenfold after claiming to have developed an environmentally friendly salt substitute to melt snow.
Axagon claimed quick-fire sales of $C8 million ($A8.5 million) until reporters did some digging and discovered sales of less than $C8,000. Exit Axagon.
Another group claimed to have developed a new computer called the Columbia Homogenous Parallel Processor, which would revolutionise the industry with its speed.
Its share price rocketed from 17c to $C125 in less than a year before it was discovered the computer was simply an idea.
"One could justifiably say guilty as charged when outsiders say we have a bad reputation," said John Jennings, the president of leading Vancouver stockbroker Brink Hudson and Lefever, and a VSE office-holder who is trying to promote a new image for the stock exchange. It's a big job.
This is the market that has weathered no fewer than four regulatory overhauls in a decade.
This is also the exchange where the local stock market reporter is recognised as one of Canada's leading investigative journalists, David Baines of the Conrad Black-owned Vancouver Sun, and who receives anonymous death threats. It is also the market whose reputation is so bad it is actually written into the articles of many funds that its manager are not permitted to hold VSE stocks.
It all happens in Vancouver, the city founded on British sensibilities that nurtured that Canadian sense of decency, but which Forbes Magazine once described as "the scam capital of the world".
"We are definitely not boring," Jennings said.
Jennings is leading a push to re-position the VSE as the "world's leading market for venture capital", with emphasis on technology and the Internet.
If that sounds like legitimising old tricks, Jennings and the VSE are serious and look to Asia as their inspiration.
Jennings's firm is half-owned by Hong Kong and Taiwan interests and the VSE has just launched separate trading hours for AsiaPacific-oriented stocks, timed to match with real-time hours in Hong Kong, Singapore, Tokyo and Perth.
With capital raisings averaging $C2 million, it is also positioning itself as a mini-NASDAQ, the place where companies can get started and graduate to Toronto, NASDAQ or the Big Board on Wall Street.
"There are definitely more sedate times ahead of us," Jennings said. "We've become very particular about what sort of companies we accept now."
Baines is not so sure.
Casting himself as the champion of the small VSE shareholder, Baines speaks of an "institutionalised mafia" of insiders based on Vancouver's tight broking communities.
"Anywhere else, these people would be making their money from fee income," Baines said.
"Here there are two markets: wholesale and retail. The wholesale market are the brokers, their wives, their secretaries, their lovers, the same old names.
"Then they sell to the retail market, which is about when the general public get involved and get burnt.
"The securities regulators are part of the system."
To illustrate, he takes the AFR through the register of a recently listed small Australian mining house. Without any significant news to spur it on, the share price has risen almost tenfold since it took over a dormant VSE shell, enriching an inside track of people who Baines recognises as exchange members, their employees and families and a host of other investors who have been involved in VSE swindles.
"This is the bread and butter," Baines said. "Every five years or so, a big one comes along that is more real than the others and that keeps the VSE's doors open to the general public." The current hot stock is the gold miner Bre-X Minerals which, although Calgary-listed, is recognised as the plaything of the VSE insiders.
On the basis of a gold discovery in Indonesia its geologists estimated to be worth $US38 billion, Bre-X has soared from 50c in 1994 to $C286 this year, before its stock was split, giving it a capitalisation of $C6.2 billion. The size of the prospect and the hype has naturally attracted the interest of the ruling Suharto family.