North America Frac Sand, Inc.

ALBERTA SECURITIES COMMISSION

DECISION

Citation: Re North America Frac Sand, Inc., 2022 ABASC 110

Date: 20220818

North America Frac Sand, Inc., Lambert (Bert) Joseph Lavallee, Brian Maurice Gibbs and

David Malcolm Alexander

Maryse Saint-Laurent

Steven Cohen

Panel:

Karen Kim

Don Young

Representation:

Peter Verschoote

for Commission Staff

Robert Hladun, QC

for Lambert (Bert) Joseph Lavallee

Brian Gibbs

for himself

David Alexander

for himself

February 8, 2021

August 18, 2022

Submissions Completed:

Decision:

6035341.1

TABLE OF CONTENTS

I.

INTRODUCTION ...............................................................................................................1

A.

B.

Parties and Allegations ............................................................................................1

The Hearing .............................................................................................................2

II.

BRIEF SUMMARY.............................................................................................................2

PRELIMNARY MATTERS................................................................................................4

III.

A.

Fairness of Proceeding.............................................................................................4

General.........................................................................................................4

Self-representation of Gibbs and Alexander................................................4

COVID-19....................................................................................................4

Calling of Witnesses ....................................................................................7

Conduct of Staff's Investigation...................................................................8

Errors in NOH..............................................................................................8

Determination ..............................................................................................8

Transcripts of HMS..................................................................................................8

Corporate Records ...................................................................................................8

B.

C.

IV.

V.

THE RESPONDENTS.........................................................................................................9

A.

B.

C.

D.

NAFS .......................................................................................................................9

Lavallee..................................................................................................................10

Gibbs......................................................................................................................11

Alexander...............................................................................................................12

OTHER INDIVIDUALS AND ENTITIES.......................................................................13

A.

B.

C.

D.

E.

F.

G.

H.

I.

CSI .........................................................................................................................13

NAFSCA................................................................................................................14

Ray Newton and Dwight Newton..........................................................................15

Bugg.......................................................................................................................15

Kistler.....................................................................................................................15

Cupp.......................................................................................................................16

Harris......................................................................................................................16

Seton ......................................................................................................................16

Morrow ..................................................................................................................16

VI.

WITNESSES......................................................................................................................17

VII. STANDARD OF PROOF, HEARSAY, CREDIBILITY AND ADVERSE

INFERENCE......................................................................................................................17

A.

Standard of Proof...................................................................................................17

Balance of Probabilities.............................................................................17

Prima Facie Case.......................................................................................17

Determination ............................................................................................18

Hearsay Evidence, Relevance and Weight ............................................................18

Conflicting Evidence and Credibility ....................................................................19

The Law .....................................................................................................19

Staff Member Testimony...........................................................................19

B.

C.

Green..........................................................................................................20

Witness MP................................................................................................21

Wilson and Turner .....................................................................................22

Newton.......................................................................................................22

Alexander...................................................................................................24

Gibbs..........................................................................................................25

Lavallee......................................................................................................26

Failure to Call Witnesses and Adverse Inference..................................................26

Parties' Arguments .....................................................................................26

The Law .....................................................................................................27

Determination on Adverse Inference.........................................................28

D.

VIII. FACTS...............................................................................................................................28

A.

B.

General...................................................................................................................28

Transaction.............................................................................................................29

Documents .................................................................................................29

(a)

(b)

(c)

(d)

Overview........................................................................................29

Stock Purchase Agreement ............................................................29

Escrow Agreement.........................................................................29

Shareholder's Agreement ...............................................................30

Assignment of Leases ................................................................................31

Drafting of Stock Purchase Agreement, Escrow Agreement and

Shareholder's Agreement ...........................................................................31

NAFSCA Audited Financials ....................................................................31

Amendments and Changes to Closing Date...............................................32

(a)

(b)

Overview........................................................................................32

October 5, 2015 Amendment Agreement and November 23, 2015

Second Amendment Agreement ....................................................32

July 25, 2016 Shareholder's Agreement Amendment....................32

July 25, 2016 Stock Purchase Appendment...................................33

HTO ...............................................................................................33

Purported February 29, 2016 Closing; Release from Escrow; and

Post-February 29, 2016 Documents...............................................34

CTO................................................................................................35

NAFS' Shareholders' List...............................................................36

MP, CSI and Legal Proceedings ....................................................36

Resolution of CSI and Leases........................................................37

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

C.

D.

Formally Appointed Roles in NAFS......................................................................37

Alexander, Cupp, Morrow and Joseph Kistler...........................................37

Newton and Dwight Newton .....................................................................37

Lavallee and Gibbs ....................................................................................39

Actual Roles in NAFS ...........................................................................................39

General.......................................................................................................39

Alexander's Evidence.................................................................................39

MP's Evidence............................................................................................40

Newton's Evidence.....................................................................................41

Lavallee's Evidence....................................................................................42

Gibbs' Evidence .........................................................................................43

NAFS Shares and Shareholdings...........................................................................43

NAFS Shares..............................................................................................43

E.

(a)

(b)

(c)

Super A Share ................................................................................43

Preferred B Shares .........................................................................43

NAFS Common Shares..................................................................43

Holdings and Conversions of Preferred B Shares......................................43

Lavallee's Shares........................................................................................44

Gibbs' Shares..............................................................................................44

Harris's Shares............................................................................................45

Leases.....................................................................................................................45

Initial Leases ..............................................................................................45

Renegotiation of Leases.............................................................................45

Payments for Leases ..................................................................................46

NAFS' Websites.....................................................................................................46

General.......................................................................................................46

NAFS.ca Website.......................................................................................46

NAFS.com Website ...................................................................................49

NAFS' Expenses ....................................................................................................50

General.......................................................................................................50

Specific Expenses ......................................................................................50

F.

G.

H.

(a)

(b)

(c)

Lists of Payments...........................................................................50

NAFS' Audit ..................................................................................51

Lease Payments..............................................................................51

Accounting for Expenses ...........................................................................51

NAFS' Financial Statement Preparation and Audit ...............................................51

NAFS' Administration ...........................................................................................51

Bank Account.............................................................................................51

Business Cards...........................................................................................51

Hiring at NAFS..........................................................................................51

Dealings with ASC ................................................................................................52

General.......................................................................................................52

PIFs ............................................................................................................53

HTO ...........................................................................................................53

I.

J.

K.

(a)

(b)

(c)

Issuance and Variation...................................................................53

Correspondence with ASC.............................................................53

Newton's View of HTO .................................................................53

March to May 2016....................................................................................54

CTO............................................................................................................54

(a)

(b)

(c)

(d)

Issuance of CTO and Initial Communications...............................54

Revocation Application .................................................................55

Closure of Revocation Application File ........................................56

Lavallee's Involvement with CTO .................................................56

L.

Dealings with SEC.................................................................................................56

NAFS' SEC Filings ....................................................................................56

(a)

Overview of Filings in Evidence ...................................................56

(b)

Content of Filings ..........................................................................57

(i)

(ii)

Disclosure of Business Aspects .........................................57

Related Party Transactions ................................................57

(iii) DC&P and ICFR................................................................57

(iv) Officers and Directors........................................................58

Super 8-K.......................................................................................58

(c)

(d)

(i)

(ii)

Significance........................................................................58

Preparation .........................................................................58

(iii) Content...............................................................................58

Certifications..................................................................................59

M.

N.

Promotional Activities ...........................................................................................59

Possible Significance .................................................................................59

2015 to 2017 ..............................................................................................59

Reports...................................................................................................................61

Green's Reports..........................................................................................61

(a)

(b)

Green and Green Engineering........................................................61

Reports by Green ...........................................................................61

Norwest......................................................................................................62

(a)

(b)

(c)

Engagement and Communication..................................................62

Norwest Report ..............................................................................64

Alexander Norwest Letter..............................................................65

O.

Harris......................................................................................................................66

Alleged Relevance .....................................................................................66

2016 Emails ...............................................................................................66

2017 Emails ...............................................................................................69

AEPP......................................................................................................................74

Lavallee's Trades and Purchases of NAFS Common Shares.................................75

Second Email Address ...........................................................................................75

P.

Q.

R.

IX.

ANALYSIS........................................................................................................................75

A.

Lavallee and Gibbs – Alleged De Facto Officers of NAFS ..................................75

Allegation and Parties' Positions................................................................75

(a)

(b)

Staff's Allegation and Position.......................................................75

Respondents' Positions...................................................................75

The Law .....................................................................................................75

Discussion..................................................................................................77

(a)

(b)

Scope of Allegation........................................................................77

De Facto Officer of NAFS ............................................................78

(i)

Test for De Facto Officer ..................................................78

(ii)

NAFS' Activities................................................................78

(iii) Alexander's Activities for NAFS .......................................79

(iv)

(v)

(vi)

Evidence Relating to Harris...............................................80

Motive................................................................................82

Lavallee..............................................................................82

(A)

(B)

(C)

Factors Cited by Staff ............................................82

Examination of Factors..........................................82

Other Factors..........................................................84

(D)

(E)

Cumulative Effects of Factors ...............................85

Determination on Lavallee.....................................85

(vii) Gibbs..................................................................................85

(A)

(B)

(C)

(D)

(E)

Factors Cited by Staff ............................................85

Examination of Factors..........................................86

Other Factors..........................................................89

Cumulative Effects of Factors ...............................89

Determination on Gibbs.........................................89

B.

C.

Lavallee and Gibbs – Alleged Breach of s. 182 of the Act....................................90

Allegation and Parties' Positions................................................................90

(a)

(b)

Staff's Allegation and Position.......................................................90

Lavallee's and Gibbs' Positions......................................................90

The Law – Insider Reporting Requirements..............................................90

Discussion – Scope of Allegation..............................................................91

Determination ............................................................................................91

Lavallee – Alleged Breach of s. 93.1 of the Act....................................................92

Allegations and Parties' Positions..............................................................92

(a)

(b)

Staff's Allegation and Position.......................................................92

Lavallee's Position .........................................................................92

The Law .....................................................................................................92

Discussion..................................................................................................93

(a)

(b)

"Decision" and "Security"..............................................................93

Lavallee's Trading of NAFS Common Shares...............................93

(i)

(ii)

Evidence of Trades ............................................................93

Lavallee's Knowledge of CTO...........................................93

(A)

(B)

(C)

Issue .......................................................................93

Knowledge as an Element of a Breach of CTO.....93

Actual Knowledge of CTO....................................94

(iii) ASC Jurisdiction to Enforce CTO .....................................95

Determination ............................................................................................97

Lavallee – Alleged Breach of Section 147(3) of the Act.......................................97

Allegation and Parties' Positions................................................................97

D.

(a)

(b)

Staff's Allegation and Position.......................................................97

Lavallee's Position .........................................................................97

The Law .....................................................................................................97

(a)

(b)

(c)

(d)

Illegal Insider Trading....................................................................97

Issuer..............................................................................................98

Special Relationship.......................................................................98

"Materiality" and "Generally Disclosed".......................................99

Discussion..................................................................................................99

Determination ............................................................................................99

NAFS, Alexander, Lavallee and Gibbs – Alleged Breach of Section 221.1(2) of

the Act....................................................................................................................99

Allegation and Parties' Positions................................................................99

E.

(a)

(b)

Staff's Allegation and Position.......................................................99

NAFS' Position ............................................................................100

(c)

(d)

(e)

Alexander's Position ....................................................................100

Lavallee's Position .......................................................................100

Gibbs' Position .............................................................................100

The Law ...................................................................................................100

(a)

(b)

(c)

Misleading or Untrue Statements.................................................100

Materiality Assessment................................................................101

Related Party................................................................................101

Discussion................................................................................................102

(a)

(b)

Lavallee and Gibbs as De Facto Officers....................................102

Lavallee as a Related Party Funding NAFS ................................102

Determination ..........................................................................................103

Lavallee – Alleged Breach of Section 93.4(1) of the Act....................................103

Allegation and Parties' Positions..............................................................103

F.

(a)

(b)

Staff's Allegation and Position.....................................................103

Lavallee's Position .......................................................................103

The Law ...................................................................................................104

Discussion................................................................................................104

(a)

(b)

Lavallee's Knowledge of Investigation........................................104

Second Email Address .................................................................104

(i)

(ii)

Circumstances..................................................................104

Analysis............................................................................105

(c)

(d)

Harris and the Harris Trading Account........................................105

Lavallee's Involvement in AEPP .................................................107

Determination ..........................................................................................107

Alexander – Alleged Breach of NI 52-109..........................................................108

Allegation and Parties' Positions..............................................................108

G.

(a)

(b)

Staff's Allegation and Position.....................................................108

Alexander's Position ....................................................................108

The Law ...................................................................................................108

Discussion................................................................................................109

Determination ..........................................................................................112

X.

CONCLUSION................................................................................................................112

1

I.

INTRODUCTION

A.

[1]

Parties and Allegations

Staff (Staff) of the Alberta Securities Commission (the ASC) made allegations against

North America Frac Sand, Inc. (NAFS), Lambert (Bert) Joseph Lavallee (Lavallee), Brian

Maurice Gibbs (Gibbs) and David Malcolm Alexander (Alexander) (collectively, the

Respondents). The allegations were in a notice of hearing (the NOH) dated June 27, 2018 and

were of various breaches of the Securities Act (Alberta) (the Act) and of National Instrument

52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109). Lavallee

was represented by legal counsel. Gibbs and Alexander did not have legal counsel and each

represented himself. NAFS was not represented.

[2]

Allegations in the NOH against Seton Securities International Ltd. (Seton) were withdrawn

on September 10, 2018 after a settlement (the Seton Settlement) was reached with Seton (see,

respectively, Re Seton Securities International Ltd., 2018 ABASC 150 and Re Seton Securities

International Ltd., 2018 ABASC 148).

[3]

At issue here was the Respondents' conduct in connection with a series of events involving

NAFS, Canadian Sandtech Inc. (CSI) and North America Frac Sand (CA) Ltd. (NAFSCA).

Briefly, CSI had entered into two Leases (the Leases), with a plan to extract frac sand from certain

properties in Saskatchewan (the Leased Property). NAFS wanted to acquire the Leases. CSI

created a wholly owned subsidiary, NAFSCA, which acquired the Leases from CSI to facilitate

the transfer to NAFS. After the transaction (the Transaction) was complete, CSI (or its

shareholders) would have received common shares of NAFS (NAFS Common Shares) in

exchange for all issued and outstanding shares of NAFSCA (NAFSCA Shares), with the result

that NAFS would own the Leases through NAFSCA, and CSI or its shareholders would own a

majority of the NAFS Common Shares then outstanding. Ray Newton (Newton), who represented

CSI in the Transaction as "Seller's Agent", would become the controlling shareholder, a director

and an officer of NAFS.

[4]

The specific allegations by Staff related to: the direction and control of NAFS; the failure

of Lavallee and Gibbs to file insider trading reports; the purchase and sale by Lavallee of NAFS

Common Shares during prohibited periods; statements or omissions in documents filed with the

ASC; statements made by Lavallee during the ASC's investigation into NAFS-related matters (the

Investigation); and certifications by Alexander of documents filed with the ASC.

[5]

Our analysis and findings in respect of Staff's allegations in the NOH are set out below.

Stated briefly, based on the evidence before us, we find that:



Lavallee contravened s. 93.1 of the Act by trading in securities of NAFS while those

securities were subject to a cease-trade order; and

Lavallee contravened s. 93.4(1) of the Act by withholding from Staff information

reasonably required for an investigation.

[6]

We dismiss the remaining allegations against Lavallee.

2

[7]

We dismiss all of the allegations against Gibbs, Alexander and NAFS, and this proceeding

is now concluded against them.

[8]

This proceeding will now move into a second phase for the determination of what, if any,

orders ought to be made against Lavallee.

B.

The Hearing

[9]

The hearing (the Hearing) of this matter was lengthy and complicated because the nature

of the allegations required a highly detailed exploration of the facts and of the many inconsistencies

in the evidence relating to those facts. We also identified some concerns with the phrasing of Staff's

allegations and some of the evidence tendered in support of those allegations. In addition, the

global COVID-19 pandemic (COVID-19), Gibbs' medical issues, and adjournments connected to

those matters affected the timing of the process.

[10] We heard testimony and received documentary evidence between November 4, 2019 and

February 26, 2020. We received written submissions from Staff, Lavallee's counsel, Gibbs and

Alexander between June 8, 2020 and February 2, 2021. We heard oral submissions from Staff,

Lavallee's counsel and Alexander on February 8, 2021. Gibbs chose at that time not to make oral

submissions, although he was given the opportunity to do so.

II.

BRIEF SUMMARY

[11] The background and facts of this matter were complicated, made more so by the nature of

Staff's main allegations that Lavallee and Gibbs were acting as officers of NAFS, despite having

no formal titles – we refer to this as being a "de facto officer". We set out some basic information

here as context for the allegations and our decision, with details later, as appropriate. We then turn

to some preliminary matters and to our analysis of the allegations. In this decision, some

individuals are identified by initials to protect their privacy interests.

[12] CSI was run by Newton and his brother Dwight Newton (Dwight Newton, and, together,

the Newtons). CSI held the Leases for frac sand on the Leased Property. The frac sand potential

looked promising, but CSI had financial problems.

[13] Newton asked his long-time friend Gibbs for help. Gibbs turned to Tom Bugg (Bugg), who

brought in Lavallee. Lavallee had known Alexander and Brian Kistler (Kistler) for some time.

Lavallee, Kistler and David Cupp (Cupp) had connections to NAFS. Kistler is Cupp's uncle.

Alexander was an officer and director of NAFS. Cupp held NAFS' Super A Share (which had

sufficient votes to control any vote by NAFS' shareholders); Kistler held most of NAFS' Preferred

B Shares (which could be converted into NAFS Common Shares). Joseph Kistler (Joseph

Kistler), presumably a relative of Kistler, became a director and officer of NAFS when Alexander

resigned in December 2017. Details of the Super A Share and Preferred B Shares are set out below.

[14] A plan was formed – the Transaction – under which NAFS would end up controlling the

Leases through its acquisition of NAFSCA, and CSI (or its shareholders) would end up with

37.8 million NAFS Common Shares. There were three main Transaction documents: the Stock

Purchase Agreement; the Escrow Agreement; and the Shareholder's Agreement (the latter

document used the incorrect possessive form (Shareholder's instead of Shareholders'), and we

follow that incorrect usage here).

3

[15] Newton and his brother would have held the majority of the 37.8 million NAFS Common

Shares (as they were the majority holders of CSI Shares). NAFSCA was created as a wholly owned

subsidiary of CSI. CSI would transfer the Leases to NAFSCA, and NAFSCA would then be

acquired by NAFS, giving NAFS ownership of the Leases. Newton would hold the majority voting

position of NAFS (through the Super A Share). Newton was also to be a director and officer of

NAFS, and have the right to appoint the majority of its directors. In the interim, Alexander

remained an officer and director of NAFS (others joined and left throughout the relevant period,

as set out below).

[16] That plan was executed poorly, delayed and amended. Newton did not ultimately receive

the Super A Share, and CSI, or the CSI shareholders (CSI Shareholders) as a group, received a

far lower percentage of NAFS Common Shares than originally provided for, and only much later

by way of legal proceedings and negotiations. There was also doubt as to whether the Transaction

closed (or when, if it did close) and whether the Newtons ever had director or officer positions

with NAFS.

[17] NAFS had expenses but no revenue, and Lavallee provided money to keep NAFS

operating, including paying back rental for the Leases. Another significant expense paid for by

Lavallee was the exploration of the Leased Property and the subsequent preparation of a technical

report (the Norwest Report) compliant with National Instrument 43-101 Standards of Disclosure

for Mineral Projects (NI 43-101). (Lavallee also paid for earlier reports which were not compliant

with NI 43-101.) The plan was for NAFS to use the anticipated favourable Norwest Report to raise

money, then extract and market the frac sand deposits from the Leased Property. Several of the

individuals involved who owned NAFS Common Shares, including Lavallee and (despite his

denial) Gibbs, clearly hoped for an accompanying increase in the price of those NAFS Common

Shares.

[18] There is obviously nothing objectionable about a company hoping to raise money to

develop its assets, resulting in the appreciation of the company's share value. However, Staff

alleged here that aspects of that plan and its execution resulted in several violations of Alberta

securities laws.

[19] Staff asserted that NAFS was Lavallee's company. They alleged that, after the Transaction,

"Lavallee and Gibbs were officers of NAFS, by definition in the [Act], and its directing and

controlling minds, or both" – as noted, what are colloquially referred to as de facto officers. We

discuss that term in more detail below. In written submissions, Staff argued that Lavallee and

Gibbs were "secretly in control" of NAFS, which we understood to be a different phrasing of their

allegation that Lavallee and Gibbs were de facto officers, and not an allegation that Lavallee and

Gibbs had voting control. Staff contended that Alexander was merely a figurehead for NAFS,

doing the bidding of Lavallee and Gibbs. These alleged de facto officer roles of Lavallee and Gibbs

were the foundation for certain other allegations – that Lavallee and Gibbs did not file reports as

insiders of NAFS, that Lavallee engaged in improper insider trading, and that some of NAFS'

disclosure was misleading or untrue. These and the other allegations are discussed below.

[20] Lavallee's counsel, Gibbs and Alexander submitted that: Alexander was the officer and

director of NAFS (on paper and in reality); NAFS was not Lavallee's company; Lavallee and Gibbs

4

were not de facto officers of NAFS; Lavallee and Gibbs did not secretly control NAFS; Lavallee

was providing funding but not making decisions for NAFS; and Gibbs was assisting with what

needed to be done (under Alexander's or Newton's direction), but not himself making decisions for

NAFS. Therefore, they argued that the allegations which relied on Lavallee and Gibbs being de

facto officers or on Lavallee being a related party should fail. One or more of them further argued,

as relevant to them, that Staff's other allegations should also fail.

III.

A.

PRELIMNARY MATTERS

Fairness of Proceeding

General

[21] We consider it important to address briefly some fundamental fairness concerns raised by

one or more of the Respondents. Where appropriate, these are also discussed in more detail later

in the decision.

Self-representation of Gibbs and Alexander

[22] Gibbs and Alexander each asserted multiple times that they were at a disadvantage during

the hearing process because neither was represented by counsel. They also each mentioned in

written argument that they were not provided with counsel to act for them during the hearing

process and were referred by the panel to seek guidance from Staff counsel for questions.

[23] Unfortunately, it is a fact of our legal system that not everyone appearing before a decision

maker has the benefit of counsel. ASC panels are accustomed to ensuring a fair process in such

situations. We did so here, including giving both self-represented respondents written guidelines

of the processes and procedures for a hearing, and providing them assistance and leeway during

their testimony, questioning of witnesses and tendering of documents. Further, we continually

explained procedural aspects and made scheduling adjustments and accommodations. Following

the evidentiary portion of the Hearing, we instructed Staff to provide Gibbs and Alexander with

written submissions from a previous ASC hearing, so that they effectively had a template to follow

when preparing their own written submissions.

[24] To clarify their statements that they were told by the panel to seek guidance from Staff

counsel, the panel did at times suggest that both Gibbs and Alexander would benefit from talking

to Staff counsel about procedural issues, such as timing, scheduling, and the format of written

submissions. The panel did not suggest that either of them seek guidance from Staff counsel on

substantive or legal matters. Recognizing that self-representation can be challenging, counsel for

Lavallee offered to assist Gibbs and Alexander on procedural and legal matters to the best of his

ability, where that did not conflict with his duty to his own client.

[25] We are satisfied that Gibbs' and Alexander's status as self-represented respondents did not

affect the fairness of the Hearing.

COVID-19

[26] The parties' written and oral arguments were delayed in part by COVID-19. The original

schedule, set in consultation with the parties, called for written submissions from Staff on

April 6, 2020 and from the Respondents on April 27, 2020. Staff's written reply submissions were

due on May 1, 2020. Oral submissions were set for May 4 and 5, 2020.

5

[27] The declaration of the COVID-19 pandemic, the general response of the governments in

Canada, Alberta and the City of Calgary, as well as the specific response of the ASC and the

uncertainty this created for all participants, required rescheduling of the written and oral

submissions. We were also faced with conducting the oral submissions remotely, on the Zoom

platform (Zoom).

[28] These issues were addressed between the panel and the parties through email

correspondence (via the ASC Registrar), hearing management sessions (HMS) and an application

by Gibbs on November 9, 2020 for a further extension to file his written submissions (the

November Extension Application). The HMS were conducted by teleconference and the

November Extension Application was conducted by Zoom.

[29] At a May 4, 2020 HMS, we changed the dates for the parties' written submissions to

June 8, 2020 (for Staff), August 17, 2020 (for the Respondents) and August 24, 2020 (for Staff's

reply). The new oral submissions date was September 2, 2020. We advised the parties at that HMS

that they could file their written submissions electronically, did not have to provide paper copies,

did not have to ensure their submissions were perfect, and that the panel would overlook any

problems with aspects such as formatting and footnotes in those written submissions.

[30] At an August 18, 2020 HMS, we noted that Staff's written submissions were received on

time, and that written submissions from Lavallee's counsel and Alexander had been received on

August 17, 2020, although later than the specified hour. Gibbs' written submissions were already

a day late by the time of the HMS, but we asked Gibbs at that HMS if he was making an application

for a further extension. Citing his perceptions of unfairness with the Hearing, including his

concerns with COVID-19 and with the prospect of oral submissions not being conducted in person,

Gibbs stated that he would not participate in a "virtual" hearing, because virtual to him meant

"fake", "pretend" and "not real". He insisted that he had a right to be physically present in the

hearing room for oral submissions because, in his view, an in-person hearing was the only fair type

of hearing. He further stated that he would not be "lifting another finger" until he considered that

COVID-19 was no longer a threat to him and his spouse, and that his overall priority was to his

family.

[31] Although some of Gibbs' conduct at that HMS (and at the subsequent HMS and the

November Extension Application) was disrespectful of the panel and the proceeding, we

recognized that the impact of this pandemic and the uncertainty it created caused considerable

strain to everyone. Accordingly, we took his stated concerns as a request for accommodations and

flexibility, and we extended his deadline to file his written submissions to October 16, 2020 – a

date that he himself suggested was reasonable. We reiterated to Gibbs that his written submissions

did not have to be in a specific format. We then set October 23, 2020 as the date for Staff's written

reply submissions (to all submissions received from Respondents) and set November 9, 2020 for

oral submissions (with November 10, 2020 also set aside, to be used if necessary). We further

noted that the scheduled October 19, 2020 HMS would provide an opportunity closer to the oral

submissions dates for the panel to determine if those oral submissions would be conducted in

person, by teleconference or by Zoom. Finally, we informed the parties that the ASC would be

posting on its website by the next day a document outlining protocols for ASC remote hearings.

That "Remote Hearing Guidelines" document was indeed posted on the ASC website and, at the

panel's direction, was also provided directly to the parties by the ASC Registrar.

6

[32] On October 16, 2020, the date on which Gibbs' written submissions were due, the panel

received through the ASC Registrar an email from Gibbs stating that he had been unable to

complete his written submissions due to health concerns. At the previously scheduled

October 19, 2020 HMS, at which all parties were present, the panel asked for the parties' views on

whether to proceed on November 9, 2020 with oral submissions (in which case Gibbs would make

only oral submissions and only if he chose to do so) or whether to hear a formal application from

Gibbs for a further extension of his written submissions deadline. Staff suggested that it was time

to proceed with the oral submissions. Lavallee's counsel and Alexander both supported Gibbs

being given additional time to make written submissions, as they both considered that Gibbs'

written submissions would be important for Gibbs and for their own cases.

[33]

We decided to allow Gibbs to make an application for a further extension of the deadline

for his written submissions. We instructed Gibbs to notify the panel, via an email to the ASC

Registrar, if he intended to make such an application. We also ensured Gibbs was aware that such

an application needed to provide: (1) evidence, such as by a sworn affidavit, as to the grounds on

which he was seeking a further extension; and (2) a physician's opinion as to Gibbs' ability to

complete written submissions, including the time he would need to do so. We determined that the

application, if made, would be heard on November 9, 2020, as all parties had previously indicated

their availability for that date because of the earlier-scheduled oral submissions. We decided that

such application would be conducted by Zoom because an in-person hearing was not feasible, and

that would also be a good test for the parties and the panel to use Zoom in the event oral

submissions were to be heard that way.

[34] Following that HMS, Gibbs confirmed that he wanted to make the November Extension

Application, and he provided the required materials for that application on time. We heard the

November Extension Application by Zoom and extended Gibbs' deadline for providing his written

submissions to January 29, 2021. The panel reiterated earlier comments and assured Gibbs that his

written submissions could be filed electronically, did not have to follow a specific format, could

be in point form, and did not have to be "pretty". We set Staff's new date for written reply

submissions (to all submissions received from Respondents) as February 4, 2021, and set the new

oral submissions date as February 8, 2021. Given the fluctuating circumstances of COVID-19 and

various public safety orders, we postposed the determination of the format of the oral submissions

(in person, teleconference or Zoom) until three weeks before the newly scheduled oral submissions

date.

[35] We received Gibbs' written submissions on January 29, 2021 and Staff's written reply

submissions on February 2, 2021.

[36] Gibbs did not appear at the February 8, 2021 Zoom hearing of oral submissions. At that

hearing, the panel noted:



The ASC Registrar had notified the parties in a January 18, 2021 email of the

following:

In light of the ongoing COVID-19 situation[,] as well as the specific health or

travel circumstances of the [R]espondents, the [p]anel is directing that the hearing

7

of oral submissions in this matter on February [8] will be conducted with all

parties appearing remotely via Zoom videoconference. The parties are familiar

with Zoom from the last hearing management session[,] but may also refer to the

[ASC's Remote Hearing Guidelines for information].



Gibbs sent a January 27, 2021 email to all parties and the ASC Registrar that he

"will not attend that virtual hearing because it deprives me and the other

Respondents of a fair hearing which we are entitled to" and that he wanted "to have

a number of attendants for the oral submissions . . .and I want it open to the public

at large".

The panel sent a February 1, 2021 email, via the ASC Registrar, reminding the

parties that the oral closing submissions on Zoom would be open to the public and

setting out for the parties the procedure for public access, as posted on the ASC

website. That email also advised Gibbs that he "may choose to attend and make

oral submissions, or not. The [p]anel has Mr. Gibbs' written submissions filed on

Friday, January 29, 2021."



Gibbs sent two February 5, 2021 emails to all parties and the ASC Registrar. In

those, he complained generally of unfairness, and raised specific points, including

that he would not attend the Zoom hearing, and did not consider sufficient the

ASC's arrangements for the hearing to be open to the public. Gibbs then stated:

"I hereby demand and insist a [H]earing in person for the [O]ral closing

submissions and not this plastic [H]earing being held in pretence on

Monday, February 8, 2021" and "I will be protesting outside the offices of the ASC

on Monday, February 8, 2021 . . . instead of appearing in [Z]oom at a pretentious

hearing."

[37] We also note that Gibbs sent a February 7, 2021 email to all parties and the ASC Registrar

attaching a copy of a letter he sent to the Alberta Minister of Finance containing various fairness

complaints about the Hearing. We consider that letter irrelevant to the matters before us.

[38] During the February 8, 2021 Zoom hearing, the panel noted that Gibbs had not made an

application to further adjourn the oral submissions, pointed to the continuing COVID-19

restrictions, commented that many legal proceedings (including at the ASC, other securities

regulatory authorities in Canada, and courts in Canada) had been conducted by videoconference,

referred to Gibbs' written submissions as showing that he had availed himself of the opportunity

to review and respond to the written submissions made by the other parties, and stated that Staff,

Lavallee's counsel and Alexander were present and ready to proceed. The panel then heard oral

submissions from the parties that were present.

Calling of Witnesses

[39] Lavallee's counsel and Gibbs asserted that Staff had not called certain witnesses during the

Hearing, and that such individuals would have supported the Respondents' positions or otherwise

would have shed additional light on the circumstances surrounding the allegations.

[40] We address this argument later in this decision.

8

[41] We note that some witnesses and documents referred to different people or entities by

slightly different names (for example, "Buggs" instead of "Bugg", "Cuff" instead of "Cupp" or

"Northwest" instead of "Norwest"). We are satisfied that we understood in all such situations the

person or entity being referred to.

Conduct of Staff's Investigation

[42] Gibbs and Alexander suggested that Staff's entire Investigation was biased (Gibbs called it

"incompetent, shallow and inadequate"), with Gibbs and Alexander named in the NOH only

because of a vendetta Staff in general had against Lavallee.

[43] It is not a panel's role to second-guess Staff's conduct of their Investigation, their decisions

as to who to name in a notice of hearing, their conduct during the hearing process, or the witnesses

they call at a hearing.

[44] It is a panel's role to assess the allegations made in a notice of hearing to determine if Staff

have proved those allegations on a balance of probabilities. Allegations made without proper

evidentiary foundation or support become evident during the course of a Hearing and during a

panel's deliberation process, and such allegations will be dismissed. As seen below, our analysis

did show that Staff failed to prove certain of their allegations. However, our dismissal of those

particular allegations was not a comment on Staff's Investigation, nor was it a finding that those

allegations should not have been made in the NOH or were made for an improper purpose.

Errors in NOH

[45] There were several errors in the NOH. Two examples will suffice for illustration. First,

para. 6 of the NOH stated that CSI was introduced to Lavallee by Gibbs, although the evidence

showed that CSI was introduced to Lavallee by Bugg. Second, para. 6 of the NOH referred to the

Leases as being for "oil and gas properties", although the evidence showed the subject lands were

not oil and gas properties. Some errors, such as Gibbs introducing CSI to Lavallee, could be

relevant to the issues before us, and we deal with them below as appropriate. Some errors, such as

the use of the incorrect phrase "oil and gas properties", were not relevant to the issues before us,

and we do not address such matters in this decision.

Determination

[46] We are satisfied that the Respondents received a fair hearing.

B.

Transcripts of HMS

[47] Under s. 11.2 of Rule 15-501 Rules of Practice and Procedure for Commission

Proceedings, transcripts of HMS are not public documents. In the circumstances here, however,

we ordered that transcripts from the May 4, 2020, August 18, 2020 and October 19, 2020 HMS be

public documents, subject to the necessary redaction of personal information, including medical

information.

C.

Corporate Records

[48] In evidence were various corporate records from Alberta's Corporate Registration System

(CORES) and equivalents from other jurisdictions. We set out information from such records to

the extent it was available and relevant. However, the details in the corporate records did not assist

9

the panel in assessing the primary allegations related to whether Lavallee and Gibbs were de facto

officers of NAFS.

IV.

A.

THE RESPONDENTS

NAFS

[49] During the relevant period, NAFS was a Florida company which had evolved through

several name changes and several potential business concepts. NAFS was required to file certain

material with the United States Securities and Exchange Commission (SEC) and, as a designated

reporting issuer, was required to file such SEC material with the ASC. Some of that filed material

was the basis for some of Staff's allegations.

[50] NAFS was originally an Indiana corporation, incorporated on April 26, 2007 and named

New Found Shrimp, Inc. It became a Florida company on June 26, 2012. Its name was changed to

Innovate Building Systems, Inc. (Innovate) on April 8, 2014 and to Xterra Building Systems, Inc.

(Xterra) on September 5, 2014 (with the corporate documents for those changes signed by Cupp

as CEO and board chair).

[51] As part of the Transaction process, the company's name was changed to NAFS on

July 15, 2015 (with the articles of amendment signed by Alexander as CEO and board chair of

Xterra). Further amendments to NAFS' articles were made July 27, 2016, again signed by

Alexander as CEO and board chair. It appeared that the registered agent at all relevant times was

Clifford Hunt (Hunt), a lawyer in Florida. We refer to the company throughout this decision using

the name appropriate in the particular context.

[52] Documentary evidence and testimony during the Hearing gave us some indication of the

shareholders and the formally appointed directors and officers of NAFS at the times critical to the

allegations, although that evidence was not consistent – particularly regarding the Newtons' roles.

[53] Alexander was a formally appointed director and officer of Xterra and then NAFS starting

in early 2014 or 2015 and continuing until December 2017, and NAFS' business address during

that period was usually the same as Alexander's. At times, there were other directors or officers

showing on the corporate filings or corporate records. Cupp had earlier been a formally appointed

director and officer, resigning as an officer in February 2015 and as a director likely in

March 2016. According to personal information forms (PIFs) in evidence, Newton should have

become a formally appointed director and CEO of NAFS effective July 15, 2015, and Dwight

Newton should have become a formally appointed director and COO of NAFS effective the same

date. However, there was a dispute regarding their status and they were apparently not appointed

or elected as directors or officers. Edwin Morrow (Morrow) became a formally appointed director

on July 27, 2016.

[54] Lavallee and Gibbs were not formally appointed as directors or officers of NAFS at any

point. However, that was not determinative of the allegation that Lavallee and Gibbs were de facto

officers of NAFS because the point of that allegation was the claim that Lavallee and Gibbs were

acting as officers of NAFS without being formally appointed.

[55] NAFS had three types of shares issued and outstanding: NAFS Common Shares; the

Preferred B Shares; and the Super A Share. The latter, owned by Cupp, had sufficient voting power

10

to control any shareholder vote. Kistler (through his company New Opportunity Business

Solutions, Inc. (NOBS)) owned Preferred B Shares. Those could be converted into NAFS

Common Shares. The conversion rate for the Preferred B Shares was 250,000 NAFS Common

Shares for each Preferred B Share (although the board of directors of NAFS (the NAFS Board)

could set a different conversion rate).

[56] Lavallee acknowledged that he owned NAFS Common Shares, and that was confirmed by

other evidence. Gibbs denied holding or controlling any NAFS Common Shares. That was

contradicted by other evidence, including emails sent by Gibbs himself, and we find that Gibbs

did own NAFS Common Shares (discussed below).

[57] The contemplated, but never executed, transfer of the Super A Share from Cupp to Newton

is discussed below. Documents showed Kistler selling some Preferred B Shares to various

individuals, with those being immediately converted into NAFS Common Shares. Various audited

and unaudited financial statements for NAFS were in evidence, with Ben Borgers (Borgers) as

NAFS' auditor commencing in July 2015.

[58] NAFS was subject to a halt-trade order issued on February 22, 2016, which was varied on

February 29, 2016 and expired by its terms on March 11, 2016 (the HTO). NAFS was also subject

to a cease-trade order issued on May 16, 2016 (the CTO). The HTO and the CTO had implications

for the Transaction and some of the allegations in the NOH, as discussed later.

B.

