Old Perceptions Of Vancouver Stock Exchange Die Harder

CUTLINE: MARTY REYNOLDS, CHAIRMAN: VANCOUVER STOCK EXCHANGE

``Play not for gain, but sport; who plays for more than he can lose with pleasure stakes his heart.''

- George Hebert

VANCOUVER, B.C. - Three years ago, the Vancouver Stock Exchange launched new strikes against its negative image. Listing the sortees consumes 2 1/2 single-spaced, typewritten pages.

Since the campaign began, here are some of the things critics, reporters and investors have said about the exchange:

``Las Vegas North.''

``Scam Capital of the World.''

``Canada's bad-boy exchange.''

``Casino of the North.''

``Hucksters' paradise.''

``The longest-standing joke in North America, including the Cubs.''

If this were a motion picture, it wouldn't last the week.

What executives of the stock exchange have learned is old perceptions die hard - even harder when it comes to scamming investors. When the past is checkered, the slightest misstep now - no matter what controls are in place - resurrect the old ills.

As irritating as some of those phrases are to even the most unflappable exchange executive, two new words are circulating in Vancouver today that send chills up the spine of anyone remotely affiliated with the exchange. They are: ``Chris Wallace.''

Wallace, an ABC television newsman and the son of CBS' Mike Wallace, visited Vancouver 10 days ago to quiz exchange executives about some of their stock listings. As word got around town, the exchange's Composite Index struck a new low. The report is scheduled for Thursday at 10 p.m. on PrimeTime Live, Channel 4 in the Seattle area.

``We hope it will be balanced,'' said exchange President Don Hudson, 59.

But Hudson, who has courteously attended to many reporters only to see them drop a verbal bomb on the exchange, has doubts. After a long, amiable discussion with Wallace about exchange improvements and advances, Hudson said Wallace pulled out videos of interviews done with so-called scam artists. The tone became more accusatory.

One promoter, Hudson said, seemed to clearly violate exchange rules, and the exchange is requesting copies of the videotape to pursue action.

What is it about the Vancouver exchange that attracts all this attention?

The Vancouver exchange opened in 1907, principally to provide seed money for mining companies. Unlike exchanges in New York and Toronto, designed to cater to already-established concerns, Vancouver's main purpose is venture capital.

Although attempts to diversify the nature of listings have been modestly successful, fully 70 percent of the roughly 2,300 companies are resource-related. They are mostly companies hunting gold and silver, with a minority sniffing out oil and gas. Most of the stocks are considered penny stocks, because such shares trade for less than $1 apiece.

A Vancouver Stock Exchange Composite Index reflects more than 1,600 of all the companies, notably the smaller companies. Its total market capitalization - shares of stock times price - equals just over $4 billion. Redmond-based Microsoft, all by itself, has a market capitalization of nearly $7 billion.

The exchange is seen as a haven for the little guy who ordinarily couldn't afford investment but hopes to strike it rich.

``Take 500 shares at 40 cents. That's $2,000,'' said Murray Pezim, 69. ``The woman who bought those shares starts dreaming, `Maybe this is the one.' Those dreams are worth so much.

``What do you think lottery tickets do for people? You spend a couple bucks on the lottery, you get five nights of good dreams. These people can't afford IBM or General Motors.''

Pezim's ego may be bigger than British Columbia, but he is a legend in more than just his own mind. His 1981 discovery of gold in Hemlo Valley, Ontario - the largest gold find ever in North America - is credited with saving the Vancouver Stock Exchange. He made a similarly huge discovery in British Columbia last year.

In August 1989, Vancouver was four months away from shutting down its trading floor to replace it with computers. Perhaps as many as 400 traders - computers now have reduced the number to fewer than 30 at the exchange - were on the floor when word arrived of Pezim's strike at Eskay Creek. Bedlam erupted. Trading broke records.

``It was the modern-day equivalent of a gold rush,'' said Lyle Davis, manager of trading operations at the exchange. ``TV cameras were here every day.''

Pezim is the master promoter. That is, ``promoter, in the good sense of the word,'' said exchange Chairman Marty Reynolds, 50.

