De Bever questioned by OSC over Leaside

Leo de Bever, a director at collapsed real estate investment firm First Leaside Group, told Ontario Securities Commission staff that he never asked David Phillips, the man running the now-failed investment company, why Canada’s biggest capital markets regulator wanted a “viability” report done on the firm.

In a “compelled” interview at the OSC offices in Toronto a year ago Mr. de Bever also said the board took no steps to have the viability report, prepared by accounting firm Grant Thornton Ltd., disclosed. Mr. Phillips, First Leaside’s founder, continues to maintain that the report could not be disclosed, on his lawyer’s advice, because of its connection to an ongoing OSC investigation.

During Mr. de Bever’s interview last year — a transcript of which was entered as an exhibit this week in a securities fraud case against Mr. Phillips — senior forensic accountant Stephannie Collins and senior OSC litigator Yvonne Chisholm asked if he was surprised the regulator wanted a viability report done on First Leaside.

Mr. de Bever responded that he could see why the “sequential” way Mr. Phillips was raising money “might raise some questions.” Asked to explain what he meant, Mr. de Bever said First Leaside had grown a lot since 2004 and “the overlap between various investors was not what it was in the beginning” when the firm was founded in the late 1980s or early 1990s.

“And so I could see that that might raise some questions ... one could argue that the interest of one group of investors at a certain point in time might not be the same as that of another group of investors later on,” Mr. de Bever told the OSC examiners, according to the transcript.

Ms. Collins asked Mr. de Bever if he or the board took any steps to disclose the viability report, which Mr. de Bever said was “the first comprehensive statement” of the status of all the limited partnerships in the group, according to the transcript.

“I didn’t and the discussion never came up,” answered Mr. de Bever, who is also chief executive of the Alberta Investment Management Corp. which manages $70-billion of provincial pension and endowment assets for the province.

He said the “immediate reaction” and “frame of mind” when the board of directors saw the viability report prepared by Grant Thornton Ltd. in August of 2011 was to try to address “sloppiness” and “governance” issues it highlighted. “So the whole atmosphere at the time was this was a company that had run into some problems. It might take a while to sort them out but fundamentally there was nothing wrong with the company,” Mr. de Bever said, according to the filed transcript.

In late October of 2011, however, the regulator moved in to halt trading at First Leaside, and the firm agreed to a voluntary cease trade. It was wound down under court protection last year.

In the OSC’s case against Mr. Phillips and former First Leaside senior salesman John Wilson, enforcement staff allege that investors who were not privy to the viability report should not have been sold more than $18-million in First Leaside between August and November of 2011.

Lawyers representing Mr. Phillips at his securities fraud hearing had hoped Mr. de Bever would give evidence at that hearing next week. They attempted to serve him with a summons, Alistair Crawley, one of his lawyers, told the OSC commissioners hearing the case on Thursday.

However, Mr. Crawley said Mr. de Bever considers himself a resident of Alberta and compelling him to appear would therefore require the participation of the Alberta Securities Commission and a trip to the province to examine him. A transcript would then be brought to the Toronto hearing. Instead, Mr. Crawley said, he and OSC staff had agreed to enter the transcript of last year’s interview with the OSC examiners.

An investor at the hearing on Thursday expressed displeasure that Mr. de Bever, who he said “was a very important part of the sales pitch” at First Leaside, would not appear in person.

“De Bever was often referred to in FL [First Leaside] conversations, literature and presentations, which gave huge credibility,” said Herb Samuels, who invested in 2011.

He said it is “fascinating that someone of his stature” did not appear to do more “due diligence on behalf of investors” and he was critical of Mr. de Bever’s absence from the hearing room “based on non-residency in Ontario.”

In his interview with OSC staff last year, Mr. de Bever, who said he had known Mr. Phillips for about 20 years, told the examiners he had raised objections internally more than a year before First Leaside was shut down about the “profile” he was given at the firm.

“I was basically objecting in 2010 to the profile he (Phillips) gave me and I was questioning what that implied in terms of my duty of care, even licensing,” Mr. de Bever told the OSC examiners, according to the filed transcript.

“He listed me as a principal and a few other things that I felt were not quite in accordance with what really was going on in terms of the extent of my involvement,” said Mr. de Bever. He said he also noticed that his profile on the company’s website “had gone through the roof.”

Mr. de Bever was a director of First Leaside Wealth Management, the parent company of Uxbridge, Ont.based First Leaside since 2003, but he told the OSC examiners he and the other members of the board did not meet as a group until July of 2010.

That was the summer after the regulatory probe began, and Mr. de Bever said it was around that time that he discovered directorships had been “papered as a regular board,” even though he “was living under the impression this was an advisory board.”