A British Columbia Securities Commission panel has ruled against its own staff?s request to impose sanctions against Bermuda?s Lines Overseas Management ? but LOM?s future in BC remains uncertain as the BCSC panel initiated a new inquiry during its ruling.

Last May, BCSC staff applied for cease trade orders and other sanctions against LOM (Holdings), LOM Securities (Bahamas) Ltd., LOM Securities (Bermuda) Ltd., LOM Securities (Cayman) Ltd., Lines Overseas Management, Donald P. Lines, Brian N. Lines, Scott G.S. Lines, Malcolm Moseley, David McNay and J. Scott Hill. They accused the group and its executives of failing to comply with a demand for information about a series of trades in shares of San Telmo Energy Inc. The trades were made by LOM, through accounts at Canadian investment dealers on behalf of undisclosed beneficial owners.

BCSC staff said that when they issued a demand to find out the identities of the beneficial owners and other details relating to the trades, LOM said it could not comply with the demand without contravening the secrecy laws in Bermuda, Bahamas and Cayman Islands.

While the panel found that secrecy laws of foreign jurisdictions do not override the investigation and enforcement powers of the province?s securities act, they said the issue of the hearing was whether the circumstances of the case made it in the public interest to order sanctions for the alleged failure of LOM and its directors to comply with the BCSC staff demand.

The panel ruled it was not in the public interest and said that staff?s remedy to force compliance with a demand for information was to apply for a court order under the province?s securities act.

The panel noted in its ruling: ?LOM has been co-operative through the process. The evidence shows that LOM not only responded promptly at every stage of the way, it took initiative in following up with Commission staff and with its local authorities to try to move things along.?

The dismissal of the staff?s application is not, however, the end of LOM?s dealings with the BCSC. In the course of its ruling, the BCSC took up an additional issue arising from the evidence.

The panel noted that LOM is active in Canadian markets with over 10,000 trades during the past year totalling more than 800 million shares at a market value exceeding $1.2 billion. This represents about 40 percent of Lines Overseas? revenue during the period.

The panel said in its ruling that account opening forms presented into evidence ?appear to show that at least some of this trading is being done by LOM on behalf of undisclosed beneficial owners. If so, this trading is being carried on without the dealers involved requiring or possessing the appropriate ?know-your-client? information?.

The panel said that while this issue was not put before them in the initial case, they could not ?turn a blind eye to the evidence?.

?We believe LOM should show cause why it would not be in the public interest for the Commission to order that LOM cease trading securities in British Columbia until it provides all dealers in British Columbia having accounts for LOM the appropriate know-your-client information about those having a financial interest in those accounts.?

Written submissions on the issue must be filed with the Commission by the end of this month.

Scott Hill, vice president for group compliance at LOM, said: ?This appears to be the result of some confusion between the requirements for a private client account with a Canadian brokerage firm and an omnibus institutional account with a Canadian dealer. This issue is not specific to LOM; such a requirement would apply to all non-Canadian securities firms trading in Canadian markets via omnibus institutional accounts. Clearly the Canadian brokerage industry does not believe that there is such a requirement, as they have to date not required such information.?

Mr. Hill said that LOM is very pleased that the BC Securities Commission has ruled in the company?s favour.

?We feel, as did our lawyers, that this hearing should not have been initiated by the Commission?s staff in the first place, and we are grateful that this matter has been resolved.?

The BCSC is not, however, the only foreign regulatory body that has had dealings with LOM in recent months.

Last week Magistrate Judge Alan Kay of the US District Court for the District of Columbia ordered LOM to obey four administrative subpoenas which the US Securities and Exchange Commission served on managing director Scott Lines last April.

The Magistrate Judge gave a deadline of Valentine?s Day for LOM to produce documents wanted by the SEC in relation to its investigations of alleged securities fraud involving Sedona Software Solutions Inc. and HiEnergy Technologies Inc.

He also ordered LOM and Mr. Lines to follow-up the release of the documents by appearing at the SEC?s offices to testify to all matters ?for continuous days until released by the staff of the SEC?.

The company announced plans earlier this week to appeal his order.