IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, c. S.5, as amended
IN THE MATTER OF
CLIFFORD PAUL TINDALL AND DAVID DEONARINE SINGH
STATEMENT OF ALLEGATIONS OF STAFF OF THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission ("the Commission") make the followingallegations:
1. Clifford Paul Tindall ("Tindall") was, at all material times, registered under theSecurities Act ("the Act") as a salesperson employed by Fortune Financial Corp.("Fortune"), which was, at the material time, a registered securities dealer.
2. David Deonarine Singh ("Singh") was, at all material times, registered under the Actas the president and secretary of Fortune and of Fortune Investment Corp. ("FIC"),which was, at the material time, a registered mutual fund dealer.
Advanced Radar Technologies Inc. ("ART")
3. In late 1994, Jack Rashid ("Rashid"), an acquaintance of Tindall's, told Tindall aboutan advanced radar braking technology developed by ART. Rashid told Tindall thatART had sold the rights to the technology for a substantial sum in the millions.
4. Tindall invested US$50,000 in ART and arranged with Rashid to become a partnerin ART. Tindall promised to seek financing from his Fortune clients. Heincorporated Advanced Radar Technologies Inc. ("ART Canada") as a vehicle toraise funds for ART from his clients. Tindall named his brother, his sister-in-law andRashid as directors of ART Canada.
5. Initially, Tindall was to receive a percentage of the funds he raised. Tindall becameconcerned about the appearance of the original deal. He therefore changed it so thathe would receive a percentage of ART's revenues and the Canadian distribution rightsto the radar braking technology.
6. Tindall believed that ART had entered into agreements with BMW/Masco and withNorthwest Airlines. He believed that these agreements were material facts in respectof BMW/Masco and Northwest Airlines. In reliance upon these beliefs, Tindallpurchased shares of Masco and of Northwest Airlines. Tindall believed that he wasacquiring shares of issuers in respect of which he had material undisclosedinformation. Tindall's conduct in doing so was inappropriate, and particularly so fora registered salesperson.
7. From January 1995 to November 1995, Tindall arranged for his Fortune clients tolend money to Rashid personally and/or to ART Canada. Tindall held a number ofinvestor meetings at which he described the technology and discussed the ARTinvestment.
8. Tindall controlled the distribution of funds from ART Canada to Rashid by providinginstructions to his brother to forward the funds he raised to Rashid. Pursuant toinstructions from Tindall, his brother paid funds to Rashid in violation of a director'sresolution which prohibited any distribution of the funds until satisfactory security wasin place.
9. Tindall did not disclose his interest in ART to his clients other than that he hadinvested money in ART. Specifically, Tindall did not disclose that he was receivingthe distribution rights in exchange for raising money for ART.
10. ART was a wholly unsuitable investment for the clients from whom Tindall solicitedfunds, in view of their investment objectives, risk tolerance and level of sophistication.
11. In addition, Tindall made a number of representations to his clients to induce them toinvest in ART. Each of these representations was, to Tindall's knowledge, untrue.He represented that:
(a) the rate of return on the ART investment would be 300%;
(b) Tindall would refund investors' money if they were not satisfied with theinvestment as there were other investors waiting to take their place (whichrepresentation also contravened paragraph 38(1)(b) of the Act);
(c) ART was a "sure thing" (which representation also contravened subsection38(2) of the Act);
(d) the ART investment was guaranteed as it was secured by funds in an escrowaccount in the United States;
(e) the minimum investment in ART was US$50,000;
(f) Tindall had performed due diligence about ART;
(g) ART was a "once in a lifetime" opportunity; and
(h) the only two risks associated with ART were the risk that the confidentialityof Rashid's deals with automotive suppliers would be breached and the riskthat Rashid was a fraud.
12. The ART investment was a "security". These securities had not been been previouslyissued. The sale of the securities therefore constituted a distribution. No prospectuswas filed with or receipted by the Commission and no prospectus exemption wasavailable. Tindall's activity therefore contravened subsection 53(1) of the Act.