Lavallee

[59] Lavallee was interviewed by Staff investigators on October 3, 2017, under oath and with

counsel present (the Lavallee Interview). The transcript and exhibits from that interview were in

evidence. Lavallee was represented by counsel at the Hearing (a different counsel than at the

Lavallee Interview), did not attend in person, and did not testify.

[60] Lavallee described himself as a self-educated businessman who worked in the financing of

various projects, including mining companies, mining assets and real estate. He said that he had

previously been sanctioned by the ASC, but not by any other securities commissions. He stated

that he had two personal trading accounts (one in Vancouver and one with the Royal Bank online),

but no other accounts in his name or for which he had authority or gave trading directions. He later

added that he owned shares in NAFS in a Seton account (the Seton Account) in the Bahamas.

Although not mentioned during the Lavallee Interview, we learned during the Hearing of NAFS

Common Shares, some of which were beneficially owned by Lavallee and Gibbs, being held in an

account (the Harris Trading Account) in the name of Robert Harris (Harris).

[61] Lavallee stated that he had not been a director or officer of any public company for the past

10 years, although he was the sole director of his own private companies, Lavallee Financial Corp.

and Lavallee Financial International. He said he did not own shares in NAFS through either of

those companies.

[62] Lavallee said he was going to finance NAFS to go public when it was Innovate, but pulled

away when he found out it was "bankrupt". He then became involved in about May or June 2015

with Xterra and learned of the frac sand deposit and the Leases. He stated that he thought it was a

great asset and agreed to finance the company. Lavallee said that Bugg introduced him to the

11

opportunity and to Gibbs and the Newtons. Lavallee confirmed that his role in NAFS was to pay

bills, and he thought he put in about $500,000. According to Lavallee, NAFS had no operations.

Lavallee said he had known Kistler for a long time, but had never met Cupp.

[63] Alexander described Lavallee as a "financier" of NAFS and a shareholder, but not a

majority shareholder.

[64] Lavallee stated that, during the relevant period, he had an "outlook.com" email address. He

denied during the Lavallee Interview that he had an email address in addition to the "outlook.com"

one. However, the evidence showed that he also had a "gmail.com" email address (the Second

Email Address). That denial was relevant to one of the allegations against him.

C.

Gibbs

[65] Gibbs was interviewed under oath (without counsel) by Staff investigators on

February 27, 2017, and the transcript and exhibits were in evidence (the Gibbs Interview). Gibbs

was present at the Hearing, represented himself, and testified.

[66] Gibbs was trained as a chartered accountant and worked for an accounting firm for almost

30 years. He testified that he completed hundreds of audits during that time. Gibbs no longer has

his designation as a chartered accountant.

[67] Gibbs confirmed that Newton asked for Gibbs' help with CSI in early 2015, and Gibbs did

not meet Lavallee until May 2015. Gibbs characterized himself as Newton's personal advisor

between approximately March 28, 2015 and July 26, 2016, continuing to a lesser degree after

Newton moved back to Saskatoon. Gibbs denied being a principal of CSI or NAFS: "I did not

establish policy. I was not driving the bus. I had little influence, let alone the authority to do

anything in NAFS." Gibbs testified that he did not have a contract with CSI or NAFSCA, although

there was evidence of invoices from Gibbs as "Consultant" to NAFSCA in late 2015. Those

apparently were never paid. Gibbs also testified that he: never represented himself as an officer of

NAFS; had no assistant, signing authority or office; managed nobody; and "was a gofer" (or

"gopher"), a "carrier pigeon" or a "courier pigeon" (the latter term was perhaps a transcription

error, but Gibbs' meaning was clear).

[68] Gibbs testified that he had only a minimal role in NAFS after July 2016, and no role after

the Norwest Report was issued in May 2017. Gibbs stated that he never talked to the auditors about

NAFS. He also stated that he did not give instructions to Alexander because that was not Gibbs'

role. Lavallee described Gibbs as an advisor to the NAFS Board and to Alexander. Gibbs testified

that he was listed on the first NAFS website (the NAFS.ca Website) in late 2015 as being on the

advisory board of NAFS because Newton wanted Gibbs to be listed there.

[69] Gibbs confirmed during cross-examination that he had not signed an advisor agreement

with NAFS as of late 2015, signed anything appointing him as an officer of or advisor to NAFS,

or been paid in money or shares by NAFS. We later discuss evidence of Harris holding NAFS

Common Shares for Lavallee and Gibbs. Overall, we conclude that the evidence as a whole –

including Gibbs' testimony – showed that the majority of Gibbs' activities early in the relevant

period related to CSI and NAFSCA, although it was clear that he had increasing involvement with

12

NAFS as time went on. We discuss the nature of Gibbs' involvement with NAFS later in this

decision.

[70] During the relevant period, Gibbs used a "gmail.com" and a "telus.net" email address. In

evidence were many emails from the latter account (the Telus Emails), some of which Staff

obtained from Telus using a production order. Gibbs had disclosed some Telus Emails to Staff

during the Investigation, but not all of them. The undisclosed Telus Emails were the subject of a

January 9, 2020 ruling by this panel dismissing applications by Lavallee's counsel and Gibbs to

exclude those Telus Emails from evidence. Therefore, those Telus Emails were allowed into

evidence at the Hearing, with written reasons for our ruling released in April 2020 (see Re North

America Frac Sand, Inc., 2020 ABASC 40).

D.

Alexander

[71] Alexander was interviewed under oath and with counsel by Staff investigators on

August 16 and November 7, 2017 in British Columbia, and the transcripts and exhibits were in

evidence (the Alexander Interview). Alexander was present at the Hearing, represented himself,

and testified.

[72] Alexander has a commerce degree and a "CPA-CA" designation from 1979. He described

in his resume his role with NAFS (and other companies starting in 1995) as "primarily work[ing]

with entrepreneurs providing chief financial officer and controllership roles", including treasury

functions, financing functions, reporting functions, liaison with regulatory and audit authorities,

board management functions, and preparation of agreements (such as purchase agreements). As

noted, he was a formally appointed director and officer of NAFS during the relevant period.

[73] During his interview, Alexander said it was his job, as president, to develop the property

for NAFS, but he needed financing for that, which Lavallee was to handle. Alexander considered

his role to be "primarily a CFO role . . . primarily doing the reporting for the company and

corporate secretary activities of the company". Alexander also described his role at NAFS as to

"remain in corporate compliance as best as I possibly can with the regulations of all the regulators

of the world"; he noted that "the company isn't doing very much". He would also "do due diligence

on any potential acquisitions, work with auditors, work with lawyers", but had "never hired

anybody or fired anybody".

[74] Gibbs confirmed that at an early organizational meeting (including Bugg, Lavallee,

Alexander, Newton and Gibbs), Alexander presented himself as an officer and director of NAFS,

explained the process and said that he would take care of all filings. In evidence were various

certifications signed by Alexander on behalf of NAFS for filings made with either or both of the

ASC and the SEC. Alexander testified that he was the one who corresponded with the ASC,

including preparing documents for Newton to sign for the ASC.

[75] Alexander acknowledged that he was "promised some things" by Kistler – they agreed that

in exchange for Alexander being an officer and director of NAFS and performing "duties required

to ensure compliance with securities laws, tax, and disclosure requirements", he could earn up to

10 Preferred B Shares from NOBS (the Alexander Agreement). Alexander testified that he did

not disclose the Alexander Agreement in any NAFS' filings because it was a private and oral

agreement between him and Kistler. Alexander also argued that he discounted the agreement

13

because it was unlikely to be fulfilled. Staff made no allegations relating to the Alexander

Agreement.

[76] Alexander resigned his officer and director positions with NAFS on December 11, 2017.

He was replaced by Joseph Kistler, and NAFS' headquarters were moved to Indiana.

V.

A.

OTHER INDIVIDUALS AND ENTITIES

CSI

[77] CSI is an Alberta company incorporated on November 21, 2006. CSI's registered office

was a Calgary address (the office of its lawyer, Paul Mullen (Mullen)), with the Newtons listed as

directors and majority shareholders (each shown as having 27% of the voting shares as of an

April 2017 CORES search date). The CORES search indicated no changes in directors or

shareholders since June 29, 2010, well before the relevant period.

[78] CSI initially held the Leases which were the impetus for the Transaction. There were two

separate Leases (one with individuals (the First Lease) and one with a church (the Second Lease)),

which were eventually combined. CSI assigned the Leases to NAFSCA (its wholly owned

subsidiary) during 2015, as discussed below. CSI (with the Newtons as directors, officers and

majority shareholders) fell behind on the payments for the Leases, but thought that there were

significant amounts of frac sand on the Leased Property. CSI had no office, little equipment, one

bank account (with Newton at times the sole signatory and at times a co-signatory with Dwight

Newton), no financial statements (other than a balance sheet), and made no securities filings in

Alberta or Saskatchewan. Newton acknowledged that some of CSI's actions contravened corporate

law requirements.

[79] Under the July 2015 Transaction, CSI was supposed to receive 37.8 million NAFS

Common Shares (with 865,448 NAFS Common Shares already outstanding, according to the

Stock Purchase Agreement). Even though not provided for in the Transaction documents, Newton

claimed that the appropriate portion of the 37.8 million NAFS Common Shares was to go to each

individual CSI Shareholder directly. The Transaction did require Newton to provide a "Current

Shareholder List" to NAFS at closing, although it was unclear if that was a list of NAFSCA

shareholders (of which there was only one, CSI) or a list of CSI Shareholders (the CSI

Shareholders' List). We note that what appeared in July 2015 to be a CSI ownership position of

approximately 98% of the NAFS Common Shares was at risk of significant dilution given the

Preferred B Shares outstanding, as well as an additional 163 Preferred B Shares to be designated

to NOBS and other parties under the terms of the Shareholder's Agreement.

[80] It was clear that CSI's records and record-keeping procedures were shoddy, at best. That

shoddiness was apparently the reason NAFSCA was created – to have a "clean" company to hold

the Leases and which NAFS could acquire. However, some basic CSI information was still

necessary, specifically certain financial information to be incorporated into audited financial

statements of NAFSCA (the NAFSCA Audited Financials), which were required to close the

Transaction.

[81] Newton testified that he and his brother started by funding CSI projects with their own

money, then raised money from friends and family by selling treasury shares and personal shares;

14

about 9 million CSI Shares were apparently sold, with over $3 million raised. We are not confident

that those numbers were accurate.

[82] In answer to suggestions from Gibbs, Alexander and counsel for Lavallee that the Newtons

used CSI money for their personal expenses, Newton said the majority of money raised for CSI

was spent on things such as engineering work to create an asset. We note that money raised from

CSI Shares sold by the Newtons (rather than from CSI's treasury) would presumably have gone to

the Newtons, not CSI, although there was little direct evidence on what was raised and spent by

the Newtons through CSI or for themselves. Regardless, the dispute at the Hearing among Newton,

Lavallee's counsel, Gibbs and Alexander regarding CSI and funds it raised was not relevant to the

allegations here, other than effects on Newton's credibility, discussed below. Our findings are

limited to the allegations in the NOH.

[83] Gibbs testified that Newton approached him in December 2014 and January 2015 regarding

having "run out of money in respect of [Newton's] frac sand business". Newton acknowledged

that, before Gibbs became involved, CSI had a contract with Desmond Smith (Smith) and AG to

find financing for CSI. Gibbs began to help Newton with CSI in approximately March 2015. They

worked on putting the documents in order. Gibbs testified that he asked Newton for the CSI

Shareholders' List because knowing how many CSI Shares were outstanding and at what price

would be important when trying to raise money.

B.

NAFSCA

[84] NAFSCA, an Alberta company and a wholly owned subsidiary of CSI, was incorporated

on June 5, 2015 by Mullen. NAFS was to have become the sole shareholder of NAFSCA under

the Transaction and, therefore, the owner of the Leases. NAFSCA's original records address and

registered office address were the same Calgary address as CSI's (Mullen's office), and Newton

was the sole director. Effective June 3, 2016, those addresses were changed to Gibbs' address in

Calgary and a Saskatoon address, respectively. On the same day, Newton was removed as a

director and replaced by Alexander. Gibbs was shown in CORES as the "Authorized

Representative" and "Agent of Corporation" filing for both the director change and the address

change. Newton stated that Gibbs was never an agent for NAFSCA and had no authority to request

those changes. Alexander stated that he told Gibbs to make the changes. Gibbs testified that

Newton had refused to sign the June 3, 2016 resignation letter. That was consistent with the

purported resignation being effected with a poorly drafted June 3, 2016 consent resolution of

NAFSCA's "Board of Shareholders".

[85] NAFS' Form 8-K dated August 26, 2016 (the Super 8-K) stated that management of NAFS

had been appointed as management of NAFSCA, with previous management having resigned.

Alexander justified this by saying that Newton had "essentially disappeared off the map" and work

had to be done with Norwest and the Leases. He later acknowledged that Newton had not resigned.

[86] The director change was reversed on February 14, 2017, so that Newton was again the sole

director of NAFSCA. The uncertainty surrounding NAFSCA's directorship, management and

share ownership was not directly relevant to the allegations. It represented, however, another

example of the disorganization and carelessness that prevailed in many aspects of the Transaction

and connected events – in turn, complicating the evidence in this Hearing.

15

C.

Ray Newton and Dwight Newton

[87] Newton testified at the Hearing. He said that Dwight Newton was not available for medical

reasons. Newton lived in Calgary from approximately March 2015 to April 2016, and otherwise

lived in Saskatoon during the relevant period.

[88] The Newtons were the directors and officers of CSI during the relevant period. Newton

had previously worked for other companies which dealt with sand, including frac sand.

[89] The Newtons' status as directors or officers (or both) of NAFS during the relevant period

was unclear. There were NAFS' PIFs for both in evidence, they were referred to as officers at one

point on the NAFS.ca Website, and Newton identified himself as a director or officer of NAFS

when communicating with the ASC during some periods in 2015 and 2016. Under the Transaction

(until the Shareholder's Agreement was amended), Newton was also supposed to be an officer and

director of NAFS and to have the authority to nominate other directors.

D.

Bugg

[90] Gibbs testified that he introduced Newton to Bugg, a good friend. After a few meetings,

Bugg "mentioned that he had a good business partner that he had done business with for 30 years

that might be interested" – Lavallee. Newton confirmed that Bugg introduced them to Lavallee.

Gibbs agreed that Bugg had told Gibbs that Lavallee had a vehicle on the over-the-counter (OTC)

market. Gibbs testified that Bugg led several meetings with largely the same participants, including

Alexander at some meetings. The evidence showed that Bugg was involved with some of NAFS'

later activities.

[91] Gibbs understood that Bugg would get one million NAFS Common Shares for his work,

although we were not pointed to other evidence relating to this.

E.

Kistler

[92] The evidence as a whole was inconsistent regarding the extent of Kistler's role or influence

in NAFS' matters. Lavallee identified Kistler as a US stockbroker, and said that Kistler's company,

NOBS, sold public companies. We are satisfied that Lavallee and Kistler had known each other

for many years. Alexander said that he met Kistler through Lavallee. Gibbs testified that Kistler

joined a meeting about NAFS in July 2015 and explained his involvement and the share structure.

[93] Kistler owned most of the outstanding Preferred B Shares, which were convertible into

NAFS Common Shares.

[94] During the Hearing, Alexander testified that he thought Kistler was an insider of NAFS

and also controlled the company. Lavallee said during his interview that nothing could get done

without Kistler because his nephew, Cupp, owned the Super A Share, and Kistler and Cupp

"control the public company". When asked during the Hearing to confirm if "nothing can get done

. . . without Kistler", Alexander responded: "I don't know what you mean by that question".

Alexander denied seeking Kistler's input and approval for everything Alexander did; however, at

other times, Alexander seemed to claim that Kistler was the person in charge of NAFS.

16

[95] Lavallee stated that Kistler would contact him a couple of times per month, to know what

was happening and whether Lavallee had paid the bills. According to Lavallee, Kistler and Cupp

were not involved in financing NAFS.

[96] Joseph Kistler (presumably related to Kistler) became a director and interim CEO and CFO

of NAFS, effective December 11, 2017 when Alexander resigned. Gibbs' characterization was that

"Kistler took his company back" after Alexander resigned, which supported our assumption that

Joseph Kistler is related to Kistler.

F.

Cupp

[97] As noted, Cupp held the Super A Share for NAFS for all or part of the relevant period. He

is Kistler's nephew.

[98] Cupp resigned as "Principal Executive Officer", president, secretary and chair of the board

of Xterra in February 2015, replaced then by Alexander. Although the evidence was inconsistent

regarding the term of Cupp's directorship, we conclude that he most likely resigned as a director

of NAFS in March 2016.

G.

Harris

[99] Gibbs testified that Harris had been a friend for about 30 years, and they had worked

together on some projects while Gibbs was at an accounting firm. According to Gibbs, Harris was

"an established businessman in Canada, in the US, and the UK".

[100] Gibbs said that Harris was never formally appointed as an officer or director of NAFS, nor

did he ever hold the Super A Share. Gibbs thought Harris had a role in Advanced Environmental

Petroleum Producers, Inc. (AEPP), but did not think he was an officer or director (AEPP was

relevant to some of Staff's allegations). The evidence showed Harris's involvement with certain

NAFS Common Shares, as discussed later.

[101] Lavallee's interview statements were inconsistent regarding Harris – first denying that he

did business with him before, then only minutes later acknowledging that he had done business

with him. As discussed below, we find from the evidence that Lavallee knew Harris and conducted

business with him.

H.

Seton

[102] As noted, Seton settled with the ASC regarding the allegations against it in the NOH. Seton

admitted that it breached s. 75(1)(a) of the Act by acting as a dealer in Alberta without registration.

That was in relation to Lavallee's Seton Account, opened on February 16, 2016. Seton stated in

the Seton Settlement that "Lavallee traded tens of thousands of securities" of NAFS in the Seton

Account between May 2016 and September 29, 2017, and also traded in securities of AEPP in the

Seton Account. Seton stated that it was not aware of the CTO for NAFS.

I.

Morrow

[103] Alexander testified that he recruited Morrow as a director of NAFS in July 2016 because

Alexander needed expertise in the mining field, and that Morrow had advised Alexander on some

NAFS' matters before becoming a director. Other evidence confirmed that Alexander was relying

on Morrow's expertise, particularly in relation to the Norwest Report.

17

VI.

WITNESSES

[104] In addition to the testimony of Gibbs and Alexander, we heard testimony from several Staff

witnesses:



Sean Bonazzo (Bonazzo); Vernon Cooney (Cooney); Myles MacPherson

(MacPherson); and Louise Panneton (Panneton) (current or former members of

Staff);



Donald Green (Green) of Green Engineering Limited (Green Engineering), which

did some work on the Leased Property;

William (Al) Turner (Turner) and Keith Wilson (Wilson) of Norwest Corporation

(Norwest), which did some work on the Leased Property;

MP, a CSI investor who met some of the parties and was involved in some legal

matters; and

Newton.

VII. STANDARD OF PROOF, HEARSAY, CREDIBILITY AND ADVERSE

INFERENCE

A.

Standard of Proof

Balance of Probabilities

[105] In ASC enforcement hearings, Staff have the onus of proving each allegation on a balance

of probabilities. As often stated, we must "be satisfied that there is sufficiently clear, convincing

and cogent evidence that the existence or occurrence of any alleged fact required to be proved is

more likely than its non-existence or non-occurrence" (see, for example, Re Aitkens, 2018 ABASC

27 at para. 48, referring to Re Arbour Energy Inc., 2012 ABASC 131 at para. 38 and F.H. v.

McDougall, 2008 SCC 53 at paras. 46 and 49).

[106] In assessing the evidence before us, including circumstantial evidence, we may draw

inferences (see Aitkens at para. 49 and Arbour at para. 39). As noted by the Alberta Court of Appeal

in Walton v. Alberta (Securities Commission), 2014 ABCA 273 (at paras. 26-28), we must ensure

that inferences are supported by evidence, not based on speculation (see also Aitkens at para. 49).

[107] Counsel for Lavallee accepted the balance of probabilities standard. Alexander and Gibbs

acknowledged that standard, although they considered it to be unfair.

Prima Facie Case

[108] Staff stated in their written reply submissions:

. . . If the evidence presented at a hearing does not support the allegations, a panel can find

accordingly. If the evidence does support [Staff's] allegations, and a prima facie case is established,

the onus shifts to the respondent to adduce evidence to negate findings of breach. [footnote omitted]

18

[109] The authority Staff referred to for this paragraph (Alberta (Securities Commission) v. Brost,

2008 ABCA 326 at para. 32) related to a different principle (that a respondent can choose to testify

or call witnesses if that respondent is concerned about the case Staff is presenting). Brost does not

establish that the onus shifts to a respondent, and Staff's argument on this point was incorrect.

[110] Staff elsewhere stated the correct balance of probabilities test. We also note that Lavallee's

counsel, Gibbs and Alexander referred in their respective written submissions to the balance of

probabilities standard. Accordingly, we are satisfied that the Respondents were not misled by the

incorrect assertion in Staff's written reply submissions.

Determination

[111] We applied the balance of probabilities standard when assessing Staff's allegations.

B.

Hearsay Evidence, Relevance and Weight

[112] As stated in Aitkens (at paras. 50-51):

Pursuant to ss. 29(e) and (f) of the Act, while an ASC hearing panel is to "receive that evidence that

is relevant to the matter being heard", "the laws of evidence applicable to judicial proceedings do

not apply". Therefore, all relevant evidence – including hearsay evidence – is admissible, subject to

the rules of natural justice and procedural fairness (Arbour at para. 45; see also Maitland Capital

Ltd. v. Alberta (Securities Commission), 2009 ABCA 186). However, we retain a discretion as to

the relevant evidence we will admit (Lavallee v. Alberta (Securities Commission), 2010 ABCA 48

at paras. 14-18).

We must also determine the weight to be given to the evidence we receive. In doing so, we consider

indicators of its reliability, such as corroboration by other evidence (Arbour at paras. 46 and 53). In

the case of transcripts of witness interviews compelled by Staff, indicators might include whether

or not the witness was sworn or accompanied by counsel (Arbour at para. 54; see also Re TransCap

Corp., 2013 ABASC 201 at para. 65; and Alberta (Securities Commission) v. Brost, 2008 ABCA

326 (affirming Re Capital Alternatives Inc., 2007 ABASC 79) at para. 34).

[113] For many aspects of the present case, we had to determine what weight to give various

evidence. Two examples suffice here, and we engaged in the necessary weighing process

throughout our fact-finding in this matter, even if not explicitly stated.

[114] First, Lavallee did not testify, but the Lavallee Transcript was in evidence. Lavallee was

under oath at the time and was represented by counsel. We gave his statements from that interview

significant weight on background or non-controversial matters (such as his home address). For

substantive matters, we considered Lavallee's statements in light of other evidence tendered during

the Hearing, keeping in mind credibility issues (discussed below) and the fact that Lavallee was

never subject to cross-examination on his statements from the Lavallee Interview.

[115] Second, there were many emails in evidence from or to Harris, but we did not hear

testimony from Harris. There was also no investigative interview transcript for him, as he was not

interviewed by Staff investigators. We were able to rely on the content of some of those emails, if

that content was corroborated by other evidence, such as reply emails by Lavallee or Gibbs,

documents in evidence supporting the content of the emails from Harris, or testimony during the

Hearing. However, we could give no or limited weight to a statement in a Harris email which was

19

the sole piece of evidence on a particular point – that is, not corroborated by anything else before

us.

C.

Conflicting Evidence and Credibility

The Law

[116] We were presented with some conflicting evidence during the Hearing, both testimony and

documents. The various parties also challenged the credibility of the witnesses from whom we

heard.

[117] In assessing these matters, we refer to a summary from Aitkens (at paras. 52-53):

ASC hearing panels are often required to draw conclusions on the credibility of certain witnesses,

and to assess conflicting evidence. In doing so, we consider the source of the evidence and whether

or not the evidence is consistent with other reliable evidence, such as documents or the testimony

of neutral parties with no motivation not to tell the truth. We also consider whether the evidence

makes logical sense in the circumstances. A useful statement of the law is from Faryna v. Chorny,

[1951] B.C.J. No. 152 (BCCA) (at para. 11, also cited in R. v. Boyle, 2001 ABPC 152 at para. 107):

The credibility of interested witness[es,] particularly in cases of conflict of

evidence, cannot be gauged solely by the test of whether the personal demeanour

of the particular witness carried conviction of the truth. The test must reasonably

subject his story to an examination of its consistency with the probabilities that

surround the currently existing conditions. In short, the real test of the truth of the

story of a witness in such a case must be its harmony with the preponderance of

the probabilities which a practical and informed person would readily recognize

as reasonable in that place and in those conditions.

Again, we are mindful of the Alberta Court of Appeal's statements in Walton with respect to

assessing credibility and the implications of that assessment. This includes the proposition that

unless there is positive evidence to the contrary, disbelief of a witness does not necessarily mean

that the opposite of what he or she said is true (at para. 36).

Our conclusions on certain specific points of credibility and conflicting evidence are set out later in

this decision. . . .

Staff Member Testimony

[118] Two current Staff members and two former Staff members were called as witnesses by

Staff counsel: MacPherson and Cooney were Staff employees at the time of the Hearing; Panneton

and Bonazzo were former employees.

[119] Related to his claim that Staff's Investigation into NAFS and associated companies and

individuals was biased, Gibbs suggested that at least some of the Staff members from whom we

heard as witnesses were biased against Lavallee and anyone connected with him, such that their

evidence should not be accepted. To suggest, without more, that investigating an individual or

company named in an investigation order indicates bias on the part of those engaged in that

investigation was unwarranted.

[120] Accordingly, we assessed the credibility of the current and former Staff members in the

same way as we assessed the credibility of all other witnesses. That included a consideration of

any factors which could be relevant, in addition to examining their evidence in the context of the

rest of the evidence.

20

[121] One notable difference between the testimony of the Staff members and the testimony of

other witnesses was that the Staff members' roles at the Hearing were primarily to introduce

documents in evidence and point out certain passages, with such documents largely speaking for

themselves. There were also descriptions of certain steps in the investigative process. Other than

MacPherson's or Cooney's interactions with some of the individuals regarding NAFS' continuous

disclosure issues, HTO or CTO, the Staff members who testified were not present for the events,

conduct or circumstances at issue in the Hearing. Most significantly, Panneton was relying on

documents and investigative interviews, not testifying from personal and contemporaneous

knowledge of the events. Further, despite efforts made by Gibbs to elicit certain answers during

some cross-examination (particularly of Panneton), those witnesses did not testify as lawyers,

accountants or other experts.

[122] Gibbs specifically criticized Panneton, stating that she lied to him about the ASC's handling

of a complaint which Gibbs made about Newton and CSI. This particular assertion against

Panneton was irrelevant to the allegations in the NOH and thus not within the scope of this

proceeding. We note, however, that nothing in Panneton's testimony or demeanour while testifying

gave us any reason to question her truthfulness, her impartiality, or her ability as an investigator.

As with all other witnesses, we weighed Panneton's testimony in conjunction with other evidence,

whether consistent or inconsistent with that testimony. Also, as noted, much of Panneton's

testimony was for the limited purpose of tendering documents into evidence.

[123] We also considered the aspersions Gibbs cast on MacPherson for supposedly exhibiting a

poor memory when testifying. We discerned nothing in MacPherson's testimony suggestive of bias

or an unacceptable level of forgetfulness.

[124] Gibbs and Alexander both mentioned that Cooney had not replied to certain

correspondence from Alexander, relating to the CTO. Staff responded that the correspondence in

question was not a formal application, implying that Cooney was waiting for such a formal

application. That point was factual and was irrelevant to Cooney's credibility as a witness in the

Hearing. We discerned nothing in the evidence indicating that Cooney's correspondence with

Alexander was other than in the normal course of business or would otherwise affect Cooney's

credibility as a witness.

[125] We are satisfied that these two employees and two former employees of Staff were credible

witnesses.

Green

[126] Staff noted in their written submissions that Green of Green Engineering:



contacted Gibbs to have Green's name removed from the NAFS.ca Website as an

"Advisory Board" member;



thought Lavallee gave Green a cheque for $10,000 for money owed by CSI;

said that Lavallee told Green to contact only Lavallee;

21



thought that Smith, Gibbs, Lavallee and Alexander were NAFS' directors, one of

whom was likely the person Green spoke to about the NAFS.ca Website; and

did not think that Newton was the person who had changed a certain report in

evidence initially prepared by Green and which Green denied amending (the

Disputed Green Report, discussed below).

[127] We consider that Green gave his evidence truthfully, with no ill motive or dissembling. We

reject Gibbs' contention that Green's testimony was "imagination". Green was uncertain about

some of the details of the entities and individuals involved, specifically with whom he interacted

and who at NAFS was responsible for what. For example, he stated that Lavallee told Green to

contact only Lavallee, but the evidence showed that Green contacted other individuals as well.

Further, he was largely focused on what he said were unauthorized changes in the Disputed Green

Report, and that was not integral to our analysis and conclusions.

[128] Overall, we find Green to be truthful – although sometimes confusing – but we find his

evidence of limited assistance in proving Staff's allegations.

Witness MP

[129] Staff called MP as a witness. MP was an investor in CSI and testified to some interactions

with Gibbs, Lavallee, Newton and others.

[130] We conclude that MP gave honest, although not overly detailed, testimony. We note that

Staff, Lavallee's counsel and Gibbs attempted to rely on certain aspects of MP's testimony and to

discount other aspects, in line with their respective positions as Staff or Respondents.

[131] We reject Staff's contention that the Respondents had to accept either all of MP's evidence

or none of it – Staff argued that "you can't take the good without the bad from [MP]". For example,

Staff stated that "if [MP] is going to be believed in relation to what happened with CSI money,

you can't discount his evidence that says Lavallee was running the show. You can't pick and choose

with your witnesses." This, however, is exactly what parties – and the panel – can do with evidence.

Parties, including Staff, will always point to evidence supporting their own positions and attempt

to explain away evidence to the contrary. Staff, in fact, relied on MP's statement that Lavallee and

Gibbs were directors or were two of those in charge of NAFS, and thus discounted MP's evidence

that Gibbs may have been acting only as a consultant. As noted, our task is to examine all of the

evidence before us and to deal with conflicting evidence and credibility issues in a reasoned and

logical manner.

[132] In our view, MP's testimony as to the details of the inner workings of NAFS – including

whether Lavallee and Gibbs were acting as officers of NAFS – was of limited utility because MP

was on the outside of NAFS and not privy to how decisions were made or by whom. For example,

MP could testify that he had certain interactions with Lavallee or Gibbs, but MP had no way of

knowing whether Lavallee and Gibbs were making decisions or whether they were taking direction

from Alexander, Kistler or someone else. In particular, we were not convinced by Staff's repeated

reminders that MP said Alexander was "probably" NAFS' president and CEO "in namesake".

22

[133] Accordingly, we accept MP's evidence as truthful, but find it of limited assistance in

proving Staff's allegations.

Wilson and Turner

[134] Staff also called Wilson and Turner as witnesses. Wilson and Turner worked for Norwest,

which eventually provided NAFS with the Norwest Report, prepared in accordance with

NI 43-101.

[135] There were some disagreements among the parties regarding certain points of Wilson's and

Turner's testimony. Those were largely matters which required the standard task of weighing all

the evidence before us.

[136] On one point, however, Alexander challenged Wilson's and Turner's credibility by

commenting on their refusal to acknowledge that Alexander was in charge of NAFS and to sign a

letter stating that they had dealt primarily with Alexander at NAFS (the Alexander Norwest

Letter). Alexander suggested their refusal and testimony were untruthful in that regard, motivated

by their attempt to cover for erring by not routing questions and documents through Alexander

during the preparation of the Norwest Report.

[137] We are satisfied with Wilson's and Turner's explanations for their actions relating to the

Norwest Report and their refusal to sign the Alexander Norwest Letter. Overall, we conclude that

both were credible witnesses who testified to the best of their recollections. We later discuss the

conclusions we reached on the Norwest Report and surrounding circumstances.

Newton

[138] Lavallee's counsel, Gibbs and Alexander variously challenged Newton's credibility on

several grounds, including that he was "a con man", of "questionable character", admitted to

breaches of securities and corporate laws regarding raising and handling CSI funds, was "evasive"

with "no respect for the rules", would say anything Staff wanted him to say, and had memory

issues due to medical reasons. They also implied Newton had a motive to protect his own

reputation and, perhaps, to harm that of the Respondents.

[139] Newton stated more than once during his testimony that he had trouble with his memory.

[140] The evidence clearly showed that Newton was not a neutral witness. This was particularly

the case for his relationship with Gibbs – they had been friends for many years, but became

estranged over the course of the NAFS' events. Newton had also become embroiled in litigation

related to CSI, which gave him a further incentive to paint himself and his actions in the best

possible light.

[141] Some of Newton's explanations for his own conduct were unsatisfactory. For example,

Newton did not give a reasonable explanation for failing to provide the CSI Shareholders' List

between March 11, 2016 (the date the HTO expired) and May 16, 2016 (the date of the CTO). He

repeatedly insisted that he did not provide that shareholders' list because of the CTO, based on

verbal advice from a CSI Shareholder (apparently a lawyer), although he did not consult CSI's

long-time lawyer, Mullen. Newton's explanation might have been logical after the CTO was

23

issued, but not for the two months preceding it. It also was at odds with his claim to have

completely trusted and relied upon Gibbs until at least July 2016 – had the CSI Shareholders' List

been necessary and had Newton been relying on Gibbs' advice, Newton would have provided the

CSI Shareholders' List long before the CTO was issued.

[142] Newton's testimony about the Super A Share was also confusing. He variously stated that

he understood its importance, did not realize it was significant until "later", knew it was in escrow,

did not know it was in escrow, knew he would get voting control of NAFS through acquisition of

the Super A Share pursuant to the Transaction, and did not know that he was supposed to have it.

[143] Newton's evidence regarding the requirement for NAFSCA Audited Financials was also

inconsistent. He variously said that: he knew it was a condition precedent to the Transaction; he

did not understand it was a condition precedent; he did not remember the provision regarding the

NAFSCA Audited Financials; he thought that Alexander had waived that condition; and the delay

in closing was not caused by Newton or CSI but was perhaps caused by the lack of NAFSCA

Audited Financials. He had also stated during his investigative interview (we were referred to

portions of it, although the entirety of it was not in evidence) that he knew Alexander had the

authority to waive the requirement for the NAFSCA Audited Financials and had probably been

told that Alexander had waived it. When questioned about some of these inconsistencies, Newton

fell back on his frequent complaint that he had understood nothing at the time and had relied

completely on Gibbs.

[144] Newton continually asserted that he and CSI had no money, which was why CSI did not

have financial statements, CSI Shareholders were not given information, and the Lease payments

were in arrears. However, at the same time that Newton and CSI had those stated financial

problems, he brought Gibbs in to help (in early 2015) and apparently bought Gibbs a laptop

computer and a scooter, casting doubt on Newton's claims of personal and corporate

impecuniosity. Lavallee's counsel, Gibbs and Alexander further claimed that the Newtons spent

CSI money on personal expenses.

[145] Newton made many statements to the effect that the CSI Shareholders were his only

concern, and that everything he did during the NAFSCA and NAFS era was done to protect the

CSI shareholders and in their best interests. However, he and his brother were the majority

shareholders of CSI at the time, and he entered into the Transaction which was to give him a large

number of NAFS Common Shares, voting control of NAFS through the Super A Share, an officer

and director position with NAFS, and control of the NAFS Board. There was also evidence that

Newton regularly increased the price at which CSI Shares were issued, with seemingly little

justification.

[146] Newton's actions just listed were not directly related to the allegations in the NOH, nor

were his own actions the subject of any allegations. However, we conclude that Newton was not

entirely truthful about his own actions and motives in those contexts, which decreases our

confidence in other aspects of his testimony.

[147] We accepted – to a point – Newton's frequent claims during his testimony that he trusted

Gibbs, relied on Gibbs, and did what Gibbs told him to do. However, there was also evidence that

24

Newton was more involved than he admitted to being, did not always follow Gibbs' advice or

directions, and relied on others besides Gibbs (including Smith, Mullen, Alexander and Bugg).

[148] Ultimately, we find irrelevant or unhelpful much of Newton's evidence on which Staff

purported to rely as support for their allegations. For example, Staff noted that Newton's evidence

showed that "Gibbs was 'stickhandling this whole deal' for CSI" (quoting Newton). However, the

allegations relating to Gibbs required Staff to prove that Gibbs was acting as an officer of NAFS

– Gibbs' admitted involvement with CSI was not an issue. Newton's evidence as to Gibbs' extensive

role with CSI was actually detrimental to Staff's allegation that Gibbs was a de facto officer of

NAFS. Many of Gibbs' actions could be characterized as taken in furtherance of CSI and CSI

Shareholders (of which Gibbs was one). Further, Gibbs, in "stickhandling" for CSI, could have

been – as he himself suggested – acting as a consultant or advisor to CSI and Newton. Another

example was Staff's reliance on Newton's evidence that Gibbs may have been involved in

marketing for NAFS – Staff pointed to Newton's evidence regarding a purported call centre and

regarding two men ostensibly planning to sell NAFS Common Shares for a commission. However,

there was no corroborating evidence.

[149] In summary, we did not find Newton to be an overly credible witness, nor did we find much

of his evidence helpful to Staff's efforts to prove their allegations. We were not prepared to rely

solely on Newton's evidence for a particular point. However, we did accept his relevant evidence

to the extent it was corroborated by other evidence before us.

Alexander

[150] One of Staff's primary criticisms of Alexander's credibility was their claim that Alexander's

interview, testimony and submissions were inconsistent regarding NAFS' funding. Staff claimed

that Alexander changed his explanation of NAFS' related party disclosure from the Alexander

Interview to the Hearing and again in Alexander's written submissions.

[151] We note some of the same inconsistencies. Alexander maintained throughout the entire

proceeding that Lavallee was funding NAFS, although Alexander's testimony and other evidence

varied regarding to whom the financial responsibility belonged. Alexander changed his story

throughout the proceedings, seemingly based on what he thought at any particular time might best

refute Staff's allegations – in particular, the related party allegation. We need not set out all the

details. It is sufficient to note that Alexander variously made statements (not all under oath) such

as: Alexander said he would only get involved with NAFS if Lavallee paid all the bills; Lavallee

was funding NAFS; Lavallee would repay Alexander for bills Alexander paid when Lavallee could

not; Alexander deemed amounts paid by Lavallee to be from Alexander; Alexander personally

guaranteed amounts paid by Lavallee; and Alexander was the "related party" referred to in certain

financial statement disclosure. Overall, Alexander's testimony and the relevant documents were

inconsistent, not credible and confusing on this point.

