IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, c. S.5, as amended
IN THE MATTER OF
JENNIFER LEE DEWLING
STATEMENT OF ALLEGATIONS OF STAFF OF THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission ("the Commission") make the following allegations:
1. Jennifer Dewling ("Dewling") held, at all material times, a number of senior positions atFortune Financial Corporation ("Fortune"), a securities dealer registered under the Act andat Fortune Investment Corporation ("FIC"), a mutual fund dealer registered under the Act.In particular, Dewling was the vice president of operations for Fortune and FIC and laterbecame the chief operating officer for Fortune and FIC as detailed in paragraph 15 below.
2. Clifford Paul Tindall ("Tindall") was, at all material times, registered under the Act as asalesperson employed by Fortune.
3. In late 1994, Tindall became involved, through an acquaintance named Jack Rashid("Rashid"), in Advanced Radar Technologies Inc. ("ART") which had developed anadvanced radar braking technology. Tindall became a partner in ART and promised to seekfinancing from his Fortune clients. He incorporated Advanced Radar Technologies Inc.("ART Canada") as a vehicle to raise funds for ART from his clients. Tindall named hisbrother, his sister-in-law and Rashid as directors of ART Canada.
4. Initially, Tindall was to receive a percentage of the funds he raised. Tindall became concernedabout the appearance of the original deal. He therefore changed it so that he would receivea percentage of ART's revenues and the Canadian distribution rights to the radar brakingtechnology.
5. From January 1995 to November 1995, Tindall arranged for his Fortune clients to lend moneyto Rashid personally and/or to ART Canada. Tindall held a number of investor meetings atwhich he described the technology and discussed the ART investment.
6. 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 to instructionsfrom Tindall, his brother paid funds to Rashid in violation of a directors' resolution whichprohibited any distribution of the funds until satisfactory security was in place.
7. Tindall did not disclose his interest in ART to his clients other than that he had investedmoney in ART. Specifically, Tindall did not disclose that he was receiving the distributionrights in exchange for raising money for ART.
8. ART was a wholly unsuitable investment for the clients from whom Tindall solicited funds,in view of their investment objectives, risk tolerance and level of sophistication.
9. In addition, Tindall made a number of representations to his clients to induce them to investin ART. Each of these representations was untrue. The representations included that the rateof return on the ART investment would be 300% and that ART was a "sure thing" (whichrepresentation also contravened subsection 38(2) of the Act).
10. The ART investment was a "security". These securities had not been previously issued. Thesale of the securities therefore constituted a distribution. No prospectus was filed with orreceipted by the Commission and no prospectus exemption was available. Tindall's activitytherefore contravened subsection 53(1) of the Act.
11. In mid-1995, First Marathon Securities Ltd. (now National Bank Financial Corp.) ("FMSL"),Fortune's carrying broker, became aware of Tindall's involvement with ART and expressedserious concerns. In response, Tindall made the following representations to FMSL andDewling, each of which was untrue:
- he was not selling a "security" in ART but was lending funds to Rashid personally;
- only he, two of his employees and one client had lent funds to Rashid; and
- he was not receiving any remuneration from his involvement with ART.
12. After many of his clients had invested in ART, Tindall discovered two potential illegalities ofthe investment: no prospectus was filed (and no exemption was available), and the interestrate violated the prohibition in the Criminal Code against interest rates higher than 60% peryear. Tindall took a number of steps to conceal these problems, including altering thedocuments which his clients had completed for their investment.
13. Tindall subsequently discovered that ART was a fraud. By that time, he had raised in excessof US$2.3 million from 41 clients. The majority of Tindall's clients has been unable torecover any funds. Tindall's brother did recover the funds he had invested.
14. After Tindall discovered that ART was a fraud, he misrepresented to his clients that speakingto Commission Staff might jeopardize recovery attempts. Tindall also told clients that if theywere interviewed by the authorities, they should not mention the promissory notes they weregiven, which notes reflected a promised rate of return of 300%.
