) ) John Wardrope v. Linda Wardrope, 2013 ONSC 330

CITATION : Wardrope v. Smith, 2013 ONSC 330 COURT FILE NO.: 52/09 DATE: 2013-01-15 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: ) ) John Wardrope and Linda Wardrope Plaintiffs – and – Shane Smith and Synergy Group 2000 Inc. Defendants ) ) ) ) ) ) ) ) ) Michael Semple, for the Plaintiffs Joseph Michael Sereda, for the Defendants ) ) ) HEARD: December 4 and 5, 2012 GUNSOLUS, J. [ 1 ] This matter was originally scheduled to be heard during the May 2012 sittings of this court. The defendants’ first counsel had removed himself from the record and the defendants did not appear for trial at that time.

The matter was put over for a number of court dates, finally to be placed on the November 2012 sittings, peremptory upon the defendants. [ 2 ] The defendants’ second counsel removed himself from the record and at the commencement of trial, new counsel appeared, advising the court that he was ready to proceed to trial. No request for an adjournment was made. Discovery had already taken place. This matter was never pre-tried, as the defendants failed to appear at the scheduled time. [ 3 ] The matter proceeded to trial without objection.

Request to Admit [ 4 ] After the commencement of trial, the defendants acknowledged the following to be true as a result of the plaintiffs’ Request to Admit, dated September 12, 2012. The following facts are admitted and adopted by the court:

(1) Shane Smith presented an investment opportunity to the Wardropes at their home.

(2) Jeff Haber was the North American representative for the Sabourin and Sun Investment.

(3) Smith advised the Wardropes that the investment guaranteed a return of 17.52% and both principal and return were guaranteed.

(4) The Wardropes agreed to invest $150,000 after meeting with Smith in July, 2005 (the additional $150,000 was allegedly invested without the involvement of Mr. Smith.)

(5) Smith was aware that Sabourin and Sun was under investigation by the Ontario Securities Commission when he met with the Wardrope’s, but did not disclose this knowledge to them.

(6) Smith was interviewed by the Ontario Securities Commission in March of 2005 in relation to the Sabourin and Sun investment and did not disclose this to the Wardrope's. (7) Smith continued to sell the investment after being interviewed by the Ontario Securities Commission.

(8) A “Cease Trade” order was issued against Smith by the Ontario Securities Commission in December, 2006 in connection with the Sabourin and Sun investment.

(9) Smith has admitted that he violated the Securities Act in connection with his involvement with the Sabourin and Sun investment.

(10) The Wardrope's have lost their entire investment of $300,000, as well as the guaranteed return.

(11) Smith has indicated that he intends to pay back his clients, including the Wardropes, out of his own funds, but has not

done so. Smith told the Wardropes’ daughter Melinda that he intended to pay her parents back.

(12) Smith earned substantial commissions at the rate of 5% from the sale of the investment to some 20 clients, with investments totalling over $3 million.

(13) Smith has refused to disclose the commissions earned or to produce a copy of his agreement with Jeff Haver, on the basis that he had an oral agreement and not an agreement in writing.

(14) The Ontario Securities Commission has estimated that the total investments were in excess of $15 million, including investments sold by Smith’s agents, and that Smith was paid commissions of at least 5% on 3 million dollars, over the period of his involvement with Sabourin and Sun. Evidence of John Wardrope [ 5 ] The plaintiff John Wardrope is 77 years of age, a grade 12 graduate and is a retired real estate broker.

He gave evidence that his investment experience was limited to Registered Retirement Savings Plans and that otherwise, he had no knowledge concerning investments. [ 6 ] He was introduced to Shane Smith through his daughter who, along with her husband, was friends with Shane Smith and his wife. Shane Smith had suggested to the Wardrope’s daughter that she should borrow $50,000 from her parents in order to invest with him. The plaintiffs did not lend money to their daughter but suggested that they would like to know more about the investment. Arrangements were made for Mr.

Smith to attend at their residence in July of 2005. He made the presentation and the plaintiffs believed as a result of that presentation that the investment was involving European banks and would, amongst other things, provide them with a guaranteed return on their investment of 17.52% and further believed it to be a fully secured, guaranteed investment. [ 7 ] Mr. Wardrope gave evidence that he sought such an investment because he wanted a guarantee for his wife, who is 12 years younger than him. He believed the investment “looked good on paper”. [ 8 ] During his presentation, Mr.

Smith provided a sketch explaining the nature and workings of the investment. From it, this witness understood that he would be guaranteed a return on the investment and also receive profit sharing of 0.5%. He believed that Mr.

Smith recommended the investment to him, saying it would be a good investment, have a term of 28 months at which time, he could either take out his capital and interest out or re-invest it. [ 9 ] He further believed, as a result of the presentation, that the investment was secured by a “one hundred and ten percent collateral guarantee”, and this is set out clearly under the subheading “Security” on the sketch provided by Mr. Smith to the plaintiffs. [ 10 ] The plaintiff gave evidence that Mr.