In Vancouver Stock Exchange statistics for fiscal 1990, Pezim's companies placed first, second, third, fourth and sixth among trading volume for the year.

The most oft-used word about Pezim is flamboyant. He has made more than one fortune in penny stocks. A financial reversal in the U.S. in the early 1970s, coupled with big losses on the promotion of a Muhammad Ali-George Chuvalo

fight about the same time, plunged him into bankruptcy, he said.

Pezim now has ``60 to 62'' companies in various stages of exploration. Fifty or more are listed on the exchange. Events surrounding the Eskay discovery, concerning disclosure and other issues, recently prompted the British Columbia Securities Commission, which got much sharper teeth in 1987, to hold five weeks of hearings into Pezim's activities. More hearings are planned. Pezim could be banned from the market.

``I'll tell you from my heart, the superintendent of brokers is out to make a name for himself,'' Pezim said. ``An attack on me is an attack on the exchange.''

Pezim said investors profited mightily, seeing their stock go from 30 cents a share to $10. Exchange officials agree that existing investors were enriched.

Net worth is not something the former bankrupt investor lacks. Asked to disclose his wealth, he said:

``In round numbers? Fifty to 60 million.'' He invested some of that last year when he bought the B.C. Lions football team.

Pezim suggested that Vancouver gets a bum rap because people forget the exchange's purpose.

``People who invest in Vancouver have to know they're speculating in every sense of the word,'' Pezim said. ``You should call it the Speculation Stock Exchange. The problem you run into is salesmen lying to the people. One thing you can't do is lie.

``You have to do your research. Everyone in investing should. You must check the credibility of all these people.''

Pezim also noted that every exchange has had problems: ``Like drugs, as long as money is involved, there's going to be bad apples.''

Unlike most exchange chairmen, Vancouver's is part-time. The present chairman, Reynolds, is vice president and a partner of Nesbitt Thompson Deacon, a major Canadian brokerage house. Reynolds is on a two-year mission to burnish the exchange's image. Only this year, the exchange created a vice president-level post for public relations and went outside to hire a banking-industry veteran for the post.

Too often, Reynolds said, injured investors blame the exchange. The B.C. Securities Commission oversees the initial-offering statements, then monitors individuals within the companies and industry. Brokers, accountants and lawyers, the exchange and the investor share the responsibility. The point? Each participant along the way plays a role.

``If the investor is totally greedy, he opens the door to someone unscrupulous,'' Reynolds said.

In a way, Pezim's blockbuster discovery at Hemlo - Pezim valued it at $1 billion - opened the doors to extreme misuses of the system.

``In 1976-83 . . . exchange members decided they could do no wrong,'' said John Woods, 44. Woods spent 14 years as a floor trader at the exchange, then started a newsletter, Vancouver Stockwatch.

``From 1983 through 1989, they did almost no right,'' Woods said. ``In fact, the exchange and its members ran what is fair to call the five-year no-plan. In that very unfortunate five-year period, every imaginable type of corporate rubbish was thrown on the Vancouver board . . . by an extraordinary group of amateurs.

``What they're going through now is the hangover.''

Just two years ago, only about 25 percent of the Vancouver stocks were genuine, going concerns, Woods said. Today, the number ``is 60 percent, possibly 70 percent.''

A big change, Woods said, is the cutting back of shell companies. In Vancouver, it has been possible to start a business and get it listed, then abruptly switch businesses. Although authorities have not banned reverse takeovers - president Hudson believes there are valid purposes - they have upgraded listing standards to make their addition more difficult.

Washington state investors have been participants. Grubstakes for mining companies operating in the state have been funded on the Vancouver exchange. On days when there is a U.S. holiday, but no corresponding Canadian one, exchange officials say volume falls 20 percent to 25 percent.

There is an adrenalin rush when an investor provides seed money and, through good management, a successful company evolves.

``That's a remarkable accomplishment,'' Woods said. ``Some companies have remarkable people, with remarkable skills, and out of nothing can create something.

``They won't all win. In fact, most will lose.''

At a time when the Vancouver Stock Exchange is beginning to look more like a winner, some of those losers are expected to get air time Thursday at 10. Sins of the past are not soon forgotten.