An Ontario-based financial consulting and investment planning firm and its principal director have breached securities laws by distributing securities without filing a prospectus and trading without being registered, among other violations, the Ontario Securities Commission (OSC) has found.
In a decision released on Friday, the OSC outlines misconduct by Empire Consulting Inc. and its director, Desmond Chambers. Empire was a financial consulting firm that provided tax consulting, investment planning, and debt restructuring services to investors from approximately April 2007 to October 2009.
Together, Empire and Chambers received approximately $1.5 million from 26 investors in Ontario through a “debt elimination strategy” program that they launched. Under the program, they advised clients to use funds borrowed against their homes to pay down other existing debts and to invest in a foreign exchange portfolio exclusively managed and controlled by Empire and Chambers. They told investors that the program would return 2% to 6% on investments per month and would enable investors to pay off their mortgages within five to seven years.
Investors were told along the way that their portfolios were growing at “incredible rates”, when in reality, Empire was achieving negative performance in its accounts, the OSC found. And, it found that Chambers was using the investor funds for personal expenses, including rent for his condominium and office, vehicle lease payments, food, liquor, and clothing.
In January 2010, the investors received an email from Chambers indicating that their money was gone.
The OSC found that Empire and Chambers breached securities laws by: trading in securities without being registered; acting as advisors with respect to investing in, buying or selling securities without being registered to do so; distributing securities without filing a preliminary prospectus; and engaging in acts relating to securities that they knew or reasonably ought to have known perpetrated a fraud on investors.
“The respondents exploited the weaknesses of the investors,” the OSC said. “The Empire investors appeared to this panel to be modest, hard-working individuals who naively trusted and relied upon the respondents’ false representations to their detriment.”
In addition, the OSC said that Chambers, in his capacity as director and officer of Empire, authorized, permitted and acquiesced in Empire’s non-compliance with Ontario securities law.
Chambers failed to appear at the OSC hearing. A sanctions and costs hearing has been scheduled for Oct. 10, 2012.