Smith did not speak of any risks in relation to the investment, nor did he discuss risks generally in relation to investing money. Further, this plaintiff confirmed that Mr. Smith did not question him about his investment experience; his risk tolerance in relation to investing money nor about his income or net worth. [ 11 ] Mr. Wardrope did not recall Mr. Smith discussing his investment expertise with him, or the fact that he had been the subject of an Ontario Securities Commission investigation. He learned of the OSC investigation sometime after he had invested money with Mr. Smith. [ 12 ] Mr.

Wardrope identified for the court the Investment Application, which was completed in the handwriting of Mr. Smith, and directed to Camdeton Trading S.A., which he and his wife Linda signed on the 28 th of July, 2005.

That document confirmed an investment of $150,000; that the Wardrope’s were referred to Camdeton Trading S.A. by the defendant, Synergy Group; that a 17.52% rate of return was guaranteed and that the investment would commence July 29 th , 2005 and mature on the 29 th of November, 2007. [ 13 ] On Page 2 of that document, it was acknowledged that the plaintiffs, John and Linda Wardrope had no trading experience in securities, options, futures or currencies in the OTC markets. [ 14 ] Mr. Wardrope noted that the document stated that his annual income was $70,000 and that his net worth was $750,000.

He indicated this appears to be in Mr. Smith’s handwriting and was not accurate. He had no idea where Mr. Smith “came up with these numbers”. He advised the court that Mr. Smith told him it didn’t matter; it would simply look good for him in relation to the investment of his money. [ 15 ] Mr. Wardrope also identified the Application for Services document, which he and his wife signed, and which identified the investment structure as follows: “Asset Protection Trust inception date: July 29, 2005. Maturity Date: November 29 th , 2007. Return on Investment: 17.52% guaranteed.” [ 16 ] Mr.

Wardrope confirmed that he and his wife invested a total of $300,000 through the services of Mr. Smith. He advised that he was directed to make the bank drafts for the investment payable to Camdeton Trading Limited, explaining that Mr. Smith had told him that Camdeton was the parent company in relation to the investment. He confirmed that he had no contact with anyone else other than Mr. Smith in relation to the investment and he believed Mr.

Smith to be working with Camdeton. [ 17 ] In the end, he and his wife received no investment return on their money and further, did not receive back any of their original investment. [ 18 ] He advised that when they became concerned in relation to their investment and began calling Mr. Smith, they were advised

he would not take their calls “on advice of his lawyer”. [ 19 ] Mr. Wardrope confirmed that he had been interviewed by the Ontario Provincial Police. From this, he learned that their funds had never been invested off-shore in Europe, contrary to what Mr. Smith had told them. As Mr. Wardrope put it, “That was it, it disappeared”. [ 20 ] Mr. Wardrope was upset when he learned that Mr. Smith took their money to invest at a time when he knew he was being investigated by the Ontario Securities Commission and knew, as Mr. Wardrope put it, “It was a Ponzi scheme”.

He advised the court that had he known about the OSC involvement, he would never have invested the money that he did. He believed Mr. Smith was acting on behalf of he and his wife as their financial advisor and they trusted him. Mr Smith’s own evidence confirmed that he never told them he was not a financial advisor, although he believed that he did not give financial advice to them. I do not accept his evidence on this point, as he had put many, many people into this investment and certainly held himself out to these plaintiffs as a person with special expertise in investing. While Mr.

Smith denied that the plaintiffs were his clients and that he was only acting as an agent for others, this indeed goes to the root of his conduct. He indeed was acting as an agent for others and was receiving commissions that he never disclosed to these plaintiffs. [ 21 ] He further told the court that Mr. Smith never advised them that he was no longer an investment advisor but did understand that Mr.

Smith would be taking a commission, and did not think that odd, as he was selling the investment to them. [ 22 ] As a result of the loss of their investment and their own subsequent investigations, they determined that Mr. Smith and/or his associates had been involved in court actions, police investigations and/or Ontario Securities Commissions investigations. [ 23 ] Mr. Wardrope advised that he was never told about any of this by Mr. Smith at the time of the investment transactions. [ 24 ] In cross-examination, Mr.

Wardrope confirmed that in addition to being a real estate broker, he had once been an airplane technician in the air force; drove truck; drove ambulance and at one time, with a partner, owned a 2100 square foot industrial investment property, which was rented out to numerous tenants. He acknowledged that he received a profit when that property was sold. Part of the monies he invested with Mr. Smith came from those profits. [ 25 ] This witness believed Mr. Smith to be a licensed financial advisor, although he acknowledged that he never received a business card from Mr. Smith or anything on paper.

He said that he and his wife trusted Mr. Smith because their daughter was working for Mr. Smith at the time. [ 26 ] Although this witness acknowledged that he and his wife began receiving what he described as standard form letters from Mr. Haver, of Camdeton Trading Limited, he advised that he did not become concerned as he believed these to be form letters. His evidence was that he and his wife had dealt exclusively with Mr.

Smith and that these letters basically “meant nothing” to him. [ 27 ] When he received, in November 2006, a letter indicating that Camdeton would no longer be able to trade in the off-shore Sabourin & Sun Investment, he knew their money was already invested and the fact that further investment could not occur, did not affect his investment. He acknowledged that he and his wife were very concerned, but believed that they had to wait until the maturity date of their investment before taking action. He acknowledged that he and his wife were praying that at the end of the 28 months, they would get their money out.