[152] There were errors in many of the documents for which Alexander was responsible,

including: the location of the Leases; misspelling "NAFS" as "NASD" in some filings; referring

to "Cupp" as "Cuff" (and listing several different dates for the end of Cupp's tenure as a director

and officer of NAFS); incomprehensible passages in corporate documents (for example, referring

to a "Board of Shareholders"); and interchanging the name of one company for another. The most

obvious and pervasive problem with the documentary evidence was the multitude of documents

25

showing inconsistent dates and explanations for the closing of the Transaction. That was echoed

in Alexander's testimony. His frequent restating of the nature and parameters of the Transaction –

along with the various errors in the documentation – did not inspire us with confidence in his

ability to relate details accurately to the panel during his testimony.

[153] We also have some difficulties with other aspects of Alexander's evidence. As is not

uncommon for some witnesses, there were instances in which he developed and coloured his

testimony to put himself and his actions in the best possible light given the other evidence before

us. However, Alexander took this farther, seemingly in an effort to show Lavallee and Gibbs in

the best light in relation to Staff's contention that they were de facto officers.

[154] Alexander's written and oral submissions contained many assertions of fact, such as

describing certain telephone conversations and other events. To the extent those assertions were

not also made under oath and subject to cross-examination, we could not accept them as evidence.

Alexander made this error – making factual assertions in argument rather than testimony – despite

repeated reminders from the panel that evidence could only be brought in to the Hearing through

testimony (oral testimony of witnesses, and documentary evidence identified by a witness).

[155] Alexander explained differences in his Hearing testimony compared to his statements

during the Alexander Interview and another interview as stemming from better preparation for the

Hearing (compared to being "blindsided" during interviews) and his tendency to be "flippant"

during an interview. We believe that Alexander, as a business professional with a background in

corporate leadership, understood the importance of being prepared for – and not being flippant

during – regulatory investigative interviews. Accordingly, we viewed with some skepticism his

suggestions that his testimony at the Hearing was more accurate because he was better prepared

or taking the process more seriously.

[156] For all those reasons, we treat Alexander's evidence with caution, except to the extent it

was corroborated by other evidence or served only as background information (such as his address

and personal history). However, we are mindful that disbelief of any part of Alexander's testimony

did not mean that the opposite was true (see Walton at para. 36).

Gibbs

[157] We accept certain of Gibbs' evidence, but some was evasive and manufactured. We also

had to separate Gibbs' real evidence from his attitude and his posturing.

[158] Gibbs' testimony that he did not own any NAFS Common Shares was contradicted by other

more credible evidence, including evidence of Gibbs' own words in contemporaneous emails. We

find unconvincing his claim that he did not own any NAFS Common Shares because the emails

revealed no binding contract. We discuss such emails below in finding that Gibbs did beneficially

own NAFS Common Shares. His assertions regarding AEPP Shares were similarly suspect,

claiming that Lavallee gave them to Gibbs as a gift because Lavallee was being "kind". These were

business matters, not altruistic endeavours, and we do not find Gibbs credible on that point.

[159] Gibbs failed to disclose some of the Telus Emails during the Investigation. We do not

believe Gibbs that he innocently missed those emails, some of which contained information

contrary to his explanations during the Hearing. Although it was only one factor in our assessment

26

of all of Gibbs' evidence and affected our view of Gibbs' credibility, it was not a reason in itself to

reject all of Gibbs' evidence, and we do not do so. The Telus Emails also made clear that Gibbs

was in more than occasional contact with Lavallee, contrary to Gibbs' statement in the Gibbs

Interview that he had "very little communication with Mr. Lavallee".

[160] As an example of Gibbs colouring or exaggerating his testimony, he stated many times that

he was merely a carrier pigeon, a "gopher" or a go-between in connection with NAFS, only running

errands for or assisting Newton or Alexander. We are confident that was true to an extent, but not

on every occasion. It appeared to us that Gibbs was concerned we would consider him to be a de

facto officer of NAFS if he acknowledged engaging in more than the most minimal activity in

connection with NAFS and the Transaction. His exaggerations negatively affected his credibility.

[161] Overall, Gibbs' credibility causes us concern on some points. Ultimately, we are able to

rely on those parts of his evidence supported by other evidence.

Lavallee

[162] Lavallee did not testify, although we did have the transcript of the Lavallee Interview,

during which he was under oath. Lavallee was, of course, not cross-examined.

[163] Staff did not appear to challenge Lavallee's credibility directly. However, Staff's

submissions in support of their allegations indirectly challenged any statements Lavallee made

which would have been contrary to Staff's position.

[164] We treat Lavallee's statements as we would any other evidence untested by cross-

examination from a person with an incentive to dissemble or put themselves in the best light

possible. Therefore, we give little weight to Lavallee's interview statements favourable to himself.

We find some of Lavallee's disclaimers of knowledge to be self-serving, thus leading us to accept

the majority of his statements only when supported by other evidence before us.

D.

Failure to Call Witnesses and Adverse Inference

Parties' Arguments

[165] Lavallee's counsel and Gibbs were critical of Staff's decision not to call certain people as

witnesses during the Hearing. The written submissions of Lavallee's counsel identified several

people, including Harris, Hunt, Borgers, Kistler and Cupp. Gibbs pointed to these and others,

including Bugg, EF (regarding NAFS' websites), Smith and Mullen. Gibbs also suggested in his

written submissions that Staff should have called Lavallee, Alexander and Gibbs as witnesses, but

we were unable to ask him about that point as he did not appear for oral submissions.

[166] Counsel for Lavallee argued that the failure to call witnesses affected the weight of certain

evidence, and that Staff did not prove their allegations based on the evidence presented. Gibbs and

Alexander also submitted that Staff did not prove the allegations against them.

[167] Staff asserted that they are under no statutory or legal obligation to have certain witnesses

either attend an investigative interview or testify at a hearing, and that the Respondents could have

sought to compel any of the identified individuals to testify at the Hearing. Indeed, Staff observed

that Gibbs and Alexander listed certain individuals as potential witnesses, but ultimately did not

call them to testify. Staff also objected to the apparent suggestion by Lavallee's counsel that one

27

or more of those not called to testify would have provided evidence to contradict or disprove Staff's

allegations. To the contrary, Staff argued that the Respondents' failure to call the individuals they

named meant that the panel should make an adverse inference against the Respondents – that is,

the panel should conclude that such individuals' testimony would have harmed (or, at least, not

supported) the Respondents' cases.

The Law

[168] A panel in Aitkens (at paras. 65-66) discussed witnesses called or not called by a party (in

that case, by Staff):

It is clear that Staff have discretion as to how they will present their case, and against whom. This

includes discretion as to which witnesses they will call. We note the statement of the Alberta Court

of Appeal in Brost that it is up to Staff to "decide what case they [will] present" (at para. 32; see

also Re Proprietary Industries Inc., 2005 ABASC 745 at paras. 105, 113 and 147). The Court in

Brost went on to cite the reasons of L'Heureux-Dubé J. in R. v. Cook, [1997] 1 S.C.R. 1113 at para.

39, who stated that she "fail[ed] to see why the defence should not have to call witnesses which are

beneficial to its own case". ASC panels have observed that "[t]here is no property in a witness", and

that "[i]f a respondent believes that a certain individual has relevant evidence and that person is not

called as a witness by Staff in a hearing, then the respondent can itself call that person to give

evidence" (Proprietary Industries at para. 109; see also Cook at paras. 36-37).

We note that any of the [r]espondents could have called any of the people referred to by Aitkens.

We do not draw any adverse inference from Staff's decision not to call those people. Obviously, if

Staff do not exercise their discretion in a way that adduces sufficient evidence to prove their case

on a balance of probabilities – whether through witnesses, documents or other records – the case

will fail (Cook at paras. 30-31).

[169] The principles relating to an adverse inference were also discussed in Aitkens at paras. 63-

64:

In The Law of Evidence in Canada, 4th ed. (Markham: LexisNexis Canada, 2014) at para. 6.450,

the authors explain:

. . . an adverse inference may be drawn against a party who does not call a material

witness over whom he or she has exclusive control and does not explain it away.

Such failure amounts to an implied admission that the evidence of the absent

witness would be contrary to the party's case, or at least would not support it.

[Footnote omitted.]

In Arbour (at para. 73), the panel noted that the same applies in proceedings under the Act: "[w]e

are entitled to draw an adverse inference against a party when, in the absence of an explanation, that

party fails to call a witness who would have knowledge of the facts and presumably would be willing

to assist that party." In deciding whether to exercise its discretion to draw an adverse inference, the

trier of fact should consider all of the relevant circumstances, such as whether the witness "is within

the 'exclusive control'" of one of the parties or is "'equally available'" to all parties (Howard v.

Sandau, 2008 ABQB 34 at paras. 43-44, citing A. Mewett and P. Sankoff, Witnesses (Toronto:

Thompson Carswell, 2007) at 2-23).

[170] Considerations relevant to the assessment of whether an adverse inference should be made

include whether there is a legitimate explanation as to why the witness was not called, whether the

witness's evidence was material and he or she was the only (or the best) person to provide such

evidence, and whether the witness was equally available to both parties or within the exclusive

28

control of the party against whom the inference is sought (Stikeman Elliott LLP v. 2083878 Alberta

Ltd., 2019 ABCA 274 at para. 87). It may be inappropriate to draw an adverse inference where a

potential witness's interests are not associated with any of the parties and his or her evidence would

be relevant to more than one party, as the individual is presumably available to be called as a

witness for any party (Re Ironside, 2006 ABASC 1930 at paras. 529-530).

Determination on Adverse Inference

[171] In the circumstances, we do not consider it appropriate to make a finding of adverse

inference against any of the parties for the respective party's decision not to call particular people

as witnesses. One important factor in our determination was that any of the potential witnesses –

for example, Harris, Kistler, Cupp, Smith or Borgers – could have been called by any party. We

have no inclination or basis to infer or assume that the evidence of any witness not called would

have run in favour of one party over another.

[172] Throughout our analysis of the evidence as a whole, the burden of proof remained on Staff

to prove each allegation on a balance of probabilities. As concluded below, we did not sustain

some of Staff's allegations because the evidence did not meet that standard. Staff chose which

avenues to investigate and which witnesses to call, and those decisions may have contributed to

Staff failing to meet the burden of proof for some of the allegations. To similar effect, Lavallee –

against whom we sustained some allegations – had the opportunity to call certain witnesses had he

believed such evidence would have assisted his defence.

VIII. FACTS

A.

General

[173] The core of several of Staff's allegations was that Lavallee and Gibbs were de facto officers

of NAFS. As neither Lavallee nor Gibbs was formally appointed as an officer or director, it is

crucial to examine what they actually did in relation to NAFS. We set out here the evidence of

their activities – and of Alexander's position and activities as a formally appointed officer and

director of NAFS. Although Staff referred in their written submissions to "secret" control of NAFS

by Lavallee and Gibbs, that was in the sense of management control, not voting control.

Accordingly, the focus throughout the Hearing was whether Lavallee and Gibbs were de facto

officers – and that was the concept around which Lavallee's counsel, Gibbs and Alexander

structured their defences.

[174] We also set out the evidence relating to the specific allegations against one or more of the

Respondents: insider reporting failures; improper purchasing or selling of NAFS Common Shares;

making misleading statements; executing false certifications; and withholding information during

the Investigation.

[175] First, however, it is important to understand the impetus for and documentation relating to

the Transaction.

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B.

Transaction

Documents

(a) Overview

[176] The three main documents for the Transaction (the Stock Purchase Agreement, the Escrow

Agreement and the Shareholder's Agreement) were in evidence, along with various amendments

to some of those key documents.

[177] Poor drafting in many of the documents made the Transaction more difficult to comprehend

and summarize. That carried through to some of NAFS' regulatory filings, which also contained

inconsistencies. Other documents seemed to have been drafted in error and were not used. Many

of the documents cited below are quoted verbatim, which accounts for their unusual construction

and wording. Although we did not need to resolve all of the documentary and transactional issues

for this decision, we described and clarified points necessary for our purpose. For example, the

closing date for the Transaction was in flux during the relevant period and was contested during

the Hearing, but we did not need to determine the actual closing date because it was not directly

relevant to the allegations in the NOH.

[178] Alexander stated during his interview that the initial plan was for the Newtons to take over

running NAFS after the acquisition of NAFSCA, at which point Alexander would "probably

disappear". Consistent with that, Alexander testified that, after the Shareholder's Agreement was

executed, he initially had significant regular contact with Newton and that Newton had significant

influence on the operations of NAFS. Those statements were also borne out by the provisions of

the documents, particularly the Stock Purchase Agreement (which provided in the preamble that

Newton would become the controlling shareholder, a director and an officer of Xterra) and the

Shareholder's Agreement (which, before it was amended, provided for Newton to eventually have

the right to nominate any number of directors he wanted and to be transferred the Super A Share

by Cupp).

(b)

Stock Purchase Agreement

[179] Xterra announced on July 10, 2015 that it had entered into an agreement of that date – the

Stock Purchase Agreement – with Newton (as the "Seller's Agent"). Xterra was to acquire all of

the NAFSCA Shares in exchange for 37.8 million common shares (the Purchase Price), although

we refer to Xterra common shares throughout this decision as NAFS Common Shares. Newton

was to send all certificates representing the NAFSCA Shares issued pursuant to the Transaction to

Hunt as Escrow Agent. The closing was to be when all necessary documents and consideration

had been delivered to the Escrow Agent, but no later than October 15, 2015. That was later

extended, as discussed below.

[180] We have assumed that Newton entered into the Stock Purchase Agreement as agent and on

behalf of CSI. As mentioned, Newton testified that the 37.8 million NAFS Common Shares were

to go to the individual CSI shareholders, although there was nothing in the agreements to that

effect.

(c)

Escrow Agreement

[181] The Escrow Agreement was also dated July 10, 2015, with Xterra as the Buyer and Newton

again representing the Seller (CSI, through its wholly owned subsidiary, NAFSCA). Hunt's Florida

law office was the Escrow Holder and was to hold the NAFSCA Shares and the Purchase Price.

30

[182] The conditions for release from escrow were: (1) the completion of the NAFSCA Audited

Financials; (2) the completion of due diligence by NAFS confirming "that the estimated

recoverable reserves are at least 6.4 million tonnes of frac sand and potential of 66 million tonnes

of frac sand"; (3) a certification from an officer of NAFSCA that the Leases were in good standing;

and (4) entry into the Shareholder's Agreement. The first two conditions were the challenging ones,

and the requirement for the NAFSCA Audited Financials was cited by the parties as the primary

cause of delay.

(d)

Shareholder's Agreement

[183] Cupp, NOBS, Newton and CSI entered into the Shareholder's Agreement dated

July 10, 2015, concurrently with the Stock Purchase Agreement and the Escrow Agreement. The

purpose of the Shareholder's Agreement was "to define [the parties'] respective rights and

obligations with regards to the ownership of their respective shares in [NAFS] and to provide for

other matters". Kistler signed as CEO of NOBS, Cupp signed for himself, and Newton signed for

himself and as CEO of CSI. Newton described the Shareholder's Agreement as what "was

supposed to be the nuts and bolts of . . . this deal we were doing". Newton stated that this was the

agreement that was supposed to give him and his brother directorships in NAFS. Kistler and Cupp

did not testify.

[184] That document described Cupp as the controlling shareholder of NAFS, with NOBS (of

which Kistler was the CEO) as a holder of Preferred B Shares in NAFS. Newton was described as

the CEO of CSI and, with his brother, the controlling shareholder of CSI. Under the Shareholder's

Agreement, the NAFS Board was to change Xterra's name, and Cupp was to deliver the Super A

Share to the Escrow Agent to be released to Newton upon completion of the escrow terms.

[185] The document also provided that the "Shareholders" were to vote their shares so that the

board of Xterra would initially have two directors: one a nominee of Cupp; the other a nominee of

CSI. After the escrow conditions were removed, Newton would "have the right to nominate any

number of directors he deems fit". Cupp had the right to nominate at least one director for one

year.

[186] Newton testified that he understood the provisions but did not think the Shareholder's

Agreement gave him the right to appoint a director until the Transaction had closed. The

Shareholder's Agreement was clear that CSI (which was controlled by the Newtons) had the right

to nominate one director of Xterra once the Shareholder's Agreement took effect.

[187] Gibbs testified that the Newtons held themselves out as officers and directors of NAFS and

easily could have properly been in those positions, but did not take the necessary steps to be

formally appointed, despite advice to them from Bugg and Smith (although CSI had the right to

only one director until the Transaction closed). Specifically regarding Newton, Gibbs said that

Newton held himself out as an officer and director of NAFS from July 10, 2015 to July 26, 2016,

in his dealings with Kistler, Alexander, Hunt and Vstock Transfer, LLC (VStock, NAFS' transfer

agent), and by directing Kistler and Alexander. Gibbs also testified that, during that period,

"Newton was in charge and in total control of NAFS" by virtue of the Shareholder's Agreement.

Gibbs agreed during cross-examination that "total control" was likely an exaggeration and that

Newton would not have received the Super A Share until the transaction closed, which was

31

February 29, 2016 at the earliest. However, Gibbs still maintained that Newton was in control of

NAFS between July 2015 and July 2016 – "for all intents and purposes, [Newton] could run that

company as -- as he saw fit". As discussed below, the evidence supported some of Gibbs' claims,

although we do not find that Newton had either voting control or management control of NAFS.

Assignment of Leases

[188] The Leases were assigned by CSI to NAFSCA under an August 6, 2015 agreement, with

an effective date of June 1, 2015. They were apparently assigned by NAFSCA to NAFS under a

July 26, 2016 agreement.

Drafting of Stock Purchase Agreement, Escrow Agreement and Shareholder's

Agreement

[189] The evidence was fairly consistent regarding the drafting of the Stock Purchase Agreement

and the Escrow Agreement, but less so regarding the Shareholder's Agreement. Alexander was

clearly involved in all three, with the extent of others' involvement somewhat murky.

[190] According to Gibbs, Alexander started drafting the three documents, then Bugg edited

them with input from Newton and Gibbs. Alexander acknowledged preparing the rough drafts, but

thought they were then edited and completed by Hunt. Alexander also testified that Kistler and

Cupp took care of the Shareholder's Agreement because NAFS was not a party.

[191] Gibbs testified that Newton was fully aware of the contents of the three documents and had

made decisions about them; Newton claimed almost complete ignorance of the provisions and

continually asserted that he relied on Gibbs and signed only what Gibbs told him to sign. In our

view, the reality was in-between – Newton was at least minimally involved in the preparation of

these documents and was aware of the terms, although his actual understanding appeared to be

somewhat limited.

[192] Emails in evidence showed Gibbs thanking Kistler for his revisions to the Shareholder's

Agreement and mentioning Gibbs' own "few minor edits", and Kistler asking Gibbs to have

Newton sign all the documents for the transaction. Lavallee was copied on those exchanges, but

Alexander was not. Gibbs asserted that his own role was minor and only as a facilitator.

[193] Lavallee said during his interview that he knew about the Stock Purchase Agreement and

some of its basic terms, but was not involved in the drafting or details. Other evidence was

consistent with Lavallee being informed about some of the documents, and did not indicate that

he contributed to the content or drafting.

[194] We are satisfied that Alexander drafted rough drafts of the Stock Purchase Agreement, the

Escrow Agreement and the Shareholder's Agreement, with assistance from others (including

Bugg). We conclude that Kistler and Cupp had a role in the Shareholder's Agreement and likely

some involvement in the other two documents. We are also satisfied that Gibbs and Newton

reviewed and commented on the three agreements.

NAFSCA Audited Financials

[195] It was common ground that the NAFSCA Audited Financials were needed to complete the

Transaction (although NAFS could waive that condition to close the transaction).

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[196] Alexander said during his interview that the problem with the audit of NAFSCA (the

NAFSCA Audit) was that Alexander was not given the necessary documents (such as the minute

book) and NAFSCA did not have money to pay the auditor. He said that CSI was responsible for

the NAFSCA Audit and he dealt mostly with Gibbs at CSI regarding this. Gibbs acknowledged

that he provided working papers and created draft accounts for the NAFSCA Audit, as indicated

in a February 16, 2016 email from Gibbs to Alexander (copied to Newton, Lavallee and the CSI

accountant). Newton said that he did not know who was preparing the NAFSCA financial

statements. Gibbs characterized his own work as "bookkeeping" and as "helping the management

prepare the accounts" for the audit, rather than, as Staff contended, "working on the audit".

[197] Eventually, according to Alexander, he and Newton agreed that it would be best to have

the NAFSCA Audited Financials prepared as of December 31, 2015, along with NAFS' own audit.

That was consistent with a statement in a January 4, 2016 letter from NAFS to Cooney. Alexander

agreed during cross-examination that he had determined by December 27, 2015 that the required

NAFSCA Audit would coincide with the NAFS year-end audit, and that would be completed no

earlier than March 31, 2016 – which was after the purported closing date of February 29, 2016.

[198] Although the NAFSCA Audited Financials were not completed by February 29, 2016, the

documents showed that NAFS agreed to proceed with the acquisition of NAFSCA, with the

NAFSCA Audit requirement to be met within three weeks of that date. NAFS announced that the

transaction closed on February 29, 2016, after NAFS waived the NAFSCA Audited Financials

precondition (although that date was at odds with some other evidence, including some documents

signed by Alexander and some of his own statements).

[199] According to the Super 8-K filed August 26, 2016 and signed by Alexander, the audit

opinion for the NAFSCA Audited Financials was completed the same date.

Amendments and Changes to Closing Date

(a)

Overview

[200] Various documents amending (or purporting to amend) the Transaction were in evidence.

The roles played in those documents by various people, and the surrounding circumstances, were

relevant to the assertion by Staff that Lavallee and Gibbs were de facto officers of NAFS.

(b)

October 5, 2015 Amendment Agreement and November 23, 2015

Second Amendment Agreement

[201] In evidence was an October 5, 2015 amendment agreement (the Amendment Agreement)

to the Stock Purchase Agreement. The Amendment Agreement stated that the closing date of the

Stock Purchase Agreement would be no later than November 30, 2015, rather than the original

October 15, 2015 date. That date was further extended to February 29, 2016, according to a second

amendment agreement, dated November 23, 2015 (the Second Amendment Agreement). Both

extensions were attributed to a delay in the NAFSCA Audit. Alexander stated during his interview

that he probably drafted both documents, and they would have been reviewed by Hunt.

(c)

July 25, 2016 Shareholder's Agreement Amendment

[202] The Shareholder's Agreement was amended on July 25, 2016 by the Shareholder's

Agreement Amendment. It was signed by the same parties that signed the Shareholder's

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Agreement. The preamble to the Shareholder's Agreement Amendment stated "that there have

been material changes to CSI that may have adverse effects on NAFS particularly on the Business

[defined as dealing with the frac sand resource located on the Leases]".

[203] The evidence indicated a falling-out between the Newtons and some of the others at about

that time, largely connected to alleged irregularities in the Newtons' fundraising for CSI. For

example, Alexander said during his interview that he learned that money was allegedly missing

from the amount the Newtons raised through CSI, and that Alexander was concerned the Newtons

would be a "great detriment to the public company". Alexander also said during his interview that

he did not speak to Newton about this, but testified during the Hearing that he did speak with

Newton, who agreed to leave NAFS.

[204] On July 26, 2016, Gibbs sent the Shareholder's Agreement Amendment to Kistler and Cupp

for their signatures, asking them to return executed copies to Newton, Alexander and Gibbs, for

their records. He concluded by thanking "everyone in getting this amendment completed so that

we can proceed to successfully develop the frac sand deposit found by the Newton brothers".

[205] The Shareholder's Agreement Amendment included a provision that Newton and CSI could

no longer nominate any directors after closing (Cupp would be able to nominate up to three).

Although poorly drafted, that document apparently intended to allow Cupp to keep the Super A

Share rather than transferring it to Newton. Alexander testified he was made aware that CSI and

Newton would no longer be allowed to nominate any directors of NAFS, but said that was not

discussed with Alexander because the Shareholder's Agreement had nothing to do with him.

(d)

July 25, 2016 Stock Purchase Appendment

[206] There was a July 25, 2016 Appendment to the Stock Purchase Agreement (the Stock

Purchase Appendment) in evidence stating that the October 15, 2015 closing deadline would be

extended to July 26, 2016. It was referred to in the Shareholder's Agreement Amendment.

Alexander said during his interview that he probably drafted the Stock Purchase Appendment,

although he could not remember. He stated during cross-examination that he had drafted it, but in

error, after a misunderstanding in which Kistler told Alexander that the Shareholder's Agreement

was being amended. Newton executed the Stock Purchase Appendment, then Gibbs sent it to

Alexander on July 26, 2016 for his execution for NAFS. Alexander returned the executed

document later that day. Gibbs testified that he never understood why that document was drafted

and executed.

[207] Given the existence of the Second Amendment Agreement and reference to that in NAFS'

filings with the SEC, we could not ascertain why this "appendment" was drafted. However, no

conclusion on that was necessary for the determination of the allegations in the NOH.

(e)

HTO

[208] The HTO was issued on February 22, 2016 to be in effect until March 11, 2016. At NAFS'

request, it was varied on February 29 to allow the release of the NAFS Common Shares in escrow

pursuant to the terms of the Transaction. Despite that variation, the escrowed shares were not

released and there remained confusion as to whether the Transaction did close on

February 29, 2016.

34

(f)

Purported February 29, 2016 Closing; Release from Escrow; and Post-

February 29, 2016 Documents

[209] NAFS issued a news release dated February 29, 2016, which stated in the heading that

NAFS "Closes on Acquisition" of NAFSCA. It stated that due diligence was completed, the

NAFSCA Audit was in progress, and NAFS "will be delivering the 37,800,000 shares of

common stock issued to [CSI] from escrow" (original emphasis). A form 8-K of the same date

stated that NAFS agreed to proceed with the NAFSCA acquisition without the completed

NAFSCA Audit, although it was expected to be completed within three weeks.

[210] In evidence was a February 27, 2016 document (the February 2016 Closing Document)

signed by Alexander (as President of NAFS) and Newton (as Secretary-Treasurer of CSI). That

referred to the July 10, 2015 Stock Purchase Agreement, the extension of the closing date, the

information delivered to NAFS by CSI, the waiver of the requirement for the NAFSCA Audited

Financials to be delivered before closing, the fact that the Escrow Agent had received the NAFSCA

Shares and the 37.8 million NAFS Common Shares, and the authorization from each side for

release from escrow. Newton's evidence about the February 2016 Closing Document was

inconsistent, testifying at one point that he signed it because Gibbs told him to but at another that

he did not recall signing it and was not sure the signature was his.

[211] A February 29, 2016 CSI resolution was signed by the Newtons, approving the Stock

Purchase Agreement, as amended. Newton signed a corresponding NAFSCA resolution.

[212] Despite this closing documentation and the variation of the HTO, the NAFSCA Shares and

the 37.8 million NAFS Common Shares remained in escrow. Some of those involved in these

events claimed the Transaction closed on February 29, 2016 because the closing documentation

had been signed and the shares could have been released from escrow. Others claimed the

Transaction did not close on February 29, 2016.

[213] Newton said that the conditions for a closing were not completed because he refused to

release the CSI Shareholders' List while NAFS was subject to the CTO. The CTO was not in effect

until May 16, 2016. The HTO was in effect on February 29, 2016, although it had been varied to

allow the release of the NAFS Common Shares from escrow, pursuant to the Transaction.

[214] In a March 1, 2016 email, MacPherson of the ASC asked Alexander if the 37.8 million

NAFS Common Shares were released from escrow. Alexander responded: "Yes. According to the

[Escrow Agent] they have been released from escrow." Alexander testified that his statement in

that March 1, 2016 email was an unintentional error and that he meant that the escrow conditions

had been released.

[215] Other 2016 documents were also in evidence, including:



A June 3, 2016 consent resolution of NAFSCA's "BOARD OF

SHAREHOLDERS", signed by Alexander as President of NAFS, purporting to

remove Newton as a director and officer of NAFSCA and to appoint Alexander in

Newton's place (original emphasis).

35



A July 26, 2016 consent resolution of NAFSCA's "BOARD OF

SHAREHOLDERS", signed by Alexander as President of NAFS, purporting to

cancel CSI's shares in NAFSCA and purporting to issue a new certificate to NAFS

for NAFSCA Shares (original emphasis).



A July 26, 2016 director's consent resolution to assign the Leases from NAFSCA

to NAFS, signed by Alexander as a director of NAFSCA.

A November 1, 2016 email from Alexander to Gibbs stating that NAFS could not

take part in releasing the NAFS Common Shares from escrow because of the CTO,

and asking Gibbs to have Newton sign (for CSI) an attached closing document and

share release request. This was months after the escrowed shares were supposed to

have been released, after Alexander had told the ASC they were released, and after

the Super 8-K was filed. On November 2, 2016, Gibbs forwarded Alexander's email

to Newton. Gibbs acknowledged sending that email to Newton, but only as a

"courier pigeon", "carrier pigeon" or "gofer" for Alexander. Newton testified that

he did not recall receiving that email from Gibbs.

[216] Alexander testified that he thought the confusion surrounding the closing date and the

related multiple and differing documents and information were because of the trading restrictions

on the NAFS Common Shares and the need to file the Super 8-K. He reiterated that he thought

they were "released" from escrow because the conditions were met, regardless of whether CSI got

them out of escrow or not. Alexander agreed that there were errors in disclosure, but insisted during

the Hearing that the Transaction closed on February 29, 2016.

[217] Irrespective of all of these inconsistencies, we do not need to determine the closing date of

the Transaction to deal with Staff's allegations in the NOH. The various documents and

explanations are useful to highlight the uncertainties and inconsistencies surrounding the

Transaction and the roles of various players.

(g)

CTO

[218] On May 16, 2016, the ASC issued the CTO to stop all trading or purchasing of NAFS'

securities, stating that NAFS' financial statements for the periods ending September 30, 2015 and

December 31, 2015 "were not completed in accordance with Alberta securities laws". Concerns

referred to in the ASC's letter to NAFS regarding the CTO included the valuation of the Super A

Share, a lack of information to allow current and potential investors to understand the dilutive

effect of the conversion of Preferred B Shares, and a description in the notes to the financial

statements of NAFS' business as aquatic farming with no mention of frac sand (which had been

corrected by the time of the CTO).

[219] Although NAFS eventually made an application to the ASC to revoke the CTO, Alexander

failed to follow through and the application was closed in May 2017. The CTO remained in effect

at the time of the Hearing.

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(h)

NAFS' Shareholders' List

[220] Newton was given NAFS' shareholders' list by Vstock on April 27, 2017. Apparently

unknown to Newton, others were trying to cut off his access to VStock.

[221] An April 27, 2017 email from Kistler to Lavallee and Alexander stated that "Someone

needs to cut Newton off at VStock". Lavallee forwarded that message to Gibbs the next day, and

Gibbs sent it on to KG (a relative of Gibbs, who worked on websites for NAFS), stating that "I

told these guys months ago to stop [N]ewton from getting access to VStock", and that VStock

made a mistake "if they were given notice by Bert & Brian Kistler not to send shareholder lists to

[N]ewton". Gibbs testified that he did not need to involve Alexander because Kistler already had.

Gibbs denied having authority himself to tell VStock not to send information to Newton, and said

that Alexander was the primary contact with VStock.

(i)

MP, CSI and Legal Proceedings

[222] MP, a CSI Shareholder, became directly involved with some of the tensions among the

Newtons, Gibbs and Lavallee during 2017.

[223] MP testified about problems within CSI, including investors investing over $3.5 million in

CSI, but with no communications, no filings with "Revenue Canada or anything like that", and no

expense reports when requested. MP and some other shareholders had a lawyer – Lorne Scott –

draft a letter dated July 14, 2017 to Mullen as lawyer for CSI (the Scott Letter). MP said that he

represented a group of CSI Shareholders in pursuing the Scott Letter, and that Gibbs was helpful

– MP described Gibbs as acting as a friend to MP and the other CSI Shareholders, but not as an

officer of CSI. Newton testified that he could not remember any details about the Scott Letter or

any response Mullen may have made.

[224] MP described his communications with Lavallee and Gibbs after the Scott Letter did not

have the result for which MP hoped (quoted verbatim):

Basically, we discussed. Like, Brian was helping Bert at that time because I'm not sure if he was a

director or again a consultant helping him out with the accounting and whatnot 'cause he knew the

Newton side of things, so I thought that was a good combination those two. You know, I just said,

Where are we going with this thing? And that was -- the same old story was, you know, We're going

to get this done and we're going to do the drilling program. We're going to get all the testings done,

and then we're going to sell this.

[225] MP said Lavallee orally promised MP some NAFS Common Shares: "Well, [Lavallee] is

the consummate salesman. He's quite a sales guy. So what he basically said -- he said, Don't go

ahead with this class action suit just yet. I have to get the Newtons onboard, and when I do, then

we'll have NAFS. When NAFS goes through, we'll be having control, and then I can bring you in

and provide you with 2 million shares [of NAFS]." MP said he was told that, for those NAFS

Common Shares, he would be "their new director", handling "investor relations" and finding oil

and gas companies that wanted quality frac sand. MP said he believed Lavallee when Lavallee

said he had those two million shares. MP said that he and Gibbs talked about the two million

shares, and Gibbs said that he was "supposed to be [taken] care of" as well, but also had nothing

in writing.

37

[226] MP testified that an email exchange on June 28 and 29, 2017 between him and Gibbs about

"a one pager", "documenting our understanding", and about "the share issue" referred to MP and

Gibbs having a written agreement regarding the promised shares from Lavallee. MP said that he

never drafted, received or signed anything. MP also referred to another "one-pager" Lavallee

showed to MP regarding the Newtons' resignations, with MP therefore assuming that the Newtons

were "walking away" from NAFS. Gibbs testified that he did not remember a meeting with

himself, Lavallee and MP during which MP was promised NAFS Common Shares "for backing

away from the Newton lawsuit". Gibbs recalled MP saying that he had been offered shares, but

Gibbs did not know the reason. Gibbs said he did not know of "a one-pager [being] developed or

created or authored".

[227] On August 13, 2017, Gibbs sent Lavallee a message MP had received from Newton, which

stated (quoted verbatim, other than MP's spouse's name):

It's too bad that you've bought into a story of lies from Brian Gibbs and Lambert Lavallee. You were

a friend and your [spouse] even knew I stayed in touch. Even though they have promised you

Millions of free trading shares like they did me but Brian said I couldn't tell any CSI shareholders

about my shares that was when they forced me to sign over the deal to them so everyone would

make a lot of money!! So far nothing has happened. . . .

[228] MP and two other plaintiffs filed a statement of claim on September 7, 2017 in Calgary

against the Newtons, CSI and NAFSCA. MP's testimony on this was confusing. It was unclear

why a statement of claim was filed shortly after MP said he agreed to forgo legal proceedings in

exchange for shares from Lavallee. That claim also apparently was not pursued.

(j)

Resolution of CSI and Leases

[229] Newton said that the Leases were ultimately transferred out of NAFS to Western Frac Sand,

a company owned by Kistler. Newton testified that he launched his own lawsuit, with the

defendants including Gibbs, Alexander, Lavallee and MP. According to Newton, all the lawsuits

were settled and Newton agreed to 15% of Western Frac Sand for CSI, perhaps in 2018. Newton

testified that Bugg helped negotiate the arrangement with Western Frac Sand. Newton did not

recall discussing this lawsuit with the ASC during the Investigation.

C.

Formally Appointed Roles in NAFS

Alexander, Cupp, Morrow and Joseph Kistler

[230] As noted, some of the evidence regarding formally appointed roles in NAFS was

inconsistent and unclear. However, full clarity was not necessary for us to reach conclusions on

the allegations. We are satisfied from the evidence that Alexander was a formally appointed

director and officer during the relevant period; Cupp was a formally appointed director until likely

March 2016; Morrow became a formally appointed director on July 27, 2016 (at approximately

the same time as the Shareholder's Agreement Amendment); and Joseph Kistler replaced

Alexander as a formally appointed director and officer on December 11, 2017.

Newton and Dwight Newton

[231] There was very little evidence regarding Dwight Newton's role with NAFS; however, his

role was not important for the allegations before us. There was considerable evidence, although

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inconsistent, regarding Newton's role with NAFS. Newton's role was relevant to the structure and

operation of NAFS and, therefore, to the allegation that Lavallee and Gibbs were de facto officers.

[232] The evidence was confusing surrounding Newton's role with NAFS at various times. For

example, Alexander said that: Newton was not formally appointed to a role in NAFS because he

did not complete or file the necessary documents; Alexander refused to work with Newton after

July 2016 because of concerns with how the Newtons spent CSI money; Newton was in charge

once the 37.8 million NAFS Common Shares and the Super A Share were in escrow; Newton was

going to be an officer and director of NAFS after the Transaction closed; Newton was in charge

after the February 29, 2016 purported closing date until July 25, 2016; Newton was removed from

any formally appointed role after the Shareholder's Agreement Amendment on July 25, 2016; and

Alexander had prepared documents for Newton to sign on behalf of NAFS.

[233] The Stock Purchase Agreement referred to Newton becoming a director, officer and

controlling shareholder of NAFS. The Shareholder's Agreement provided for CSI to nominate one

director immediately and Newton to nominate any number of directors after the escrow conditions

were removed. It also provided that Newton was to receive the controlling Super A Share.

[234] Consistent with those intentions, Newton began to act as a director and officer of NAFS

soon after the date of those agreements. However, that was never completely formalized, despite

his actions and despite the PIF filed with the ASC. The closing of the Transaction was delayed,

followed by a gradual falling-out between the Newtons and the others involved with CSI,

NAFSCA, NAFS and the Transaction.

[235] Although never formally appointed as a director or officer, Newton engaged in

correspondence and conversations with employees of the ASC using various formal titles for

himself (Alexander acknowledged drafting some, if not all, of the letter correspondence for

Newton to sign). Examples included:



An October 3, 2015 letter from Newton as "President" of NAFS to Cooney of the

ASC, responding to a September 30, 2015 letter from Cooney addressed to Newton.

A December 21, 2015 letter from Newton responding to a December 18, 2015 letter

from Cooney.

A December 23, 2015 response from Newton on NAFS' letterhead to a

December 22, 2015 letter from Cooney.