13. Fortune has asserted that it was not aware of Tindall's activities regarding ART. IfFortune was not aware, then Tindall sold securities not approved by his sponsoringdealer and engaged in the practice of "selling away". He therefore contravenedsubsection 25(1) of the Act as well as the representative agreement between Tindalland Fortune.
14. For many of his clients, Tindall completed a Fortune "Order for Investment" form fortheir investment in ART which created the false impression that ART was approvedby Fortune.
15. In mid-1995, First Marathon Securities Ltd. (now National Bank Financial Corp.)("FMSL"), Fortune's carrying broker, became aware of Tindall's involvement withART and expressed serious concerns. In response, Tindall made the followingrepresentations to FMSL, each of which was untrue:
(a) he was not selling a"security" in ART but was lending funds to Rashidpersonally;
(b) only he, two of his employees and one client had lent funds to Rashid; and
(c) he was not receiving any remuneration from his involvement with ART.
16. As a result of Tindall's conduct, FMSL determined that it would no longer acceptorders under Tindall's name. Tindall's clients were transferred to Fortune's chiefoperating officer, Jennifer Dewling ("Dewling") and to another Fortune representativeand eventually to Singh.
17. After many of his clients had invested in ART, Tindall discovered two potentialillegalities of the investment: no prospectus was filed (and no exemption wasavailable), and the interest rate violated the prohibition in the Criminal Code againstinterest rates higher than 60% per year. Tindall took a number of steps to concealthese problems:
(a) Tindall incorporated ART Canada, which he planned to have issue promissorynotes, in order to take advantage of the exemption contained in clause 35(2)4and paragraph 73(1)(a) of the Act;
(b) Tindall instructed his clients who had already invested to write new chequespayable to ART Canada for an amount greater than their original investments;
(c) Tindall told his clients that this was necessary in order to create a paper trailfor FMSL;
(d) in respect of those clients that complied with this request, Tindall instructedhis assistant to photocopy the new client cheques and then to either destroythe cheques or return them to the clients;
(e) when Tindall's assistant expressed her discomfort with these instructions,Tindall assured her that the lawyers were aware of his plan to "paper the file";
(f) in return for writing the new cheques which were then destroyed, Tindallprovided his clients with new promissory notes, certificates/releases,guarantees, and subscription agreements; and
(g) Tindall instructed his clients to return their promissory notes in return for newnotes with altered dates that would satisfy the term requirement of theexemption set out in clause 35(2)4 of the Act.
18. Tindall's activities were designed to deceive his clients, Fortune, FMSL, and anysecurities regulatory authorities or law enforcement agency that might review thematter.
19. Tindall subsequently discovered that ART was a fraud. By that time, he had raisedin excess of US$2.3 million from 41 clients. The majority of Tindall's clients has beenunable to recover any funds. Tindall's brother did recover the funds he had invested.
20. After Tindall discovered that ART was a fraud, he made the followingmisrepresentations to his clients:
(a) speaking to Commission staff might jeopardize recovery attempts; and
(b) if the clients were interviewed by the authorities, they should not mention thepromissory notes they were given, which notes reflected a promised rate ofreturn of 300%.
Canadian States Gas ("CSG")
21. CSG was engaged in mining exploration in the Voisey Bay region. The shares ofCSG traded on the Canadian Dealing Network and were a speculative and riskyinvestment.
22. Tindall made the following misrepresentations and prohibited representations to hisclients to induce them to purchase shares of CSG:
(a) Tindall represented that shares of CSG could be acquired at a certain price,when in fact the orders were filled at a significantly higher price;
(b) Tindall represented to various clients, contrary to subsection 38(2) of the Act,that shares of CSG would double, would be ten times the original investment,would rise to $100, or would rise to $50 in six months;
(c) Tindall represented, contrary to subsection 38(3) of the Act, that CSG wouldsoon be listed on the Toronto Stock Exchange and that the documents hadalready been approved by the Commission.
