London Free Press
Friday, May 7, 1999
Charges provide small comfort
'The sad part is there is no well to refill investors' piggy banks,' former stockbroker says
By SHELLEY LAWSON, Free Press Reporter
For London and area investors who have lost millions of dollars and face uncertain financial futures, charges announced yesterday by the RCMP against three prominent Londoners are small comfort.
"The sad part is there is no well to refill investors' piggy banks," Joe Killoran said yesterday.
Killoran, a former stockbroker and Londoner now living in Oshawa, first reported the practices of former mutual fund salesperson Dino DeLellis to the Ontario Securities Commission in 1995.
DeLellis, 38, who was eventually fined $50,000 for tax evasion by Revenue Canada in 1997 and banned from selling securities by the OSC in 1998, will appear in court June 24 to face criminal charges for receiving a secret commission.
Also charged in connection with a series of limited partnerships allegedly to raise low-fat cattle, were former London Hydro commissioner Bill Kennedy, 46, and Gordon Coles, 41, a former manager with the ill-fated Arabian horse business Stonebridge Inc.
Kennedy is charged with eight counts of fraud and one of giving a secret commission.
Coles is charged with one count of fraud.
Kennedy and Coles appeared in court yesterday.
DeLellis is out of the country.
"It means something, but we don't know what just yet," said Denis Dill, a spokesperson for Aosta Piedmontese Ltd., the company formed by investors to run the business of the combined limited partnerships.
While a conviction may help investors who have launched civil actions, there is little more than some vindication in yesterday's news, Killoran said.
That, he said, is just not fair, arguing there is not enough protection for consumer investors.
"Market registrants know they have a better chance of winning Lotto Super 7 than they have of being investigated, charged or reprimanded by securities regulators," he said.
Under the present system, he added, investors have to hire a lawyer to seek restitution.
Killoran has been lobbying for years for more investor education, better up-front disclosure about commissions, trailer fees and the salesperson's track record with the securities commission.
He also wants to see a mandatory code of ethics for sales people and a requirement that, like physicians, they must report unethical practitioners.
Killoran would also like the investment community to adopt the complaint-handling process used by Canadian banks in which consumers can complain to the bank's ombudsman and then to a national ombudsman and seek restitution.
The process doesn't cost consumers any money and doesn't prevent them from seeking legal action if the ombudsman's ruling is unsatisfactory to them.
Charging sales people after consumers have lost millions is a bit like "trying to operate after the patient is already dead," he said.
Dill agrees that investor education and more access to information might have made him more cautious about the $22,500 he invested in one of the limited partnerships.
Dill said he was an inexperienced investor with modest investment goals who was seeking professional advice on how to provide for his retirement.
"We tried to deal with reputable people and reputable firms," he said.
According to evidence presented at the OSC hearing in 1997, DeLellis was a salesperson associated with AIC Investment Planning Ltd. (now called Berkshire Investment Group Inc.) between 1992 and 1994 when he sold units in a series of six limited partnerships organized to import full-blood Piedmontese cattle embryos from Italy to be implanted in host cows for the purpose of producing a herd of low-fat cattle.
A total of 138 investors bought units ranging in price from $20,000 to $22,500.
Kennedy's company, Piedmontese London, was the sales agent for some of the limited partnerships and the general partner, charged with managing the business for all of them.
By the summer of 1995, the commission heard, there were few animals owned by corporate successors of the first four limited partnerships, none owned by the last two and little or no cash remaining in any accounts.
The three-member commission, which heard six days of evidence in November and December, 1997, accepted evidence that DeLellis misrepresented the risks, returns, tax benefits and his personal interest in the investments.
"In our view, what is even more reprehensible is that these misrepresentations were, in our view, a course of conduct designed to cause DeLellis's clients to borrow funds for investment through him . . . with a view to increasing DeLellis's earnings and not with a view to providing his clients with suitable or appropriate investment advice," the ruling said.
The commission accepted evidence that DeLellis received $98,000 in undisclosed payments from the partnerships, in addition to $280,000 in secret commissions he paid back. DeLellis also received other undisclosed benefits, including trips to Houston and Florida, cash, an all-terrain vehicle, a hot tub, cell phone access and a job and bonus for his brother, John DeLellis.
He also received $100 for every client he referred to National Trust for an investment loan.
Kennedy also received payments from the partnerships, the OSC heard. Like the payments to DeLellis, they were paid by Coles who received funds to board and care for the cattle.
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