Did not advise against viability report release, lawyer says

Peter dunne, a longtime lawyer for FirstLeasideGroup, told an Ontario Securities Commission panel Monday he does not recall telling the firm’s founder and directors they could not disclose a viability report on the real estate investment firm to investors who purchased millions of dollars worth of securities before First Leaside was shut down in late 2011.

“I don’t specifically [remember] being asked to comment on disclosure of the report,” Mr. dunne said during the last day of presenting evidence in a fraud case brought against First Leaside founder david Phillips and former senior salesman John Wilson by OSC staff.

Staff at the regulator allege Mr. Phillips and Mr. Wilson failed to act fairly, honestly and in good faith with First Leaside clients and engaged in fraudulent conduct when they sold or directed the sale of more than $18-million worth of securities to people who were unaware of the 133-page viability report prepared by accounting firm Grant Thornton Ltd.

Mr. Phillips and doug Hyatt, a director at First Leaside’s parent company since 2010, both told the threemember panel of OSC commissioners that Mr. dunne had advised them against disclosing the report because it was linked to an ongoing regulatory investigation into the firm.

Mr. Phillips said he believed a regulatory stipulation prohibited him from widely discussing the protracted OSC probe that had led to the viability analysis.

“I still don’t remember a discussion,” Mr. dunne said, when told about the recollection of Mr. Phillips and Mr. Hyatt by Alistair Crawley, one of Mr. Phillips’ lawyers in the OSC matter.

However, Mr. dunne said releasing the report “as a standalone proposition” could have been “problematic” because it would have represented a sharp departure for the firm and might have raised questions about its origins that led back to the OSC investigation.

during a cross examination, Brooke Shulman, a lawyer for OSC staff, asked Mr. dunne whether he had advised First Leaside about sales of several proprietary securities to investors after the viability report was delivered by the accounting firm in August of 2011, and about whether the report would need to be disclosed. “I didn’t give advice, no,” said Mr. dunne, a partner at Cassels Brock & Blackwell LLP. “Wasn’t asked, didn’t give.”

Ms. Shulman also noted that Mr. dunne and his firm did not raise the issue of sales of securities or disclosure of the viability report in a Sept. 12 letter to OSC staff updating them on the firm’s activities following the completion of the report. OSC staff contend the report would not have been bound by a regulatory prohibition on disclosure of ongoing investigations because it was commissioned voluntarily by First Leaside in March of 2011 to try to satisfy the regulator’s questions about property valuations and disclosure during sales of certain securities.

But Mr. dunne said it was clear the firm had to do something.

“We had reached a point, all of us in the investigation, where something had to be done to end it or move it forward,” he said. “It wouldn’t do to say we’re not going to do that and nothing else is going to happen.”

Like others at the hearing, Mr. dunne was asked by OSC panel chair James Carnwath whether he thought Mr. Phillips and Mr. Wilson could have acted fairly, honestly and in good faith when they sold or directed sales to investors without disclosing the viability report.

Mr. dunne listed recommendations and restrictions in the Grant Thornton report, and said it was possible as long as all of them were adhered to.

Lawyers for OSC staff and Mr. Phillips and Mr. Wilson are to make final oral submissions to the panel of OSC commissioners on Sept. 9.