The Ontario Securities Commission has fined two individuals $250,000 each, for operating an investment program through which they illegally distributed securities.
On Monday, the OSC announced that it has approved a settlement agreement involving Ontario residents Albert James and Ezra Douse, neither of whom has ever been registered by the commission.
James and Douse were involved in the launch of a foreign exchange investment program in 2008, called Dominion Investments Club Inc. The club was structured so that individual investors signed forex investment contracts and pooled their funds with the funds of others, on the understanding that the pooled funds were to be invested by third party brokers in foreign exchange transactions. The investors were to share in the resulting investment gains or losses from that activity.
The participation agreement indicated that investors would receive a monthly payout of 12.5% of their contribution in profits. In reality, the investors received cheques representing between 5% and 10% as a monthly return on their invested capital, according to the OSC.
The monthly returns did not derive from foreign currency trading profits as the company led investors to believe, but rather were funded by new money coming into the forex investment scheme from later Dominion investors.
“The respondents misled the Dominion investors by representing to them that the monthly cheques which they received constituted profits from forex trading when in fact there were no profits from forex trading,” the OSC said.
Furthermore, although they advised investors that there was risk involved, Douse and James indicated that the forex investments were likely to be profitable, according to the OSC.
“Some investors were led to believe that the profitability of their investment was virtually assured,” the commission said.
“Douse and James knew or ought reasonably to have known that their conduct, particularized above, was misleading to Dominion investors.”
James and Douse also advised investors to invest in the program using borrowed funds, and profited from this activity. They entered a contract with Wilton Neale, the owner and operator of a licensed insurance agency called 360 Degree Financial Services Inc. Under a distribution agreement with AGF Trust Company, 360 Degree was permitted to apply to AGF Trust for RSP loans on behalf of its customers.
In exchange for a fee, Neale began submitting AGF Trust loan applications on behalf of investors in Dominion, with the loan proceeds getting transferred to Dominion.
This was despite the fact that the forex investment program was not an RSP-eligible product. AGF Trust was misled regarding the use of the borrowed funds for a non-registered investment, the commission found.
James and Douse acknowledged that their conduct constituted an unregistered distribution of securities and an unregistered sale and advising in relation to securities.
Under the settlement agreement, each of Douse and James will pay an administrative penalty of $250,000. They are also ordered to cease trading in all securities for a period of 15 years; will be prohibited from becoming, acting or holding the title of director or officer in any market participant for a period of 15 years; and must each pay costs of $5,000 to the commission.
In addition, all monies recovered by them from the Dominion forex investment program will be disgorged to the commission for the benefit of third parties.
Dominion Investments operators fined $250,000
Douse and James misled forex investors, OSC says
- By: Megan Harman
- September 20, 2010 September 20, 2010
- 15:43