The British Columbia Securities Commission has issued a notice of hearing alleging that Aaron Ross made materially misleading statements while acting as a corporate communications officer last year for Aguila American Gold Corp. (TSX: V.AGL, Stock Forum).
Aguila is a Vancouver junior which is engaged in early stage gold exploration in southern Peru on the Angostura concessions, about 430 kilometres southeast of Lima. Trading at 18 cents this week, the company has a market cap of $7 million, based on 39.2 million shares outstanding (56.1 million fully diluted).
The 52-week range is 43 cents and 14 cents, meaning that Aguila has been a poor investment for people who bought in at higher levels, including participants in brokered and non brokered private placements that raised $5.4 million (gross proceeds) in May 2011, from the sale of 11.8 million units priced at 45 cents.
Each unit consists of a common share and one-half of one transferable common share purchase warrant. Each whole warrant entitles the holder to subscribe for one additional common share at 65 cents until May 19, 2013.
Aguila, which has $712,921 cash and no historical revenue, posted a loss of net loss of $520,288 or $0.01 per share in the three months ended January 31, 2012, compared to a loss of $487,611 or $0.02 a year earlier.
The notice of hearing alleges that Ross made statements that he knew or ought to have known were misrepresentations while engaging in investor relations on behalf of Aguila.
On February, 18, 2011, the company issued a news release disclosing exploration results from Angostura, including assays from 19 rock samples. On the same day, the stock closed at 54 cents, for a gain of 2%, on volume of 367,245 shares.
The news release included a disclaimer that said “the potential quality and grade was conceptual in nature.” The disclaimer went on to say that “there has been insufficient evidence to support a mineral resource and it is uncertain if further exploration would result in the discovery or mineral resource.’’
Before the news release was issued, Ross allegedly made calls and sent emails to over 130 potential investors identified on a list. The names on the list included a BCSC employee, who was identified as a potential investor, but was actually an investigator in the commission’s corporate finance division.
On February 17, 2011, the day before the news release was issued, Ross allegedly telephoned the investigator. During their conversation, he allegedly made the following promotional statements about Aguila:
- Aguila would be releasing a news release regarding drill results at the close of market that day or early the next morning that would show “high tonnage” with “2 [to] 16 grams/tonne.”
- Aguila should go to “2 to 3 bucks” at the current market value of gold.
- They were “looking at 2 million ounces” of gold.
According to the notice of hearing, those statements were materially misleading for the following reasons:
- Ross omitted to provide the disclaimer found in the news release that the drilling results were only conceptual in nature and there was insufficient evidence to say that gold would be found;
- The share price projection was unrealistic given that the information in the news release was old information taken from a 5-year-old technical report.
- Ross’s statement that they were “looking at 2 million ounces” was not found in either the technical report or the news release.
- Ross, while making statements on behalf of the issuer, disclosed estimates of grade, quantity, and metal content that are not classified as a mineral resource or mineral reserve, contrary to the Securities Act.
- Ross, while engaging in investor relations, made statements that he knew or ought to have known were misrepresentations, contrary to the Securities Act.
None of these allegations have been tested in a court of law, and Ross is presumed to be innocent unless it is proven otherwise.
If the respondents or their lawyers in this case have anything to say before the commission sets a date for a hearing into this case, they are required to show up at the commission’s Vancouver office on July 10, 2012.