Skip to main content

The Globe and Mail

Ex-First Leaside executives ‘dishonest’ in selling investments, OSC hearing told

Ex-First Leaside executives ‘dishonest’ in selling investments, OSC hearing told

Peter Power/The Globe and Mail

Two former executives of First Leaside Wealth Management Inc. were "dishonest" with investors when they sold almost $19-million worth of units in investment pools without telling them that an accountant's report had raised questions about the firm's viability, an Ontario Securities Commission lawyer said in opening remarks at a disciplinary hearing Wednesday.

Lawyer Yvonne Chisholm told a hearing panel that First Leaside founder David Phillips and senior salesman John Wilson committed fraud when they raised $18.8-million from investors over 10 weeks in the fall of 2011 without disclosing the findings of a report by Grant Thornton Ltd. that was completed on Aug. 19 that year.

The report, which the OSC asked First Leaside to commission, said the firm's future viability hinged on its ability to raise new funds from investors because it did not have enough cash to support its operations. The report also said the firm had a significant "equity deficit" and its real estate assets were worth less than their outstanding mortgages and promissory notes.

Story continues below advertisement

"Those were important facts and those investors should not have been put in a position in parting with their money – in significant sums, in most cases – to make investments in First Leaside products without knowing those facts," Ms. Chisholm said at the launch of the OSC's hearing in the case.

She added the sales were "dishonest" and said anyone responsible for selling investments to the public has "a duty of honesty towards one's clients, plain and simple."

Ms. Chisholm said a former First Leaside salesman will testify in the case that he "was kept in the dark" about the Grant Thornton report when he personally sold $6.4-million of investments to clients, many of whom were people he had known for a long time.

First Leaside, based in Uxbridge, Ont., ran investment pools primarily holding real estate assets, including a large apartment property development in Texas. The firm was ordered by the OSC to stop raising funds from investors in November, 2011, and was shut down four months later when it filed for court protection from its creditors, leaving more than 1,000 investors in the lurch.

Since then, investors have recovered little on their losses. The firm had $370-million of assets under management at its peak, but the receiver overseeing the liquidation of its holdings recovered just $125-million by selling real estate holdings, and almost all of the money was needed to pay off mortgages on the properties.

The OSC hearing in the case is expected to last several weeks, and Mr. Phillips and Mr. Wilson are both expected to testify in the matter, along with five investors who lost money.

Lawyer Allistair Crawley made a joint opening statement on behalf of both Mr. Phillips and Mr. Wilson, saying Wednesday there was no fraud in the case and the Grant Thornton report was not given to investors in 2011 because executives believed it was not material information that required disclosure.

Story continues below advertisement

Indeed, he said the executives felt the report was positive because it concluded the firm could be viable if it followed a business plan to raise new funds from investors to improve First Leaside's finances. He said the OSC excerpts from the report talking about financial problems "need to be put in context of the overall conclusions of the report."

"The respondents viewed the report as a positive development and the conclusions were positive – confirmatory of management's view that First Leaside group was a viable entity from a financial perspective," he said.

Mr. Crawley said executives were shocked in late October, 2011, when First Leaside was contacted by the OSC with news that the regulator intended to impose an order stopping the firm from raising new money because of the findings in the report, which was more than two months old by that time. He said the OSC knew First Leaside had been raising funds throughout 2011, and the matter was discussed openly in the report.

Mr. Crawley also said there is no evidence to suggest Mr. Phillips and Mr. Wilson knowingly hid information from investors in an attempt to defraud them, and said the OSC has "overreached" in alleging fraud in the case because a fraud conviction requires proof of intentional deceit.

"The non-disclosure of these facts was an entirely appropriate decision, but even if you conclude it wasn't, there's no evidence of dishonesty or deceitful conduct in making the decision to sell securities without having disclosed the report," Mr. Crawley said.

Editor's note: This story has been corrected. An earlier version incorrectly referred to a Grant Thorton audit report. In fact, Grant Thorton was not acting in the capacity of an auditor.

Story continues below advertisement

Report an error Licensing Options
About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More


The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at