A December 27, 2015 letter from Newton on NAFS' letterhead to Cooney. The

letter said that Xterra appointed Newton as a director, although Newton testified

that he was a director of NAFS for "just a few days", but not of Xterra.



A January 4, 2016 letter from Newton on NAFS' letterhead to Cooney responding

to a December 18, 2015 letter from Cooney. Newton acknowledged sending that

letter, and testified that he did not prepare the response, but would have had some

input.

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

An email from Newton to Cooney in response to a March 22, 2016 email from

Cooney. Newton signed his email as "CEO" and referred in it to Alexander as "my

CFO".

[236] Newton also confirmed as accurate the content of a November 25, 2015 internal ASC email

stating that MacPherson had spoken with Newton, the CEO of NAFS, and that Newton had told

MacPherson that the Newtons were the majority shareholders of NAFS.

[237] Newton testified that it was unclear what his role was with NAFS and at what times. He

said it seemed as if one day he had a role and the next day he did not. Newton said he "signed

some documents believing [that he] was part of [NAFS] at one time", and that he did not

understand, but was relying on Gibbs for everything. Newton said that Gibbs and Alexander knew

Newton was representing himself as a NAFS representative – "they were doing all the documents"

– and did not tell him to stop.

[238] Newton also identified a November 27, 2015 document titled "Experienced Explorers",

which stated that he was CEO of NAFS, with Dwight Newton as COO and Alexander as CFO.

Newton explained that he and Gibbs worked on that document (and a similar one showing Cupp

and the Newtons as directors of NAFS) for the NAFS.ca Website when Newton thought that he

and his brother were going to be the management of NAFS. He testified that he understood he was

to be CEO of NAFS because "it was discussed many times in meetings" with Lavallee, Gibbs and

"David" (presumably referring to Alexander or Cupp).

[239] Based on the evidence, Newton was not formally appointed to a role with NAFS. However,

he held himself out and acted as a director and officer during part of the period between

July 10, 2015 (the date of the Transaction documents) and July 25, 2016 (the date of the

Shareholder's Agreement Amendment), and Alexander assisted and supported Newton in those

actions. Newton's conduct was not the subject of any allegations here, but was relevant to Staff's

allegations that Lavallee and Gibbs were de facto officers of NAFS, as discussed below.

Lavallee and Gibbs

[240] Neither Lavallee nor Gibbs was formally appointed as an officer or director of NAFS.

However, as mentioned, this was not determinative of Staff's allegation that they were de facto

officers of NAFS.

D.

Actual Roles in NAFS

General

[241] In the evidence was some general information relating to the actual roles in NAFS. We

address that here, and deal with specific types of conduct and situations later in this decision.

Alexander's Evidence

[242] Alexander testified that NAFS had no real business to run – no operations and only the

single asset (the Leases). There were no customers, no sales of or offers to purchase frac sand, and

no frac sand processing plant. There were also no NAFS Board meetings (directors' resolutions

were used instead) and no formal management meetings (because Alexander was the only member

40

of management). Alexander maintained that he, not Lavallee or Gibbs, negotiated all contracts,

was responsible for the content of all of NAFS' filings on SEDAR and with the SEC, and dealt

with the ASC and other regulators.

[243] Alexander said that Cupp controlled NAFS from April 2014 to February 29, 2016, the

Newtons controlled it from February 29, 2016 to July 25, 2016, then Cupp regained control after

amendments to the Shareholder's Agreement. In this, Alexander relied on voting control stemming

from holding the Super A Share, which he said Newton could have taken at any point on or after

February 29, 2016 until the July 25, 2016 Shareholder's Agreement Amendment. Alexander's

explanation in his written submissions was that the Shareholder's Agreement Amendment had

Newton transfer ownership of the Super A Share back to Cupp in exchange for 28 Preferred B

Shares (which could be converted into 7 million NAFS Common Shares). As mentioned, although

that amendment was not well-drafted, we are satisfied that its intention was for Cupp to retain (or

regain) the Super A Share.

MP's Evidence

[244] Staff relied on some of MP's testimony as to his understanding of the roles of Lavallee,

Gibbs and Alexander, in particular that MP thought that Alexander was the CEO only "in

namesake", that Lavallee was running NAFS, and that Gibbs was perhaps a director or a

consultant. MP confirmed there were "big tensions" between the Newtons and the others. As noted,

we find MP's evidence credible, although sometimes confusing. However, MP's evidence was not

overly helpful to Staff's position because MP's understanding of NAFS was based on impressions

rather than knowledge and was not as unequivocal as Staff's argument seemed to imply.

[245] MP invested in CSI in 2009 and 2015. He said that the Newtons originally approached him,

planning "to form the company, to get the leases done, do the engineering to the land, then find

. . . a buyer and an exit strategy". MP testified that his 2015 investment came at a time when

Newton said "they were real close" and the shares would be converted into a new company. MP

stated: "[t]he new company was going to inject capital, and I think that was . . . NAFS that was

going to come in, and that was led by Bert Lavallee." MP did not realize at the time that NAFS

was in the US because on this and other matters "the Newtons didn't report. They never gave us a

lot of information."

[246] MP had known Gibbs for several years "as acquaintances". MP did not think Gibbs was

involved in CSI until 2015, when Gibbs "joined forces with [the Newtons]". MP said Gibbs was

helping with the accounting, but he was unsure if Gibbs was a director or consultant of CSI. MP

also testified that he thought Gibbs was "just helping in a consulting capacity for accounting" for

CSI or NAFS. MP confirmed that Gibbs was helping MP deal with the Newtons, seemed

straightforward and forthright, never asked MP for money, was never paid money by MP, was

never given stocks or promises of stocks by MP, and never promised MP anything. MP also

confirmed he had never seen NAFS' documentation such as a business card or letterhead with

Gibbs' name on it.

[247] MP spoke of first meeting Lavallee, describing him as "quite a promoter", and thinking

that something might finally happen with MP's investment. MP agreed that there was alcohol and

lots of "loose talk" at his first meeting with Lavallee, and that Lavallee was "bigger than life" with

"crazy talk sometimes". MP confirmed that he received no documentation from Lavallee at that

41

initial meeting, such as an offering memorandum, a prospectus or anything in writing about the

frac sand project. MP confirmed that any promises Lavallee made him were oral, and that the two

did not communicate by text or email. MP testified that he never went into a NAFS or NAFSCA

office or any frac sand business office.

[248] MP thought that the Newtons asked Lavallee and Gibbs "to come on the team and that was

going to be the plan, and then they'd take that company over". MP said that Newton had said that

Newton would probably be a director in the new company, but MP did not find out if that

happened. MP agreed that Gibbs and Lavallee made a good impression on MP and other CSI

investors; they thought Gibbs and Lavallee were going to clean up the mess of the frac sand project.

MP thought at the time that Lavallee "was the president or CEO of the company" (referring to

NAFS), and that Alexander "was actually probably the president or CEO in namesake, and then

[Lavallee] was basically running the show". MP explained that he thought Alexander was a

"namesake" director or officer of NAFS because there were no communications, announcements

or open conversations from Alexander, and that if MP called, he would not receive an answer. MP

testified that Lavallee said of his own role with NAFS: "I'm taking care of it." MP understood that

Lavallee was putting money in, but none of that money came from MP or other CSI investors. MP

said that CSI investors thought that Lavallee "was saving the company because he was the only

guy putting a cheque down for the [L]eases", which otherwise could have lapsed. MP understood

that Lavallee had paid approximately $375,000 to $400,000 for the Leases and to complete the

Norwest Report.

[249] When asked if he thought either of the Newtons was in control of the Leases at the time of

the Hearing, MP replied: "I don't think they're in control of anything." MP said the message from

"the new team" was that the CSI Shareholders would be taken care of. According to MP, he

communicated only with Gibbs and Lavallee from the new team (MP was not asked who else was

on the new team).

Newton's Evidence

[250] When asked if Alexander was the only officer and director of NAFS, Newton replied, "On

paper". However, he agreed that Alexander signed documents and, as far as Newton knew, had the

authority to do so. Newton also testified that Alexander was signing the SEC filings and doing the

reporting for NAFS, but said that Alexander "was doing that under the instruction of other people".

Newton said he met with Alexander only once or twice, but met with Gibbs and Lavallee "all the

time". Newton and Alexander both testified that Alexander drafted at least some of the documents

which Newton signed and sent to the ASC.

[251] Newton was asked during the Hearing who made the decisions about NAFS' principal

regulator being in Saskatchewan and about the address being changed from Calgary to

Saskatchewan. He confirmed his investigative interview statement that Alexander made those

decisions, and added that the decisions were "based on input from other people, but [Alexander]

was the one putting it on paper".

[252] Newton testified that the Transaction was to result in CSI Shareholders holding the

majority of the NAFS Common Shares and having two or three directors. He said that he later

found out about the single Super A Share "that controls everything" and is "all powerful". Newton

said that the Super A Share was to be held by a neutral party so nobody could use its power

42

(although he also denied at one point knowing that it was in escrow), then was to go to Newton

under the Shareholder's Agreement, but he never got it.

[253] Newton said that he never controlled NAFS because the NAFS Common Shares were never

transferred, although he stated that he was a director for perhaps one or two weeks. Newton denied

that he ever took control of NAFS, even if he could have done so on paper.

[254] Newton acknowledged that when he first met Lavallee it was in a social setting with

alcoholic beverages. Newton did not take notes of the meeting, nor did he get notes from anyone

else who attended. Newton said that another meeting with Lavallee was over lunch and he knew

of no notes or record from that meeting. Newton said he met with Bugg many times. Newton said

he made some notes after those meetings, which were in his work binders, but he did not know if

he still had those.

[255] Newton testified that he believed that Lavallee and Gibbs controlled NAFS because those

were the two with whom Newton always met, and he never met Alexander in person. Newton

thought that Lavallee "was calling all the shots" for Xterra and that was who the Newtons

negotiated with, although "Alexander was the president running it".

Lavallee's Evidence

[256] As mentioned, Lavallee did not testify; all references to statements by Lavallee are to

statements from the Lavallee Interview. Lavallee said that Alexander made the decisions for NAFS

and had the final say, with no direction from Lavallee. Lavallee stated that, to his knowledge,

Kistler did not make decisions for NAFS. Lavallee said that Alexander and Gibbs were in charge

of the filings for NAFS, they figured out what to do, and Lavallee himself was not involved in

filings.

[257] Lavallee denied talking with Gibbs about a plan of operation for NAFS or how NAFS

should operate, but acknowledged discussing the need for NAFS to raise money so that Lavallee

would not have to keep paying its expenses.

[258] Lavallee denied having more than a financing role with NAFS. He said that his role in

NAFS was getting calls from Alexander saying that bills needed to be paid. His role in paying the

bills was set at the beginning pursuant to his agreement with Kistler – that Lavallee would pay the

bills and receive 11 million NAFS Common Shares when NAFS was making money. According

to Lavallee, he was informed about and interested in NAFS because he had so much money

invested, but he was neither a lawyer nor an accountant, nor was his approach to get involved in

day-to-day operations. Lavallee acknowledged that he spoke regularly with Gibbs about NAFS

and other projects in which Gibbs was involved, but denied getting involved himself. Lavallee said

he knew that Gibbs and Newton had known each other for a long time, but had a falling out over

Newton not spending money on the asset. Lavallee said he did not know if Gibbs was a CSI

investor, but said Gibbs was an advisor to the Newtons in July 2015 and Gibbs knew the most

about CSI after working with the Newtons for five years (although other evidence showed Gibbs

had worked with the Newtons for a shorter time).

[259] Lavallee was asked during the Lavallee Interview when he would go to Alexander versus

Gibbs regarding issues with NAFS. He responded that he did not go to either one regarding NAFS'

43

issues, but mainly discussed bills with Alexander. Lavallee said he would not have understood

other things anyway, such as Alexander's accounting discussions with Gibbs. Lavallee said that

Gibbs dealt with Norwest a great deal just because both were located in Calgary, but that Alexander

also dealt frequently with Norwest.

Gibbs' Evidence

[260] As mentioned elsewhere in this decision, Gibbs strongly asserted that he was not an officer

of NAFS, although he acknowledged being an advisor to Newton and CSI. Regarding NAFS and

Alexander, Gibbs referred to himself as a gopher (or gofer), a carrier pigeon, a courier pigeon, and

a facilitator. He acknowledged participating in the Transaction by activities such as helping to edit

(or sometimes draft) documents, filing documents, making some payments (such as to the ASC),

and communicating with various people. However, he denied that meant he was a de facto officer

of NAFS.

E.

NAFS Shares and Shareholdings

NAFS Shares

(a)

Super A Share

[261] Cupp held the Super A Share at all relevant times. It was deposited with the Escrow Agent

and was to be transferred to Newton as part of the Transaction, but that did not occur. The July

2016 Amended Shareholder's Agreement, which Newton signed, was poorly drafted, but we are

satisfied that it was intended to reverse the provision that Newton would receive the Super A Share.

(b)

Preferred B Shares

[262] Kistler, through NOBS, held most of the Preferred B Shares at the start of the relevant

period. Each was convertible to NAFS Common Shares on the basis of 250,000 NAFS Common

Shares per Preferred B Share. The evidence showed NOBS selling Preferred B Shares to various

purchasers over many months, with those purchasers then converting to NAFS Common Shares.

This would naturally have diluted the holdings of those who already had NAFS Common Shares

– and would have diluted the majority ownership of NAFS which CSI (or its shareholders) were

to receive under the Transaction. However, that dilution was not a focus of the parties' evidence

or submissions.

(c)

NAFS Common Shares

[263] NAFS Common Shares were held by various individuals, including Lavallee and, as we

find in this decision, Gibbs.

[264] Some filings in evidence showed one or more of Newton, Dwight Newton and CSI holding

various percentages of the NAFS Common Shares. However, the majority of the evidence

confirmed that the 37.8 million NAFS Common Shares which were the Purchase Price for

NAFSCA payable to CSI were not transferred during the relevant period, but remained in escrow

with Hunt (the mechanics and details of the eventual transaction with Western Frac Sand were

neither in evidence nor relevant here).

Holdings and Conversions of Preferred B Shares

[265] Section 2.4(c) of the Shareholder's Agreement provided that the NAFS Board was to

"[d]esignate" 73 Preferred B Shares to certain parties, but we did not have in evidence the schedule

to that agreement which set out which parties would get how many shares. That section was

44

replaced in the Amended Shareholder's Agreement with a provision that 28 Preferred B Shares

were to be issued as set out in a new schedule, which we also did not have. However, that latter

number of Preferred B Shares and the 7 million NAFS Common Shares into which they could be

converted matched the number of shares Newton was supposedly promised by Lavallee for giving

up the Super A Share and control of the NAFS Board.

[266] NOBS sold some of its Preferred B Shares over time, and those appear to have been

converted almost immediately. Between the July 10, 2015 date of the Transaction and the last

conversion for which we had evidence (in May 2017), it appeared that at least 26 million NAFS

Common Shares were issued as a result of conversions of Preferred B Shares. That was sufficient

to significantly dilute the purported majority ownership CSI was to have in NAFS at the closing

of the Transaction.

[267] There was no evidence that anyone had instructed or influenced NOBS or Kistler to sell

those Preferred B Shares (or the NAFS Common Shares into which they were converted) during

the relevant period.

Lavallee's Shares

[268] Lavallee acknowledged that he had owned approximately 7.4 million common shares of

Xterra in April 2014, which he said were later rolled back at 100 to 1 (presumably leaving him

with 74,000). He stated that he received those from Kistler in exchange for financing what was at

the time Innovate (paying for lawyers, auditors, news releases, commissions and any other

expenses).

[269] Lavallee said he had 1.5 to 2 million NAFS Common Shares in the Bahamas at the time of

the Lavallee Interview (October 2017), and had held those for approximately two years. He stated

that he had acquired those from Kistler over perhaps three or four transactions. Lavallee stated that

he was supposed to get about 15 million NAFS Common Shares "once the asset is proven out" by

doing more drilling to prove there was enough sand to get "mining status". He said during the

Lavallee Interview that he did not own those 15 million NAFS Common Shares yet, that the NAFS

Common Shares were subject to the CTO, and that he would get 11 million from Kistler's Preferred

B Shares and 4 million from NAFS' treasury, when permitted and when (or if) NAFS had revenue

and could finance itself. Lavallee stated that he had a verbal agreement with Kistler for this.

Lavallee said that he could not remember when he made this agreement with Kistler, but it was

after Lavallee had met the Newtons through Bugg.

[270] Lavallee said that he thought Alexander was probably aware of Lavallee's agreement with

Kistler, although Alexander had no say in it because it was not a matter of day-to-day operations,

and that Gibbs (as "advisor to the board" of NAFS) was also likely aware of it. Alexander stated

he was not aware of such an agreement between Kistler and Lavallee until just before the Hearing.

There was no other evidence about this, and Kistler did not testify.

Gibbs' Shares

[271] Specifically regarding NAFS Common Shares, Gibbs testified: "I did not own a NAFS

share. I never bought or sold a NAFS share. I've got no legal right to any NAFS shares. I've had

lots of promises." Gibbs said that email communications in evidence with Harris did not establish

45

that Gibbs had a legal claim on the NAFS Common Shares referred to there – "This is not an

enforceable contract" and "I don't own these shares."

[272] As set out later in this decision, we conclude that Gibbs did beneficially own those NAFS

Common Shares, although it ultimately made no difference to our findings on the allegations

relating to him.

Harris's Shares

[273] There was evidence relating to NAFS Common Shares held by Harris. A May 31, 2016

email from Harris to Gibbs referred to 2.5 million NAFS Common Shares held by Harris and asked

Gibbs to send Harris's certificate registration information to the proper person. However, sale and

conversion documents showed a sale to Harris from NOBS of 10 Preferred B Shares on

June 6, 2016, and a conversion by Harris of those to 2.5 million NAFS Common Shares effective

June 17, 2016. Although it was possible that Harris therefore held two sets of 2.5 million NAFS

Common Shares, we conclude it was more likely he held only one set of 2.5 million (plus an

irrelevant small additional number he apparently acquired previously). We find later in this

decision that Harris held one million NAFS Common Shares for each of Lavallee and Gibbs.

F.

Leases

Initial Leases

[274] According to Newton, CSI signed the First Lease in 2008 after finding promising sand on

certain property, then signed the Second Lease for the neighbouring land in 2009 or 2010. In about

2015, the holders of the Second Lease bought the property covered by the First Lease, at which

point the First Lease and the Second Lease became a single Lease (for simplicity, we use the term

"Lease" or "Leases" for all relevant periods, unless the context requires otherwise). Newton

testified that the Leases were in arrears by 2015 because CSI had run out of money, and he had

not paid the delay rental payments on the Leases since 2008.

Renegotiation of Leases

[275] Newton said that he renegotiated the Leases with the property owner's representatives in

2015, with Gibbs' assistance. Gibbs testified that he and Newton met with those representatives in

July 2015 to transfer the Second Lease to NAFSCA and to pay the delay rentals. According to

Gibbs, Newton negotiated the terms and conditions and made the changes; Gibbs did no

negotiating, but merely helped with some of the language. Gibbs testified that he and Newton also

met with one property owner for the First Lease at about the same time, and Newton paid the delay

rentals.

[276] Alexander stated during his interview that he thought Gibbs negotiated at least some of the

terms in the Leases. However, during his testimony, Alexander said that Gibbs "had no

involvement in negotiation with the -- the lessor".

[277] Lavallee stated that he and Gibbs were present when the Lease dated April 26, 2017 was

signed, and that Alexander had told Lavallee that getting it paid would protect his investment.

Lavallee said he was not involved in the negotiation of the Lease, thought that Gibbs had

negotiated it, but was not present for any negotiations. On July 7, 2017, Gibbs sent an email to

Alexander stating that Lavallee asked Gibbs to send an April 26, 2017 Lease to Alexander to

execute, then to send the executed copy back to Gibbs, then "Bert and I [Gibbs] will get the

46

[property owner] to execute the lease agreement." Alexander sent back a signed copy, asked Gibbs

to witness his signature, and stated that "[w]e need another agreement to go along with it" stating

that this Lease replaced the one with NAFSCA that was in default.

Payments for Leases

[278] Alexander testified that he did due diligence on the Leases by ensuring payments stayed

current after CSI's default was remedied and ensuring they were assigned to NAFSCA. He said

during his interview that he had the Leases assigned to NAFS in mid-2016 because work was

starting and he was more comfortable spending the $100,000 or $200,000 on drilling and testing

if the Leases were held by a company he controlled.

[279] Lavallee acknowledged paying money for the Leases. He stated that some Lease amounts

were paid directly or indirectly in 2016 by Lavallee's friend, RK, from whom Lavallee would

sometimes borrow money. There was also evidence that TK (RK's spouse) lent money to

NAFSCA, as evidenced by a promissory note for $120,000, and that some of that money was used

for Lease payments by NAFSCA. We did not consider this loan (nor Gibbs' questioning of Newton

as to how the rest of that money was spent) to be relevant to Staff's allegations.

G.

NAFS' Websites

General

[280] NAFS had two websites during the relevant period. The first, the NAFS.ca Website, was

established in mid-2015, around the time the Transaction was entered into. The second, the

NAFS.com Website, was established in approximately mid-2017. In arguing that Lavallee and

Gibbs were de facto officers of NAFS, Staff contended both were involved in "website creation

and content".

[281] There were many uncertainties, inconsistencies and contradictions in the evidence

regarding the two websites and the roles of the main players. We set out here our summary of the

facts, based on assessing and weighing that evidence, including our conclusion as to which

evidence related to which of the two websites.

NAFS.ca Website

[282] We are satisfied that the NAFS.ca Website was established in approximately July or

August 2015, around the time of the Transaction documents. It was based on the CSI website. That

was consistent with the evidence that Newton controlled the NAFS.ca Website, including that

Newton paid for it, shut it down in 2017 (by stopping payments), and had a password for access

to make changes to it. At the end of an August 20, 2015 email setting out minor changes, KG

stated: "I just spoke to [Newton] and he approves of the changes." That was another confirmation

that Newton had at least some control over the NAFS.ca Website at that time. To the extent Newton

tried to minimize his own role – for example, by saying he "probably" had the password for access

– we did not find his testimony to be genuine.

[283] We are also satisfied that Gibbs had access to make changes to the NAFS.ca Website and

did a considerable amount of work on it, some in conjunction with KG, who also clearly had

access. We conclude that Gibbs became involved in the NAFS.ca Website through his initial

involvement with CSI and Newton. Gibbs stated that KG monitored the [email protected] email

address that was on the NAFS.ca Website, then forwarded any messages to Alexander. However,

47

Gibbs thought that emails to that address in November 2015 would "probably" have been received

by Newton, who also answered the telephone. That was consistent with Newton's testimony that

he responded "for a while" to that email address, then AG did, then KG did. Newton also said that

he sometimes answered the telephone and had forwarded to Alexander (not to Gibbs or Lavallee)

a couple of calls which Newton did not understand. It appeared to be common ground that

Alexander did not have direct access to the email address listed on the NAFS.ca Website.

[284] Alexander's evidence regarding Gibbs' website involvement changed, saying during the

Alexander Interview that Gibbs was involved in the NAFS.ca Website, but testifying at the

Hearing that he did not think Gibbs had worked on it. We reject Alexander's Hearing testimony on

that point.

[285] Lavallee was certainly aware of the NAFS.ca Website. For example, he knew that KG was

working on the NAFS.ca Website, that Newton hired her, and that she had not yet been paid.

Lavallee was also included in some email conversations about the NAFS.ca Website. However,

there was no evidence that Lavallee made decisions as to the website content or had access to make

changes to it. As noted below, Lavallee provided funding for the NAFS.com Website, but it

appeared that he had not provided any funding for the NAFS.ca Website.

[286] According to Newton, NAFS.ca Website changes needed to be approved by Alexander.

Alexander agreed that he was ultimately responsible for the NAFS.ca Website, although he stated

during his interview that Newton and Gibbs did not always make the changes Alexander told them

to make. An email chain in evidence supported Newton's and Alexander's statements that

Alexander directed and approved changes to the NAFS.ca Website. On July 29, 2015, Alexander

sent an email to Gibbs with the subject line "Getting Ready". It stated, in part, ". . . we need the

website to be more market oriented. It needs to be more positive, more informative, and free of

grammatical errors".

[287] After Gibbs responded "I will get working on the website right away", Alexander sent an

email to Gibbs and to Newton (copied to "Brian", whom Alexander identified as Kistler, and to

Lavallee), and attaching what Alexander referred to as an investor presentation (the July 2015

Draft Presentation):

Hi Brian/Ray

I have prepared a powerpoint which you may be able to use to revise your website. I have worked

with several web site hosts and, given the importance of having the website done in a timely and

professional [manner], I will make myself available to work closely with the designer.

We are missing a few items. These include:

1. Contact name, telephone, and email.

2. We need a [NAFS] email address.

3. We need to get the stock price linked.

4. We need to get the Edgar Files linked.

5 We need to get the XBRT files linked.

6. We need to get the Sedar Files linked.

7. We need to get Archive Files for News Releases, Articles, and Geological Reports.

We also need to capture the web address of anyone who logs into our website.

48

We also need to make a one page teaser document for emails.

I would like your feedback so that we can update the website asap.

. . .

[288] That email chain and Alexander's reference to Gibbs and Newton using the information

from Alexander "to revise your website" were consistent with other evidence that the NAFS.ca

Website was based on the CSI website. Further, that email chain and others (including

October 2015 emails) showed Alexander delegating work on the NAFS.ca Website to Newton,

Gibbs and KG.

[289] The July 2015 Draft Presentation from Alexander listed Newton as CEO and Dwight

Newton as COO (it also had the same "NASD" typographical error for "NAFS" that was seen in

other documents prepared by or attributed to Alexander). Gibbs had stated during his interview

that Alexander had drafted an "Executive Summary". That matched the July 2015 Draft

Presentation document sent by Alexander to Gibbs and Newton. Alexander said in the

July 29, 2016 email chain that he himself prepared the July 2015 Draft Presentation – we

considered such email statements reliable, as they were contemporaneous and completely

disconnected from this ASC enforcement proceeding. He also said during his interview that he

thought he had prepared the July 2015 Draft Presentation for comments in anticipation of the

Transaction closing, followed by a promotion to raise capital. Alexander said that Lavallee was

copied on the email because "he was financing most of the company".

[290] We are satisfied that Alexander first prepared that material (the July 2015 Draft

Presentation) identifying Newton as the CEO and Dwight Newton as the COO of NAFS. We

cannot be certain that it was posted in that form or in its entirety on the NAFS.ca Website, but the

information in it was clearly intended by Alexander to be used by Gibbs and Newton to help with

the NAFS.ca Website, and we are satisfied that it was used in that way.

[291] KG sent Gibbs and Lavallee a June 7, 2016 email regarding the "Management" and "Board

of Directors" sections of the NAFS.ca Website. She stated that the Newtons were "the only ones

referenced in the Board of Directors [section] and no one else", and that she had "been instructed

to remove Ray and Dwight [Newton] from these sections". That meant there would be nothing

there once the Newtons were removed. Gibbs testified that he did not know who had given KG

those instructions, and he thought Newton was in charge of the NAFS.ca Website at that time. We

could not determine from the face of that email who gave that instruction to KG, but the wording

indicated that it was likely not Gibbs or Lavallee.

[292] Gibbs explained that this was a transition time for the NAFS.ca Website, when Newton

decided to move on and things "were very muddled". Gibbs replied to KG's June 7, 2016 message

on the same day, telling her to "put David Alexander in directors section and use same bio as in

management section". Gibbs said he did that at Alexander's instruction as an "in-betweener" when

Alexander requested a cleanup of NAFS' website during the transition period when Newton was

leaving NAFS. Gibbs thought that later, as things developed after the transition period, there was

more direct contact on such matters between KG and Alexander. Gibbs denied Staff's suggestion

that he "had direction and [was] able to provide direction into what went" on the NAFS.ca Website.

49

KG was not a witness, and we were pointed to no other evidence of the context of that email

exchange.

NAFS.com Website

[293] We conclude that the NAFS.com Website became active in approximately mid- to late-

2017, after the NAFS.ca Website lapsed or was shut down due to Newton not making required

payments. Lavallee's statement during his interview that Gibbs had decided to have a new website

was not supported by any other evidence, and we find that Lavallee was mistaken about that – that

mistake also supported the argument by Lavallee's counsel that Lavallee was not closely involved

in either website.

[294] Alexander testified that he had more input into the NAFS.com Website than he had into

the NAFS.ca Website. That seemed connected, at least in part, to the fact that Newton did not

control the NAFS.com Website. A July 26, 2017 email from Alexander to Lavallee and Gibbs

stated, in part, that "I [Alexander] need the web site up and running." Gibbs testified that he then

contacted EF, the person who had worked on the NAFS.ca Website, for help, and EF created a

new domain and used hard copies of the NAFS.ca Website to establish the NAFS.com Website.

Gibbs testified that Alexander "proofed and approved" the NAFS.com Website, with Gibbs acting

merely as "a carrier pigeon". Lavallee's receipt of that email was consistent with the other evidence

that Lavallee paid expenses for the NAFS.com Website.

[295] When pointed by Staff to an August 1, 2017 email from Gibbs to Alexander, copied to KG

and blind-copied to Lavallee asking Alexander for a short biography of Alexander and Morrow to

put on the NAFS.com Website, Gibbs testified that was a "gofer job", not "the kind of work an

officer of the company would do". On August 11, 2017, Gibbs sent an email to EF, copied to

Lavallee, Alexander and KG, attaching a biography for Morrow to be inserted on the management

and directors page of the NAFS.com Website. Gibbs also said "let's activate and get the website

up and running. We can add to the other sections which are missing pieces next week." Gibbs

again testified that he was "just a carrier pigeon". On August 12, 2017, Gibbs sent a message to

EF, instructing him to use a different version of the biography. That new biography had been given

to Gibbs by Alexander earlier that day, also showing continued involvement and oversight by

Alexander.

[296] On August 18, EF sent an email to Gibbs, copied to Alexander, Lavallee and KG, stating

that the NAFS.com Website was live and setting out the amount EF was owed. Later that day,

Alexander sent several significant corrections to EF and told EF to take the NAFS.com Website

down as soon as possible. A later message from Alexander to Gibbs, copied to Lavallee, EF and

KG, stated: "Please confirm that this site is down. Please also confirm that it will only go live with

my approval." Gibbs testified that the approval for the NAFS.com Website going live had to come

from Alexander. Gibbs again told EF about some changes to the NAFS.com Website and asked

him to make them "as a matter of urgency".

[297] In a September 1, 2017 email exchange with EF, Gibbs said he would confirm the latest

changes with EF "when I [Gibbs] review with Bert [Lavallee] and David [Alexander] and get their

clearance". Gibbs explained he meant that Lavallee should approve it because he was paying for

the NAFS.com Website. Alexander's response to Gibbs' September 1, 2017 email was a list of

items to be added, links to be added, and links to be deleted. Alexander provided more comments

50

a few days later, and KG referred to Alexander needing to provide a "green light" for the

NAFS.com Website – again, consistent with other evidence that Alexander took ultimate

responsibility for the NAFS.com Website.

H.

NAFS' Expenses

General

[298] The evidence was clear that Lavallee paid for many of NAFS' expenses – at least

US$500,000, according to Lavallee. Staff considered those payments by Lavallee important for

two reasons. First, the payments were one indication to Staff that Lavallee was a de facto officer

of NAFS. Second, the payments indicated to Staff that NAFS' filings with the ASC should have

identified that its "operations were funded mainly by Lavallee, a related party to NAFS".

[299] Lavallee stated that the money he paid for Xterra's and NAFS' expenses came from his own

money from his business deals, such as buying and selling real estate and other assets, with some

borrowed from friends, including RK. We consider irrelevant the source of the money Lavallee

paid for NAFS' expenses.

Specific Expenses

(a)

Lists of Payments

[300] During his interview, Alexander referred to two payment lists: "Payments made on behalf

of North America Frac Sand Inc. by Bert Lavallee" between September 30, 2014 and

January 31, 2017 (the First Lavallee Advances List); and "Advances from Bert Lavallee" from

January 31 to July 7, 2017 (the 2017 Lavallee Advances List). Those documents contained errors,

as Alexander acknowledged during the Alexander Interview and the Hearing. For example, the

January 31, 2017 ending balance of the First Lavallee Advances List (US$158,794.93) did not

match the January 31, 2017 opening balance of the 2017 Lavallee Advances List (US$180,971.94).

Alexander also stated that the amounts owing to Lavallee were recorded in the financial statements,

although he testified that he could not explain the figures in the lists without looking at his "whole

accounting records".

[301] During the Hearing, Alexander testified that he took responsibility for all of the amounts

on the First Lavallee Advances List, "and then we came to an agreement that [Lavallee] would

accept the liability from the company instead of me". Alexander claimed to have two

undocumented agreements with Lavallee: one that Alexander would take responsibility for the

amounts; and one that the debt would be transferred so that NAFS would owe Lavallee rather than

NAFS owing Alexander. Alexander also confirmed that neither agreement was referred to in

NAFS' filings. This testimony was self-serving and was inconsistent with other evidence (such as

Alexander stating he would not be involved with NAFS unless Lavallee paid the expenses).

[302] During the Lavallee Interview, Lavallee was asked about amounts on the First Lavallee

Advances List and the 2017 Lavallee Advances List. Lavallee acknowledged making payments to

specific people and companies on those lists. He said that he would get invoices directly from

those people or companies (or sent to him by Alexander), and would transfer money to them

directly. He made payments by wire from a line of credit or with his own credit card. Lavallee did

not know of anyone else making payments for NAFS' expenses, other than specific examples he

described as loans to him from a friend or business colleague. He also said that Alexander did not

make payments because he was working for free until NAFS was able to pay him, at which point

51

Lavallee thought that Alexander would get $10,000 per month for each month accrued to that date.

When asked about payments Alexander had made by credit card and asked Lavallee to reimburse,

Lavallee stated that he was out of town, so asked Alexander to pay some invoices, with Lavallee

later reimbursing Alexander.

(b)

NAFS' Audit

[303] Alexander and Lavallee both stated that Lavallee would pay Borgers (the auditor) directly

for the NAFS audit. That was confirmed by invoices and emails in evidence. Lavallee explained

that he received some communications from Borgers because of that payment arrangement.

Lavallee acknowledged that some payments to Borgers were made by RK.

(c)

Lease Payments

[304] As noted, the evidence was clear that Lavallee made some payments for the Leases.

Accounting for Expenses

[305] During his interview, Alexander made several statements about Lavallee paying bills for

NAFS and NAFS' subsequent accounting for those payments. He also testified about such

payments, with that testimony at times inconsistent with his interview statements. We addressed

that above when discussing Alexander's credibility, and need not discuss it further here. It was

clear that Lavallee ultimately provided the funding for NAFS.

I.

NAFS' Financial Statement Preparation and Audit

[306] Gibbs was copied on some correspondence with the auditor, Borgers, and provided some

comments. Alexander disagreed with the statement that Gibbs was "integral" to the audit process,

and the documentary evidence supported Alexander and Gibbs on that point. We are satisfied that

Lavallee's only role with NAFS' financial statement preparation and audit was paying invoices

from Borgers. Overall, the evidence supported Alexander's and Gibbs' assertions that Alexander

was responsible for the preparation of NAFS' financial statements and for communications with

the auditor, Borgers.

J.

NAFS' Administration

Bank Account

[307] Alexander, Newton and Gibbs all stated that NAFS did not have a bank account. There was

no documentary evidence to the contrary. The Shareholder's Agreement stated that a bank account

had been opened, but that apparently did not happen.

Business Cards

[308] Neither Gibbs nor Lavallee had NAFS' business cards. A NAFS business card in evidence

for Newton had his name and contact information, but did not state a position. A card referred to

from Newton's investigative interview (and which was not itself in evidence) apparently stated that

Newton was the CEO of NAFS, but Newton said that was never finalized. Newton testified that

he only carried those cards "maybe for two days" – although we note that he apparently had at

least one with him at his investigative interview and held himself out as a director and officer of

NAFS for a period of time.

Hiring at NAFS

[309] A March 14, 2017 email from Lavallee to Gibbs stated:

52

. . . Would you call David Alexander, I emailed him this morning to let him know that we have

retained a securities lawyer and an accountant yesterday while in Calgary.

I asked David to contact you for more information. . . .

[310] Gibbs testified that "I did not retain and I didn't have the capacity to retain a securities

lawyer and [an] accountant". Gibbs gave his opinion that Lavallee would not have had that

authority either, but that either of them could recommend.

[311] In some August to December 2016 emails from Harris to Lavallee and Gibbs, Harris

referred to searching for a CEO for NAFS, as if that were Harris's role – or, perhaps, Lavallee's

and Gibbs' role. However, there was no context for those emails and the candidates purportedly

championed by Harris did not become CEO of NAFS (in fact, the CEO was not changed until

December 2017 when Alexander resigned and was replaced by Joseph Kistler).

K.

Dealings with ASC

General

[312] NAFS was a US company. Cooney testified it was subject in Alberta to the continuous

disclosure requirements of National Instrument 51-102 Continuous Disclosure Obligations

(NI 51-102) because of Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the

Counter Markets (MI 51-105). Cooney informed NAFS of that obligation in a September 30, 2015

letter to NAFS. Cooney testified that he sent that letter to Newton's attention because Newton was

the highest level executive at NAFS according to documents in the ASC's files. Other ASC

correspondence between that date and March 2016 was also sent to or from Newton. Beginning in

late February 2016 – at the time of the HTO – the evidence showed Alexander communicating

directly with the ASC, referring to himself as President and CEO.

[313] Alexander testified that he "did all the correspondence" with the ASC, including letters and

news releases in evidence (such as the October 3, 2015 to January 4, 2016 correspondence

described earlier in this decision), and that Gibbs had no role in such documents. Alexander

confirmed that he drafted letters from Newton to the ASC because he did not think Newton was

capable of preparing them. Newton's testimony was mostly consistent with that, although Newton

had some telephone conversations and email exchanges with ASC personnel, and those did not

seem to have been subject to Alexander's drafting or oversight. Alexander testified that "there was

no interaction between Mr. Gibbs and the ASC", confirming that it was his own responsibility and

he did not delegate that to Gibbs. He could not recall seeing any correspondence between Gibbs

and the ASC, nor were we pointed to any such correspondence in the evidence.

