Statement of Allegations: In The Matter of Dino P. Delellis et al.

Statement of Allegations

IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, c. S.5, as amended

AND

IN THE MATTER OF
DINO P. DELELLIS, WILLIAM R. KENNEDY
AND
THE HEIGHT OF EXCELLENCE FINANCIAL PLANNING GROUP INC.

STATEMENT OF ALLEGATIONS OF STAFF
OF THE ENFORCEMENT BRANCH OF THE
ONTARIO SECURITIES COMMISSION

 

        Staff of the Enforcement Branch of the Ontario Securities Commission ("Staff") make the following allegations:

BACKGROUND
 
1.       Dino P. DeLellis ("DeLellis") is registered with the Ontario Securities Commission (the "Commission"), subject to terms and conditions, to sell mutual fund securities and limited market products.
 
2. DeLellis sold units in Middlesex Perth Bovine I Limited Partnership, Middlesex Perth Bovine II Limited Partnership, Middlesex Perth Bovine III Limited Partnership, Middlesex Perth Bovine IV Limited Partnership, Middlesex Perth Bovine V Limited Partnership and Middlesex Perth Bovine VI Limited Partnership (the "Bovine Limited Partnerships") to his clients from 1992 to 1995 inclusive.
 
3. William R. Kennedy ("Kennedy") was formerly registered with the Commission as the president of Piemontese London Ltd. Kennedy was also the director of the six companies incorporated to be the general partners for the six Bovine Limited Partnerships.
 
4. Piemontese London Ltd. was registered with the Commission as a limited market dealer (conditional) before the registration of Piemontese London Ltd. was terminated on September 24, 1996. Piemontese London Ltd. was the agent for the sale of five of the six Bovine Limited Partnerships.
 
5. Middlesex Perth Bovine I Limited Partnership was a limited partnership of which units were offered by way of offering memorandum dated June 10, 1992. Middlesex Perth Bovine I Limited Partnership was dissolved on or about February 15, 1994 and its assets transferred to Middlesex Perth Bovine I Inc.
 
6. Middlesex Perth Bovine II Limited Partnership was a limited partnership of which units were offered by way of offering memorandum dated October 1, 1992. Middlesex Perth Bovine II Limited Partnership was dissolved on or about March 10, 1994 and its assets transferred to Middlesex Perth Bovine II Inc.
 
7. Middlesex Perth Bovine III Limited Partnership was a limited partnership of which units were offered by way of memorandum dated February 11, 1993. Middlesex Perth Bovine III Limited Partnership was dissolved on or about March 10, 1994 and its assets transferred to Middlesex Perth Bovine III Inc.
 
8. Middlesex Perth Bovine IV Limited Partnership was a limited partnership of which units were offered by way of offering memorandum dated May 17, 1993. Middlesex Perth Bovine IV Limited Partnership was dissolved and its assets transferred to Middlesex Perth Bovine IV Inc.
 
9. Middlesex Perth Bovine V Limited Partnership was a limited partnership of which units were offered by way of offering memorandum dated December 1, 1993. Middlesex Perth Bovine V Limited Partnership was dissolved and its assets transferred to Middlesex Perth Bovine V Inc.
 
10. Middlesex Perth Bovine VI Limited Partnership was a limited partnership of which units were offered by way of offering memorandum dated March 31, 1994. Middlesex Perth Bovine VI Limited Partnership was dissolved and its assets transferred to Middlesex Perth Bovine VI Inc.
 
11. On April 26, 1996, Middlesex Perth Bovine I Inc., Middlesex Perth Bovine II Inc., Middlesex Perth Bovine III Inc., Middlesex Perth Bovine IV Inc., Middlesex Perth Bovine V Inc. and Middlesex Perth Bovine VI Inc. were amalgamated under the laws of Ontario to form Aosta Piedmontese Limited.
 
12. The Height of Excellence Financial Planning Group Inc. ("FPG") is registered with the Commission as a mutual fund dealer and a limited market dealer. FPG has been DeLellis' employer and sponsor since February 29, 1996.
 
BOVINE LIMITED PARTNERSHIPS
 
13. From 1992 to 1995, in connection with the sale of units in Bovine Limited Partnerships, DeLellis received approximately $280,000 in marketing commissions which were not disclosed to his clients or to his then employer, AIC Investment Planning Limited ("AIC") a registered dealer. These marketing commissions were in addition to the commission provided for in the offering memoranda.
 
14. DeLellis received undisclosed benefits from the Bovine Limited Partnerships, including but not limited to, trips to Houston and Florida, cash payments, an all-terrain vehicle, a Jacuzzi tub, cellular phone accessibility, and a job and a bonus for his brother. Kennedy also received undisclosed benefits from the Bovine Limited Partnerships.
 
15. The Form 20 forms filed with the Commission did not disclose the commissions or other benefits received by DeLellis and Kennedy in respect of the sale of units in the Bovine Limited Partnerships. The Form 20 forms did not disclose any commissions paid to AIC or DeLellis.
 
16. The marketing commissions and benefits received by DeLellis were not permitted under the seed capital exemptions set out in sections 35(1)21 and 72(1)(p) of the Securities Act, R.S.O. 1990, c. S.5, as amended (the "Act"), as claimed in the Form 20 forms. As a result, the exemptions were not available and the sale of units in the Bovine Limited Partnerships contravened sections 25 and 53 of the Act.
 