He noted that the correspondence they received indicated that there would be a settlement of their investment, the date of which changed from time to time. The information they were in receipt of always confirmed that they would receive their investment. [ 28 ] He did note that at one time they were asked for an additional $5000 to open an off-shore bank account in the British Virgin Islands. He understood this to be where the investment was going to be paid and that they would have to travel there to receive their funds. This never materialized. [ 29 ] As to when Mr.

Wardrope and his wife finally understood that they would not be getting their money back, he could not pinpoint a specific date but believed that it was perhaps sometime in 2007. [ 30 ] He noted that the arrangement Shane Smith made for the return of their principal and payment of interest was such that it would be paid out all at one time (so that they would, in effect, get compounded interest) on the November 29, 2007 maturity date. Evidence of Linda Wardrope [ 31 ] Linda Wardrope is 65 years of age, having retired in 2002 from the Federal Government.

She worked through a series of file clerk jobs until she became a Level 1 Agent with Employment Insurance. She attained Grade 10 and pointed out that she had very little investment experience, save and except Registered Retirement Savings. [ 32 ] She confirmed Mr. Smith’s wife was a very close friend of their daughter Melinda and Melinda’s request for money to invest with Mr. Smith. [ 33 ] She told the court that she believed that Mr. Jeff Haver and Mr. Shane Smith were partners in the investment business that their daughter worked for. As she pointed out, when she did some cleaning for them, it appeared that Mr.

Smith was set up at one end of the front room and Mr. Haver at the other end. [ 34 ] She confirmed that when Melinda asked to borrow money to invest with Mr. Smith, they did not agree to do so, as they did not feel that she was in a financial position to borrow money. In the end, it was agreed that they themselves would meet with Mr. Smith, in their home, to hear his presentation in relation to the proposed investment.

[ 35 ] Mrs. Wardrope confirmed that she and her husband were told by Mr. Smith that they would not lose anything. She described the collateral guarantees through different banks that Mr. Smith advised them of. She gave evidence that Mr. Smith assured them that he had done his due diligence and that he most definitely recommended that they make the investment in question. She said that Mr. Smith assured them it would “double their money”.

She said they felt so sure about their investment that they even began discussing what they were going to do with the money when the investment became due, including a trust fund for their grandchildren. [ 36 ] She also advised the court that Mr. Smith did not discuss any risks in relation to this investment or investments generally. She confirmed that Mr. Smith did not discuss their investment experience, investment risk tolerance or net worth. [ 37 ] She said that she and her husband advised Mr.

Smith that what he had filled out on their investment forms indicating an income of $70,000 and investments of $750,000 was not accurate. Rather, she told Mr. Smith their income was about $30,000 but he replied “that did not matter”. She agreed that there was no disclosure by Mr. Smith in relation to the Ontario Securities Commission investigation. [ 38 ] Mrs.

Wardrope said they invested $150,000 on the 28 th of July, 2005 and explained that they invested the second portion of their investment of $150,000 on the 18 th of August, 2005, as they were waiting for funds to come from the sale of the commercial property in which her husband had held a half interest. [ 39 ] It was her evidence, that on the 28 th of July, 2005, Mr. Smith attended at their home to pick up the $150,000 cheque and again attended at their home on the 18 th of August, 2005 to pick up the second $150,000 cheque. [ 40 ] There was no question in her mind that she and Mr. Wardrope believed that Mr.

Smith was a financial advisor who was advising them in relation to what he told them would be a good investment for them. [ 41 ] She acknowledged that she and her husband began getting letters from Mr. Haver of Camdeton Trading Limited, but that they never gave up hope that they would get their money back, as this correspondence, while indicating that repayment would be delayed, led them to believe that they would receive their money. [ 42 ] She agreed that Mr.

Smith told them he intended to pay them back, but he could not speak to them, based upon advice he said he had received from his own lawyer. [ 43 ] She confirmed they later learned that Mr. Smith was found to have contravened the Ontario Securities Act . The Ontario Security Commission’s reasons and decision, dated March 20 th , 2009 was filed. [ 44 ] In that document, it was disclosed:

(1) That Smith and others had contravened the Act and acted “contrary to the public interest and in a manner harmful to the integrity of Ontario capital markets.”

(2) At para 373 of that document, Smith, along with others, was found to have solicited clients to invest, met with clients to provide promotional material and explained the investment schemes, helped clients complete the required paperwork and received client investment cheques.

(3) Mr. Smith and the others terminated their registrations with the Securities Commission so that they would be able to sell the investment schemes, and continued to sell them even after being interviewed by the Commission.

(4) Mr. Smith was paid commissions of at least $1 million. [ 45 ] The Ontario Securities Commission decision of June 4, 2010, in relation to sanctions and costs against Smith and others disclosed that Smith was ordered to disgorge $1 million dollars. [ 46 ] Upon further questioning, Mrs. Wardrope recalled Mr. Smith discussing with them the fact that “some people” even remortgaged their home, and that he told them that they were foolish not to do so, in order to get a return of 17.52%. She said he also raised the possibility of cashing in their RRSPs.