[314] Gibbs' testimony was consistent with all of the above. Gibbs stated that Newton initially

communicated with the ASC on behalf of NAFS. Gibbs testified that Newton was assisted by

others, including Alexander and Smith. Gibbs said that he himself was asked to review some of

the documents, and that he provided some edit and language suggestions, but that most issues were

legal "and not in my purview". As noted below, Gibbs paid a fee for NAFS to the ASC through

his spouse's account and loaned money to Newton to pay a NAFSCA fee to the ASC.

53

[315] As noted, Newton said he had input into, but did not draft, the January 4, 2016 letter

responding to Cooney's questions. Alexander testified that he drafted it; Gibbs testified that he had

input into one part.

[316] Various NAFS' news releases were in evidence, having been filed on SEDAR. Gibbs and

Newton both testified that Alexander would prepare the news releases. Gibbs stated that Alexander

would sometimes ask Gibbs to review draft news releases. There was no evidence that Lavallee

was involved in NAFS' news releases.

PIFs

[317] October 2015 PIFs sent to the ASC identified Newton as a director and CEO of NAFS and

Dwight Newton as a director and COO of NAFS, effective July 15, 2015. Although earlier

testifying that either Smith or Gibbs had filled out the PIF for Newton to sign, Newton then testified

that Smith prepared the PIFs for both of the Newtons and filed them. A January 8, 2016 email

from Smith to Alexander (copied to Newton and Gibbs) attached the PIFs for the Newtons and

Cupp. Alexander then sent those to "Newsfile Corp." to be filed. Alexander testified that Cupp

asked Alexander to make Newton a director and officer of NAFS. However, Alexander stated that

Newton never completed the required form for US filing, and Alexander never filed a Form 8-K

or executed a directors' resolution appointing the Newtons as directors of NAFS (although

Newton's original right to appoint any number of directors was not to be effective until the

Transaction closed; until then, CSI had the right to have only one director nominee).

HTO

(a)

Issuance and Variation

[318] The HTO was issued on February 22, 2016 because of "circumstances [that] exist or are

about to occur that could result in other than orderly trading of NAFS securities and derivatives".

The HTO was effective until the earlier of March 11, 2016 and its revocation. The HTO was varied

on February 29, 2016 to allow the release from escrow of NAFS Common Shares to CSI.

(b)

Correspondence with ASC

[319] Alexander, as President and CFO of NAFS, sent a letter dated February 25, 2016 to the

Executive Director of the ASC (the ED) asking for an exemption to the HTO to allow the necessary

transfer of NAFS Common Shares so that the Transaction could close on February 29, 2016. The

evidence showed that Alexander made the application, Gibbs made some minor contributions to

the language and others may have had some involvement. Gibbs testified that Alexander asked

Newton to pay the $750 application fee, Newton asked Gibbs for the money, Gibbs gave Newton

cash, and Newton wrote a NAFSCA cheque to the ASC.

(c)

Newton's View of HTO

[320] Newton agreed that he was involved in NAFS' efforts to have the HTO removed. He

seemed confused regarding the timing of the HTO and CTO in relation to his willingness to submit

the CSI Shareholders' List, supposedly to allow the release of NAFS Common Shares from escrow

directly to each of those CSI Shareholders. He stated multiple times that he could not provide that

list because of the HTO and CTO, even though the HTO had been varied on February 29, 2016 for

the purpose of releasing NAFS Common Shares to CSI from escrow, and the CTO was not in

effect until May 16, 2016.

54

March to May 2016

[321] Alexander testified that he had discussions with the ASC between the HTO and the CTO.

Other evidence supported Alexander's statement that some of the ASC's concerns were

inconsistencies or errors in the financial statements and the valuation of the Super A Share.

[322] One document Staff pointed to was a February 29, 2016 draft of what became a

March 2, 2016 letter from Alexander (as NAFS' president and CFO) to MacPherson, responding

to the ASC's February 25, 2016 letter setting out the concerns which led to the HTO. The

February 29, 2016 draft letter in evidence was attached to emails from Gibbs to Alexander and

copied to Lavallee and Newton, with the salutation "Dear David/Ray". Alexander also sent a

version of the draft to Newton and, presumably, to Gibbs. Gibbs sent an email stating "Great work

David" and referring to edits that Gibbs had made "after our telephone call" – although Gibbs

testified that he did not remember the extent of his edits. Alexander confirmed that he wrote that

letter to MacPherson, asked Gibbs to review it and provide comments, and did not ask Lavallee

for comments.

[323] Staff tendered a black-lined version of that February 29, 2016 draft document which

attributed certain comments on the draft to Gibbs. Gibbs acknowledged those appeared to be

changes he had made. We do not find those changes made by Gibbs to be significant. They were

largely for purposes of grammar (e.g., changing "was" to "were") or detail (e.g., adding "2016"

after "February" and changing "market maker" to "investor relations service company"). He also

added the sentences: "Furthermore, we are of the opinion that a NI 43-101 would provide

additional comfort to our auditors as to the underlying value of the assets being acquired by the

Company" and "In fact, it is more probable that demand [for frac sand] in 2015 was less than 2014

when 24% increases in demand were being experienced." We also note that not all of Gibbs'

suggested changes were made.

[324] An April 21, 2016 letter from Alexander as President and CFO of NAFS to Cooney

indicated that NAFS had no office in Alberta, that Alexander was President and sole director of

NAFS, that Newton was President and a director of NAFSCA, and that Dwight Newton was COO

of NAFSCA. Newton confirmed those positions shown for him and Dwight Newton were correct,

as far as he remembered.

[325] Alexander confirmed that he amended some financial statements in response to Cooney's

concerns, although no amended versions were signed before August 2016, at the same time as the

Super 8-K. Alexander testified that he tried to deal with Cooney regarding the Super A Share's

valuation, but could not have a meaningful conversation with him. Alexander stated that NAFS'

auditors wanted to follow generally accepted accounting principles from the US (US GAAP) and

issued their report on the unchanged valuation of $13,741,679. According to Alexander, Borgers

said he could help with obvious errors, but not with issues of US GAAP and International Financial

Reporting Standards.

CTO

(a)

Issuance of CTO and Initial Communications

[326] The CTO was issued on May 16, 2016 and remained in effect at the time of the Hearing.

55

[327] Alexander, as President and CEO, sent an August 20, 2016 letter to Cooney of the ASC.

Cooney testified that was not a proper revocation application because it did not meet the

requirements of the Act, including payment of a revocation application fee. In a

September 26, 2016 letter from Alexander to Cooney, Alexander highlighted August 2016

amendments to various financial statements, the filing of the Super 8-K, and other efforts to

address the issues that led to the CTO. He stated that this information was to lead to discussions

with the ASC prior to NAFS making a formal application to revoke the CTO. Cooney could not

recall if he responded to that letter, but thought he may have had a discussion about it with

Alexander.

[328] Alexander testified that he wrote the September 26, 2016 letter to Cooney for review, but

Cooney did not address the substance, telling him only that he needed to file an application with a

fee to ask for revocation of the CTO. During cross-examination, Alexander acknowledged that a

statement in the September 26, 2016 letter to Cooney that Newton resigned from his position as

NAFSCA's sole director and officer was wrong because Alexander removed him. Alexander also

agreed that references in that letter to "North America Frac Sand (Alberta) Ltd." should have been

to NAFSCA.

(b)

Revocation Application

[329] NAFS made a formal application to revoke the CTO in a letter dated January 20, 2017 from

Alexander to Cooney. Alexander testified that he prepared the revocation application, with some

help from a lawyer, CL, and an accountant, GC, both recommended by Gibbs. Alexander also

stated that Gibbs (at Alexander's request because Gibbs was in Calgary) made the payment to the

ASC for the revocation application. NAFS paid $2,500 to the ASC as the revocation fee, and that

payment came from Gibbs' spouse's bank account. Gibbs stated that he was reimbursed by NAFS.

We consider it irrelevant that the payment came from Gibbs' spouse's bank account.

[330] Although Alexander initially testified that he did not ask Gibbs to help with the revocation

application and that Gibbs did not help, Alexander later stated that Gibbs had reviewed some of

Alexander's work on the application. Gibbs acknowledged that he "had input into" that application

document, compiled some information, and would have reviewed the document for accuracy. The

evidence showed that Gibbs had sent Alexander a January 19, 2017 email stating that a draft

application was attached (although that attachment was not in evidence), telling Alexander to make

changes as he saw fit and to attach documents specified by Gibbs. Gibbs also stated there that he

would send Alexander a draft order, and asked Alexander to draft a news release. Despite the

January 19 correspondence, Gibbs did not agree with Staff's suggestion that Gibbs' input into the

revocation application was "significant". According to Gibbs, Alexander did most of the work

because it involved restating and amending financial statements, along with other disclosure

requirements.

[331] Cooney responded to the formal revocation application in a February 23, 2017 letter,

setting out the ASC's view that certain problems remained unresolved by NAFS' new information

and filings. The letter stated that if the issues were not resolved and new filings made within

90 days of February 23, 2017, the ASC would "be required to withdraw and close" the revocation

application. The letter also expressed concerns with NAFS' accounting of the Transaction.

Alexander testified that there were approximately three remaining issues, all dealing with share

56

capital – mostly the Super A Share. However, he said that he could not compose a response because

the ASC did not tell him what would be acceptable.

(c)

Closure of Revocation Application File

[332] Cooney notified Alexander in a May 24, 2017 letter that the revocation application was

closed because the issues raised by the ASC had not been addressed within 90 days of the

February 23, 2017 letter. Alexander asked for an extension in a May 25, 2017 email to Cooney

(copied to Gibbs), as Alexander had "let this slip". Cooney reiterated in a May 25, 2017 response

email to Alexander that the revocation application was closed, and that NAFS could re-apply when

the issues were resolved, required filings were made, and NAFS was "prepared to actively respond

in a timely manner to all further ASC queries".

[333] Cooney recognized a June 28, 2017 letter from Alexander to Cooney referring to the

appointment of GC to resolve the outstanding issues. Gibbs confirmed this involvement by GC

and agreed that he sent Cooney's February 23, 2017 letter and the May 16, 2016 CTO to GC. Gibbs

emphasized that he copied Alexander on that email because Alexander needed the information, as

he was the one making the decisions.

(d)

Lavallee's Involvement with CTO

[334] The evidence was consistent with Lavallee's statements that he was kept informed of

NAFS' dealings with the ASC after the HTO and CTO, but had no involvement in the responses

to the ASC.

L.

Dealings with SEC

NAFS' SEC Filings

(a) Overview of Filings in Evidence

[335] According to Cooney, NAFS was designated under MI 51-105 as an "OTC reporting

issuer" as of August 14, 2015 and thus required to make certain filings with the ASC, starting with

the interim period ended September 30, 2015. Accordingly, NAFS' SEC filings from that date were

also filed with the ASC and were relevant to this Hearing, including:



Forms 10-Q for the quarterly periods ended: September 30, 2015; March 31, 2016;

June 30, 2016; September 30, 2016; March 31, 2017; June 30, 2017; and

September 30, 2017;



Amended Forms 10-Q for the quarterly periods ended: September 30, 2015; and

March 31, 2016 (both dated August 26, 2016, the same date as the Super 8-K);

Forms 10-K for the fiscal years ended: December 31, 2015; and

December 31, 2016;

Amended Form 10-K for the fiscal year ended December 31, 2015 (dated

August 26, 2016, the same date as the Super 8-K);

Forms 8-K for earliest events of: February 29, 2016; March 21, 2016; and

August 11, 2016; and

57



the Super 8-K for an earliest event of June 30, 2016 and dated August 26, 2016.

(b)

Content of Filings

(i) Disclosure of Business Aspects

[336] Selected relevant disclosure in the filings included:



Even after the Stock Purchase Agreement had been entered into, certain of NAFS'

filings continued to refer to aquatic farming and aquaculture industry consulting,

eventually referring to it as historical rather than current.



NAFS anticipated that some conditions of the Transaction would be met before

October 15, 2015, and also disclosed when that date was extended to

November 30, 2015 and to February 29, 2016. The Super 8-K stated that all

conditions were met by February 29, 2016, other than the completion of the

NAFSCA Audit, and that the transaction would "be effective upon filing of the

[Super 8-K]".



If the Transaction proceeded, the stated plan was to raise money to continue drilling

and testing, complete an NI 43-101 study, obtain financing for a 1.2 million ton

facility, and begin selling frac sand. As of March 31, 2017, NAFS stated that it

planned to raise US$2 million in the next 12 months, to be used first for completing

an NI 43-101 report.

NAFS consistently indicated in a "Going Concern" note that its ability to continue

as a going concern depended on "obtaining adequate capital to fund operating losses

until it becomes profitable". Plans for such additional capital resources included

"obtaining capital from management and significant stockholders sufficient to meet

its minimal operating expenses". NAFS also referred to "raising additional funds

from the private sources and/or debt financing".



Some filings referred to the Leased Property as "east" of Saskatoon instead of

"west".

(ii)

Related Party Transactions

[337] The notes to the financial statements in certain NAFS' filings stated:

In support of [NAFS'] efforts and cash requirements, it has relied on advances from related parties

until such time that [NAFS] can support its operations or attains adequate financing through sales

of its equity or traditional debt financing. There is no formal written commitment for continued

support by these related parties. Amounts represent advances or amounts paid in satisfaction of

liabilities of [NAFS]. The advances are considered temporary in nature and have not been

formalized by a promissory note.

(iii)

DC&P and ICFR

[338] Regarding Disclosure Controls and Procedures (DC&P) and Internal Control over

Financial Reporting (ICFR), certain of the filings disclosed:

58



Management's review concluded that "financial disclosure controls and procedures

were not effective . . . due to [NAFS'] limited internal resources and lack of ability

to have multiple levels of transaction review".

The information presented was materially correct, but lack of effective monitoring

of internal controls and procedures "could result in a material misstatement in our

financial statements in future periods".

(iv)

Officers and Directors

[339] NAFS' filings were consistent regarding Alexander's status as director and officer, although

not always consistent regarding Cupp's positions. Some of the filings stated that NAFS had no

employment contract with Alexander or Cupp and no agreements for compensation in the future.

(c)

Super 8-K

(i) Significance

[340] Much was made of the Super 8-K during the Hearing. Alexander, for example, stated in

his written argument that the Super 8-K "was required to register the [NAFS Common Shares held

in escrow] with the SEC, thereby removing trading restrictions from these shares and enabling

them to become free trading". He claimed those shares could be released from escrow as of

February 29, 2016, but could not be registered with the SEC or freely traded until the Super 8-K

had been filed. Staff pointed to Gibbs' involvement in preparing the Super 8-K as supporting Staff's

contention that Gibbs was a de facto officer of NAFS.

(ii)

Preparation

[341] Alexander stated that he prepared the Super 8-K. He also stated that he had the entire

document audited and asked third parties to review it as his due diligence to ensure it was correct.

[342] Gibbs denied helping Alexander file the Super 8-K, but confirmed that he provided

comments and edits. The evidence supported Gibbs' position, including a July 19, 2016 email from

Gibbs to Alexander, copied to Borgers and a colleague and setting out Gibbs' comments on the

draft Super 8-K. The evidence also showed that Alexander did not accept some of Gibbs' suggested

edits. Gibbs stated that he returned his comments to Alexander and Borgers because Borgers had

been copied on the original email from Alexander to Gibbs.

(iii)

Content

[343] The Super 8-K stated that Alexander was President and Director of NAFS "and has become

the sole director and officer" of NAFSCA. The document stated there was no employment contract

with Alexander and "[c]ompensation is accrued on a month to month basis, there [are not] any

agreements for compensation in the future." In addition, it stated that the Transaction did not lead

to a change of control, nor had the Newtons become directors of NAFS. The Super 8-K listed

Morrow as a director as of July 27, 2016.

[344] Regarding relationships, related transactions and director independence, the Super 8-K

included the "related party" statement set out earlier and also noted:

59

David Alexander had advanced to [NAFS] $128,275 and $67,582 as of June 30, 2016 and

December 31, 2015 [respectively], with no stated interest rate, payment terms and is due on demand.

Mr. Alexander has unpaid fees and expenses totaling $109,586 and $23,000 as of June 30, 2016 and

December 31, 2015, [respectively].

[345] The Super 8-K had a detailed description of the Transaction (reflecting developments after

it was entered into, such as Newton not receiving the Super A Share and the Newtons not becoming

officers or directors of NAFS):

CSI is a non-related party. Under the terms of the [Stock] Purchase Agreement, [NAFS] will issue

the 37,800,000 shares of common stock directly to the shareholders of CSI. Upon completion of the

merger, the shareholders of CSI will receive none of the Series A Preferred Stock. There is one

Series A Preferred Stock issued. Its voting rights equal to four times the sum of: i) the total number

of [NAFS Common Shares] which are issued and outstanding at the time of voting, plus ii) the total

number of [Preferred B Shares] which are issued and outstanding at the time of voting.

Consequently, there is not a change in control of [NAFS]. Furthermore, management of [NAFS]

will remain unchanged. It will be supplemented by independent directors and officers experienced

in the frac sand industry. No parties from [CSI] will become officers or directors of [NAFS].

Furthermore, management of [NAFS has been] appointed to act as management of [NAFSCA].

[NAFS] has subsequently entered into a loan agreement utilizing the [Leases] as collateral with

[NAFSCA]. As a consequence of this arrangement, [NAFSCA] has subsequently been able to pay

annual rental on the [Leases] and keep them in good standing; and [NAFS] has retained [Norwest],

a Calgary based mineral engineering company, to conduct certain development work on the [Leases]

for the purpose of determining the presence of [an] economic resource and completing a NI-43-101

Report. The field work includes an Auger Drilling Field Program which is currently underway.

(d)

Certifications

[346] All of the SEC certifications in evidence were signed by Alexander as "Principal Executive

Officer" and "Principal Financial Officer" of NAFS.

M.

Promotional Activities

Possible Significance

[347] Staff contended in their written submissions that one factor making Gibbs a de facto officer

of NAFS was that he "helped with the marketing of NAFS". Staff pointed to little evidence in

making that argument. Gibbs and Alexander argued that there was nothing to market and that

Gibbs did no marketing for NAFS.

2015 to 2017

[348] Various events were referred to in the evidence, including:



On October 14, 2015, Gibbs sent an email to Alexander, copied to Lavallee, two

CSI email addresses, Smith, Kistler and AH, stating:

In order to provide support to the marketing and sales of the NAFS stock and the

market value of the NAFS stock it is important that we issue regular press releases

with the [sic] respect to the progress of the Company's development activities.

Our marketing and sales group have suggested that we try to make such releases

on a bi-weekly basis. Ray [Newton] and I with other members of the management

team will keep you apprised of all such developments and events which are

reportable.

60



Gibbs testified that his reference in that email to the "marketing and sales group"

meant Newton and AH. Gibbs reiterated that he considered himself Newton's

"assistant", not a part of NAFS' management. Newton testified that he thought

Gibbs' reference to "the management team" meant the Newtons. We were pointed

to no details about AH or any involvement he had with NAFS.

The only email in evidence directly replying to Gibbs was an October 17, 2015

message from Alexander, possibly only to Gibbs. In that email, Alexander told

Gibbs to make certain changes to the NAFS.ca Website, but did not refer to Gibbs'

suggestion regarding news releases. Alexander sent a separate message to KG later

on the same day, specifying changes to the NAFS.ca Website and mentioning "a

promotion that starts Monday" and the need to update the website at that time. KG

replied to Alexander and sent a separate email to Newton, both messages dealing

only with making changes to the NAFS.ca Website.



Alexander said during his interview that he did not recall what "promotion" he was

referring to in his October 17 email to KG, but said that he would likely have meant

news releases. We were pointed to no other evidence of an October 2015

promotion. Alexander testified that he considered Gibbs' mention of future news

releases to be "a suggestion" to Alexander, and did not consider it to be marketing.

There was no evidence of "bi-weekly" news releases (had they existed, they would

have had to be part of NAFS' regulatory filings).



A November 2015 email chain may have related to "a call room" (in Newton's

words), but there were few details and no argument relating to this. We were not

pointed to any evidence that a call room was ever organized or operated.

Alexander stated in his interview that as the only person in NAFS' management,

any promotional activities would have been undertaken by him, but he did not recall

what type of promotional activities he did in 2015 or who would have paid for them.

During the Hearing, Alexander testified that he did not understand Gibbs to have a

role in marketing, because there was no marketing done.



Some August and September 2016 emails discussed a proposed consulting

agreement between NAFS and CB, which would possibly have led to her answering

calls, updating the NAFS.ca Website, and engaging in other communications

activities. Gibbs testified that he and Lavallee met with CB, but nothing came of it.

We accepted Gibbs' evidence on that point because there were no indications that

CB was hired or did any work for NAFS.

A June 2017 news release by NAFS outlined unauthorized "third-party promotional

activities" containing misstatements. That was shortly after NAFS released the

Norwest Report. There was no evidence linking any of the Respondents to those

impugned activities.

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N.

Reports

Green's Reports

(a) Green and Green Engineering

[349] Green is a mining engineer who testified that his company, Green Engineering, prepared

six reports on the Leased Property over several years, some of which were in evidence (although

there was some confusion as to which were which, and Green said that others did not realize how

many reports there were). None of those were compliant with NI 43-101, and Green had never

prepared a 43-101 report. Green had known the Newtons for at least 15 years at the time of the

Hearing, first looked at sand on the Leased Property in 2005 at Newton's request, and determined

then that there was potential on the Leased Property. Green testified Newton was the only person

involved that Green knew well.

[350] Green thought he first met Lavallee when Lavallee paid a $10,000 invoice that Newton

said CSI could not pay. That was apparently for a June 16, 2015 invoice sent to NAFS to Newton's

attention. Green referred to "a new bunch" (apparently NAFS) and an "old bunch" (Newton).

Green still considered his client to be CSI, with NAFS as just a way to get paid. Green said he met

Lavallee only twice, but Lavallee was a contact person Green could call. Lavallee's interview

statements were consistent with Green's testimony regarding meetings between the two and

payments from Lavallee to Green.

[351] Green testified that he thought Smith, Gibbs, Lavallee and Alexander were the directors of

NAFS, but he did not check that, nor did he appear to have any firm basis for his view. Green did

not recall dealing with Smith.

(b)

Reports by Green

[352] Green testified primarily about three reports: a summary report dated October 7, 2013; the

December 15, 2014 report; and the Disputed Green Report, which was an updated version of a

March 31, 2010 report for CSI. Only the Disputed Green Report was relevant to Staff's allegations.

Green testified that a February 1, 2016 letter to him from Alexander for NAFS was to engage

Green for a 43-101 report, but NAFS did not pay him the deposit he required, so the engagement

did not proceed. Lavallee said during his interview that Green wanted too much money to proceed.

[353] The Disputed Green Report was a highlighted and handwritten mark-up of a

March 31, 2010 report originally by Green. Green vehemently denied preparing the Disputed

Green Report and said that he did not know who prepared it. Green explained that the document

contained "a bunch of material I wrote and butchered into a report and call something that you --

it doesn't go into the things that you need to have in a 43-101 report" (quoted verbatim). Green did

not think Newton had prepared the Disputed Green Report, although he thought Newton was

perhaps the person who sent it to Green. Green's testimony was contradictory and unhelpful on

that point. Newton said he did not prepare the Disputed Green Report, although he recognized

parts of it.

[354] In evidence was a February 16, 2016 email from Alexander to Gibbs asking for certain

information about NAFSCA so that Alexander could prepare working papers and notes to financial

statements, and also asking Gibbs "how are we making out with the 43-101", needed "to justify

the acquisition price".

62

[355] Gibbs replied on February 17, 2016 in an email copied to Lavallee and Newton (quoted

verbatim):

. . . The 43-101 Report will not be a valuation report only a Resource Report. We are drafting the

report before sending it to Don Green, Des Smith is doing that as we speak. We have advised Don

Green that we will be engaging him to do the 43-101 Resource Report and he will not start until we

get him a retainer and I have advised Bert of this. We will not be getting any cash for the retainer

until next week at the earliest so it will be two weeks after that before we will receive the final

Resource Report from Don Green. We have the Green Report from December 15 2014 which

provides estimates of proven and probable tonnage and the "New" Green Report will repeat those

tonnage except the report will be 43-101 compliant.

[356] Gibbs confirmed that the document referred to in that email as being drafted was the

Disputed Green Report. Staff asked Gibbs about his use of "we" in the email regarding drafting.

Gibbs denied that he was drafting it and implied that he would not have had the necessary skills to

do so. Gibbs stated that "we" in that email was colloquial, referring to one or more of himself,

Smith, Newton, CSI and NAFSCA.

[357] The Disputed Green Report was apparently never completed or used, and Norwest was

engaged by NAFS not long after that email discussion.

[358] Other evidence from and relating to Green – in particular, connected to the Disputed Green

Report – included various emails and other documentation. Much of that evidence was confusing

due to Green's uncertain recollection of details and our inability to be certain that some of the

documents were actually exchanged among the people mentioned. We did not find such evidence

helpful in assessing Staff's allegations.

Norwest

(a)

Engagement and Communication

[359] Wilson, a geological engineer, was vice-president of mining and mine development for

Norwest at the relevant time. Turner, a Norwest geology manager, managed the NAFS project and

reported to Wilson. Wilson testified that the Newtons had approached a Norwest colleague in

May 2016 "to help them explore and further define" a property from which frac sand could be

extracted. Newton confirmed that he first approached Norwest and also suggested to Alexander

that Norwest be hired. Newton also acknowledged that Norwest was engaged after Newton's

recommendation and Alexander's approval.

[360] Wilson testified that the Newtons introduced Lavallee and Gibbs to Norwest. Wilson

understood that Lavallee and Gibbs "were providing input and direction with respect to how --

study of the project and the property could proceed", including the scope and cost. He stated that

Norwest "took technical direction" from Gibbs and Lavallee and provided them with reports, but

did not recall Alexander authorizing the latter. However, Turner – who managed the project and

was, therefore, more directly involved than Wilson – testified that Gibbs and Lavallee did not

discuss matters with him from a geological basis, but more about whether it was worth getting a

43-101 report for the deposit. Turner also testified that Alexander brought Morrow in "to review

technical aspects of the project".

63

[361] On May 24, 2016, Turner met with Gibbs and Lavallee to discuss Norwest making a

proposal. Norwest presented its proposal to Alexander as CFO of NAFS (in a May 27, 2016 email

from Turner to Gibbs and Alexander, copied to Wilson).

[362] On July 29, 2016, Turner emailed Alexander and Gibbs with a field proposal dated

June 30, 2016, asking for a signature. Alexander signed the attached proposal and work order on

behalf of NAFS.

[363] Wilson stated that Norwest was provided with electronic files of documents and reports

prepared by Green, and that some of that material was used by Norwest in constructing a model.

Wilson disagreed that Norwest followed Green's work and that the purpose of Norwest's work was

to audit Green's work. In fact, Norwest determined it needed to perform more testing than Green

had completed. Wilson confirmed that Turner, as project manager, would have decided where and

how to drill the holes, then the samples would have been tagged and sent to a laboratory for further

analysis.

[364] Wilson testified that he spoke with Newton on the telephone, but never met him personally

and did not know details of Newton's involvement with NAFS (such as being an officer, director

or shareholder). Turner confirmed that he did some work and had some discussions with Newton

regarding the project, including receiving background information and a site tour from the

Newtons. Newton confirmed that he helped Gibbs provide information to Norwest – "I think what

I did was I [gave Turner] Don Green's report"; Newton also authorized a lab to release CSI's sand

results to Turner.

[365] Turner confirmed that "Lavallee had nothing to do with any of [the] on-site work", nor did

Lavallee have any qualifications (e.g., geologist, engineer, or accountant) or represent himself as

having such qualifications. Turner agreed that Lavallee never gave Turner any documents or

papers about this project. Turner understood that Lavallee was the person who would pay Norwest,

after invoices were sent to NAFSCA. Turner also testified to a May 2016 meeting during which

Lavallee asked for a $10,000 reduction in Norwest's fee. Wilson testified that Norwest received

payment from Lavallee, and that Wilson understood Lavallee "to be part of or associated with

NAFS" or acting on behalf of NAFS.

[366] Lavallee said that he dealt with Norwest four or five times, and that was to pay them and

to ask about delays. Lavallee also stated that Gibbs dealt with Norwest most of the time, although

Alexander spoke with them several times as well. Lavallee said he received information from

Norwest about what they were doing because he was paying the bills and wanted to make sure the

work was getting done. Newton testified that he thought Lavallee "was the one who was running

them [Norwest] because he was the one paying them". Alexander said during his interview that he

did not think Lavallee was authorized to speak for NAFS with Norwest, "but he was paying the

bills, so I would imagine he probably stuck his nose in there".

[367] Wilson stated that he did not communicate with Alexander regarding Norwest's work

program for NAFS. Turner had discussions with Alexander, but did not meet him. Turner

understood that Alexander was the signatory for NAFS and that Turner could not have proceeded

without Alexander's authority. When asked by Staff if he discussed the scope or costs of the project

with Alexander, Turner recalled a conversation he had with Alexander in July 2017. Turner

64

testified that Alexander told him that Morrow wanted to review the technical merit of the lab results

and the project because Alexander "let me know that he technically wasn't in a place to complete

the evaluation himself, but [Morrow] would do that". Wilson thought Morrow was "either a

consultant or an expert that was asked to provide some input by NAFS" – he did not recall that

Morrow was a director of NAFS (although Morrow was a director as of July 27, 2016). Alexander

said that he approved Norwest's drill program after consulting with Morrow.

[368] Turner stated that Gibbs was the "point contact" for questions about the project, planning

and goals. He said he could not agree with the terms "go-between" or "gofer" for Gibbs' role

because he did not know what conversations Gibbs was having with others. Turner testified that

he knew that Gibbs spoke a lot with Lavallee and that Alexander was also involved. Turner also

testified that he had many email discussions either with Gibbs directly or with Gibbs copied –

those were program discussions, field coordination, timing of reports, and many regarding

finances. Turner agreed that if changes were needed he would talk to Gibbs, then Gibbs would talk

to others at NAFS, and if changes were approved, those would be under Alexander's name.

[369] Alexander and Gibbs gave similar testimony about each other's roles in dealing with

Norwest: Alexander asked Gibbs to deal with Norwest on Alexander's behalf; Gibbs did not have

geological training; Gibbs did not have the authority to negotiate with Norwest or direct its work;

and Alexander was the one who approved the drill program and work orders (with Alexander

stating that he gave such approvals after discussions with Morrow). These statements appeared to

be generally consistent with other evidence, including Turner's testimony – as mentioned, Turner's

evidence was more helpful than Wilson's regarding interactions with various people, because

Turner was more directly involved than Wilson.

(b)

Norwest Report

[370] The evidence showed that a draft of the Norwest Report was almost complete on

October 5, 2016, but Norwest was very concerned about being paid before releasing the draft. A

draft Norwest Report dated November 10, 2016 was in evidence. Payment issues continued into

2017, with evidence of discussions and invoices in February and March 2017. Lavallee paid for

the Norwest Report in May 2017. Lavallee said that Alexander had called him at that point and

said if Lavallee did not pay the bill, it was over. We consider irrelevant to the allegations that

Lavallee acknowledged Kistler and RG had paid about $45,000 and $15,000 of those amounts,

respectively.

[371] After receiving payment from Lavallee, Norwest provided NAFS with the Norwest Report,

dated May 25, 2017, but effective September 22, 2016 – no new fieldwork had been done and

there were apparently no significant changes from the draft Norwest Report. The notification email

from Wilson said that Norwest would be releasing the Norwest Report to Alexander. The evidence

showed that Wilson sent Alexander the Norwest Report on May 25, 2017, then sent it about

15 minutes later to Lavallee in a separate email. Gibbs was not copied on either email. Alexander

said that he reviewed the Norwest Report with Morrow, who had a few questions and discussed

those with Turner. Alexander said that he did not discuss the Norwest Report with Gibbs.

[372] Gibbs acknowledged that he had reviewed the Norwest Report by May 27, 2017, and said

that Turner asked him to look at it. Gibbs also had a memory stick with the digital version. On

May 27, 2017, Gibbs sent Lavallee an email, copied to Turner, setting out Gibbs' comments on the

65

Norwest Report for Lavallee's consideration. In the email, Gibbs mentioned various matters,

including the next drilling program, a study of market conditions, and a preliminary economic

assessment for which Gibbs had "done a significant amount of work". Gibbs repeatedly used the

word "we" in the email, such as "we should develop a solution" and "we need to" do various other

things. Gibbs forwarded that message to Kistler on May 31, 2017. Alexander was not copied on

either message. Turner confirmed that he made changes to errors in "the figures" as caught by

Gibbs.

[373] There was a May 30, 2017 news release regarding the Norwest Report. Alexander's and

Turner's evidence was consistent that Alexander and Turner had discussed and reviewed that news

release. Gibbs and Lavallee were not involved in those emails in evidence referring to that news

release.

[374] A revised Norwest Report was issued, dated March 13, 2018 but also effective

September 22, 2016 (the Revised Norwest Report). NAFS announced the completion of the

Revised Norwest Report on March 22, 2018.

[375] Turner confirmed that he sent emails to Alexander, Lavallee and Gibbs on May 18, June

30 and September 13, 2017. Wilson confirmed September 12, 2017 emails among himself, Turner,

Gibbs and Lavallee to set up a meeting and discuss the agenda and goals for a secondary drilling

program. Wilson testified that the steps after an initial report would be further drilling, exploration,

sampling and analysis, leading to further reports.

(c)

Alexander Norwest Letter

[376] In evidence was a September 11, 2019 email Alexander sent to Wilson. That email referred

to Staff's allegations leading to this Hearing, attached the draft Alexander Norwest Letter, and

stated the following (quoted verbatim):

From approximately July 10, 2015, to the end of 2017, I believe that I was the only person from

North America Frac Sand, Inc. that Northwest Corporation was authorized to take instructions from.

Could you please state in a letter that:

1. David Alexander was the only person whom that Norwest Corporation were authorized

to take instructions from,

2. Norwest Corporation did not take any instructions from Mr. Bert Lavallee or Mr. Brian

Gibbs, and

3. Norwest Corporation did deal with Mr. Bert Lavallee sometimes in order to ensure that

you bills were paid.

[377] Wilson replied to Alexander (copied to Turner and Staff), stating:

. . .

I have reviewed your request and letter. My recollection of events, and my email correspondence,

regarding who Norwest Corporation received direction and instructions from does not correspond

with your statements. I have discussed this issue with Al Turner and his recollections and

correspondence are similar to mine.

As such we will not be able to provide the letter(s) that you have requested.

66

Please know that I have copied [ASC Staff] as the ASC has previously asked me to provide

testimony in this matter.

. . .

[378] We noted above the testimony of Wilson and Turner regarding their respective interactions

with Alexander, Lavallee and Gibbs.

O.

Harris

Alleged Relevance

[379] Staff suggested that emails in evidence showed Harris was very involved with NAFS,

Gibbs, Lavallee and AEPP. That was relevant to Staff's allegations that Lavallee had withheld

certain information during the Lavallee Interview about Harris holding NAFS Common Shares for

Lavallee and Gibbs in a trading account over which Lavallee had trading authority or provided

trading direction. These email discussions with Harris were also part of Staff's arguments that

Lavallee and Gibbs were de facto officers of NAFS and that Lavallee was involved with AEPP.

As noted, Harris had 2.5 million NAFS Common Shares through the conversion of Preferred B

Shares obtained from NOBS. It was clear from the evidence – some of which is outlined below –

that Harris was involved to an extent with NAFS and AEPP, although his role was not well-defined

by the evidence. Harris did not testify.

[380] Alexander denied knowing Harris. Counsel for Lavallee argued that any evidence relating

to Harris and AEPP was not useful as Harris did not testify (nor was there an investigative

interview transcript for Harris because he was not interviewed). Gibbs denied that Harris was

involved with NAFS, acknowledging only that he thought Harris wanted to be involved. In

response to Staff's questions regarding various emails sent by Harris to Gibbs or to Lavallee and

Gibbs, Gibbs testified that he ignored many of Harris's comments and suggestions as ridiculous

attempts by Harris to insinuate himself into NAFS.

[381] We reproduce here emails or portions of emails among various people, primarily two or

more of Gibbs, Lavallee, Alexander and Harris. Because some emails refer to more than one topic

(for example, NAFS and AEPP), we set them out chronologically rather than by topic. Emails

reproduced elsewhere in this decision are not repeated here.

2016 Emails

[382] In a May 27, 2016 email from Harris to Gibbs with the subject "Harris / NAFS", Harris

asked Gibbs to "register my shares and courier the certs to me", asking for two "certs" in Harris's

name (we are satisfied that meant certificates of NAFS Common Shares, given the subject line).

Harris said he would then deposit them in his accounts. Gibbs characterized his own role as "trying

to facilitate". Gibbs stated that Alexander was not copied on this because it was "in relation to a

transaction between Mr. Harris and Mr. Kistler" and, therefore, "nothing to do with the company".

A May 28, 2016 email from Harris to Gibbs with the subject "NAFS / Kistler" appeared to refer

to the same shares. Neither of those two emails referred to Lavallee or Gibbs having any beneficial

interest in those 2.5 million NAFS Common Shares.

[383] In a May 31, 2016 email from Harris to Gibbs, Harris said that he had 2.5 million NAFS

Common Shares and wanted them registered in his name (two certificates for one million each and

67

one certificate for 500,000). These again appeared to be the same 2.5 million NAFS Common

Shares, but with a different certificate distribution. Harris asked Gibbs in that email to forward it

to the appropriate person. Gibbs forwarded that email to Kistler and Lavallee on June 1, 2016,

telling them that these were Harris's particulars and that Gibbs would ask Harris "to provide to

Brian K [presumably Kistler] with the particulars of the Broker dealers he is using". Alexander

was not copied on the email, but he apparently provided it during the Investigation and thought

that he had received it as part of the package of materials he received when approving the

conversion and share issuance for NAFS. Gibbs was asked about Harris's emails during cross-

examination by Staff. Gibbs agreed he was coordinating particulars for 2.5 million NAFS Common

Shares for Harris and Kistler. Lavallee was asked about the May 31, 2016 email forwarded to him

by Gibbs. Lavallee said he did not know why Gibbs had sent that email to him, other than to keep

him informed about the sale to Harris. Lavallee said Harris was a long-time friend of Gibbs, and

that Lavallee had been involved with Harris on another deal, but did not remember what it was.