Dewling's Conduct in Relation to Tindall
15. Dewling was Fortune's vice president of operations from September 15, 1993 to August 1,1995. She then became the chief operating officer from August 1, 1995 to October 31, 1996and again from November 17, 1997 to February 24, 1998. She was registered in the positionof supervisory procedures officer of Fortune from January 16, 1996 to October 31, 1996 andagain from November 28, 1997 to March 11, 1998. During her time at Fortune she assumedmany compliance duties, subject to the ultimate authority of David Singh ("Singh") and withthe assistance of FMSL.
16. In her compliance role, Dewling was responsible for supervising Tindall, subject to Singh'sultimate authority and with the assistance of FMSL. In this role, Dewling learned of Tindall'sinvolvement in ART as early as June of 1995, yet she did not take steps to monitor hisactivities until November of 1995, relying instead on representations Tindall and Singh madeto her and the steps taken by FMSL, both as described below.
17. At a meeting with FMSL and Dewling in July 1995, Tindall represented falsely to FMSL andDewling that only four people had loaned funds to Rashid for ART, that Tindall had receivedno remuneration from ART, and that Tindall was not selling securities. Dewling performedno verification or independent assessment of these representations but instead relied onFMSL's investigation and Tindall's signed statement that these representations were true.Dewling also interviewed Tindall and spoke to Singh who were both adamant that securitieswere not being sold and that Dewling therefore should not become involved.
18. At a subsequent meeting with FMSL and Dewling in November of 1995, Tindall disclosedthat a significantly greater number of clients had actually invested in ART, and that Tindallhad raised $1 million for ART. Tindall admitted that he had lied to FMSL and Dewling at theearlier meeting. Despite Dewling having learned that Tindall had lied, FMSL's decision thatit would no longer conduct business with Tindall, and FMSL's recommendation that Tindallbe terminated, Singh decided and Dewling agreed to transfer Tindall's clients to Dewling andthe Fortune trade desk manager jointly so that Tindall would be closely supervised and couldcontinue to produce revenues for Fortune.
19. On instructions from Singh, Dewling prepared a letter to be sent from Fortune to Tindall'sclients to explain that the clients' securities were registered under two "in-house"representatives: herself and the trade desk manager. The letter explained that the "purposeof this move is to facilitate trades in your accounts with securities and the future transfer ofyour account to Fortune's 'in-house' administration system described above." The letterexplained that Tindall would continue to manage the clients' investment portfolios as the tworepresentatives "[were] there simply to process the trades with FMSL."
20. This letter misrepresented the true state of affairs by stating to clients that the reason theiraccounts were no longer registered with Tindall was to facilitate administrative efficiency,rather than FMSL's conclusion that Tindall was unfit to act on behalf of clients.
Dewling's Conduct in Relation to Fortune's Capital Deficiency
21. In January of 1998, following a field review of Fortune by the Canadian Investor ProtectionFund ("CIPF"), Dewling wrote to CIPF, advising that Fortune was being very proactive andthat it was ensuring that its capital requirements were being met at all times.
22. Four days later, Dewling attended a meeting of Fortune's capital committee. At the meeting,Fortune's Vice President, Finance informed the meeting that Fortune was undercapitalizedas a result of a transfer of $1.6 million from Fortune to an affiliated company for the benefitof Singh. Dewling was not informed about the transfer at the time that it took place.
23. At the meeting, Dewling questioned whether there was a capital deficiency that must bereported to the regulators. Other members of the committee were of the view that there wasa reportable deficiency. Dewling suggested that because a $1.6 million cheque from Singhwas tendered that day and the fact that the funds had been exchanged among affliliatedcompanies, the deficiency need not be reported, particularly in that she had just written toCIPF promising that the capital situation was under control and that no further deficiencieswould arise. Dewling asked whether, in view of those facts, the numbers could berecalculated and the working papers redone. It was determined by Dewling, afterconsultation with an outside consultant, that the deficiency should be reported and Dewlingdid so the next day both on the telephone before the opening of business and then in writing,with the original working papers being retained.
24. Dewling approved the use of FIC's "omnibus" account at FMSL to allow representatives whowere registered to sell only mutual funds to execute trades in other securities (which therepresentatives were not licensed to sell) on behalf of clients.
Conduct Contrary to the Public Interest
25. Dewling's conduct as set out in paragraphs 15 to 24 above was contrary to the public interest.
26. Such further and other allegations as Staff may make and the Commission may permit.
Dated at Toronto this 11th day of November, 1999.