The British Columbia Securities Commission has alleged that Canaco Resources, a Vancouver-based junior miner, illegally granted stock options in late 2010 by approving new options for senior executives who were aware of positive drill results that had not been publicly released.
The BCSC alleges that in November 2010, the results of eight new drill holes at the company's Magambazi property in Tanzania had been given to management, and at this time, the execs referred to the information as “spectacular”, “just beautiful”, “fantastic news” and “big results.”
Rather than immediately release this news, the BCSC alleges that the company held on to it and then granted senior managers 7,225,000 stock options. Once these were approved, the information was then dribbled out in three separate press releases over the course of December.
The options were granted at a time when mining stocks were soaring -- though this isn't mentioned in the BCSC's allegations. In December 2010, the commodity supercycle was just gearing up, and less than a month after the stock options were granted at a strike price of $4.56 per share, Canaco's shares hit $6. However, since that bubble burst just a few months later, Canaco's shares have plummeted down to less than $1.
Canaco has responded to the allegations, stating that it “believes the infill drill results were not material.” The company also noted that its opinion is backed by independent reviewers, “including Micon International Ltd., a highly respected independent mineral industry consultant.”
The defendants named in the BCSC's allegations are Canaco chief executive officer Andrew Lee Smith, director Randy Smallwood, who is now the chief executive officer of Silver Wheaton, David Parsons, director of corporate services and financial analysis at Goldcorp, and Brian Lock, a former executive with Frontier Pacific Mining.
By granting stock options before publicly releasing the results, the BCSC argues that the defendants failed to act in the best interests of Canaco.