[384] A June 1, 2016 email from Harris to Gibbs with the subject "NAFS press releases"

suggested that, to save time, "why don't you draft the two press releases and leave out the actual

numbers, but have the [company] principals approve the format?" Gibbs testified that he had

"absolutely no idea" why Harris was talking to Gibbs about NAFS' press releases. Gibbs also stated

that he did not remember if he asked Harris what that meant, nor did he have an exchange with

Harris about specific press releases. According to Gibbs, Harris "makes all kinds of demands on

people", and Gibbs likely ignored this one. Gibbs continued that, "frankly, it's outrageous. He's

asking me to do stuff and -- and get involved, and that was not my role. I didn't have the authority

to do it." When asked why he would have ignored it instead of responding, Gibbs insisted that he

ignored such demands as being "ridiculous". Supporting Gibbs' contention that he ignored some

of Harris's messages and questions, June 25 and 27, 2016 messages from Harris to Gibbs were in

evidence. In the first, Harris asked Gibbs questions about AEPP and NAFS (regarding NAFS:

"Has the response to ASC been delivered?" and "Any new schedule?"). Harris clearly did not get

a response because his email two days later said ". . . perhaps you didn't see the [June 25] message

. . . any response, please?" There was no response in evidence to the June 27, 2016 message either.

[385] In a June 28, 2016 email to Gibbs, Harris said he was "opening acct in name of LP - let's

call it 'Refrac LP'". Stating that he needed "legit" names for limited partners, he asked Gibbs for

"a name for you (your numberco) and ask Bert what he wants", then said "do you want NAFS to

be a limited partner in its own name? ….actually, NO" (quoted verbatim). Gibbs disagreed with

Staff's suggestion that this email referred to a trading account Harris was setting up for Lavallee

and Gibbs for NAFS Common Shares. We note that the account statement later sent by Harris to

Gibbs and Lavallee for NAFS Common Shares was in Harris's name, not that of an "LP" or

"numberco".

[386] Harris sent a July 8, 2016 email to Gibbs attaching a document addressed to Gibbs and

Lavallee, which referred to NAFS and requested a job description for SD in case SD was interested

in working with NAFS – "what do you want him to do, in what capacity, and in what time

period?...and what compensation?" Gibbs testified that he did not know SD and that this document

was one of Harris's "harebrained schemes" to "insinuate himself" into NAFS because he had

2.5 million NAFS Common Shares. Gibbs said this went nowhere, and that he probably just

ignored this message. Gibbs agreed with Staff that neither he nor Harris had the authority to hire

a CEO for NAFS and denied knowing why Harris took the initiative to pursue this. A July 13, 2016

68

email from Harris to Gibbs said Harris would tell SD there was no need for his services. Gibbs

stated that he possibly had told Harris that over the telephone, although he did not remember a

specific conversation.

[387] An August 26, 2016 email from Harris to Gibbs with the subject "possible CEO for nafs"

suggested that PH could be CEO for NAFS. There was no reply in evidence. When asked by Staff

if NAFS needed a CEO at that time, Gibbs responded "No. I don't think so. Mr. Harris thought so,

I guess."

[388] In a September 15, 2016 email to Gibbs and Lavallee about NAFS, Harris mentioned a

meeting the previous day. He also sent a schedule of NAFS' items to be addressed. Harris said "we

need to choose 'face of the company' to be effective". The memo itself stated "why not hire a

CEO". Gibbs said that Harris was still trying to insinuate himself in NAFS, and it was "ridiculous".

We were not pointed to any evidence that Lavallee and Gibbs followed Harris's schedule and no

new CEO was hired at that time.

[389] Harris sent a December 9, 2016 email to Lavallee, copied to Bugg, Gibbs and Kistler,

apparently referring to some share trades, and saying "Now, let's get those leases into the

company." Staff pointed to this email as another example of Harris being well-informed about

NAFS, even though NAFS was not mentioned in the email. Gibbs responded that Harris could

have learned information about NAFS from other sources. We note that email was sent well after

the purported February 29, 2016 closing date for the Transaction, the document in evidence

assigning the Leases from NAFSCA to NAFS in July 2016, and the August 2016 Super 8-K. It is,

therefore, unclear to us how a Harris comment several months later about getting leases into an

unnamed company could pertain to NAFS. Therefore, we could not conclude that this email related

to NAFS or was otherwise relevant to Staff's allegations.

[390] Gibbs emailed Lavallee and Bugg on December 11, 2016, forwarding an email of the same

date sent by Harris to Gibbs (copied to Lavallee and Bugg). Harris's email referred to finding a

part-time, high-quality CEO for NAFS. When forwarding that email, Gibbs stated: "I told you he

wants to run NAFS like he did AEPP … he wants us to hire a high quality CEO !!???" (quoted

verbatim). Gibbs' explanation during his testimony was: ". . . again, I thought this was nonsense. I

don't know where he was coming from, and so I wasn't going to bother [Alexander] with it. I just

let [Lavallee] know, and I . . . can't remember why I copied Tom Bugg in this. I don't remember

that, other than, you know, he was . . . in the loop again and had been in the loop, so to speak."

Gibbs then explained that Harris was involved in AEPP with Bugg and Lavallee, and that Harris

"was influential in AEPP". In another email to Lavallee and Bugg on the same date, Gibbs stated:

"I don't want . . . Harris committing NAFS to any contracts like [two people were named]

and$$$$'s like he did for AEPP .. !!??!! I could see this coming!!" (quoted verbatim). Again, Gibbs

testified that he decided not to bother Alexander "with garbage". Gibbs did not think Harris had

the authority to commit NAFS to any contracts, and did not want him interfering, based on what

had happened at AEPP.

[391] A December 12, 2016 email from Lavallee to Harris (copied to Gibbs, Bugg and Kistler)

stated (quoted verbatim):

69

Hi Rob

I don't know who gave you the authority to stick your nose into the business of NAFS, or AEPP,

but I do find your interference in the business of AEPP and NAFS offensive & unhelpful.

We don't need your help on AEPP and NAFS at this time but when we do we will let you know.

Brian Kistler has been trying for three weeks to get from you the balance in your trading accounts

for AEPP for dates certain. At this time all we have received from you is undated copies of certain

trading account. We would appreciate the full information on the accounts with specific dates for

the accounts in question.

We look forward to receiving from you the requisite information as a matter of urgency.

Thanks for your cooperation .

Bert

[392] A December 15, 2016 email from Gibbs to Lavallee asked: "are you going to instruct

. . . Harris to sell 1,000,000 shares for us". There was no reference in the email to a company, but

Gibbs testified that referred to AEPP.

[393] A December 29, 2016 email from Harris (apparently to Lavallee and Gibbs) about natural

gas prices led to the following response from Lavallee: ". . . Until Brian Gibbs and I receive what

we asked for on AEPP I am not interested in the gas tap. . . ."

2017 Emails

[394] In a January 14, 2017 email from Gibbs to Harris and copied to Lavallee, Gibbs raised

issues relating to AEPP shares and NAFS Common Shares (quoted verbatim):

I spoke to Bert on Friday before he left for Edmonton about the documentation you provided to us

on Thursday on the disposition of the AEPP shares and the allocation of the proceeds therefrom. I

have set out below our serious concerns.

. . .

2. 2 million AEPP shares

Bert stated that there was never any arrangement to pay you USD $100,000 on a preferential basis

.. what we did agree to on your visit to Calgary in December was to dispose of the 2 million AEPP

shares as quickly as possible and we agreed to split the proceeds a third,a third and a third among

you , Bert and me . Rob , this is indisputable.. you had no right to send any of the proceeds to GasTap

and "sprinkle the rest of the proceeds to whoever". Bert and I believe that this is a serious breach of

trust. You are hereby instructed to dispose of the remaining 800,070 shares as a matter of priority

and send the proceeds immediately to Bert and me in equal amounts.

We also need you to remit immediately to Bert and me a third each of the proceeds in the amount

of USD$94,846.21 + USD$8754.84 = USD$103,601.05 on the sale

1,099,830 + 300,000AEPP shares = 1,399,830 shares , being USD$34,534 each .

Bert and I are very upset about this and it has put our relationship with you in serious jeopardy ..

Rob you must address and deal with these issues immediately ..

70

In addition , you must provide us immediately with independent confirmation of the 2.5 million

shares of NAFS that you hold on deposit for us.. we hereby demand that you do not trade or dispose

of any of the NAFS shares without the joint authorization of Bert and me.

Until these matters are dealt with in the manner we have described and to our satisfaction, we are

not prepared to move forward with you on NAFS and GasTap ..

. . .

[395] Harris's response to the January 14, 2017 email was in a January 16, 2017 email and memo

to Lavallee and Gibbs. The memo dealt with both AEPP and NAFS (quoted verbatim):

. . .

(C)

the two million shares

-

Bert's first deal with me was May 26 as regards the NAFS shares with 20% to Rob

Bert's second deal on June 20 was the AEPP shares for the Trust with 20% to Rob

Bert's third deal on June 23 was the two million shares but no 20%, rather a "cash cap".

Bert thought the AEPP stock would rise to $1-2/share and, quite correctly, realized that

20% was far too much money. Thus, he placed a "cash cap" of $100K per million shares.

Unfortunately, this backfired as the stock dropped in price.

My opinion is that Bert forgot the details of the deal; you remember the number of shares, but not

details……too many other deals in progress……very understandable.

I am meticulous on such deals and write down the details (see the documents you have) and dates.

And NOTE: I confirmed ALL the above deals with Bert on June 27.

December 2016

We met on Friday, December 16 and three items:

(a) Bert wanted to break the original AEPP deals and suggested a three-way split

(b) Bert said to sell the shares

(c) Bert wanted copies of my brokerage accounts

January 2017

At our meeting on Thursday, January 12, I presented copies of brokerage accounts – no problems

CHANGED DEAL – I AGREED TO THE CHANGES OF THE AEPP DEALS (to a three-way

split), instead of the $100k charge per million shares)

Why?

I am very sympathetic to the time, and money, wasted on this failed stock promotion, and agreed

that we all should suffer together.

. . .

Gents, let's discuss on a conference call and agree on the deals (we already mostly agree). Then

Brian and I can do the numbers.

This has been a colossal waste of time and money, so let's move on to the serious business of making

money in 2017.

. . .

71

[396] Gibbs sent an email to Lavallee on January 16, 2017 (quoted verbatim):

I have read rob Harris's memo .. it's passing the buck .. and blaming me because I didn't know

anything about the deals he had made with you ..

It's ridiculous .. I want my NAFS shares transferred to immediately to an account of my choice ..

Until i get USD $34,000, I'm not doing anymore with him ..

. . .

[397] Gibbs also sent an email the same day to Harris and copied to Lavallee (quoted verbatim):

. . .

I have read your memo and have not spoken to Bert on the memo.

My position on the 2 million AEPP shares is quite simple. I do not agree with your position based

on the meeting in December and the revised deal on the 2 million shares. We all agreed to sell the

shares as quickly as possible and share the proceeds equally among the three of us. Period .. nothing

about GasTap or anything else .. in fact you stated that none of the 2 million had been sold when in

fact thousands of those shares were sold in November without the authority of Bert. One sale was

for USD $50,000 plus.. at the December meeting there was no mention of your preferred position

on the 2 million shares at all.. I am owed USD$34,524 and I'm looking to you rob to pay me

immediately.

I moving forward on my own with NAFS and my other deals until I get my USD $ 34,524 .

I also want my 1 million shares of NAFS immediately to an account I control and I want

confirmation immediately that you still hold 2.5 million shares of NAFS..

I am deeply saddened by all of this but I've learnt my lesson. In my mind, this is all non negotiable.

Bert may have a different opinion but that's his decision.

. . .

[398] Harris responded to Gibbs on January 16, 2017, copied to Lavallee (quoted verbatim):

Brian, you still haven't dealt with the issue of the deals and clearly you don't wish to do so.

We need to do that first.

You are very ticked off that there isn't more money; you aren't alone.

We all are ticked off, but that is the result of a poor promotion.

And let's not let emotions override your normal good logic.

As to money, you clearly haven't realized that if I had waited for December to sell the stock, then

you would have received LESS money.

The 3 mil shares at 2 cents equals $60K, and one third is $20K which is less than you re receiving.

And I might have only received 1.2 cents, or $36K, for even less money.

AND, we still haven't deducted the costs of the deal

(subscriptions to Kistler,

[B] fee, legal fees)…………do you expect to be paid on "gross", rather than "net"?

72

Let's bury the emotions, and have a sensible discussion tomorrow.

[399] Gibbs responded the following day, copied to Lavallee, saying (quoted verbatim): "What

about the NAFS shares ?? Have you sold those ?? Give us confirmation". Harris then sent a

January 17, 2017 email to both Gibbs and Lavallee stating (quoted verbatim): "I am emailing you

a D.S. account that shows the 2.5 mil shares. The D.S. system is down right now, but should be up

soon, and then you will see the shares. Relax……..your stress is not warranted." A

January 16, 2017 statement marked as being from Dominion Securities (seemingly in Harris's

writing) showed an investment account in Harris's name with 2,525,000 NAFS Common Shares.

Harris noted in his email that the slightly higher balance was because of some NAFS Common

Shares which Harris had in the account and had forgotten.

[400] During cross-examination by Staff about that set of emails, Gibbs reiterated that he did not

"legally" own any NAFS Common Shares because "there was no legal contract between Harris,

Lavallee, and me with respect to those shares". In Gibbs' words, there was only "an intention", so

that Gibbs had no ability to ask or demand that Harris do anything with those NAFS Common

Shares. Gibbs also testified that he "had lots of promises" from the Newtons, and that Lavallee

said he would take care of Gibbs by offering him shares in NAFS (but that Gibbs was never offered

a position as a director or officer of NAFS). Gibbs did not know where those shares would come

from, but assumed they would be from treasury shares or the conversion of Preferred B Shares.

Gibbs testified that he and Lavallee did not talk about a specific number of NAFS Common Shares,

and that these discussions were sometime after July 26, 2016 when Newton left.

[401] Gibbs confirmed that he had two deals with Harris – AEPP (near the end) and NAFS, plus

another, separate deal with Harris. Gibbs understood the reference to a "failed stock promotion" in

the above-quoted email to be an AEPP matter, and said that he did not know what that promotion

was, as he was only involved in AEPP "at this time when they were cleaning things up and Bert

was gracious enough to give me a share of that -- the proceeds or whatever came out of that. That

was out of the AEPP", "because I was working hard on NAFS, and he was kind enough to share

some of his proceeds from AEPP". Gibbs said it was not "official" that he received AEPP money

from Lavallee for NAFS, and "it wasn't a reportable item in NAFS 'cause I had no contract, I wasn't

an employee; I wasn't an officer; I wasn't a director of NAFS. I was just helping people out."

[402] After some further email exchanges, Harris emailed Gibbs and Lavallee on

January 18, 2017 that Harris would "have some money to you for a week Monday/Tuesday . . . it

will be small, but will get us started." The next day, Harris sent another email to Gibbs and Lavallee

saying that he had a way to raise money for NAFS "and Harris is NOT part of it………..Brian,

you should be happy! The two of you are in total control" (quoted verbatim).

[403] Late January and early February 2017 emails showed that Harris had sent money to both

men – apparently one payment to each of US$10,000, and one payment to each of US$7,500.

Lavallee confirmed in a January 26, 2017 email that Harris had asked for Lavallee's "wire transfer

info . . ., since that's how I told him I'd like to receive the funds". Gibbs testified that was all related

to AEPP.

73

[404] In a March 28, 2017 email to Lavallee, Gibbs said that he had arranged a call with Harris

"to sort out the accounting on AEPP and to confirm the share position on NAFS".

[405] On April 11, 2017, Gibbs sent an email to Harris, copied to Lavallee, which stated in part

(quoted verbatim):

. . . I am now very concerned about the understanding as to the agreed arrangements with respect to

the 2.5 million shares of NAFS you hold on behalf of Bert, you and me. I want to the confirm the

arrangements on the NAFS shares so as to avoid and repeat the AEPP debacle.

The NAFS shares are only to be traded on the explicit instructions from Bert and me. The net

proceeds from all sales of the NAFS shares are shared as follows:

Bert 40%

Rob 20%

Brian 40%

The payout of the proceeds are to distributed immediately on the cash settlement of the trades. You

are to report to Bert and me the share account balance on the NAFS shares every Friday .

[406] Gibbs stated that his concern expressed there was that the intention or understanding for

NAFS would not be followed, as the understanding for AEPP had not been, and that he sent that

email to clarify the understanding and ensure it was being followed.

[407] Gibbs acknowledged there was an intention for him to have the one million NAFS

Common Shares held by Harris, but claimed multiple times that there was no legal, binding

contract, and that the emails in evidence did not form or prove a contract.

[408] The NAFS Common Shares held by Harris were also referred to in an email chain from

August 1 to 3, 2017. On August 1, Gibbs sent an email to Harris, copied to Lavallee, in which

Gibbs mentioned amounts due to him and Lavallee from AEPP proceeds, asked for an immediate

accounting and payment, and expressed disappointment with Harris's handling of the AEPP matter.

Gibbs also stated:

I have a further concern with NAFS as you have been calling me several times on the status of

NAFS and the CTO. You are holding a million NAFS shares for each of Bert and me and I do not

want and I am not prepared to risk a similar situation to the AEPP shares with the NAFS shares.

Bert and I want our NAFS shares and you do not have the authority to trade the NAFS shares on

our behalf until we get delivery of the NAFS shares.

[409] Gibbs made a similar statement in an August 5, 2017 email to Harris, which said in part:

"Bert and I want to get back the 2.5 million NAFS shares and we will pay you for them at your

cost. We will do that when the CTO is lifted."

[410] Gibbs and Harris exchanged emails in September 2017 regarding a Dominion Securities

account into which Harris could transfer some NAFS Common Shares. Gibbs testified that nothing

happened with this.

74

P.

AEPP

[411] Gibbs and Lavallee's counsel each submitted that AEPP was irrelevant to NAFS, and often

protested when evidence relating to AEPP arose during the Hearing.

[412] In the NOH, Staff alleged that Lavallee, during the Lavallee Interview, "concealed or

withheld from Staff . . . his involvement in Advance Environmental Petroleum Products Inc." That

was an incorrect version of AEPP's name (Advanced Environmental Petroleum Producers, Inc.).

However, in the Lavallee Interview, Staff's opening statement, the Hearing, and submissions, all

parties referred to AEPP either by its acronym or by its correct name.

[413] We consider the minor difference in the NOH wording to be immaterial in the

circumstances. All of the parties clearly understood that the entity being discussed and referred to

throughout was "Advanced Environmental Petroleum Producers, Inc.", not "Advance

Environmental Petroleum Products Inc." Lavallee and his counsel understood that Staff's

allegation was that Lavallee, during the Investigation, concealed his involvement in "Advanced

Environmental Petroleum Producers, Inc."

[414] Evidence relating to Lavallee's statement during his interview and to whether Lavallee was

involved in AEPP was, therefore, relevant. We do not consider any evidence about AEPP to be

relevant to other allegations, including any similarities or purported similarities to NAFS'

operations, structure or participants.

[415] During the October 3, 2017 Lavallee Interview, Lavallee was asked: "Are you involved

with [AEPP]?" He responded "No, I'm not involved."

[416] Staff pointed to several references in the evidence to links between Lavallee and AEPP:



AEPP's Form 10-K for the year ended December 31, 2016, showed that Lavallee

bought 3.5 million shares of AEPP on June 6, 2016;



invoices for amounts owed by AEPP were sent to Lavallee; and

numerous documents, and Gibbs' testimony, referred to Lavallee's involvement in

AEPP (particularly email exchanges involving Harris, as set out above).

[417] An example of an email exchange with Harris was a July 1, 2016 email from Harris to

Gibbs and Lavallee saying "Bert, congrats on closing the AEPP deal!" There were numerous

emails among Harris, Gibbs and Lavallee relating to money the latter two were owed and paid by

Harris in connection with AEPP (set out above). Lavallee sent a May 13, 2017 email to Gibbs

forwarding a message regarding past-due invoices from 2016 owed for AEPP expenses. There was

also evidence of Lavallee's holding of and transactions in AEPP securities in the Seton Account,

including a sale of 684,800 shares in AEPP on March 30, 2017 to bring the balance of AEPP shares

in the Seton Account to zero.

[418] We discuss this and other evidence related to AEPP in the analysis of this allegation.

75

Q.

Lavallee's Trades and Purchases of NAFS Common Shares

[419] The CTO was issued on May 16, 2016 and was still in effect at the time of the Hearing.

The CTO banned trading and purchasing of NAFS' securities, including NAFS Common Shares.

[420] Lavallee apparently did not convert any Preferred B Shares into NAFS Common Shares

after April 1, 2016. The evidence also showed that:



Lavallee sold over 4.5 million NAFS Common Shares from his Seton Account

between December 2016 and September 2017, for proceeds of approximately

US$137,090.



Lavallee purchased 1.5 million NAFS Common Shares for USD$0.0033 per share

(US$4,950 total) and 2 million NAFS Common Shares for USD$0.003 per share

(US$6,000 total), under, respectively, May 20, 2017 and June 13, 2017 share

agreements between NOBS and Lavallee. Lavallee's Seton Account showed

deposits of 1.5 million NAFS Common Shares and 2 million NAFS Common

Shares on the May 25, 2017 and June 21, 2017 statements, respectively.

[421] Lavallee stated during his interview that he had NAFS Common Shares in the Seton

Account in the Bahamas, and that he had sold some NAFS Common Shares from that account over

the years. He did not refer during his interview to the one million NAFS Common Shares held for

him by Harris.

R.

Second Email Address

[422] There were several examples in evidence of Lavallee using his Second Email Address

(gmail.com). These included various emails between Seton and Lavallee, including two from

Seton reporting sales of NAFS Common Shares from the Seton Account. The latest of those in

evidence was dated May 31, 2017.

IX.

A.

ANALYSIS

Lavallee and Gibbs – Alleged De Facto Officers of NAFS

Allegation and Parties' Positions

(a)

Staff's Allegation and Position

[423] Several of Staff's allegations depended on their central contention that Lavallee and Gibbs

were de facto officers of NAFS.

(b)

Respondents' Positions

[424] Lavallee's counsel, Gibbs and Alexander argued that neither Lavallee nor Gibbs was a de

facto officer of NAFS.

The Law

[425] Section 1(ll) of the Act defines "officer" to include a "chair or vice-chair of the board of

directors, a chief executive officer, chief operating officer, chief financial officer, president, vice-

president, secretary, assistant secretary, treasurer, assistant treasurer or general manager", as well

as "an individual who performs functions for a person or company similar to those normally

performed by" such individuals. These categories connote ". . . someone with managerial

76

responsibility and authority over the company as a whole, or over a significant business or

functional division of the company" (Re Spaetgens, 2016 ABASC 270 at para. 94).

[426] As noted, we refer to an individual who performs the functions of an officer without a

formal appointment or election as a "de facto officer". The parties did the same throughout the

Hearing. The approach to assessing whether an individual is a de facto officer is the same as that

used to determine whether an individual is considered a director, which is defined expansively in

s. 1(o) of the Act to include an individual performing functions normally performed by a director

(Spaetgens at para. 93). This approach "requires a consideration of the entirety of the individual's

involvement in the context of the company's activities" to determine whether he or she "is an

integral part of the mind and management of the company" (Re Mandyland Inc., 2012 ABASC

436 at para. 154).

[427] The analysis is fact-specific and "there is no litmus test" (Mandyland at para. 154).

However, previous cases have considered whether the individuals performed one or more of the

following functions – see Re World Stock Exchange (2000), 9 A.S.C.S. 658 at pp. 17-18 (referring

there to several decisions of British Columbia Securities Commission panels, including Re Pinchin

(1996), 12 C.C.L.S. 24):



appointed nominees as directors;

were responsible for the supervision, direction, control and operation of the company;

ran the company from their office;

had signing authority over the company's bank account;

negotiated on behalf of the company;

were the company's sole representative on a trip organized to solicit investments;

substantially reorganized and managed the company;

selected the name of the company;

arranged a public offering; [and]

made all significant business decisions.

[428] We note that some additional examples of potentially relevant factors were identified by

the OSC in Re Winick (2013), 36 O.S.C.B. 8202 at para. 120 (citing cases including Re Momentas

Corp. (2006), 29 O.S.C.B. 7408 at paras. 102, 103, 106, 108, 112-116):

. . .

(j)

acting in a position with similar remuneration and responsibility as a director or officer

within the company;

(k)

actively managing key aspects of the company's business;

77

(l)

preparing and authorizing the content of corporate documents, including promotional

materials, such as brochures or media releases;

(m)

(n)

instructing law or accounting firms on behalf of the company;

having financial and trading authorization over the accounts of the company, including

signing authority over the company's bank account;

(o)

(p)

(q)

. . .

making presentations on behalf of the company and inviting expressions of interest to

purchase securities of the company;

directing the sending of information packages, including a subscription agreement relating

to the purchase of shares, to prospective investors; and

being referred to in correspondence, documents or by others as a director or officer of the

company.

[429] Ultimately, the substantive activities undertaken by an individual on behalf of the company

will determine whether that person was acting as an officer, regardless of any title held or the

specific role carried out by the individual (or others) within the organization, including the

existence of an agreement for the individual's services (Re Jung, 2008 BCSECCOM 588 at paras.

135-136). That another individual acted as a director or officer ". . . does not preclude others falling

concurrently into one or other (or both) of those categories" (Spaetgens at para. 112). For example,

a "consultant" who deliberately attempted to distance himself from leadership of certain companies

was found to be a de facto officer, based on his overall control over those companies (Re Global

8 Environmental Technologies, Inc., 2015 ABASC 734 at paras. 465-469 and 482-486).

Discussion

(a)

Scope of Allegation

[430] Staff alleged in the NOH that Lavallee and Gibbs were de facto officers of NAFS

"following the Transaction". Staff clarified in written submissions that they meant after

July 10, 2015, not the date that the Transaction closed. None of the Respondents seemed to take

issue with that.

[431] We are satisfied from the parties' evidence and submissions that they all treated allegations

as to Lavallee's and Gibbs' roles with NAFS as relating to the conduct of Lavallee and Gibbs long

before the Transaction closed or purportedly closed. We are satisfied that using July 10, 2015 was

a reasonable interpretation of the allegation and that it did not take the Respondents by surprise at

any point before or during the Hearing. Accordingly, we consider the evidence of events from

July 10, 2015 and later to be relevant to Staff's contention relating to Lavallee's and Gibbs' status

with NAFS. We do not consider evidence of events before July 10, 2015 to be relevant to Staff's

allegation that Lavallee and Gibbs were de facto officers of NAFS or to any other allegations which

relied on such de facto officer status. For example, it is irrelevant to the allegations to consider

who negotiated the Leases before July 10, 2015 and who drafted the Transaction documents

(although it is appropriate to consider evidence regarding the drafting after July 10, 2015 of

revisions to those documents).

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(b)

De Facto Officer of NAFS

(i)

Test for De Facto Officer

[432] As noted, there is no definitive test for whether a person is a de facto officer – performing

functions similar to those that would be performed by a person formally designated as an officer.

The analysis "requires a consideration of the entirety of the individual's involvement in the context

of the company's activities" to determine whether that person "is an integral part of the mind and

management of the company" (Mandyland at para. 154).

[433] Staff also referred in written reply submissions to the recent decision of an ASC panel in

Re Bluforest Inc., 2020 ABASC 138. At paras. 347-348 of the decision, that panel discussed the

importance of companies disclosing the identities of company management. We agree with those

statements – however, the issue here was whether Lavallee and Gibbs were part of company

management. Only if they were would we proceed to the step of determining what disclosure

should have been made about their respective roles.

[434] An analysis of whether an individual is an integral part of company management – a de

facto officer – usually starts with a consideration of the various functions performed by the

individual, as those functions are typically the most important factor. Here, however, the second

component of the test – "the context of the company's activities" – is the crucial starting point.

(ii)

NAFS' Activities

[435] One of Staff's arguments was that Alexander was essentially a nominal director and officer

who performed little work for NAFS. Therefore, Staff contended that somebody must be doing

NAFS' work and that those individuals were Lavallee and Gibbs. In contrast, Lavallee's counsel,

Gibbs and Alexander each argued that NAFS did not have a business that would fall within the

common sense understanding of that concept and that little work was required on its behalf.

[436] NAFS had been through several reincarnations in an attempt to find a workable business

model. It finally settled on the idea of the frac sand business, thus leading to the Transaction,

through which NAFS was to end up owning the Leases.

[437] Alexander was at times the only formally appointed officer and director of NAFS. The

NAFS Board did not conduct business through meetings, but through written resolutions. NAFS

had no bank account. It had no office, no employees, no business activities, and no revenue. It had

few marketing or promotion plans beyond some tentative preliminary explorations – there was

nothing much to market or promote during the relevant period.

[438] NAFS' only activity, therefore, was to keep itself in good standing as a public company

while it attempted to acquire the Leases through NAFSCA and prove that the Leases could produce

sufficient frac sand to allow NAFS to raise money and to begin production. The main functions

for NAFS were making filings with the ASC and SEC, responding to regulators' queries, preparing

required financial statements (including audited financial statements), closing the Transaction, and

having the Norwest Report prepared. Initially, the main impediment to the closing of the

Transaction was the lack of audited financial statements for NAFSCA. Later, of course, varying

the HTO then removing the CTO also became important.

79

[439] Many of the determinative considerations from previous cases were, therefore, not present

here.

(iii)

Alexander's Activities for NAFS

[440] Staff pointed to Alexander's statement (during a March 7, 2016 interview by the Financial

Industry Regulatory Authority (FINRA) in the US) that he was spending only 1% to 5% of his

time on NAFS as meaning that someone else had to be doing the bulk of the tasks for NAFS that

would be "typically attributed to a CEO, COO, VP or GM". Staff further argued that Alexander's

role was "very limited" because he had little direct involvement with NAFS' "sole asset, the

Leases". Staff noted that Alexander did not meet the lessors, "attend to [the] payment" of the

Leases, or negotiate the extension of the Leases. Staff suggested that Alexander's frequent referral

to the Leases as east of Saskatoon instead of west of Saskatoon signalled that Alexander was not

really involved in running NAFS. Staff also asserted that Alexander was minimally involved

because he did not meet personally with Green, Wilson or Turner, and did not communicate with

them frequently.

[441] Lavallee's counsel, Gibbs and Alexander contended that little work needed to be done in

NAFS, but that Alexander was in charge of what did need doing, including signing the Leases,

dealing with regulators and regulatory filings, signing the documents with Norwest, and

communicating with Norwest as needed (this included arranging for Morrow to discuss the

geological details which Turner said Lavallee and Gibbs did not do). Regarding NAFS' regulatory

obligations, Alexander clearly performed that function and had the background and experience to

do so. In contrast, there was no evidence that either Lavallee or Gibbs would have been capable of

meeting NAFS' regulatory obligations. Alexander confirmed that NAFS had no real business and

that the Leases were its only asset – NAFS had no sales, offers to purchase frac sand, customers,

plant, processing plant or employees. Alexander's statements on these points were corroborated by

other evidence.

[442] Lavallee's counsel, Gibbs and Alexander also submitted that Alexander's delegation of

some tasks to Gibbs did not mean that Gibbs had control over NAFS, and that Lavallee's funding

of NAFS similarly did not mean that Lavallee had control over NAFS. Alexander stated that he

was in charge of, and made the decisions for, NAFS' direction and business plan, and stated during

his interview that he usually took instructions from Cupp (Kistler's nephew and the holder of the

Super A Share) and Kistler (the president of NOBS, which was the primary shareholder of the

Preferred B Shares). Alexander said that he would answer their questions and send them reports,

but did not "really report to anybody" and nobody reported to him. Alexander also testified that

his estimate during the FINRA interview was wrong, and that 20% would have been a more

accurate estimate of his time spent on NAFS' matters during some periods.

[443] We conclude that Alexander was the person performing the minimal work required for

NAFS at that preliminary stage of its operations. Even if, as Staff argued, the variation of the HTO

and the negotiation of a new drill program with Norwest would have taken up considerable time

right when they were happening, those were anomalies – NAFS could not realistically have taken

up much of anyone's time when such discrete events were not at the forefront.

[444] Alexander did know what was going on with the Leases, including with Green and Norwest

and their respective reports. Alexander did not need to be hands-on with every aspect of every

80

component – delegation of tasks does not equate to an abdication of duties or accountability. We

disagree with Staff's contention that Alexander's incorrect statements about the location of the

Leases were telling in determining Alexander's role. We also note that Alexander involved others

(such as Morrow) in areas in which Alexander himself had less expertise.

[445] Staff pointed to email communications on which Alexander was not copied, indicating to

Staff that Alexander was not in charge of NAFS. However, there were many other communications

on which he was copied. For example, Staff argued that emails showed both Lavallee and Gibbs

being involved with the form and content of NAFS' websites, but we note that Alexander was also

involved with many emails regarding NAFS' websites. Such messages showed him sending

instructions about adding, deleting or amending information, pushing Gibbs and others to move

more quickly with the websites, and ordering the NAFS.com Website to be taken down due to

errors and not to go back up without Alexander's approval.

[446] Staff repeatedly referred to MP's opinion that Alexander was a director or officer of NAFS

in "namesake" only. MP explained that, in part, as being because NAFS had no bulletins,

communications, announcements or conversations, which was "pretty shallow for a public

company". Staff interpreted that as meaning that Alexander was not in charge, but MP's

observations were equally consistent with NAFS not having an active business.

[447] Overall, we conclude that Alexander was acting as an officer for NAFS – he was fulfilling

the minimal duties required and was not merely a figurehead.

(iv)

Evidence Relating to Harris

[448] Staff relied heavily on email communications among Lavallee, Gibbs and Harris discussing

matters which could potentially be seen as relating to the management of NAFS. However, as

discussed below, the emails on which Staff relied came from Harris, with few email responses

from Lavallee or Gibbs on the emails Staff identified as relating to Lavallee's and Gibbs' respective

roles with NAFS – many of the ideas in Harris's emails seemed to originate with him, with little

or no evidence of engagement by Lavallee or Gibbs. Moreover, there was no evidence those

specific matters Harris raised (such as hiring a new CEO or fundraising for NAFS) were

implemented, or that Lavallee or Gibbs (or both) had the authority to implement them. Harris did

not testify. Therefore, Staff were relying on emails from Harris for matters such as hiring a new

CEO and fundraising for NAFS with no context and limited replies. We were not persuaded by

Staff's conclusions on these emails relating to the allegation that Lavallee and Gibbs were de facto

officers of NAFS. As discussed below, the emails from Harris regarding Lavallee's and Gibbs'

shares in NAFS and about Lavallee's involvement with AEPP were different because there were

substantive response emails, as well as other corroborating evidence.

[449] We discuss here examples of Harris's emails on which Staff relied as evidence that Lavallee

and Gibbs were de facto officers of NAFS.

[450] Harris sent a NAFS schedule to Lavallee and Gibbs on September 15, 2016. It referred to

matters such as Gibbs talking to some one about preparing a report on NAFS, Harris speaking to

a certain person about a contract, NAFS having newsletters in the future, and NAFS receiving a

report in September 2016 compliant with NI 43-101, then receiving an updated report in November

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after more drilling. We were pointed to no evidence of these matters being discussed or

implemented.

[451] Harris made various proposals in August, September and December 2016 for a new CEO

for NAFS, none of which resulted in email discussions or in a new CEO. However, there was a

December 11, 2016 email from Gibbs to Lavallee and Bugg, in which Gibbs complained about

Harris trying to interfere in NAFS. This was followed on December 12, 2016 by an email from

Lavallee to Harris (copied to Gibbs, Bugg and Kistler) telling Harris that his "interference in the

business of AEPP and NAFS [was] offensive [and] unhelpful".

[452] Such emails showed, at most, that Harris thought Lavallee and Gibbs had some

involvement with NAFS. Harris did not testify and was not subject to cross-examination.

[453] Staff also placed great weight on a statement by Harris in one email: "The two of you are

in total control." The subject line of that January 19, 2017 email was "financing", and the entire

email read (quoted verbatim):

Brian and Bert,

I have a way to raise dollars for NAFS, and Harris is NOT part of it………..Brian, you should be

happy!

The two of you are in total control.

Do you want to discuss this?

[454] Again, we have no context for the email. On its face it referred to financing and fundraising

for NAFS. We do not know what Harris meant by "total control" and whether he was referring to

financing of NAFS or NAFS as a whole. We were not pointed to any other emails referring to

financing or fundraising for NAFS in which Harris was involved.

[455] The only testimony we have regarding Harris's emails was from Gibbs. Gibbs claimed the

emails showed Harris being "ridiculous". Gibbs' credibility was questionable in some respects, but

disbelief of any of his testimony – without more – does not mean that the opposite was true (see

Walton at para. 36). We also do not know the extent of Harris's involvement in, or knowledge of,

NAFS.

[456] Staff chose to rely on the content of emails from Harris without calling Harris to testify

about those emails, their background and their context. In the absence of testimony from Harris

regarding those emails, their impetus and any substantive responses from Lavallee or Gibbs, Staff's

evidence of Harris's emails was insufficient to prove that Lavallee and Gibbs were de facto officers

of NAFS. Many, if not most, of the suggestions and comments made by Harris did not appear to

have led to anything. Staff did not prove that Lavallee and Gibbs agreed with Harris's proposals or

had control over the issues raised by Harris. Overall, the evidence of communications with Harris

was unhelpful on this issue and insufficient to support Staff's assertion that Lavallee and Gibbs

were de facto officers of NAFS. In contrast, we discuss below evidence from Harris's emails which

could be relied on because of other corroborating evidence.

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(v)

Motive

[457] Staff claimed that NAFS was hiding Lavallee's and Gibbs' involvement in, and leadership

of, NAFS so that Lavallee and Gibbs could secretly control NAFS. Staff's rationale for the

purported secrecy surrounding Lavallee's involvement was because Lavallee had a regulatory

history. Staff did not posit a reason for the purported secrecy surrounding Gibbs' involvement. We

do not find Staff's suggested motive to be strong enough to overcome the weaknesses in the

evidence.

(vi)

Lavallee

(A) Factors Cited by Staff

[458] Regarding Lavallee, Staff argued that he was "involved in many aspects of NAFS'

operations", and thus was a de facto officer:



brought the entity NAFS (then called Xterra) into the equation;

provided most of the funding for NAFS;

"personally met and negotiated with the lessors, and made payment for the Leases";

"retained, personally met with and directed the scope and cost of the work of

Norwest, paid for the work and had ongoing communications with it";



offered millions of NAFS Common Shares to Newton in 2016;

"met with and discussed a schedule for NAFS with Harris and Gibbs";

worked on the form and content of NAFS' website;

"retained a securities lawyer and accountant on NAFS' behalf"; and

"was involved in emails regarding NAFS' business agreements, and its

communications with the ASC".

