Investment bosses must repay $16.6M to investors
OSC rules against leaders of First Leaside Group; ‘sad stories’ abound as 1,000 people lose savings
The principals behind failed real estate investment firm First Leaside Group have been ordered to repay $16.6 million in funds securities regulators say were illegally obtained from investors.
Founder David Charles Phillips and head of sales John Russell Wilson were also ordered to pay $1.4 million in administrative penalties and legal costs by the Ontario Securities Commission on Thursday.
Phillips and Wilson are banned from becoming officers or directors of any investment firm registered with the OSC.
They’re also prohibited from acquiring or trading any securities except in their own retirement and registered savings accounts and only after paying the First Leaside penalties.
Phillips and Wilson plan to appeal the regulator’s decision, their lawyer, Alistair Crawley, of the Toronto-firm Crawley, MacKewn Brush LLP, wrote in an email.
The OSC ruling will come as little comfort to more than 1,000 investors — most of them in Ontario — who lost a combined $300 million when the firm collapsed. “I don’t know where they’re going to get the money from. It’s fine to get a judgment; actually collecting is a lot harder,” said investor Ross Cochrane.
Some investors have recouped less than 10 cents on the dollar since the Uxbridge based firm filed for bankruptcy protection from creditors in 2011 while under investigation by the OSC.
Others have tried without success to recover their losses through the Canadian Investor Protection Fund, he said. The fund says it doesn’t cover cases of fraud.
“There are some extremely sad stories out there,” Cochrane said in an earlier interview. There are people who invested their life’s savings or sold their businesses and put everything into First Leaside.”
The penalties cap a multi-year investigation into First Leaside, which raised money from investors for various real estate properties in Texas and Ontario as well as limited partnerships that offered tax breaks and monthly distributions.
In January, the OSC found Phillips and Wilson had perpetrated a fraud on investors by continuing to raise funds without disclosing the existence of an independent audit that raised doubts about the firm’s financial viability.
The report by accounting firm Grant Thornton found the company’s viability rested on its ability to raise new funds to cover losses incurred by existing partnerships. The $16.6 million reflects the amount the pair raised from investors — minus expenses — while failing to disclose the existence of the report.
The disgorged funds will be paid to the commission, which can redistribute them to third parties, such as investors, or use them for education purposes.