23. Shares of CSG were wholly unsuitable for the clients to whom Tindall recommendedthem. In September of 1995, when FMSL noted considerable trading of CSG sharesby Tindall's clients, FMSL asked for New Client Account Forms showing a changein investors' objectives and demonstrating the clients' understanding of thespeculative nature of the stock.
24. Tindall reacted by sending a letter to his clients who had purchased CSG. Tindallcoerced his clients to sign the necessary form, by warning them that a failure toprovide the forms would result in a sale of the CSG shares, implying that the clientswould suffer the crystallization of the loss that had accrued to that date. Tindall alsomisrepresented the nature of the risk acknowledgment forms by representing to clientsthat they were signing a "standard release".
25. On eight occasions between August 2 and November 3, 1995, Tindall either directlyor through his wife sold shares of CSG on the same day that he purchased CSG sharesfor his clients' accounts. Tindall's advice to his clients was not given in good faithand was not consistent, even in Tindall's mind, with the best interests of the clients.
26. Tindall removed from client files copies of Fortune's "Order for Investment"transaction forms for their investment in ART. Alternatively, Tindall failed to ensurethat the forms were filed in the client files.
27. Tindall instructed his assistant to stamp new client account forms and transactionrecords with his signature stamp. Tindall did not review these stamped documentsas required.
28. In the case of more than 100 clients, Tindall failed to ensure that new client accountforms were completed properly or at all. In other cases, Tindall obtained his clients'signatures on blank new client account forms, client account change forms and Orderfor Investment forms. Tindall himself pre-signed blank Order for Investment forms.
29. Tindall's conduct as set out above in paragraphs 3 to 28 contravened Ontariosecurities law, was contrary to the public interest, and demonstrates that he is unfitto be registered in any capacity under the Act.
Singh's Conduct in Relation to Tindall
30. Singh was the registered compliance officer in the office at which Tindall worked.
31. After Tindall had solicited a number of his clients to invest in ART, Singh becameaware of Tindall's activities with ART and knew that these activities were improper.Rather than taking steps to ensure that no clients had been prejudiced or harmed bythese activities, and rather than taking measures to ensure that Tindall did not engagein any further misconduct, Singh merely suggested that Tindall create documentationas between him and his clients to give the appearance that there had been no improperconduct.
32. Singh failed to ensure that Tindall presented ART to Fortune to seek the necessaryreview and approval of the investment.
33. Singh was also aware that Tindall had lied to FMSL regarding the number of clientsTindall had involved in ART. Singh took no steps to discipline, control or monitorTindall.
34. Singh knowingly permitted Tindall to sell investments that were not approved byFortune. Singh condoned Tindall selling ART to clients when he was aware that theinvestment was not in compliance with Ontario securities law and that it potentiallyviolated the Criminal Code. Singh also acquiesced in Tindall's scheme to falsifydocuments to attempt to conceal the illegality of the investment.
35. Singh failed adequately or at all to address client complaints made to Fortune inrespect of Tindall's activities.
36. Singh permitted representatives of Fortune who were registered to sell only mutualfunds to trade securities for which they were not registered, by allowing them to usehis representative number. Singh then paid part or all of the commission to therepresentative by way of personal cheque.
37. Singh instructed a sales representative who was transferring to Fortune from anotherdealer to place trades using the code of the Vice-President of Compliance, withoutthat individual's knowledge.
38. In December of 1996 Singh purchased 150,000 shares of O'Donnell InvestmentManagement Corporation. The shares were issued pursuant to a private placementand were subject to a hold period that expired on May 13, 1998. Singh sold all of theshares between May 28 and June 4, 1997, knowing that he was doing so during thehold period and that his sale of shares was therefore a distribution, pursuant tosubsection 72(4) of the Act.
39. Singh's conduct as set out in paragraphs 30 to 38 above contravened Ontariosecurities law and was contrary to the public interest.
40. Such other allegations as Staff may make and the Commission may permit.
DATED at Toronto this 14th day of October, 1999.