(B)

Examination of Factors

[459] Staff did not prove that Lavallee was the person who brought Xterra into the equation.

Before the Transaction, Cupp held the Super A Share and Kistler's company, NOBS, held most of

the Preferred B Shares. Alexander had been a director of Xterra from early 2014 or 2015, and

Cupp was also an early officer and director. Bugg introduced Newton and Gibbs to Lavallee. Gibbs

referred at one point to Xterra as Lavallee's "vehicle", and other evidence hinted at some

involvement by Lavallee with Xterra, including share ownership and funding. We did not hear

testimony from Cupp, Kistler or Bugg. It may be that Lavallee suggested Xterra as the purchaser

of the Leases. In an August 24, 2017 email from Gibbs to Kistler, Gibbs wrote of getting Lavallee's

"blessing" to ask Kistler for certain NAFS' share information. That did suggest that Lavallee may

have had some larger role in NAFS than merely funding. However, without more – such as

evidence from Kistler – we were left with an email written by Gibbs to Kistler, with no other

context and no confirmation from Lavallee. Further, that email was written more than two years

83

after the date that Staff alleged Lavallee brought Xterra into the Transaction. Therefore, although

that email was concerning, it was insufficient to prove Staff's contention. Overall, the evidence

was consistent either with Lavallee having some control and direction over Xterra or with Lavallee

having a significant number of shares in Xterra and funding Xterra. Based on all the evidence, we

cannot conclude that Xterra was Lavallee's company in the sense argued by Staff.

[460] Staff also asserted that Lavallee was a de facto officer because he "was involved in emails

regarding NAFS' business agreements, and its communications with the ASC" and "worked on the

NAFS website". The evidence did show that Lavallee was copied on some emails relating to

various aspects of NAFS' business. However, that was at least as consistent with Lavallee funding

NAFS (and holding a large number of NAFS Common Shares) as with Lavallee directing NAFS.

Further, there was no evidence Lavallee was involved in correspondence with the ASC – he was

kept informed about matters such as the CTO, again consistent with his considerable financial

investment in NAFS. There was also no evidence that Lavallee worked on either of NAFS'

websites, although he was kept informed of progress and at times encouraged more diligent

progress. Nor is website work a typical activity in which an officer of a company would necessarily

engage.

[461] Several of Staff's points related to Lavallee paying NAFS' bills, including payments for the

Leases, to Norwest and of retainers for a lawyer and an accountant. Lavallee acknowledged

providing funding for NAFS. This was also confirmed after-the-fact in a February 2, 2018 NAFS'

news release quoting Joseph Kistler thanking Lavallee for "moving [the frac sand Leases] project

forward including providing the funding". Staff did not point us to any authority that paying

invoices is a factor in determining whether a person is a de facto officer – and there was no

allegation that Lavallee exerted influence over NAFS' operations (in contrast to the allegation that

he exerted authority as a de facto officer). In our view, paying some or even the majority of a

company's invoices does not make one an integral part of the company's management. The role of

officer in a company does not typically involve paying invoices from one's own funds. Staff stated

in their written submissions that the source of some of the money Lavallee used to pay NAFS' bills

"was notable" because he borrowed it from RK – however, that was insufficient to convince us

that Lavallee's borrowing from RK (or anyone else) was relevant to Staff's allegations.

[462] Regarding Norwest, Staff argued that Lavallee retained Norwest, personally met and

communicated with Norwest staff, and directed and paid for Norwest's work. In this context, it

was particularly evident that Staff's argument was based largely on their assertion that Alexander

was a figurehead and somebody else (Lavallee and Gibbs) must have been the true management

of NAFS. We have already addressed the fact that paying bills does not make one an officer of a

company. Here, the added element that Lavallee tried to negotiate a lesser payment amount with

Norwest did not change our conclusion. Although Staff pointed out that Lavallee answered "Yes"

during his interview when asked if he hired Norwest, Staff did not point out that Lavallee also

stated that Alexander and Gibbs decided to hire Norwest. Nor did Staff point to Newton's

testimony that he met with Norwest and suggested that Alexander hire Norwest. Although there

was evidence that Lavallee (and Gibbs) discussed Norwest's work with Wilson and Turner,

Turner's evidence was the most significant on this point because he was more directly involved in

the work. As noted, Turner testified that Lavallee and Gibbs were not involved in geological

discussions of Norwest's work. Newton's evidence was also consistent with that when he agreed

84

that Lavallee would never have known where to direct holes to be dug for the NI 45-101 report

fieldwork.

[463] Turner also confirmed Alexander's testimony that Alexander brought Morrow in to consult

on the technical aspects of Norwest's work for NAFS. Further, Norwest had also told Alexander

at one point in 2017 that the ASC wanted information, and Alexander told Norwest to comply. As

well, the evidence showed that Alexander was aware of the scope of Norwest's work, signed the

contracts, brought Morrow in for his expertise, and was kept apprised of major developments with

the work and with the creation of the Norwest Report. All of these indicated that Alexander was

more involved in Norwest than Staff contended. Staff also argued that the Alexander Norwest

Letter was a signal that Alexander was not involved in Norwest but tried to get Norwest to say the

opposite. We reject that contention. Alexander's conduct in that regard was inappropriate, but did

not prove that Lavallee and Gibbs were in charge of NAFS' dealings with Norwest. Turner's and

Wilson's evidence did not show that Alexander was a figurehead, with Lavallee performing NAFS'

work with Norwest. For all these reasons, we are not convinced that Staff proved Lavallee (or

Gibbs) was directing Norwest's work for NAFS.

[464] Staff asserted that Lavallee (along with Gibbs) retained a securities lawyer and accountant

for NAFS. The evidence for that was a March 14, 2017 email from Lavallee to Gibbs stating that

Lavallee had told Alexander "that we have retained a securities lawyer and an accountant". That

email was evidence that that retainer happened, but there was no evidence as to the context.

[465] Staff relied on Green's statement that Lavallee told Green to deal only with Lavallee.

However, the other evidence – including contemporaneous documents – showed that Green dealt

with others besides Lavallee.

[466] Staff argued that Lavallee negotiated with the lessors, but there was no evidence of that.

Paying for the Leases did not indicate that Lavallee was a de facto officer.

[467] Staff stated that Lavallee offered NAFS Common Shares to Newton. Staff's evidence for

this was Newton's testimony that he met with Gibbs and Lavallee in July 2016, at which point

Lavallee offered Newton millions of NAFS Common Shares if Newton would sign amended

documents that would reverse the original plan for Newton to be in charge of NAFS. There was

no documentation of any agreement for shares, and we were not pointed to evidence that Newton

ever received any of those shares allegedly promised to him. Nor was there any evidence as to

where such shares would have come from or how Lavallee would have been involved (for example,

if they were his own NAFS Common Shares or were coming from NOBS and on whose authority).

[468] Given the lack of corroborating or supporting evidence, we are not persuaded that this offer

of shares occurred for the reason stated by Newton.

(C)

Other Factors

[469] Staff did not refer to many of the factors from other cases when making submissions about

Lavallee's role with NAFS. Although previous cases did not set out exhaustive or determinative

lists of considerations, it is notable that there was no evidence that many of those factors applied

to Lavallee. Those missing elements included: supervising, directing, controlling and operating

the company; running the company from his office; having signing authority over the company's

85

bank account; being the sole representative when soliciting investments in the company;

substantially reorganizing and managing the company; naming the company; arranging a public

offering; making all significant business decisions; preparing and authorizing brochures and media

releases; making presentations on behalf of the company; and sending subscription packages to

prospective investors. There was little or no evidence that many of those events even occurred in

NAFS, let alone that Lavallee was an integral part of its management or held himself out as an

officer.

[470] Staff also urged us to accept MP's statement that Alexander was president and CEO only

in "namesake" as proof that Lavallee (and Gibbs) were really in charge of NAFS. MP was a largely

credible witness, although he had some difficulty remembering details. Crucially, however, he had

limited exposure to the inner workings of NAFS, so formed only an impression of Alexander's and

Lavallee's roles. We cannot accept MP's opinion on that point.

(D)

Cumulative Effects of Factors

[471] The factors discussed cannot be looked at in isolation, as it is the cumulative effect of all

the circumstances which determines if an individual is a de facto officer. Lavallee was certainly

funding NAFS and involved with various other aspects, and having his money at risk in the venture

gave him a reason to want NAFS to succeed. However, involvement and interest do not equate to

management. Here, there was little to be managed, and Alexander was in control of the key aspects

of NAFS' very limited activities. Overall, the factors pointed to by Staff and the evidence before

us do not convince us, on a balance of probabilities, that Lavallee was a de facto officer of NAFS.

(E)

Determination on Lavallee

[472] We find that Lavallee was not a de facto officer of NAFS as alleged in para. 9 of the NOH.

(vii) Gibbs

(A)

Factors Cited by Staff

[473] Regarding Gibbs, Staff argued that he "was involved in all aspects of NAFS' operations"

(emphasis added by Staff):



had an email address for the email server "nafsinc";

communicated with Borgers, NAFS' auditor;

"reviewed and provided input into NAFS' 8-K filing";

"reviewed and provided input into NAFS' communications with the ASC";

"coordinated the retainer of and had the majority of discussions with accounting

professional Clark (for the CTO revocation application)";



"helped draft accounts and provided working papers for NAFSCA, and held the

NAFSCA minute book";

86



"personally met and negotiated with the lessors, and provided payment for the

Leases";

"was primarily responsible for the preparation of [the] NAFS CTO revocation letter

to the ASC" (and his spouse paid the revocation application fee);

"personally met with and directed the scope and cost of the work of Norwest, and

had ongoing communications with it";



"reviewed and provided commentary on [the Norwest Report]";

"helped draft the Transaction documents";

"helped remove Newton from NAFSCA, drafting the Consent to Action and acting

as its 'agent' at corporate registry";



met with Lavallee and Newton in 2016 regarding Lavallee's offer of NAFS

Common Shares to Newton;



"met with and discussed a schedule for NAFS with Harris and Lavallee";

worked on the form and content of the NAFS website;

"helped with the marketing of NAFS (despite Alexander testifying NAFS had

nothing to market)"; and



"retained a securities lawyer and accountant on NAFS' behalf".

(B)

Examination of Factors

[474] Before turning to the specific points, it is important to note that Gibbs was a shareholder

of CSI and was involved with CSI before Lavallee or NAFS appeared. Gibbs operated as a

consultant or advisor to Newton and CSI, which explained a great deal about Gibbs' initial level

of involvement with the events considered here. Some of the factors Staff pointed to related to CSI

and NAFSCA, not NAFS. Early work done by Gibbs in connection with NAFSCA could more

properly be considered as work for CSI and NAFSCA than as work for NAFS because CSI still

owned NAFSCA. Later work for NAFSCA, including providing working papers and creating draft

accounts for the NAFSCA Audit, did not rise to the level of management – he was assisting and

was not in charge.

[475] Staff asserted that Gibbs helped to draft the Transaction documents. The evidence was

inconclusive on the extent of Gibbs' role in the majority of the July 10, 2015 documents – however,

work done before July 10 was outside the scope of Staff's allegation. Gibbs acknowledged drafting

in July 2016 an assignment agreement for the Leases and another minor document, and the

evidence showed he sent it to Alexander and Bugg for their review. There was no evidence as to

whether Gibbs had initiated those documents himself or been asked to prepare them by someone

else. To the extent that Gibbs may have been involved in drafting or commenting on any of the

87

amended documents for the Transaction after July 10, 2015, we are satisfied he was merely

assisting with such drafting.

[476] Staff argued that Gibbs' "nafsinc" email address was significant. In our view, that would

be a minor consideration, at best, and would be equally consistent with him assisting or providing

consulting or advising services (with no ultimate authority).

[477] Regarding communications with NAFS' auditor, it was evident Gibbs was not the primary

person communicating with the auditor, working on the financial statements or filing the financial

statements. To the contrary, the evidence showed extensive communication between Alexander

and the auditor, and Alexander clearly had the primary and ultimate responsibility for coordinating

the audit and for preparing, finalizing and filing the financial statements. In fact, the evidence also

showed that Alexander rejected some of Gibbs' suggested changes to documents such as the Super

8-K, which Gibbs had sent comments on to Alexander, copied to Borgers. Gibbs' involvement with

Norwest was at a similar level. He was involved with Norwest, but not in charge. Moreover, at

least some of Gibbs' involvement with Norwest was logically connected to, and explained by, his

work with Newton, his shareholdings in CSI, his shareholdings in NAFS, and consulting or

advising he seemed to be providing to one or more of CSI, NAFSCA and NAFS.

[478] As noted above when discussing Lavallee's role, the March 14, 2017 email from Lavallee

to Gibbs regarding the retainer of a securities lawyer and an accountant lacked context and thus

did not show that Lavallee and Gibbs acted independently of Alexander in that regard.

[479] Reviewing documents and providing input on them is also not necessarily a hallmark of

being a de facto officer. The evidence did not prove that Gibbs had the primary or final

responsibility for the documents at issue. To the contrary, as noted earlier, Alexander did not accept

all of Gibbs' suggested changes to documents. For example, in addition to comments on the

Super 8-K, Alexander did not accept all of Gibbs' edits to a February 29, 2016 draft of a

March 2, 2016 letter to the ASC. Further, the evidence showed that Gibbs provided assistance to

both Newton and Alexander throughout much of the relevant period, not the reverse.

[480] Staff asserted that Gibbs coordinated the retainer of the accountant for the CTO revocation

application, had the majority of the discussions with him, "was primarily responsible for" the CTO

revocation letter to the ASC, and paid for the CTO revocation application (via his spouse). We do

not accept Staff's assertion that Gibbs was in charge of the CTO revocation application for NAFS

because, again, involvement does not necessarily equate to management. Although the documents

and testimony showed that Gibbs was involved (contrary to some of Alexander's testimony, which

we do not find credible on this point), there was no evidence indicating that Alexander had

abdicated his authority over this matter and that Gibbs was operating on his own without direction

from, or consultation with, Alexander. As an example, reviewing documents, drafting documents,

or coordinating the retainer of an accountant does not prove that Gibbs was directing NAFS'

activities. Given NAFS' lack of a bank account, Gibbs' spouse's payment of the CTO revocation

fee was not remarkable. Further, as a NAFS shareholder, Gibbs had an interest in having the CTO

revoked, making it natural for him to assist to the extent he was able to do so; that impetus, in

itself, does not show that Gibbs crossed the line from assisting to managing. We conclude that the

CTO revocation process remained under Alexander's control, confirmed also by the fact that

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Alexander was clearly the person responsible for missing the deadline communicated by Cooney

for responding to Staff's concerns.

[481] We reject Staff's claim that Gibbs' involvement with the Leases was extensive. The Leases

were originally negotiated by Newton in 2008 and in 2009 or 2010. Gibbs was involved in the

Leases with Newton on behalf of CSI before NAFS entered into the picture and before the

Transaction was contemplated. We are satisfied from the evidence that Gibbs was involved with

aspects of the Leases, including some role in negotiations and some role in facilitating payment.

The evidence also indicated that the majority of negotiations regarding the Leases occurred by

July 2015, with subsequent negotiations primarily being renewals or the transfer of the Leases

from one company to another. Newton testified that he was the one negotiating the Leases in

July 2015, with Gibbs' assistance, and we are satisfied that was consistent with the other evidence.

[482] Regarding Norwest, Gibbs did, as asserted by Staff, meet with Norwest employees and

discuss the scope and the cost of the work Norwest was doing. He also had communications with

Norwest. Turner testified that Gibbs did not discuss geological issues with him. As discussed

regarding Lavallee, we are satisfied that Alexander retained ultimate responsibility for NAFS when

dealing with Norwest, including signing the documents and bringing Morrow into NAFS for his

expertise.

[483] Staff seemed to consider it significant that Newton testified Gibbs was present when

Lavallee allegedly offered "free-trading" NAFS Common Shares to Newton in exchange for

Newton distancing himself from NAFS. There was no evidence corroborating Newton's

understanding of the purported plan and no evidence whether Lavallee would have been offering

his own shares or shares from NOBS or NAFS. Further, Staff seemed to be arguing that Gibbs was

somehow a de facto officer merely by being present (if he was) – even had we found this a

convincing factor against Lavallee, Gibbs' presence would not support Staff's position.

[484] Gibbs was clearly involved with the NAFS.ca Website and the NAFS.com Website.

Equally clearly, Alexander was involved and was directing Gibbs (and KG) on matters such as

content and timing. Alexander was also aware of the discussions between Gibbs and EF and the

problems with the website at that time. The evidence showed Alexander directing Gibbs to get the

website fixed.

[485] There was some evidence of Gibbs' involvement in marketing or promotion plans for

NAFS, including email discussions with CB and email arrangements with Newton relating to what

Newton said was a proposed call room. However, there was no evidence that any such plans were

ever implemented. To the contrary, there was evidence that NAFS had nothing to market or

promote during the relevant time, thus severely limiting the significance of any activities which

may have been related to marketing or promotion. There was also no evidence of under whose

authority these activities were taken.

[486] Regarding NAFSCA, Staff contended that Gibbs was involved with accounts and audit

work for NAFSCA, held the NAFSCA minute book, and helped remove Newton from the

NAFSCA corporate registry. As noted, any assistance Gibbs provided for NAFSCA did not prove

that Gibbs had a management role with NAFS. Similarly, to the extent Gibbs "helped remove

89

Newton" from NAFSCA (in Staff's words), such help was given to Alexander at Alexander's

instruction – again not proving that Gibbs was part of NAFS' management.

[487] Newton frequently asserted during his testimony that he relied on Gibbs for everything,

including what to do and what to sign. The implication from that was that Gibbs was therefore in

charge of NAFS. We did not believe that Newton relied on Gibbs as much as Newton claimed –

we also note that the evidence showed many instances of Newton relying on Bugg, Mullen,

Alexander and Smith. Further, Newton was motivated to do whatever others (not just Gibbs)

suggested so that Newton could also profit from any success NAFS may have had. Finally, Staff

did not prove that Newton relied on Gibbs in the context of NAFS, as opposed to the context of

CSI and NAFSCA, or that any reliance was on Gibbs in an authority role rather than an advisory

role. As discussed, many of Gibbs' impugned activities, particularly in 2015, were at least as

consistent with acting in some capacity with CSI or NAFSCA as with acting as a de facto officer

of NAFS.

(C)

Other Factors

[488] Staff did not refer to many of the factors from other cases when making submissions about

Gibbs' role with NAFS. As mentioned above for Lavallee, previous cases did not set out exhaustive

and determinative lists of considerations, but it is notable that there was no evidence that many of

the factors referred to in those cases applied to Gibbs. Those missing elements included:

supervising, directing, controlling and operating the company; running the company from his

office; having signing authority over the company's bank account; being the sole representative

when soliciting investments in the company; substantially reorganizing and managing the

company; naming the company; arranging a public offering; making all significant business

decisions; preparing and authorizing brochures and media releases; making presentations on behalf

of the company; and sending subscription packages to prospective investors. There was little or no

evidence that many of those activities even occurred in NAFS, let alone that Gibbs was an integral

part of its management or held himself out as an officer.

[489] As we concluded for Lavallee, MP's impression that Alexander was a figurehead was not

strong evidence in all of the circumstances.

(D)

Cumulative Effects of Factors

[490] Examining the evidence and factors cumulatively, Staff's allegation fails – we do not find,

on a balance of probabilities, that Gibbs was a de facto officer of NAFS. The degree of Gibbs'

involvement in matters such as NAFS' websites, possible future promotion plans (had there even

been anything to promote) and document review was not, on balance, the level of involvement

required to support a finding that Gibbs was a de facto officer. Gibbs' involvement was consistent

with Alexander's apparent pattern of using the services of others when he lacked expertise or the

necessary time commitment.

(E)

Determination on Gibbs

[491] We find that Gibbs was not a de facto officer of NAFS as alleged in para. 9 of the NOH.

90

B.

Lavallee and Gibbs – Alleged Breach of s. 182 of the Act

Allegation and Parties' Positions

(a)

Staff's Allegation and Position

[492] Staff alleged that Lavallee and Gibbs breached s. 182 of the Act because, as officers

(meaning, in the NOH, de facto officers), they were "insiders" who failed to file required reports

and make required disclosure.

[493] In written submissions, Staff went beyond the NOH by contending that Lavallee and Gibbs

fell under several branches of the term "reporting insiders" in s. 1.1 of NI 55-104 Insider Reporting

Requirements and Exemptions (NI 55-104).

(b)

Lavallee's and Gibbs' Positions

[494] Lavallee's counsel and Gibbs each denied that Lavallee and Gibbs were de facto officers

of NAFS and had any associated reporting requirements.

The Law – Insider Reporting Requirements

[495] Section 182 of the Act requires an insider of a reporting issuer to "file reports and make

disclosure in accordance with the regulations". An officer of an issuer is an "insider" (s. 1(aa)(i)),

with "officer" defined in the Act to include an individual performing functions normally performed

by an officer (s. 1(ll)(iii)). Therefore, a de facto officer would be an insider, just as a formally

appointed or elected officer would be.

[496] Section 3.1 of NI 55-104 establishes reporting requirements for insiders who meet the

definition of a "reporting insider" in s. 1.1. That term is defined to include an insider of a reporting

issuer who is:



the CEO, CFO, COO or a director of the reporting issuer (at (a) and (b));

"a person or company responsible for a principal business unit, division or function

of the reporting issuer" (at (c));



an individual performing functions similar to those set out in the first two bullets

(at (g)); or

an insider with routine access to material undisclosed information and the ability to

exercise significant power or influence over the business of the reporting issuer (at

(i); and see s. 3.1 of Companion Policy 55-104CP Insider Reporting Requirements

and Exemptions (55-104CP)).

[497] Reporting insiders are required to file an initial report with certain prescribed information

and further reports with any changes to the prescribed information (ss. 3.2 and 3.3 of NI 55-104).

[498] The reporting insider obligation is designed to: deter improper insider trading; increase

"market efficiency by providing investors with information concerning the trading activities of

insiders of an issuer, and, by inference, the insiders' views of their issuer's prospects"; and prevent

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improper activities involving equity-based instruments, such as backdating stock options (see

s. 1.3 of 55-104CP).

Discussion – Scope of Allegation

[499] Staff alleged in the NOH that Lavallee and Gibbs were obliged to file insider reports with

the ASC because they were de facto officers of NAFS: "As officers of NAFS, Lavallee . . . and

Gibbs were insiders by definition in the [Act]."

[500] Therefore, Staff's allegation specifically linked Lavallee's and Gibbs' alleged positions as

de facto officers with Staff's allegation that the two men breached their reporting obligations as

"insiders".

[501] In written submissions, Staff added the concept of "reporting insiders" from NI 55-104 –

those whose status in connection with an issuer means they must meet the insider reporting

requirements. However, instead of relying solely on the NOH allegation that Lavallee and Gibbs

were subject to insider reporting requirements by virtue of being de facto officers (which is

captured by branch (g) in the NI 55-104 s. 1.1 definition of "reporting insider"), Staff went farther

in their written submissions. Staff argued that Lavallee and Gibbs were also "reporting insiders"

under NI 55-104 because they:



were responsible for a principal function of NAFS (the Leases) – branch (c) in the

NI 55-104 s. 1.1 definition of "reporting insider"; and

had access to undisclosed material facts or changes "and exercised significant

power or influence over the business of NAFS" – branch (i) in the NI 55-104 s. 1.1

definition of "reporting insider".

[502] In the NOH, Staff did not mention NI 55-104, the concept of "reporting insider" or the

branches of that definition. Although Staff did refer in the NOH to the obligation to "make

disclosure in accordance with the regulations", that, in our view, referred to the content of the

required disclosure, not to the basis on which Staff would try to prove that Lavallee and Gibbs had

a reporting obligation.

[503] Staff were limited to what they specified in the NOH when attempting to prove that

Lavallee and Gibbs contravened s. 182 of the Act by failing to meet insider reporting requirements.

Accordingly, we could consider the reporting obligations to which reporting insiders are subject

only if we first determined that Lavallee and Gibbs were reporting insiders by virtue of being de

facto officers of NAFS. In other words, it was outside the scope of Staff's allegations for us to

examine the evidence to see if Lavallee or Gibbs would be a "reporting insider" under branch (c)

or (i) of that defined term in NI 55-104.

Determination

[504] We earlier concluded that Lavallee and Gibbs were not de facto officers of NAFS.

Therefore, they were not insiders of NAFS on the basis alleged by Staff and, accordingly, were

not subject to the reporting requirements in NI 55-104. We do not address the other categories of

"reporting insider" referred to in Staff's written submissions because those were not part of the

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NOH. We also did not proceed to the next stage of the analysis for an allegation that s. 182 of the

Act was contravened.

[505] Accordingly, Staff's allegation that Lavallee and Gibbs contravened s. 182 of the Act is

dismissed.

C.

Lavallee – Alleged Breach of s. 93.1 of the Act

Allegations and Parties' Positions

(a)

Staff's Allegation and Position

[506] Staff alleged that Lavallee breached s. 93.1 of the Act by trading in NAFS securities

between May 16, 2016 and September 29, 2017, in contravention of the CTO. In written

submissions, Staff limited their argument to trades in December 2016 and later.

[507] The ASC issued the CTO against NAFS on May 16, 2016, and it remained in effect at the

time of the Hearing. Staff alleged that Lavallee knew of the CTO (although arguing that such

knowledge was not a necessary element of the allegation) and traded in securities of NAFS while

the CTO was in place. Staff asserted that the ASC had jurisdiction over Lavallee for those trades,

even though Seton (the brokerage) was a dealer in the Bahamas, and Lavallee's Seton Account was

with Seton in the Bahamas.

(b)

Lavallee's Position

[508] Counsel for Lavallee did not dispute that the CTO was in place. However, he argued that

Staff had to prove Lavallee knew of the existence of the CTO. He also argued the ASC had no

jurisdiction "on a CTO relative to [a] US public company trading shares in a non-reporting third

country, namely the Bahamas".

The Law

[509] Section 93.1 of the Act states: "A person . . . shall comply with decisions of the [ASC or

ED] . . . made under Alberta securities laws."

[510] The CTO provided that "trading or purchasing cease in respect of any security of [NAFS]

until this order has been revoked or varied".

[511] Section 1(n) of the Act defines "decision" to include an "order" made by the ASC or ED

"under a power or right conferred by this Act". Section 33.1 authorizes the ASC or ED to order

that trading or purchasing cease in respect of a security.

[512] Section 1(ggg) of the Act defines "security" to include one of 16 branches, such as (i) "any

document, instrument or writing commonly known as a security" and (v) any share or stock.

[513] Section 1(jjj)(i) of the Act defines "trade" to include "any sale or disposition of a security

for valuable consideration", with s. 1(jjj)(vi) including "any act, advertisement, solicitation,

conduct or negotiation made directly or indirectly in furtherance of" subclauses (i) through (v) of

the definition.

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Discussion

(a) "Decision" and "Security"

[514] We are satisfied that the CTO was a "decision" within the meaning of the Act and was

properly made under s. 33.1 of the Act by an authorized person.

[515] It is clear that the NAFS Common Shares fall within the definition of a "security" in

s. 1(ggg) of the Act.

(b)

Lavallee's Trading of NAFS Common Shares

(i) Evidence of Trades

[516] We are satisfied from the evidence that Lavallee sold over 4.5 million NAFS Common

Shares from his Seton Account for proceeds of approximately US$137,090. These transactions

occurred between December 7, 2016 and September 29, 2017, as pointed out by Staff in their

written submissions. These were "trades" under s. 1(jjj) of the Act.

[517] The submissions by counsel for Lavallee acknowledged this evidence of trading in the

Seton Account, but argued Staff had not shown that Lavallee knew of the CTO at the time of his

trading and had not shown that the trading occurred in Alberta. We address these issues in turn.

(ii)

Lavallee's Knowledge of CTO

(A) Issue

[518] We must determine whether knowledge is a necessary element of Staff's allegation under

s. 93.1 of the Act and, if so, whether Staff proved that Lavallee was aware of the CTO at the time

of his impugned trades.

[519] Staff contended that they did not have to prove Lavallee's knowledge of the CTO as an

element of a s. 93.1 breach because that provision does not include a mens rea or knowledge

element; it states only that a person "shall comply" with a decision. In Staff's view, any trading

contrary to the CTO was a breach of s. 93.1, even if the trader did not know of the CTO. However,

Staff acknowledged that trading without knowledge of a CTO might warrant lesser sanctions than

trading with such knowledge.

[520] Lavallee's counsel submitted that Staff had to prove that Lavallee knew the CTO existed.

In making this argument, Lavallee's counsel referred to the regulatory offence categories identified

by the Supreme Court of Canada (the SCC) in R. v. Sault Ste. Marie, [1978] 2 S.C.R. 1299.

(B)

Knowledge as an Element of a Breach of CTO

[521] The parties did not refer to an ASC panel's decision in Re Dobler, 2004 ABASC 927. That

panel determined that a contravention of s. 93.1 of the Act in respect of an ASC cease-trade order

required Staff to prove only that the respondent engaged in trading while the cease-trade order was

in effect – the respondent's knowledge of the cease-trade order was irrelevant (at paras. 109-114):

While there was no dispute that the Private Placement contravened the [cease-trade order], the

[r]espondents argued that there had been no deliberate contravention – they had not appreciated the

scope of the [cease-trade order] and therefore had not appreciated that it was being contravened.

How, then, does a person's state of mind affect the issue of whether the person contravened such an

order?

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Our conclusion, briefly, is that what might be termed a "guilty state of mind" is not essential to a

finding that a person contravened such an order.

An order such as the [cease-trade order] is not a punishment; it is a protective measure of broad

application designed to prevent harm to the investing public that might arise when securities are

traded in the face of a deficient public information record. The objective, and the effect, is to block

all trading in the affected securities, irrespective of purpose or motivation, until the information

deficiency is remedied and all investors are in a position to make informed investment decisions in

a market that operates fairly. Exceptions (such as we discussed above in connection with variations

of such orders) are permitted only when the [ASC] is satisfied that the public interest is not impaired.

Unless such an exception applies, the order applies to everyone.

To ensure that such orders are adhered to, they are made widely known, often by news release. Even

that may not suffice to inform every investor or prospective investor. That is where others play an

important gatekeeping role. Exchanges, investment dealers and individual registered salespersons

intervene to prevent prohibited trades that they are asked to process. Company officers and directors

are responsible for ensuring that nothing they or the company do would contravene the order.

In short, an order such as the [cease-trade order] bars a type of activity, not a state of mind. Those

who engage in such activity (unless specifically permitted to do so) contravene the order irrespective

of their motivation or state of knowledge.

It follows, and we find, that if either [r]espondent traded or acted in furtherance of a trade in Cenpro

securities while the [cease-trade order] was in effect, he contravened the [cease-trade order] (and

hence Alberta securities laws), whether or not he knew that to be the case.

[522] The approach in Dobler is consistent with the SCC's approach in Sault Ste. Marie (see

Aitkens at paras. 95-96). Accordingly, we do not consider knowledge of the CTO – or an intention

to contravene the CTO – to be a necessary element in our assessment of whether Lavallee

contravened s. 93.1 of the Act.

(C)

Actual Knowledge of CTO

[523] As noted in Dobler, a respondent's state of mind can be an important factor when assessing

the gravity of, and the consequences for, a contravention of a cease-trade order (Dobler at

para. 115). Therefore, we now turn to whether Lavallee knew of the CTO when he traded in the

NAFS Common Shares.

[524] The evidence indicated that Lavallee likely became aware of the CTO in May 2016, but

was aware of it at least by August 24, 2016 – in either case, well before the date of the first

impugned trades in December 2016:



Lavallee stated in his interview that he had asked at the time of the HTO to be kept

updated regarding the ASC and NAFS, so it is reasonable to conclude he would

have been told about the CTO.



Lavallee was the acknowledged funding source for NAFS' operations, so it is

reasonable to conclude he would have been told about the CTO in that role.

Lavallee discussed during his interview a July 19, 2016 email (regarding a draft

Super 8-K), although he was not copied on that email. Lavallee stated that the

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Super 8-K was "to get the CTO lifted" and asked Gibbs to keep Lavallee "advised

on the CTO" because "[w]e can't trade in Alberta" and the "company's useless

without it". Lavallee also stated that "all the time, I say to those guys, We got to

raise money. We need to get the CTO off. . . . I just can't keep financing this thing"

(quoted verbatim).



Lavallee acknowledged during his interview that he received an email from

Alexander to Borgers (copied also to Gibbs and Bugg) dated August 24, 2016, in

which Alexander declared that he needed to "get the CTO lifted" to raise funds.

Lavallee stated he received that email because "they" were doing accounting work

to get the CTO lifted.



A September 15, 2016 email from Harris to Lavallee and Gibbs attached a memo

outlining various NAFS-related items, including the lifting of the CTO. However,

we did not rely on this because there was no evidence confirming the content or

context of such emails from Harris.

Lavallee stated during his interview that either he or Alexander probably contacted

Bugg because they needed his help to get the CTO lifted.

[525] Lavallee's counsel argued it would be improper to infer that Lavallee knew of the CTO

when it was issued in May 2016 "without [a] particular date, time and place that Lavallee knew

something solely or generally known". However, Lavallee's counsel did not address the specifics

of Staff's contention that Lavallee knew of the CTO before the impugned trading began several

months later, as outlined above.

[526] We are satisfied that Lavallee knew about the CTO before December 2016, when he began

the impugned trading in NAFS Common Shares in the Seton Account.

(iii)

ASC Jurisdiction to Enforce CTO

[527] Lavallee's counsel argued that Lavallee's trading occurred entirely outside of Canada, in

Lavallee's brokerage account in the Bahamas. He made an analogy between the ASC taking

jurisdiction over those trades and a Canadian jurisdiction purporting to make it a criminal offence

for Canadians to smoke in Parisian streets. Staff contended that different steps of modern securities

transactions can be effected in different physical locations, and that some of the steps for the

impugned trades occurred in Alberta – in contrast to smoking in Paris which occurs only in that

one location.

[528] The law is clear that when a respondent's activities have a nexus with Alberta and other

jurisdictions, the ASC is able to assert its authority under the Act based on the test established in

Libman v. The Queen, [1985] 2 S.C.R. 178 at pp. 212-213. That test requires a "real and

substantial" connection between the jurisdiction and the misconduct in circumstances where "a

significant portion of the activities" constituting the alleged misconduct occurred within the

jurisdiction (also see World Stock Exchange at pp. 33-38).

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[529] Lavallee's counsel noted that this "general jurisdiction test" requiring a real and substantial

connection was also adopted in Torudag v. British Columbia (Securities Commission),

2011 BCCA 458. He argued that the facts in the present case did not show a significant enough

connection with Alberta that the ASC could take jurisdiction based on the reasoning in Libman

and Torudag. In what was apparently a separate argument, he also referred to a criminal law

principle that Canada does not have enforcement jurisdiction over matters outside of Canada (from

R v. Hape, 2007 SCC 26 at para. 69).

[530] We first address the contention by Lavallee's counsel that Lavallee's trading took place

entirely outside of Canada.

[531] Lavallee's counsel cited Hape (at para. 105) as stating that no federal or provincial

legislature has "the power to authorize the enforcement of Canada's laws over matters in the

exclusive territorial jurisdiction of another state". He made the connected assertion that the ASC

could take jurisdiction over Lavallee's trades only if the Act has provisions which would validly

establish criminal liability within Canada for acts committed outside Canada (such as in the

Corruption of Foreign Public Officials Act, S.C. 1998, c. 34 (certain acts committed outside

Canada are deemed to have been committed in Canada) and the Crimes Against Humanity and

War Crimes Act, S.C. 2000, c. 24 (war crimes committed outside Canada can be prosecuted in

Canada)). He further submitted, regarding the Canadian Charter of Rights and Freedoms (the

Charter), that although there are no express territorial limits on the scope of the Charter's powers,

the Charter still would not apply outside of Canada. In his submission, therefore, the ASC should

not "have broad overreaching jurisdiction unavailable to even the powers of the Constitution". He

also referred to extra-provincial powers of the ASC under s. 24 of the Act.

[532] We reject these arguments. Lavallee's trading did not take place entirely outside of Canada;

elements of those trades occurred in Alberta. That meant that the arguments of Lavallee's counsel

started from a false premise. Those submissions were also primarily related to criminal law, the

principles of which were not helpful in this aspect of securities regulation. Section 24 of the Act

was irrelevant here because this panel was not purporting to exercise and perform any powers and

duties outside of Alberta.

[533] We now turn to the assessment of the aspects of Lavallee's trading which occurred within

and outside of Alberta, referring to the Libman and Torudag line of cases.

[534] NAFS was a reporting issuer in Alberta. Lavallee, an Alberta resident, opened the Seton

Account in February 2016. Lavallee's account application listed his Alberta address and telephone

number, and he attached (among other things) a copy of his Alberta driver's licence and a Canadian

passport. Once his account was opened, Lavallee deposited NAFS Common Shares to the Seton

Account. Lavallee's impugned trading began in December 2016. The impugned trades involved

his sale of more than 4.5 million NAFS Common Shares for proceeds of approximately

US$137,090. Lavallee sent at least some of his trading instructions to Seton via email, apparently

from Alberta, and the proceeds from his sales of NAFS Common Shares were deposited by Seton

into Lavallee's bank account in Alberta.

[535] We are satisfied that Lavallee's impugned trades in the Seton Account involved real and

substantial connections to Alberta, and that a significant portion of the trading activities occurred

97

in Alberta. Therefore, the ASC has jurisdiction for the determination of this allegation against

Lavallee.

Determination

[536] As we have found that the NAFS Common Shares were securities and that Lavallee traded

in those securities while the CTO was in force (and further found that Lavallee knew the CTO was

in effect when he made those trades), we conclude that Lavallee failed to comply with the CTO, a

decision of the ASC or ED, and thus contravened s. 93.1 of the Act.

D.

Lavallee – Alleged Breach of Section 147(3) of the Act

Allegation and Parties' Positions

(a)

Staff's Allegation and Position

[537] Staff alleged that Lavallee breached s. 147(3) of the Act by purchasing or selling NAFS'

securities while in a special relationship with NAFS – as a de facto officer – and with knowledge

of a material fact or material change that was not generally disclosed.