She felt he was clearly trying to get them to invest more money in the investment scheme that he recommended and sold to them. [ 47 ] She gave clear evidence that at no time did Mr. Smith tell them that he was not a financial advisor, that he was simply assisting and filling out forms for them or that he was not an agent for Jeff Haver, or Camdeton Trading Limited. She too believed and understood that he would be earning a commission, but was never made aware of what that commission would be. [ 48 ] In sum, her evidence was that they trusted Mr. Smith. Their daughter worked first for Mr.

Haver of Camdeton Trading Limited, and later for Mr. Smith, of Synergy Group

(2000) Inc. She knew that Mr. Smith’s wife was her daughter’s best friend, at the time, and she had no reason not to trust Mr. Smith. [ 49 ] She confirmed to the court that had she known about Mr. Smith’s involvement with the Securities commission and the prior court cases involving this “Ponzi scheme”, she would never have invested money with Mr. Smith. [ 50 ] In cross-examination, she acknowledged that Mr. Smith never told her and Mr. Wardrope that he was an officer or owner of Camdeton Trading or Sabourin and Sun, or that he was an employee of either of these entities.

Rather, she said, “he assured us he was investing for us”. [ 51 ] When questioned about when she and her husband received the notice advising that Camdeton Trading was being required to cease access to the International Currency Trading Contract Programme in Canada, she responded that if one read further down in the

letter dated November 21 st , 2006, it was stated, that “all accounts in Canada will be settled on July 18 th , 2008”. [ 52 ] A full-review of this document disclosed that the return on investment was intended to reflect participation up to the 14 th of July, 2008 and investors would be given the option to renew their investments and cash out partially or entirely, at that time. [ 53 ] This witness also explained that she and her husband were required to sign a non-disclosure document, such that they were told that they could not discuss this investment with anyone. She and Mr.

Wardrope honoured the terms of that non-disclosure agreement. [ 54 ] She confirmed that it was when the due date came and passed that they realized their investment was in trouble, and while she was not sure, she believed this to be sometime in October 2007. She pointed out that all Camdeton Trading’s correspondence with them indicated that their funds were still safe. These assurances, together with the fact that their daughter was working for Mr. Smith, made them believe that their funds were safe. Evidence of Melinda Morgan [ 55 ] Melinda Morgan is the daughter of the plaintiffs .

She attained a college diploma in accounting and first worked for Mr. Jeff Haver of Camdeton Trading, then for Mr. Smith. She had no prior experience in the investment field, nor did she have any personal investment expertise. [ 56 ] She told the court that she understood that Mr. Haver and Mr. Smith were associates who at some point in time began sharing office space. She was employed as clerical staff. One part of her job was to receive the cheques and documentation relating to investments (including her parents’ investment).

Upon receipt, she would put together the documentation and forward it to Camdeton Trading’s head office in Toronto. [ 57 ] She confirmed that her parents were not prepared to lend her money to invest with Mr. Smith, and she helped to arrange the meeting with Mr.

Smith, but she did not attend that meeting. [ 58 ] When asked how she first realized her parents’ funds were in jeopardy, she said it was when she learned that Jeff Haver, of Camdeton Trading Ltd., was the subject of an order preventing him from selling investments in the United States. [ 59 ] She also confirmed that she became aware of the Ontario Securities Commission investigation of Mr. Smith and others when she was called to give evidence before the Commission. All of this occurred after her parents had concluded their investment with Mr.

Smith. [ 60 ] She said that she knew little about the investment, other than it was an off-shore investment that was guaranteed. [ 61 ] She confirmed that Mr. Smith assured her that he would personally repay her parents, as “he liked them”, and that he would do so as soon as his new investment company was up and running. Mr. Smith said that the people he had caused to invest in this investment scheme were not “just clients, they are family and friends”.

Indeed, apparently his sister invested $50,000 in this scheme and, as he said, is no longer speaking to him in the result . [ 62 ] At one point during questioning, she said that Mr. Smith’s wife had told her that she and her husband had a contingency plan, and that was to leave the country. She believed it to be a joke until “everything started happening”. [ 63 ] When asked whether or not Mr. Smith gave her a commission on her parents’ investment, she denied this. She acknowledged receiving a Christmas bonus, many months later as did Mr.

Haver’s personal assistant, but not a commission cheque. [ 64 ] She acknowledged having seen one commission cheque Mr. Smith received that was in the amount $750,000. She believes that he brought in $9 to $10 million by way of investments, in this scheme, which was in addition to what the other agents brought in. [ 65 ] This witness confirmed that she began receiving calls from clients who were angry, crying and wanting to know where their money was. She advised that she took messages and passed them on to whoever they were directed to. At some point, calls were no longer being returned.

For this and other reasons, she decided to quit her employment. This witness also described a conversation she had with Mr. Smith when he told her that he would drag this court case out as long as he possibly could. He further told her that he liked her parents and that they should stop wasting their money on a lawyer, as even if they got judgment against him in court, they would never see any money from him. [ 66 ] Under cross-examination, she confirmed that the paperwork agents, including Mr.

