OSC alleges David Charles Phillips, founder and directing mind of First Leaside Group, intentionally deceived investors by selling and overseeing securities sales of approximately $19 million in 2011, while withholding important information.
Phillips directed all significant aspects of the business and growth of the First Leaside Group from its inception in the late 1980s. John Russell Wilson, a senior salesperson employed by investment dealer First Leaside Securities, was also involved. He worked closely with and reported directly to Phillips.
Between August 22 and October 28, 2011, Phillips and Wilson were directly responsible for about 65% of the investor sales, with Phillips selling $3.45 million, and Wilson selling about $8.95 million.
In the months leading up to this period, significant real estate assets were being appraised and the business and operations of the First Leaside Group were under review by third parties.
In February 2011, due to concerns stemming from the valuation reports, First Leaside Group was asked to retain an independent accounting firm to conduct a viability study of the firm.
Grant Thornton Ltd. was hired to review, report on and make recommendations in respect of the affairs and operations of the company. In August 2011, it delivered a review concerning the future viability of the business.
“The future viability of the [First Leaside] Group is contingent on their ability to raise new capital,” said the report. “One of its largest sources of revenue is the fees it generates in FLWM on the raising of new capital, but if the group was restricted from raising new capital, it would likely be unable to continue its operations and would have insufficient revenue to support its infrastructure and meet their funding requirements for existing projects.”
Despite the tone of the report, both men continued to sell securities directly to investors, who were completely unaware that First Leaside was being reviewed. Phillips didn’t disclose the report findings to the company’s salespeople or clients. OSC says that by concealing these facts, both men dishonestly placed investors’ pecuniary interests at risk.
The regulator added Phillips and Wilson breached subsection 126.1(b) of the Securities Act, R.S.O. 1990, c. S.5, as amended by directly or indirectly engaging or participating in an act, practice or course of conduct relating to securities which they each knew, or reasonably ought to have known, would perpetrate a fraud on investors. Each of Phillips and Wilson also breached subsection 44(2) of the Securities Act, section 2.1 of OSC Rule 31-505, and acted contrary to the public interest.
A hearing is set to take place on June 25. Both men may face fines of up to $1 million, and may also be banned from acting a director of officer for any issuer or firm.