Hello! This is a securities law question. I invested in

Hello! This is a securities law question.

I invested in a company that has been looted by the largest shareholder/main owner. The current CEO of the company started out as a member of the board of directors, noticed some funny business, did some sleuthing, and came to the conclusion that the shareholders were being defrauded. He took action and of course the owner didn't like it. He is illegally holding company records at his home, has drained the company of 85% of the $36M or so it has obtained from investors, stacked the board, never had a shareholders' meeting, etc. The CEO is trying to salvage what's left of the company, which only had $24 left in the bank when he was able to check the account. In order to give the company the means to proceed legally (against the main shareholder/owner) and try to salvage itself, the CEO and another shareholder who is actively engaged in attempting to save his investment thought that perhaps they could ask the other shareholders if they would be willing to make loans to the company for say, 10% of their initial investment to fund the fight. The Alberta Securities Commission put a Cease Trade Order on this business over a year ago, and the main shareholder/owner is claiming that these loans violate the CTO. Apparently someone at the ASC agrees. I tried to talk to that guy, but he was belligerent and wouldn't answer any of my questions. When I asked him what law the loans violated, he said the (Alberta) Securities Act. I asked what section and he told me to read it. I informed him that I already had and could find neither letter nor spirit in that statute that would be violated by shareholders making the company they own loans, regardless of whether it's on the pink sheets or not. He became very agitated and terse.

A subsequent call to a different ASC employee gave entirely different results. He said that the Securities Act did not deal with loans, but section 45 of the Business Corporations Act did. I looked it up, and it said nothing about shareholders of a company making loans to said company. I looked at every financial part of that act and found nothing at all.

My opinion on this matter has always been that our loaning the company money, even while a CTO is in effect breaks no statutes. A loan is a loan, and all we are doing is taking the place of a bank. The Securities Act does not apply. The lawyer for the other side claims that these loans do break the CTO. I am positive that this claim is frivolous. Also, I am suing the main shareholder/owner for fraud next month in order to get my money back, so in the event that my having loaned the company money becomes an issue in court I figured I would ask you what I'm pretty sure I already know. Furthermore, he is using this claim to foment rage among the shareholders who are still actually loyal to him and refuse to even examine the SEC documentation or any of the other proof we have that something is rotten in Denmark. I am getting slanderous, threatening e-mails from one of those individuals because i spoke out.

So, am I right? Is this simply a frivolous claim meant to frighten us and waste our time?

Kate