Smith, would provide to her to send to Camdeton’s head office, would include the investor’s cheque; the investor’s non-disclosure document and 3 other forms, the nature of which she could not recall. She pointed out that she did not read them, as that was “not her job”. [ 67 ] She further advised that she had no real knowledge or understanding of the investments, other than what she read in the brochures that were in the office. Off-shore investing was not something she was familiar with.

As she said, “All I knew was it was guaranteed and that investors would double their money.” [ 68 ] She acknowledged that when complaints started to filter through her in 2006, she did not tell her parents about them. She did not think anything of the complaints, as Jeff Haver and Shane Smith were responding to the investor’s inquiries, at that time. [ 69 ] This witness claimed that she did not withhold bad news in relation to her parents’ investment. She did acknowledge that she knew Mr.

Smith was no longer an investment advisor, as he had told her that in order to sell this particular investment product, he had to give up his license. She could not say whether or not her parents knew this.

[ 70 ] Her understanding was that none of the agents would discuss the investment with a prospective investor unless they first signed the non-disclosure agreement. She was adamant on this point. [ 71 ] As a result of cross-examination by counsel for the defendants, it was clear that the defendants wished the court to believe that the plaintiffs’ daughter was in a position, at least at some point, to warn her parents in relation to the investment scheme. Evidence of SHANE SMITH [ 72 ] Only Shane Davidson Smith was called as a witness in his own defence and in defence of his corporation, Synergy Group

(2000) Inc. Mr. Smith is 45 years of age, married with two children and achieved a “5- year University of Toronto geophysics degree”. [ 73 ] He commenced a career as a financial advisor in “approximately 1993 or 1994”. He began his career selling mutual funds and life insurance in Peterborough, first with the Investor’s Group, then with Ed Piekerz and Associates and then with Global Allocations Financial Group. [ 74 ] He gave evidence that he gave up his professional license in relation to the foregoing in or about 2003, in order to develop the Synergy Group.

He said that it was more involved with joint ventures and small business development and told the court that because of this, he was “forced to give up the professional designation.” [ 75 ] In describing his due diligence in relation to the impugned investment, Sabourin & Sun, he said that in or about 1999, he attended a seminar at which Peter Sabourin was one of the speakers and the Royal Bank was one of the sponsors. He also was aware that Peter Sabourin appeared on a number of TV and radio shows, and said he also spoke to Mr. Sabourin on at least one occasion by telephone. [ 76 ] Because he had heard of Mr.

Sabourin five or six years previously, he believed that he could safely recommend such an investment to his clients, as he had heard nothing negative, such as investors not receiving their funds. When asked about other due diligence before 2005, he indicated that he had a background check done on Peter Sabourin by a private investigator, whom he claims to have re-engaged after things went sour, in order to try and locate Mr. Sabourin and/or his assets. [ 77 ] Mr. Smith gave no supporting evidence that he indeed was the person who retained this private investigator.

I note that the “thorough background check” that he referred to in evidence was in fact described in the investigator’s letter as a “cursory background check was done on Mr. Sabourin.” The letter goes on to state that his name was run through several criminal and professional databases both in Canada and in the United States with no records found. This was apparently undertaken in 2005. [ 78 ] Mr. Smith said that he tried to pursue Mr. Sabourin after things went sour because he felt sorry for his family and friends who had invested with Mr. Sabourin.

Again, no evidence of such an investigation by the defendant in pursuit of Mr. Sabourin and his assets was provided to the court. [ 79 ] In describing his meeting with the plaintiffs, he said that he was invited to the meeting by their daughter. He advised the court that he believed that they had already decided to invest, and that he was simply attending to explain the investment “how I understood it”. At that time, he said that their daughter was not working for him or any of his companies. He gave evidence that had an oral referral agreement with Mr. Jeff Haver of Camdeton Trading. [ 80 ] Mr.

Smith acknowledged that he explained the investment to the plaintiffs by preparation of a diagram, which was entered as evidence in this matter. He does not recall discussing with them his credentials or what capacity he was attending in or whether or not he was a licensed financial advisor. He does believe that he briefly explained the business of the Synergy Group. [ 81 ] He said that he believed that he gave no advice at all and that he did not say that this would be a good investment to the plaintiffs. He does not believe they asked to engage him as a financial advisor.

He acknowledged he never discussed the risks of this investment with them, but that he did answer whatever questions the plaintiffs had. He believed the plaintiffs had “already been sold on the investment” and that he was asked “to go out and explain the investment to them”. He said that they were not his clients and that he “handed them off” to Mr. Haver as per the agreement that he had with Mr. Haver for referrals. [ 82 ] He did acknowledge receiving a commission of $7,500 on their initial $150,000 investment, however, he claims that he then paid that over to the plaintiffs’ daughter.

The plaintiffs’ daughter, of course gave evidence that the $7,500 that was paid to her in December 2006 was a Christmas bonus. [ 83 ] The defendant acknowledged that he refused to speak to the plaintiffs about their investment because of an ongoing Ontario Securities Commission investigation. He believed that he could not speak to anyone because of that investigation. He also believed that the plaintiffs’ daughter Melinda had his lawyers’ name and phone number and that she could have given this information to her parents. [ 84 ] When asked, he denied being in partnership with Mr.

