Ontario fund salesman reprimanded for forex scheme, unauthorized sale of debentures

Neale was licensed as a sales person of Keybase Financial Group Inc., a dealer registered in the category of mutual funds dealer, from Feb. 18, 2006 to Jan. 18, 2007 when he was terminated for cause. He was also licensed to sell life insurance and accident and sickness insurance by the Financial Services Commission of Ontario. FSCO issued a permanent cease and desist order against Neale on March 4, 2009 prohibiting him from selling insurance in Ontario.

Neale incorporated 360 Degree Financial Services Inc. on Feb. 2, 2005. He was the sole officer and director of 360˚, which was also licensed by FSCO to sell insurance products. 360˚ was party to a distribution agreement with AGF Trust which enabled 360˚ to apply on behalf of its customers to AGF Trust for loans which were required to be invested in RSP eligible products. FSCO issued a permanent cease and desist order against 360˚ on March 4, 2009 prohibiting it from carrying on the business of insurance.

Neale incorporated Multiple Streams of Income (MSI) Inc., on July 7, 2006, and is the firm’s sole officer and director. MSI was never registered in any capacity with the OSC nor was it licensed by FSCO.

Unauthorized distribution of securities

During 2007 and 2008, 360˚ was experiencing financial difficulty. In an effort to raise capital for 360˚ Neale through MSI solicited several investors to purchase $584,500 of debentures issued by MSI.

Although some of the MSI debenture investors were told that their money would be applied to special projects of benefit to their community, the funds raised were in fact commingled in the bank account of 360˚ and used by 360˚ in the ordinary course of its business. None of the debentures were repaid at maturity or at any other time.

Neale and MSI were not registered to trade or advise in securities. MSI was at no time registered to issue securities. The MSI debenture securities were not offered pursuant to a prospectus nor was there any prospectus exemption available to MSI for the debenture financing described above.

Dominion Investment Club Forex scheme

Albert James and Ezra Douse both came into contact with Neale in 2008. James, Douse and others incorporated Dominion Investments Club Inc. on June 11, 2008. James, Douse and Dominion are all respondents in related enforcement proceedings before the OSC.

Dominion investors were counseled by James and Douse to apply for RSP loans and to invest borrowed money in a forex investment club. To that end James and Douse obtained Neale’s and 360˚’s assistance in obtaining RSP loans by means of 360˚’s distribution agreement with AGF Trust.

The distribution agreement provided for a “Multi Fund Option” whereby AGF loan proceeds were paid to 360˚, and 360˚ undertook to AGF Trust to “agree to invest such loan proceeds in eligible investments in accordance with the customer’s investment instructions upon receipt of Loan proceeds from AGF Trust.”

In the early months of 2008 Neale was approached by James on behalf of Dominion who proposed that 360˚ would apply for AGF Trust RSP loans on behalf of the Dominion investors. Using the Multi Fund Option, 360˚ would receive the loan proceeds, and then transfer the loan proceeds to Dominion, which in turn would invest the proceeds with foreign exchange brokers ostensibly on behalf of the Dominion investors.

Neale agreed with James’ proposal and the two entered into an arrangement whereby Neale received fees and commissions for facilitating RSP loans from AGF Trust to 360˚ on behalf of Dominion. When the RSP loan proceeds were received by 360˚, 360˚ unbeknownst to AGF Trust, transferred the loan proceeds to Dominion for the purpose of making forex investments, having first deducted commissions and fees from the loan proceeds.

As a result of this arrangement, Neale, on behalf of 360˚, facilitated approximately $1,363,414 in RSP loans from AGF Trust, the proceeds of which were not directed to RSP eligible products.

Of the approximately $1,363,414 borrowed from AGF Trust, 360˚ retained approximately $265,179 from the AGF Trust loan proceeds for its own use and did not transfer those funds to Dominion as it had agreed to do, thereby depriving the borrowers of those funds.

The majority of the Dominion investors lost all or substantially all of their invested capital. As that capital had been borrowed from AGF Trust, they remain indebted to AGF Trust for the amounts of their RSP loans. The value of their Dominion investments is presently nil. “The investors have been financially harmed by virtue of their involvement with these Respondents,” the OSC stated in the settlement agreement.

In the settlement, Neale acknowledged that he and MSI engaged in the unauthorized distribution of securities, and further that he, MSI and 360˚ engaged in misleading conduct Neale further acknowledged that he, 360˚ and MSI have acted contrary to the public interest.

Settlement terms

Neale and his companies agreed to the following settlement terms:

> Neale will be reprimanded by the OSC;
> he will disgorge $265,179 to the OSC;
> an $500,000 administrative penalty will be imposed upon Neale, MSI and 360˚;
> Neale will cease trading in all securities for a period of 15 years;
> he will be prohibited from becoming, acting as or holding the title of director or officer of any market participant for a period of 15 years; and
> he will make a $10,000 payment to the OSC for costs of the proceedings.

IE