Two reps fined $2.5M

The hearing panel imposed the following penalty on Phillips:

(a) Phillips is permanently barred from approval with IIROC; and

(b) Phillips is ordered to pay a fine in the amount of $2,000,000.

The hearing panel imposed the following penalty on Wilson:

(a) Wilson is permanently barred from approval with IIROC; and

(b) Wilson is ordered to pay a fine in the amount of $500,000.

Mr. Phillips and Wilson are also required to pay costs in the amount of $230,000 on a joint and several basis.

IIROC staff advised the hearing panel that it will not seek to enforce the fine or costs against Phillips or Wilson until the determination of investor claims through the ongoing receivership proceedings of various First Leaside related entities.

IIROC formally initiated the investigation into the conduct of Phillips and Wilson in November 2011. The violations occurred when Phillips was the ultimate designated person and both Phillips and Wilson were registered representatives with First Leaside Securities Inc., an IIROC-regulated firm. The respondents are no longer registrants with an IIROC-regulated firm.

Specifically, the hearing panel found that Phillips and Wilson committed the following violations:

Misrepresentation of Fund Products

i. Between January 2009 and October 2011, Phillips misrepresented, and allowed First Leaside Securities Inc. (FLSI) sales staff to misrepresent, to clients that the proprietary fund products recommended and sold by the firm were low or medium risk, when, in fact, they were high risk, contrary to Dealer Member Rule 29.1;

ii. Between January 2009 and October 2011, Wilson misrepresented to clients that the proprietary fund products which he recommended and sold were low or medium risk, when, in fact, they were high risk, contrary to Dealer Member Rule 29.1;

Marketing Materials

iii. Between November 2009 and September 2011, Phillips authorized the preparation and issuance of marketing materials for investment products sold at FLSI, which included statements which were misleading and failed to fairly present the potential risks of those products to the client, and provided these marketing materials to his clients, contrary to Dealer Member Rule 29.7(1);

iv. Between November 2009 and September 2011, Wilson provided marketing materials for investment products sold at FLSI to his clients and potential clients, which included statements which were misleading and failed to fairly present the potential risks of those products to the client, contrary to Dealer Member Rule 29.7(1);

Risk Tolerance on NAAF

v. In and throughout 2009, 2010 and 2011, Phillips and Wilson failed to ensure that the recommendations which were made and orders which were accepted were in accordance with the risk tolerance stated on clients’ New Account Application Form, contrary to Dealer Member Rules 1300.1(o), (p) and/or (q);

Sales of Properties Fund

vi. Between January 1, 2010 and May 1, 2011, Phillips and Wilson solicited sales of First Leaside Properties Fund from clients, while failing to ensure that those transactions were suitable for the clients or within the bounds of good business practice, and preferred their own interests ahead of the clients, contrary to Dealer Member Rules 1300.1(o) and (q) and 29.1; and

Conflict of Interest

vii. Between January 2007 and October 2011, Phillips as the General Partner of certain First Leaside Limited Partnerships (“LPs”) was in a conflict of interest with clients who invested in those LPs, which was not addressed in a fair and equitable manner and in a manner that considered the best interests of the clients, contrary to Dealer Member Rule 29.1 and NI 31-103.

The hearing panel’s order, dated Sept. 19, is available here. Written reasons will be posted on IIROC’s website when available.