Havers and denied sharing office space with him. He indicated that Mr. Havers rented space in a house that was converted to an office, which Mr. Smith’s spouse owned. Mr.

Smith said that it was simply a mailing address for him and the place where he picked up and dropped off paperwork. [ 85 ] When asked whether or not he indeed had an escape plan (referring to Melinda’s evidence that he and his wife planned to leave the country), he denied it, saying “I must have missed the memo”. [ 86 ] Under questioning by his counsel, he believed there was nothing further he could have done by way of due diligence to determine whether or not the impugned investment was fraudulent. [ 87 ] He did acknowledge that he had told the plaintiffs through their daughter that he would try to pay them back once he had another “program up and running”.

Unfortunately, he said, this did not work out, and he has not been able to pay the plaintiffs or anyone

else back. [ 88 ] During cross-examination, Mr.

Smith acknowledged that he could not recall the exact words that he expressed to the plaintiffs in relation to the investment, but described what he would normally do in such a business meeting. [ 89 ] When his answers from his discovery (Exhibit 1, Tab 10) were brought to his attention, he acknowledged that he had no recollection, at the time of the discovery, as to what the conversation existed of. [ 90 ] When asked about the oral referral agreement that he said that he had with Jeff Haver, he had to acknowledge that at discovery, he had claimed that the referral agreement was in writing and that he had undertaken to produce it to the plaintiffs’ counsel.

He said that he looked through his records but could not find the agreement, which he believed he had entered into. He acknowledged that the Ontario Securities Commission had found that he had, entered into a written agreement with Jeff Haver in 2004.

While acknowledging that was the Ontario Securities Commission’s finding, he said he still does not agree with it. [ 91 ] He acknowledged that in March 2005, he was questioned by the Ontario Securities Commission in relation to the Sabourin and Sun Investment that he was recommending to his clients, and that he continued to sell it, in spite of his appearance before the Commission. He acknowledged this included selling the investment to these plaintiffs in July 2005.

He further acknowledged that he continued to sell this security until sometime in 2006. [ 92 ] When questioned about whether or not he had knowledge of lawsuits being brought against the Sabourin & Sun Investment Group, he indicated that he did not know and that he did not learn of any lawsuit as a result of the due diligence he previously described. [ 93 ] Mr.

Smith did acknowledge the Ontario Securities Commission had, amongst other things, ordered that he disgorge commissions that he received of some one million dollars and was also ordered to pay penalties and costs in those proceedings. [ 94 ] Counsel read to him the findings of the Ontario Securities Commission, which was filed as Tab 8, Exhibit 1, in the plaintiff’s Document Brief.

As a result of this process, the defendant acknowledged: (287) “In the late summer of 2004, Smith sent a letter to his clients informing them that he would be surrendering his mutual fund licence by the end of the year and introducing them to the Synergy and Sabourin and Sun investment opportunities. He also invited his clients to consider these investment opportunities and to make the move with him from his then-employer.”

(288) At that time, Smith was serving as the Executive Vice-President of Synergy. He testified that he was primarily focused on building Synergy and viewed the Sabourin and Sun work as an “add-on”. When he learned of the Sabourin and Sun opportunity, he concluded there was a “synergistic kind of marriage” between the Synergy and Sabourin and Sun products and believed the combination would work for certain clients. According to Smith, he would always approach clients with the Synergy product first, and would then introduce the Sabourin and Sun product if it was appropriate.

He also testified that Haver felt it was important that Sabourin and Sun clients were initially involved with Synergy because those clients typically had a higher net worth and more interest in estate planning.

(289) Smith understood that his role at Sabourin and Sun was to refer clients to Haver, who would give them a full presentation and sell the investments. Smith testified that he was told by Haver that the clients belonged to Sabourin and Sun and only Haver would be dealing with them. Smith would be compensated for referring the clients to Sabourin and Sun. Sales agents working for Smith at Synergy were also approached by Haver to help build business for Sabourin and Sun. Smith testified that because this took away capital and resources from Synergy, he received an additional commission based on the amounts invested by clients brought to Sabourin and Sun by his agents.

(290) Smith’s role also included training his sales agents, such as Delahaye, about the Sabourin and Sun investments and how they worked together with the Synergy investments. In his meetings with clients, Smith would describe the structure of the Currency Trading Contract Program, make handwritten notes and flowcharts, and pass along marketing material including the glossy Sabourin and Sun brochure on off-shore investing.

(291) Smith acknowledged that he marketed Sabourin and Sun at least indirectly through marketing for Synergy. In the Synergy marketing brochures, although they did not mention Sabourin and Sun by name, they frequently mentioned an investment that could “double your savings every 3-4 years without stock market risk”. Smith acknowledged that this referred to the Sabourin and Sun investment. It was also described as a “tax-exempt guaranteed strategy”.

One of the themes in the marketing material was that an investment with Sabourin and Sun would allow average investors to do what was generally available only to the wealthy. For example, a hypothetical scenario was used to solicit the Sabourin and Sun investment: Connie’s $300,000 house is fully paid for, and she would like to turn the “dead equity” into an income generator. Solution: Take a $225,000 mortgage or line of credit at 4% interest per year. Move the $225,000 into a Perpetual Trust with a guaranteed minimum annual return of 13.5%+ above and beyond the mortgage interest .