[538] The allegation in the NOH stated that "[a]s an insider of NAFS, Lavallee was in a special

relationship with it". The NOH alleged only one basis on which Lavallee was an "insider" of NAFS

(and, therefore, in a "special relationship" with it) – that Lavallee was an insider because he was a

de facto officer.

[539] Staff submitted that the relevant material information for the allegation was the Norwest

Report, announced by NAFS on May 30, 2017. Staff argued that was undisclosed material

information and that Lavallee knew of it by May 20 or 25, 2017, shortly before he sold 133,000

NAFS Common Shares for US$3,990 on May 26, 2017.

(b)

Lavallee's Position

[540] Counsel for Lavallee submitted that Lavallee was not in a special relationship with NAFS

because he was not a senior manager, officer or director. Counsel for Lavallee also stated that

Lavallee had no knowledge of undisclosed material information in May 2017 because the

information in the Norwest Report was already known by then.

The Law

(a)

Illegal Insider Trading

[541] Section 147(3) of the Act prohibits the purchase or sale of securities of an issuer by a person

in a special relationship with the issuer while that person has knowledge of a material fact or

material change relating to the issuer that has not been generally disclosed. This provision does

not require proof of the respondent's mens rea – there is no need to prove the respondent's

motivation or intention (Walton at paras. 49-50).

[542] Therefore, to establish a contravention of s. 147(3), Staff must prove the following on a

balance of probabilities:



the company was an issuer;

the respondent was in a special relationship with that issuer;

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

the respondent purchased or sold securities of that issuer while having knowledge

of a material fact or material change relating to that issuer; and

that material fact or material change had not been generally disclosed at the time of

the impugned purchase or sale.

(b)

Issuer

[543] As Staff noted, "issuer" in s. 147 of the Act includes a "reporting issuer", and NAFS is a

reporting issuer.

(c)

Special Relationship

[544] The term "special relationship" is defined in s. 9 of the Act:

A person or company is in a special relationship with an issuer if

(a)

the person or company is an insider, affiliate or associate of

(i)

the issuer,

(ii)

a person or company that is considering or evaluating whether to make a take-

over bid, as defined in Part 14, or a person or company that is proposing to make

a take-over bid, as defined in Part 14, for the securities of the issuer, or

(iii)

a person or company that is considering or evaluating whether, or a person or

company that is proposing,

(A)

(B)

to become a party to a reorganization, amalgamation, merger or

arrangement or a similar business combination with the issuer, or

to acquire a substantial portion of the property of the issuer;

(b)

(c)

the person or company has engaged, is engaging, is considering or evaluating whether to

engage, or proposes to engage, in any business or professional activity with or on behalf of

(i)

the issuer, or

(ii)

a person or company described in clause (a)(ii) or (iii);

the person is a director, officer or employee of

(i)

the issuer,

(ii)

(iii)

(iv)

a subsidiary of the issuer,

a person or company that controls the issuer, directly or indirectly, or

a person or company described in clause (a)(ii) or (iii) or (b);

(d)

the person or company learned of a material fact or material change with respect to the

issuer while the person or company was a person or company described in clause (a), (b)

or (c);

99

(e)

the person or company

(i)

learns of a material fact or material change with respect to the issuer from any

other person or company described in this section, including a person or company

described in this clause, and

(ii)

knows or ought reasonably to know that the other person or company is a person

or company in a special relationship with the issuer.

(d)

"Materiality" and "Generally Disclosed"

[545] The concept of "materiality" is important in assessing the nature of information known to

a respondent alleged to have engaged in illegal insider trading. The phrase "generally disclosed"

is also important, although not defined in the Act.

[546] Given our conclusion on this allegation, however, we need not address either materiality

or general disclosure in this context. We discuss materiality below in the context of alleged

misrepresentations.

Discussion

[547] As mentioned, Staff alleged in the NOH that "[a]s an insider of NAFS, Lavallee was in a

special relationship with it" and that Lavallee was an insider as an officer "by definition in the

Act". Staff did not allege that Lavallee was in a special relationship with NAFS under any of the

other branches set out in the definition of "special relationship" in s. 9 of the Act. Staff's written

submissions were consistent with the allegation in the NOH, stating that an officer of an issuer is

in a special relationship with that issuer, and that "Lavallee was an officer/insider of NAFS".

[548] Staff clearly alleged that Lavallee was an insider solely on the ground that he was a de

facto officer. We earlier found that Staff did not prove that Lavallee was a de facto officer of

NAFS. Accordingly, Lavallee was not in a special relationship with NAFS on the sole basis alleged

by Staff, and Staff's allegation fails from the outset.

[549] We are not able to consider any of the other branches of the s. 9 definition of "special

relationship". Staff were limited by the form and scope of their allegation because those were the

parameters under which Lavallee and his counsel structured Lavallee's defence to the allegation,

including what questions to ask witnesses, what evidence to tender, and what arguments to make.

Determination

[550] Staff did not prove that Lavallee was in a special relationship with NAFS as alleged in the

NOH. Therefore, the allegation that Lavallee breached s. 147(3) of the Act is dismissed.

E.

NAFS, Alexander, Lavallee and Gibbs – Alleged Breach of Section 221.1(2) of the Act

Allegation and Parties' Positions

(a)

Staff's Allegation and Position

[551] Staff alleged that NAFS, Alexander, Lavallee and Gibbs were responsible for numerous

misleading filings with the ASC between July 10, 2015 and the end of 2017. Specifically, Staff

alleged that the Respondents contravened s. 221.1(2) of the Act "by making a statement, or

authorizing, permitting or acquiescing in the making of a statement, in [those filings] or

certificates, or both, provided to the [ASC], that was misleading or untrue, or failed to state a fact

100

necessary to make a statement not misleading". Because NAFS was the entity making the

impugned disclosure, we presume that Staff were maintaining that NAFS was responsible for

making the alleged misrepresentations, and that the three individual Respondents were responsible

for authorizing, permitting or acquiescing in misrepresentations made by NAFS (which would then

lead to the possibility of sanctions against those three individuals under s. 198(1.2) for directors or

officers authorizing, permitting or acquiescing in the contravention of s. 221.1(2)). We are satisfied

that Alexander, Gibbs and Lavallee's counsel all understood the allegation that way and were not

prejudiced by our conclusion on that point.

[552] In the NOH, Staff alleged that two pieces of information were misleading or untrue because

NAFS' filings with the ASC during the specified time failed to state that:



"Lavallee and Gibbs were the de facto officers and directing and controlling minds

of NAFS"; and



"NAFS['] operations were funded mainly by Lavallee, a related party to NAFS".

[553] In their written submissions, Staff pointed to some statements by Alexander and Gibbs

during the Hearing that Kistler was actually in control of NAFS. As that was not disclosed in the

impugned filings, Staff suggested that such omissions would then have been additional false

statements made to SEC regulators. As that point was not in the NOH – nor did Staff seem to be

suggesting we make a finding on it – we do not address it in our reasons.

(b)

NAFS' Position

[554] NAFS was not represented at the Hearing and took no position on the allegation that it

breached s. 221.1(2) of the Act.

(c)

Alexander's Position

[555] Alexander argued that this allegation was not supported by the evidence because Lavallee

and Gibbs were not de facto officers of NAFS and because Alexander, not Lavallee, was the

"related party" referred to in the impugned filings.

(d)

Lavallee's Position

[556] Counsel for Lavallee argued that this allegation was not supported by the evidence because

Lavallee and Gibbs were not de facto officers of NAFS, and because Alexander testified that

Alexander (not Lavallee) was the related party in the impugned filings. Lavallee's counsel implied

that Staff did not prove the relevant legal issue.

(e)

Gibbs' Position

[557] Gibbs argued that this allegation was not supported by the evidence because Lavallee and

Gibbs were not de facto officers of NAFS. Gibbs did not directly address the related party

allegation.

The Law

(a)

Misleading or Untrue Statements

[558] Section 221.1(2) of the Act provides:

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No person or company shall make a statement, whether oral or written, in any document, material,

information or evidence provided to the Commission, that, in a material respect and at the time and

in light of the circumstances under which it is made, is misleading or untrue or does not state a fact

that is required to be stated or that is necessary to make the statement not misleading.

[559] ASC panels have identified three key elements of this prohibition: (1) it applies to an oral

or written statement in any material provided to the ASC; (2) the statement was misleading or

untrue at the time and in light of the circumstances under which it was made; and (3) the statement

was misleading or untrue in a material respect (Re Hagerty, 2014 ABASC 237 at para. 130).

[560] ASC panels have also observed that s. 221.1 of the Act closely parallels s. 92(4.1), as they

each prohibit a "misrepresentation" as defined in s. 1(ii) of the Act (Aitkens at para. 144).

(b)

Materiality Assessment

[561] A material fact is "a fact that would reasonably be expected to have a significant effect on

the market price or value of" a security (s. 1(gg) of the Act). A material change is defined to include

". . . a change in the business, operations or capital of the issuer that would reasonably be expected

to have a significant effect on the market price or value of a security of the issuer" (s.1(ff)).

[562] The test established by these definitions – whether the fact or change would reasonably be

expected to have a significant effect on the market price or value of the issuer's securities – has

been described as an objective market impact test (see s. 4.1(1) of National Policy 51-201

Disclosure Standards (NP 51-201); and Re Stan, 2013 ABASC 148 at paras. 222 and 250).

[563] The ASC, as an expert tribunal with specialized capital-market and securities-law

knowledge, is well-positioned to make common-sense inferences as to materiality (Stan at

para. 223). Here, neither investor evidence nor expert evidence was necessary to assist us in

assessing materiality.

[564] As there is no bright-line standard for a materiality assessment, all relevant circumstances

and the context must be taken into account. Factors may include the size of the issuer and the

nature of its operations, the volatility of its securities and the prevailing market conditions, as well

as the nature of the information and the consequences to the issuer (Stan at para. 226 (and at

para. 225, citing s. 4.2(1) of NP 51-201)).

[565] The analysis is considered from the perspective of a reasonable investor, evaluated

prospectively – taking care to avoid hindsight beyond any potential corroborative value – to assess

what ". . . would reasonably have been expected to transpire" (Stan at paras. 222-224 and 250; and

Re Kapusta, 2011 ABASC 322 at paras. 240 and 255).

(c)

Related Party

[566] Securities law and corporate law both have many references to and discussions of related

parties. The allegation was that certain of NAFS' filings with the ASC "failed to state NAFS[']

operations were funded mainly by Lavallee, a related party". The concept of related party was,

therefore, critical to a proper analysis of the allegation.

102

[567] Staff did not set out any definition for "related party" nor point to any guidance on

determining when a person is a related party, what related party transactions are, and what the

disclosure requirements for related party transactions are – including when a related party might

have to be identified by name in specific filed disclosure documents.

Discussion

(a)

Lavallee and Gibbs as De Facto Officers

[568] We agree with Staff's submission that information about management and control of a

company "is critical public company disclosure". Staff referred to Bluforest, in which an ASC

panel concluded that a company's failure to identify all of its officers, directors and control persons

was a material omission (this was under s. 92(4.1) of the Act, not s. 221.1 and involved different

circumstances than in the matter before us). The Bluforest panel stated (at para. 348, citing Arbour

at para. 802) that such information "would reasonably be expected to significantly affect the market

price or value of the securities being offered" in those circumstances.

[569] However, the circumstances here were different than in Bluforest. We earlier concluded

Staff did not prove that either Lavallee or Gibbs was a de facto officer of NAFS. Accordingly,

disclosure stating that they were officers was not required, and this ground of alleged

misrepresentation fails.

(b)

Lavallee as a Related Party Funding NAFS

[570] There was disclosure in some of NAFS' filings of funding by a related party, but Lavallee

was not identified there by name, and the Respondents did not accept Staff's premise that Lavallee

was a related party. In written submissions, Staff discussed the related party allegation and their

contention that Lavallee (and Gibbs) were de facto officers of NAFS:

Not a single NAFS' filing with the ASC divulges that Lavallee and Gibbs were de facto officers or

directing and controlling minds of the company. Nor did any NAFS' filing with the ASC divulge

that Lavallee was the related party who mainly funded the company. Omissions are statements in

their own right, if they are necessary to make other statements not misleading or untrue.

It is highly material if a public company is actually controlled by a party or parties other than those

represented to the market and regulators. This is especially so when one of the parties secretly in

control has been sanctioned for prior securities related misconduct. Care was seemingly taken, based

on the evidence, to keep the names of Lavallee and Gibbs out of NAFS' filed documents (with two

exceptions: a reference to a promissory note with Lavallee – notably not in the related party section,

and a late in the narrative [news] release thanking Lavallee for his funding). [original emphasis]

[571] As mentioned above, Alexander's evidence (which was confusing and inconsistent on this

point) was that Alexander himself was the related party referred to in the particular disclosure.

Alexander asserted that the plan was for NAFS eventually to raise money, but that Lavallee would

pay the bills until NAFS could raise funds. Alexander denied that Lavallee was management or a

significant stockholder. Alexander stated that he "borrowed" funds from Lavallee and therefore

deemed the payments to be Alexander's payments. Alexander referred in his written submissions

to himself as guaranteeing to Lavallee the money that Lavallee paid for NAFS' expenses.

[572] Despite confusion in the financial statements and in Alexander's interview, testimony and

submissions, Alexander maintained that NAFS' financial statements fairly represented NAFS'

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financing – and had been approved as such by the auditor. The written submissions by Lavallee's

counsel stated that there was no testimony identifying Lavallee as a related party, and alluded to

this as "a legal issue". Gibbs did not address this in his written submissions, and no party discussed

it during oral submissions.

[573] The evidence was clear that certain of NAFS' filings disclosed that NAFS had received

funding from "a related party". Staff's allegation was that Lavallee should have been identified in

those NAFS' filings as the related party who provided funding.

[574] As noted, Staff pointed to neither legislation nor case authority regarding related parties

and required disclosure, including in what circumstances a related party may be required to be

identified by name in corporate filings. Staff's only written submission on this point was that

"Lavallee was the related party who mainly funded the company".

[575] Although this panel was comprised of members with varied expertise in securities law,

corporate law and accounting, it is not for us to make Staff's case for them by speculating on what

legal requirements Staff might have pointed to and what arguments Staff might have made. Were

we to do so, we would be depriving the Respondents of a fair opportunity to respond to this

allegation.

[576] Staff, therefore, did not prove that Lavallee should have been named in the specified NAFS'

filings with the ASC (between approximately July 10, 2015 and the end of 2017) as a related party

who had provided funding for NAFS. We note that the other confusing aspects arising from

Alexander's statements and testimony were not the subject of misrepresentation allegations.

Determination

[577] Staff did not prove their allegation that NAFS breached s. 221.1(2) of the Act. Therefore,

Staff also failed to prove that Lavallee, Gibbs and Alexander authorized, permitted or acquiesced

in a breach of s. 221.1(2). In addition, as already determined, Staff did not prove that Lavallee and

Gibbs were "officers" of NAFS. As such, neither could have been responsible for authorizing,

permitting or acquiescing in any breaches by NAFS.

F.

Lavallee – Alleged Breach of Section 93.4(1) of the Act

Allegation and Parties' Positions

(a)

Staff's Allegation and Position

[578] Staff alleged that Lavallee breached s. 93.4(1) of the Act by concealing or withholding

information from Staff that was reasonably required for an investigation, specifically information

relating to: the Second Email Account; his use of Harris as a nominee to hold and trade NAFS

Common Shares; the existence of a trading account in Harris's name over which Lavallee had

authority or provided direction; and Lavallee's involvement with AEPP.

[579] Staff argued that the above information was reasonably required for an investigation under

the Act, and that Lavallee knew an investigation was being conducted.

(b)

Lavallee's Position

[580] Lavallee's counsel submitted that there is nothing nefarious about forgetting an email

account. He argued that references to Harris, a trading account and AEPP were not substantiated

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because neither Harris nor Lavallee testified to answer questions about various documents and

alleged interactions.

The Law

[581] Section 93.4 of the Act provides:

(1)

A person or company shall not, and shall not attempt to, destroy, conceal or withhold any

information, property or thing reasonably required for a hearing, review, examination or

investigation under this Act.

(2)

A person or company contravenes subsection (1) only if the person or company knows or

ought reasonably to know that a hearing, review, examination or investigation is being, or

is likely to be, conducted.

[582] As stated by the ASC in Re Fletcher, 2012 ABASC 222 at para. 108 (also see Re TransCap

Corporation, 2013 ABASC 201 at para. 92):

To find a contravention of section 93.4(1) of the Act, we need not find that there was an obstruction

of the investigation (although this may well be a relevant consideration at any required sanction

hearing). Rather, to find such a contravention, we must determine first whether [a respondent]

concealed or withheld, or attempted to conceal or withhold, information and, second, whether that

information was reasonably required for an investigation under the Act.

[583] Both Fletcher (at para. 113) and TransCap (at para. 92) clarified that a panel need find

only that the information was reasonably required for the investigation, not that the person being

questioned knew it was reasonably required for such an investigation. In other words, interviewees

during Staff investigations do not get to decide what they consider is important or relevant to an

investigation.

Discussion

(a)

Lavallee's Knowledge of Investigation

[584] We are satisfied that Lavallee knew (as required by s. 93.4(2) of the Act) that the

Investigation was being conducted because he was interviewed by ASC employees at the ASC

office, in the presence of his lawyer. The ASC employees identified themselves as investigative

staff and confirmed with Lavallee that he had received a summons to attend at the interview.

Lavallee also knew that the Investigation concerned NAFS, NAFSCA and CSI, as well as certain

individuals specified in the summons.

(b)

Second Email Address

(i) Circumstances

[585] Staff contended that by responding "No" when asked during the Lavallee Interview if he

had an email address other his outlook.com address, Lavallee concealed or withheld that he had

the Second Email Address – the gmail.com address. Staff noted that Lavallee used the Second

Email Address, including for Seton Account correspondence. Staff asserted that email addresses

are important to securities investigations, particularly in circumstances such as this with "alleged

secret control and direction" of NAFS, and the main players scattered in different cities.

[586] Lavallee's counsel stated that Panneton, a Staff investigator, testified that she could not

recall if she knew at the time of asking that question that Lavallee had the Second Email Address.

105

Lavallee's counsel argued it was "certainly not fair play to withhold the information if [Staff

investigators] did know". He also implied that Lavallee may have just forgotten about the Second

Email Address.

(ii)

Analysis

[587] Lavallee clearly stated during the Lavallee Interview that he did not have another email

address.

[588] We do not believe that he simply forgot about the Second Email Address. This was not

merely inadvertence. The Lavallee Interview was conducted on October 3, 2017, and there were

emails in evidence to or from Lavallee at the Second Email Address as late as May 31, 2017 –

showing that he had been using the Second Email Address relatively soon before the Lavallee

Interview. In these circumstances, we have no hesitation concluding that Lavallee deliberately

withheld the Second Email Address from Staff investigators.

[589] We do not accept the argument by Lavallee's counsel that this would be an unfair finding

had the Staff investigator known of the Second Email Address at the time she asked Lavallee if he

had any other email addresses. Even if the Staff investigator had that information at the time of the

Lavallee Interview (which we do not know, as she could not remember), her knowledge was

irrelevant. The extension of that argument by Lavallee's counsel would be that Staff investigators

could be accused of unfairness every time they asked a question for which they had information

that supported their question.

[590] A comparable situation to this hypothetical claim by Lavallee's counsel arose in Fletcher

(at para. 110), where the subject of the investigative interview denied three times that she was

aware of a certain loan to someone else. When investigators showed her loan documentation, she

agreed that it refreshed her memory. The panel found that the interviewee attempted to withhold

or conceal that information, and that such attempts were not inadvertent (at para. 112). The panel

there did not conclude that the questioning was unfair, even though the investigator had documents

contrary to the interviewee's answer.

[591] We agree with Staff that email addresses are important for investigations, particularly with

the increasing use of electronic communications. This was an example of information that was

potentially important to Staff's Investigation – and was also ultimately important, as the Second

Email Address was used in correspondence between Lavallee and Seton. As noted, it was

irrelevant to this allegation and our findings whether Lavallee considered that the Second Email

Address would be important to Staff's Investigation. We find that information was reasonably

required for the Investigation.

[592] We conclude that Lavallee withheld the existence of the Second Email Address during the

Investigation, contrary to s. 93.4(1) of the Act.

(c)

Harris and the Harris Trading Account

[593] Staff contended that the evidence during the Hearing showed that Lavallee and Gibbs had

NAFS Common Shares held for them by Harris in the Harris Trading Account. Staff pointed to

excerpts from the Lavallee Interview in which he acknowledged having certain trading accounts

in his name, then denied giving direction or exercising authority over someone else's account. Staff

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said that information was important to the Investigation here because of the alleged secret control

and direction being investigated. Moreover, Staff cited the importance of this information to the

Investigation because of the general principle that trading in securities by insiders (with Lavallee

being investigated as a possible insider) is important market information and thus subject to

specific disclosure requirements under Alberta securities laws.

[594] In addressing this allegation, Lavallee's counsel argued only that Staff should have called

Harris as a witness if Staff intended to rely on emails from Harris as proof that Lavallee exercised

authority over the Harris Trading Account and had withheld information relevant to that during

the Investigation.

[595] Although Harris did not testify, the emails on this topic were from both him and Gibbs

(copied to Lavallee), and Gibbs testified about the emails. One of the early ones in this line of

emails was a January 16, 2017 email from Harris to Lavallee and Gibbs outlining various "deals"

between Lavallee and Harris, including a May 26 deal with Lavallee "as regards the NAFS

[Common Shares] with 20% to Rob". The numbers in the May 26 deal described by Harris were

consistent with Harris holding 2 million of the 2.5 million NAFS Common Shares for Lavallee

and Gibbs because the "20% to Rob" would have been 500,000 NAFS Common Shares (with 40%,

or one million, to each of Lavallee and Gibbs). The timing of the May 26 deal was also consistent

with the evidence of when Harris received 2.5 million NAFS Common Shares, including the

May 27, 28 and 31, 2016 emails from Harris to Gibbs asking Gibbs to arrange for certificates for

Harris's NAFS Common Shares. We do not consider it significant that Gibbs did not mention in

responding emails at that time his or Lavallee's interest in 2 million of those NAFS Common

Shares because those exchanges were only about registering the certificates.

[596] Gibbs denied that he had a legal interest in those NAFS Common Shares held by Harris,

although admitting to an "intention" or "understanding" to that effect. Gibbs did not deny that

Harris held them or that Gibbs had emailed Harris (copied to Lavallee) stating that the NAFS

Common Shares in the Harris Trading Account were "only to be traded on the explicit instructions

from Bert and me". In January 16 and 17, 2017 emails from Gibbs to Harris and copied to Lavallee,

Gibbs asked Harris for confirmation that Harris still held the 2.5 million NAFS Common Shares.

Harris replied in a January 17, 2017 email to Gibbs and Lavallee that he would send an account

statement "and then you will see the shares. Relax……..your stress is not warranted." Harris then

sent an account statement to Gibbs and Lavallee on January 17, 2017 showing over 2.5 million

NAFS Common Shares in the Harris Trading Account. In August 2017, Gibbs was again sending

emails to Harris in which Gibbs expressed concern about getting the NAFS Common Shares being

held by Harris "for each of Bert and me". Gibbs said in an August 5, 2017 email to Harris, copied

to Lavallee, that "Bert and I want to get back the 2.5 million NAFS [Common Shares] and we will

pay you for them at your cost. We will do that when the CTO is lifted." Although the CTO was

not lifted, that email was further evidence that some of the NAFS Common Shares in the Harris

Trading Account were being held for Gibbs and Lavallee – and our conclusion on that is not

affected by the facts that the CTO was still in place at the time of the Hearing and that we do not

know if NAFS Common Shares from the Harris Trading Account had ever been transferred to

Gibbs and Lavallee.

[597] Further, Gibbs implied in some emails to Harris that Gibbs was also speaking for Lavallee,

and Lavallee's words sometimes indicated that he was also speaking for Gibbs. Harris's responses

107

to such emails were typically addressed to both Lavallee and Gibbs. A December 29, 2016 email

from Lavallee to Harris insisted that Harris deliver to Lavallee and Gibbs "what we asked for on

AEPP". Lavallee confirmed in a January 26, 2017 email that he had given Harris his wire transfer

information and was expecting to receive money – it was obvious that money was from Harris's

sale of AEPP shares.

[598] Based on all of the evidence, we are satisfied that Lavallee had an interest in, and some

direction or authority over, the Harris Trading Account. We are also satisfied that this topic was

important and was reasonably required for the Investigation.

[599] We conclude that Lavallee withheld information relating to his connection to Harris and

the Harris Trading Account, contrary to s. 93.4(1) of the Act.

(d)

Lavallee's Involvement in AEPP

[600] Lavallee was asked during his interview: "Are you involved with [AEPP]?" and Lavallee

responded "No, I'm not involved." Staff pointed to evidence from the Hearing, including Gibbs'

testimony, showing that Lavallee had been involved with AEPP. Staff asserted that information

about AEPP was important to the Investigation because it involved some of the same people and

perhaps some similar issues.

[601] Counsel for Lavallee's submissions did not specifically refer to the Lavallee Interview's

question and answer about AEPP. Lavallee's counsel contended that AEPP was completely

unrelated to NAFS, so that questions during the Lavallee Interview were irrelevant to the NOH (in

so arguing, he did not mention that this allegation in the NOH referred to AEPP).

[602] We are satisfied that the evidence adduced during the Hearing showed Lavallee was

involved with AEPP. We are also satisfied that there was a significant enough potential link

between NAFS and AEPP – and the individuals involved – that information about AEPP was

important to the Investigation. It is irrelevant that the NOH did not involve any allegations linking

AEPP and NAFS.

[603] However, the question asked at the Lavallee Interview was in the present tense: "Are you

involved". Lavallee's answer was also in the present tense: "No, I'm not involved." Lavallee's

interview was on October 3, 2017. Staff adduced no evidence showing that Lavallee was involved

in AEPP as of October 3, 2017. All of the evidence tendered by Staff was for dates before

October 3, 2017, including invoices, emails referring to AEPP, and statements from the Seton

Account showing Lavallee sold the last of his AEPP shares in that account in March 2017. Lavallee

answered the exact question he was asked, and Staff pointed us to no evidence that that answer

was false.

[604] We conclude that Staff did not prove that Lavallee, during the Lavallee Interview, withheld

the fact of his involvement in AEPP as at October 3, 2017, contrary to s. 93.4(1) of the Act.

Determination

[605] Lavallee breached s. 93.4 of the Act by withholding the Second Email Address and

information about his connection to Harris and the Harris Trading Account.

108

G.

Alexander – Alleged Breach of NI 52-109

Allegation and Parties' Positions

(a)

Staff's Allegation and Position

[606] Staff alleged that Alexander breached NI 52-109 by executing false certificates for interim

and annual filings of NAFS.

[607] In connection with the same July 10, 2015 to December 31, 2017 filings referred to in the

allegation of a breach of s. 221.1(2) of the Act, Staff alleged that Alexander "wrongly certified"

that:



those filings "did not contain any untrue statements or omit to state a material fact

necessary to be stated"; and

"NAFS['] financial statements and other financial information fairly presented in

all material respects its financial condition, results of operations, and cash flows".

[608] Staff stated that the impugned filings were made with both the ASC and the SEC. As

examples of alleged false certificates, Staff referred to certificates dated November 6, 2015,

April 20, 2016 and May 19, 2016.

[609] Staff's written submissions went beyond the allegations in the NOH. For example, Staff

noted that the standard wording of the certificates also referred to DC&P and ICFR, and that there

were sufficient concerns with NAFS' financial statements that the CTO was issued. This extension

beyond the NOH is discussed below.

(b)

Alexander's Position

[610] Alexander contended that the certifications he signed were "materially correct" and

"materially accurate", so that the allegation should be dismissed. Alexander also argued that the

filings at issue had been reviewed by auditors, on whom he relied to ensure there were no

misrepresentations and because there was nobody else to perform an internal check.

The Law

[611] NI 52-109 imposes a certification requirement for certain disclosure obligations. However,

although not raised by Staff or Alexander, ss. 8.1 and 8.2 of NI 52-109 provide an issuer with an

exemption from the NI 52-109 certification requirements if the issuer is in compliance with

comparable certification requirements of US securities laws. The impugned certificates in

evidence, signed by Alexander, appeared to have been filed under applicable US securities laws

with US regulatory authorities, then also filed with the ASC. Although Staff alleged a breach of

NI 52-109 for wrongly certifying certain matters, Staff presumably meant that the certificates filed

pursuant to the exemptions in ss. 8.1 and 8.2 of NI 52-109 were wrongly certified.

[612] The required "[c]ertification is intended to provide assurance that the financial information

disclosed in the annual filings or interim filings, viewed in its entirety, provides a materially

accurate and complete picture that may be broader than financial reporting under the issuer's

GAAP" (see s. 4.1 of Companion Policy 52-109CP).

109

[613] Neither Staff nor Alexander referred to any case law. However, it is evident – even

axiomatic – that proper disclosure is the foundation of securities regulation, to ensure both the

protection of the public and an efficient capital market (and confidence in that market). For

example, an ASC panel discussed the importance of disclosure (particularly financial disclosure)

and certification requirements in Re Flag Resources (1985) Limited, 2010 ABASC 143 (at paras.

112-114):

Disclosure is a cornerstone principle of securities regulation. Alberta securities laws recognize that

timely, complete, accurate and accessible disclosure of information protects investors by giving

them the information they need to weigh the benefits and risks associated with a particular

investment decision. This regulatory focus on disclosure of information also promotes investor

confidence and market integrity and efficiency.

Continuous disclosure reporting obligations, aimed at fulfilling these regulatory objectives, are

important obligations placed on reporting issuers. . . .

The foundation of a reporting issuer's continuous disclosure record is its financial statements. That

foundation is supplemented by the issuer's interim and annual MD&A. MD&A disclosure is

intended to provide the issuer's shareholders and the capital market as a whole with a greater

understanding of the issuer's operations, results, business objectives and future prospects.

Management of a reporting issuer is responsible for developing a process to ensure compliance with

disclosure obligations – how the company will meet its financial reporting and disclosure filing

obligations. Individual senior members of management (the CEO and CFO) are responsible to

certify personally – annually and for each interim period – that the issuer's financial disclosure

presents fairly its financial position.

Discussion

[614] Alexander signed the certificates at issue here. Despite his reference to relying on external

auditors, it is management that ultimately has responsibility for financial reporting, and officers

must ensure their duties are carried out properly and with sufficient care and attention.

[615] The scope of Staff's submissions was broader than the allegation in the NOH. The

allegation impugned the certificates only in relation to the declarations that: there were no untrue

statements or omissions of material facts; and the financial statements and other financial

information fairly presented, in all material respects, the "financial condition, results of operations,

and cash flows".

[616] The NOH did not mention certification as it related to DC&P and ICFR. Staff's written

submissions, however, stated:

In addition to certifying the fair presentation of the financial condition, results of operations and

cash flows of NAFS, the certificate also confirmed that Alexander had established and maintained

[DC&P] over its financial reporting. The certificate confirmed that Alexander had evaluated the

effectiveness of NAFS' [DC&P]. Lastly, it confirmed that Alexander had disclosed to NAFS'

auditors, and the audit committee of the board of directors (or persons performing those functions),

any fraud that involved management or other employees who had a significant role in NAFS'

[ICFR].

[617] In our view, though the certificates included assertions as to DC&P and ICFR, the NOH

did not adequately outline those particulars as alleged breaches. Accordingly, Alexander did not

have a fair opportunity to defend himself against those particulars. Nor did Staff point to any

110

particular evidence from the Hearing that supported this submission or provide any law as to the

nature and requirements of DC&P or ICFR. As Alexander would not have known from the NOH

– or even from the evidence adduced at the Hearing – that this was alleged, it would be

inappropriate for us to consider making a finding against him on this point. We also note that the

DC&P disclosure in the filings explained that the DC&P by NAFS were insufficient. By certifying

that disclosure, Alexander actually certified that the DC&P in place were insufficient, thus making

Staff's argument inapplicable.

[618] Accordingly, we reject Staff's argument relating to DC&P (and ICFR, to the extent Staff

may have encompassed that within their written submissions).

[619] Therefore, we consider the certification allegation only as it related to the first two aspects:

no untrue statements or omissions; and fair presentation in the financial statements and other

financial information of the "financial condition, results of operations, and cash flows".

[620] Staff specified in their submissions that those two aspects of the certification were flawed

in several respects. We address each here (excluding the DC&P and ICFR, as discussed above):



"Alexander performed few functions on behalf of NAFS" and "was an officer and

director in 'namesake' only".



As discussed earlier, we concluded that NAFS was a company with very

limited operations and there were few functions to perform. The evidence

at the Hearing was insufficient to prove that Alexander did not perform

those functions or that he was a figurehead rather than a legitimate officer

of NAFS. We are uncertain as to the intent of Staff's assertion in connection

with the certification allegation – perhaps Staff were saying that Alexander

should not have certified the impugned filings or that he should have

explained in them that he was a figurehead. We are convinced of neither,

and reject Staff's argument on this point.



"Alexander did not disclose in the [impugned filings] the direction and control

exercised by Lavallee and Gibbs with respect to NAFS".



As discussed earlier, we dismissed Staff's allegation that Lavallee and Gibbs

were de facto officers of NAFS. Presumably Staff were relying on the same

evidence for this allegation. Accordingly, we reject Staff's argument here

for the reasons set out above.

Alexander "did not disclose the funding provided by Lavallee and its related party

nature".



As discussed earlier, Staff's allegation regarding Lavallee as a related party

and certain related party disclosure failed because Staff relied on a bare

assertion rather than providing law or argument regarding related parties

and related party disclosure. We reject Staff's argument here on the same

111

basis. Staff did not prove that Lavallee should have been identified in the

impugned filings as a related party providing funding for NAFS.



The "ASC Corporate Finance [division] had concerns enough regarding NAFS'

financial reporting that it issued a CTO against the company" and the "financial

statements were not presented fairly".



Staff did not provide any specifics of this, other than those already discussed

and rejected in the above four points.

Therefore, Staff must have been relying for this on the concerns underlying

the CTO, but Staff pointed to no particular evidence (other than the CTO)

and made no specific arguments. In other words, Staff's sole contention for

this seemed to be that the fact a CTO was issued against NAFS was proof

that NAFS' financial statements were not presented fairly. Staff gave us no

authority for such a proposition.



The documents in evidence relating to the CTO and the CTO revocation

application included statements in correspondence from NAFS (signed by

Alexander) that the impugned financial statements for the periods ending in

September 2015 and December 2015 "were not completed in accordance

with Alberta securities laws and were materially misstated" and that the

ASC's assessment of some of the issues was correct. Alexander disputed

some other points raised during the CTO process, such as the valuation of

the Super A Share, stating that such disclosure could not be changed

because it had been made in accordance with SEC requirements.



We are satisfied that such statements by Alexander and his consequent

amendment of certain financial statements were made during the course of

compliance discussions and negotiations, which is a different context than

an enforcement action.

Cooney testified that he was most concerned about preferred share valuation

and that he had consulted with an internal ASC expert regarding NAFS'

financial statement disclosure. Alexander asserted during the compliance

review process that changes to the valuation could not be made because of

the SEC's requirements. Cooney confirmed that he had not seen anything to

indicate that NAFS was not compliant with SEC requirements, and Staff

tendered no expert evidence, or any evidence, to prove that NAFS' reporting

did not meet SEC requirements.



Staff did not make arguments as to the materiality of the disclosure changed

by Alexander after the CTO was issued. That was consistent with Staff's

apparent reliance on the mere fact that a CTO was issued as sufficient proof

of the allegation.

112



Alexander did not know until receiving Staff's written submissions that

Staff would essentially be relying on the existence of the CTO as proof of

this allegation. Alexander, therefore, had no opportunity to tender evidence

on that topic.

[621] In these circumstances, we could not uphold Staff's allegation. We are not prepared to rely

on the issuance of a CTO (and consequent discussions during the compliance review process) as

proof for enforcement purposes that the financial statement disclosure grounding the CTO was not

presented fairly in all material respects.

Determination

[622] We dismiss the allegation that Alexander breached NI 52-109 by executing false

certificates for NAFS' filings.

X.

CONCLUSION

[623] As found above, we sustained certain of Staff's allegations and found that:



Lavallee breached s. 93.1 of the Act; and

Lavallee breached s. 93.4(1) of the Act.

[624] We dismissed the following of Staff's allegations:



Lavallee and Gibbs breached s. 182 of the Act;

Lavallee breached s. 147(3) of the Act;

NAFS, Alexander, Lavallee and Gibbs breached s. 221.1(2) of the Act; and

Alexander breached NI 52-109.

[625] Our dismissal of certain of Staff's allegations does not in any way condone some of the

actions taken by NAFS, Lavallee, Gibbs and Alexander during the course of the CSI, NAFSCA

and NAFS dealings. We dismissed those allegations because Staff did not meet their burden of

proof based on the wording of the allegations and the evidence before us. For some of the

allegations, Lavallee's counsel, Gibbs and Alexander logically and rationally presented arguments,

and those were helpful. However, we were disappointed by Gibbs' and Alexander's continual and

pervasive disrespect towards the panel, the ASC and this proceeding. We understand that self-

represented respondents facing securities regulatory proceedings may find themselves in

unfamiliar, stressful and even frightening circumstances, but we expect respectful behaviour in

keeping with the seriousness of ASC proceedings. Neither Gibbs nor Alexander displayed such

behaviour. We do commend Mr. Hladun, Lavallee's counsel, for his efforts to assist Gibbs and

Alexander during this proceeding, while still fulfilling his duties to his client.

[626] The proceeding against Lavallee now moves to a second stage to determine what, if any,

orders for sanctions and costs ought to be made against him for the contraventions we have found.

113

[627] Staff and Lavallee are each directed to inform one another and the ASC Registrar, in

writing, not later than noon on Thursday, September 1, 2022, of the following: (i) whether they

propose to adduce new evidence on the sole issue of appropriate orders; and (ii) their expected

timing requirements and suggested dates. After the panel has received and considered the

responses to this direction (or after the date specified for such responses has passed), the ASC

Registrar will inform Staff and Lavallee of the timing of next steps in this proceeding.

[628] The proceeding against Gibbs, Alexander and NAFS is concluded.

August 18, 2022

For the Commission:

"original signed by"

Maryse Saint-Laurent

"original signed by"

Steven Cohen

"original signed by"

Karen Kim