17. DeLellis made misrepresentations to his clients concerning:
 
 
a.       the tax consequences of investing in the Bovine Limited Partnerships;
 
b. the future value of the Bovine Limited Partnerships;
 
c. the extent of the risks for clients investing in the Bovine Limited Partnerships;
 
d. his personal interest in the Bovine Limited Partnerships;
 
e. whether he would acquire units in the Bovine Limited Partnerships back from clients if they wished; and
 
f. the existence of an award-winning bull owned by the Bovine Limited Partnerships.
 
18. DeLellis failed to provide offering memorandums for the Bovine Limited Partnerships to a number of his clients.
 
19. DeLellis sold Bovine Limited Partnerships to clients for whom such investments were unsuitable.
 
20. DeLellis failed to deal fairly, honestly and in good faith with his clients.
 
21. Kennedy, as an officer and director of Piemontese London Ltd., failed to deal fairly, honestly and in good faith with the investors in the Bovine Limited Partnerships.
 
TERMINATION OF DELELLIS BY AIC INVESTMENT PLANNING LIMITED
 
22. Upon learning of the undisclosed commissions received by DeLellis in connection with the Bovine Limited Partnerships, DeLellis was dismissed for cause by AIC on October 17, 1995.
 
23. DeLellis filed a termination notice with the Commission which stated that he was dismissed or resigned in good standing. AIC filed a termination notice stating that DeLellis was dismissed for cause.
 
24. DeLellis signed a statement dated October 24, 1995 for AIC after his termination. This statement was filed with staff of the Commission and provided that DeLellis has "not been involved in any other conduct while sponsored as a salesperson by AIC Investment Planning Limited which might be considered inappropriate".
 
25. DeLellis advised staff of the Commission after his termination that: (1) he was unaware of any wrongdoing on his part; (2) he paid $280,000 to AIC's counsel when the allegation of wrongdoing was made by AIC; and (3) problems with AIC began when DeLellis gave notice of his intention to leave AIC.
 
DELELLIS' REGISTRATION ON TERMS AND CONDITIONS
 
26. On February 29, 1996, DeLellis was re-registered as a salesperson sponsored by FPG licensed to sell mutual fund securities and limited market products subject to the branch manager and compliance officer ensuring prior to the sale of any limited market products that all investors acknowledge in writing that: (1) they have been advised to seek legal, accounting or other professional investment advice; (2) they have received a copy of the offering memorandum; and (3) they have signed a disclosure document describing the risks associated with leveraging an account. DeLellis was also to be supervised by the President of FPG and was to file quarterly supervision reports with the Commission.
 
27. On February 17 to 19, 1997, a review of DeLellis' files by Staff indicated that some of the terms and conditions of his registration were not being met. The review also indicated a lack of supervision by FPG over DeLellis.
 
28. The review of DeLellis' files also indicated the following concerns:
 
 
a.       DeLellis was receiving part of the commissions paid for the sale of securities in respect of which he was not registered to sell;
 
b. DeLellis was not being properly supervised by the branch manager for the London office or the compliance officer of FPG;
 
c. DeLellis provided investment advice relating to the sale and purchase of securities which he was not registered to sell;
 
d. DeLellis was receiving split commissions in respect of the sale of securities which he was not registered to sell;
 
e. DeLellis provided investment advice which was inappropriate for certain clients;
 
f. DeLellis allowed one of his assistants, who was not registered with the Commission, to sign transaction records as a registered salesperson;
 
g. DeLellis allowed one of his assistants, who was not registered with the Commission, to give instructions regarding the purchase and sale of securities for which DeLellis was not registered to sell;
 
h. some of DeLellis' files lacked complete "know your client" information;
 
i. some of DeLellis' files contained pre-signed blank transaction records; and
 
j. a book distributed by DeLellis to some of his clients listed Mr. DeLellis as the author of a book entitled "Your Guide to Financial Independence" which was untrue.
 
29. A term of DeLellis' registration was that quarterly supervision reports were to be filed with the Commission by the President of FPG. Quarterly supervision reports were filed on June 6, September 9 and December 4, 1996. The reports incorrectly stated that:
 
 
  1. all orders, both buy and sell, and sales contracts have been initialled and reviewed by the supervising officer before execution;

     

  2. all client accounts have been reviewed for:

     

    1. suitability of investments;

       

    2. excess trading; and

       

    3. any changes to client address
      or any amendments thereto;
  3. a review of trading activity on a daily basis has been conducted relative to Dino Perry DeLellis' client accounts;

     

  4. no transactions have been made in any account until the full and correct documentation is in place;

     

  5. there has been no handling of clients' securities and payments by Dino Perry DeLellis and no issuance of cheques to clients without management approval; (there have been no payments by Dino Perry DeLellis nor issuance of cheques); and

     

  6. spot audits have been conducted for Mr. DeLellis' client accounts during the preceding quarter to ensure compliance with these procedures and no violation of these procedures were discovered.

     

CONDUCT CONTRARY TO THE PUBLIC INTEREST
 
30. The conduct of DeLellis was contrary to the public interest in that:
 
 
  1. the conduct of DeLellis in connection with the sale of Bovine Limited Partnerships was contrary to sections 25(1), 38(1), 38(2), 53(1) and 122(1)(b) of the Act;

     

  2. DeLellis has failed to deal fairly, honestly and in good faith with his clients; and

     

  3. DeLellis is in breach of the terms and conditions imposed on his registration on February 29, 1996.

     
31. The conduct of William R. Kennedy in connection with the sale of Bovine Limited Partnerships was contrary to sections 25(1), 53(1) and 122(1)(b) of the Act and contrary to the public interest.
 
32. FPG has failed to adequately supervise DeLellis and ensure compliance with the terms and conditions of DeLellis' registration contrary to the public interest.
 
33. Such other allegations as Staff may make and the Commission may permit.
 
April 9th, 1997.