Connie may choose to receive annual cash-flow of $28,000+, TAX- FREE [Emphasis in original]

(292) Smith also sent this type of marketing material by e-mail to his clients and to his agents, who sent it to their clients.

(297) In his supervisory role with his sales agents, Smith sent several e-mails outlining the investment process and what agents should be telling clients about the investments. For example, in an e-mail in December, 2004, agents were specifically instructed not to tell clients that they were “selling” the off-shore product, but only that Synergy “has an opportunity” whereby they can “participate”. Smith also warned agents not to contact the Sabourin and Sun office. He instructed that no client or agent should call Sabourin and no client was to learn of Haver’s name.

He also stressed to his agents that this was a very lucrative opportunity and “to lose this tool would be suicide and would banish you back to the world of .05% trailers and clients who want to ram that mutual fund.”

(299) In March 2005, Smith was interviewed by Staff at which time he told Staff he was not aware of aspects of the Sabourin and Sun investments, including to whom clients wrote cheques, who made decisions regarding the investment of funds from investors, and how investors would get their principal and interest back and from whom. He also told Staff that he did not discuss risks with clients because it was Sabourin and Sun’s role to discuss them. Smith described his role as limited to referring interested individuals to Haver, who would deal with payments and any contracts that had to be signed.

Smith told Staff that his participation (and knowledge) ended at the point where investors were left to decide whether and how much they wanted to invest. Accordingly, he had no idea how much money was invested by clients he had referred to Sabourin and Sun and was not sure of what his compensation was for making the referrals. In fact, he had executed a contract with Haver in September 2004 and had already made many sales by the time of the interview in March, 2005.

Smith testified that he understood the contract was not binding at the time of the interview because a new contract from Haver was to be put in place. Based on the evidence before us, we find that Smith lied to and misled Staff during the investigation.

(300) Smith testified that, at his March 2005 interview, Staff gave no indication that Sabourin and Sun had any financial issues or problems, and provided no information that investors were having trouble redeeming their investments.

(301) In our view, the interview with Staff should have alerted Smith to the significant regulatory issues around Sabourin and Sun and Camdeton. Notwithstanding, Smith continued to sell the Sabourin and Sun and Camdeton investments until October 2005. His sales agents sold the investments for an even longer period of time, and he received commissions in respect of their sales.

(302) Smith testified that he had personally invested 450,000 with Sabourin and Sun and that his sister invested $50,000. This was confirmed by Ciorma’s evidence. Smith and his sister have not had any of their investment repaid.

(303) According to Smith, he referred clients to Sabourin and Sun and Camdeton from late 2004 to July or August 2005. Although the business records indicate that Smith referred clients as late as October, 2005, Smith testified that it appeared that way because it took some time for client investments to appear in the business records.

(307) Staff submitted Haver’s business records showing commissions and bonuses paid to Smith over the time period of November 2004 to June 2006. Haver’s records indicated that approximately $1 million was paid to Smith in commission fees during that period.

(311) Although it is likely that he received more, we are satisfied that Smith was paid commissions of at least $1 million over the period of his involvement with Sabourin and Sun and Camdeton.

(313) We are particularly concerned that Smith: (

i) initially sold the investments at a time when he was still employed with a registrant and was not entitled to carry on any investment business except through his employer; (ii) encouraged clients to collapse their RRSPs and mortgage their homes in order to invest in what was represented as “guaranteed” return; (iii) appears to have understood the securities law issues raised by the investment schemes, i.e. he encouraged sales agents to refer to an investment as an “opportunity” whereby an investor could “participate” or “establish a trust” and warned salespersons that they could “lose this tool” if they didn’t preserve confidentiality;

(iv) made misleading and untrue statements to Staff in his interview with Staff in March, 2005; and (

v) continued to sell the investments even after he became aware of the Commission’s enquiries and after he was interviewed by Staff.

(314) We find that Smith, a former registrant who had been registered in various categories with the Commission, including Branch Manager, knew or ought to have known that he was selling securities in breach of securities law. In our view, Smith ignored the facts before him, did not ask the right questions (or blithely accepted the answers to the questions he asked) and ignored red flags that should have alerted him to investigate more diligently.

(315) We note that Smith and his sister each invested $50,000 with Sabourin and Sun in December 2004, near the beginning of his involvement in the Sabourin and Sun investment schemes. We give relatively little weight to that fact.

(316) Based on the evidence with respect to Smith summarized in paras 281 to 311, we conclude that Smith traded in securities in breach of sections 25 and 53 of the Act. Smith has acknowledged that. We also find that Smith knew or ought to have known that his actions were in breach of sections 25 and 53 of the Act. We find that his conduct was contrary to the public interest and harmful to the integrity of Ontario capital markets. [ 95 ] As a result of the defendant’s acknowledgment of the foregoing, it is clear that both Mr.

Smith and Synergy Group 2000 Inc. were directly involved in these referrals in relation to the Sabourin scheme. [ 96 ] In fact, the Ontario Securities Commission’s findings in relation to Mr. Smith and Synergy Group

(2000) Inc. are eerily similar to the plaintiffs’ evidence as to Shane Smith’s dealings with them in this matter. Indeed, much of Mr. Smith’s evidence flew in the face of the plaintiffs’ evidence and the findings of the Ontario Securities Commission in Borealis International Inc. (Re), 2011 LNONOSC 42 ONSecCom; findings he acknowledged to be true while being cross-examined in this case. [ 97 ] Further, it is clear that Mr. Smith and his company Synergy Group

(2000) Inc. had a written agreement with Mr. Haver in relation to investments and/or referrals, which written agreement was never produced by him, not withstanding his undertaking to do so. [ 98 ] Mr. Smith earned commissions between the years 2004 and 2006, notwithstanding that he claimed to have not referred any client to this investment scheme until mid-2005. His denial that he regularly told clients that they should consider cashing in RRSPs and/or mortgaging their homes is contrary to the standard pitch that he regularly gave, including the pitch to the plaintiffs. I find that Mr.

Smith did suggest to the plaintiffs that they cash in their RRSPs and mortgage their house in order to obtain what he claimed to be a guaranteed 17.52% return on investment. [ 99 ] What is astounding to the court is that the defendants continued to trade in this investment scheme, in the face of the Ontario Securities Commission investigation and orders. Mr.

Smith, in fact, continued under the umbrella of various corporate entities and personally, to trade in such securities which resulted in, ultimately, a lifetime ban from registration to sell securities, as issued by the Ontario Securities Commission in the Borealis case [1] . [ 100 ] Mr. Smith denied that he spoke to the plaintiffs’ daughter Melinda, with the purpose of persuading the plaintiffs to drop this lawsuit, or saying that he would drag the lawsuit out. Rather, he claimed he told her that he didn’t believe it made any sense, as he did not believe there would be any “pot of gold” at the end.

He again said that he liked the plaintiffs and felt that they were wasting their money pursuing this matter in court. [ 101 ] Mr. Smith acknowledged that a person does not have to be registered to be a financial advisor for some types of investments. [ 102 ] Mr. Smith acknowledged that he told the plaintiffs that their investment was secure and guaranteed and would give them a 17.52% return on investment. He also acknowledged that he did tell the plaintiffs that if he could, he would pay the plaintiffs and his other clients back.

He acknowledged that in at least one other court case in Ontario, his company has been ordered to pay back principal based upon such a promise to repay. [ 103 ] Mr. Smith also acknowledged that he never told the plaintiffs about the Ontario Securities Commission suggesting that he was not permitted to discuss anything concerning the Sabourin investment or those proceedings, due to the notice he received from the Ontario Securities Commission. These defendants continued to trade in the face of prohibition orders from the Ontario Securities Commission which has now resulted in a lifetime ban against Mr. Smith.

All of this, he acknowledged. [ 104 ] Mr. Smith acknowledged that in the Borealis International Inc. [2] case, he was once again reprimanded, prohibited from trading in securities permanently, and ordered to pay an administrative penalty of $550,000, amongst other things. He admitted that this order was against him personally and his corporation, Synergy Group

(2000) Inc. [ 105 ] In the end, one is left to conclude that indeed, this defendant and his corporation were held out to these plaintiffs as financial advisors with special investment expertise. Mr. Smith recommended and sold the investment to the plaintiffs, claiming that it was a secure, guaranteed investment, which would produce a guaranteed return on investment of 17.52%.

The Plaintiffs’ Argument [ 106 ] Mr. Semple, on behalf of the plaintiffs, argued that Mr. Smith held himself out as an investment or financial advisor to the plaintiffs. He pointed out that he certainly did not dissuade them from that belief or understanding and he did not require that they acknowledge that he was not acting personally or through his company as an investment or financial advisor by written acknowledgment or otherwise. The plaintiffs certainly thought he was a financial advisor. In the very least, Mr.

Smith described to them his Synergy Group 2000 Inc. business within which he undertook financial and business investments. He argued that Mr. Smith held himself out as having specific knowledge and expertise in investments, in particular in relation to the Sabourin and Sun investment program. [ 107 ] He was not just an “order taker” as he would have the court believe, but had a close connection with the National Manager of Sabourin and Sun, Mr.

Jeff Haver, with whom he shared office space; had business connections; and had either a written or oral agreement personally and through his corporation in relation to commissions to be paid on sales in relation to the Sabourin and Sun investment scheme. [ 108 ] In the very least, he was to receive commissions of 5%. He argued that the commissions that Mr. Smith received on such sales exceeded $1 million. [ 109 ] Mr. Semple further argued that, by using the plaintiffs’ daughter, he was able to approach the plaintiffs in order to present to them the Sabourin and Sun Investment program.

He made his presentation, and signed them up after recommending it as an investment for them. He pointed out that Mr. Smith confirmed that he told the plaintiffs that it was guaranteed, secure, and that they would receive 17.52% return on their investment, all to mature on November 29 th , 2007. [ 110 ] The plaintiffs, he argued, are not sophisticated investors. Their prior investment experience consisted of investing in Registered Retirement Savings Plans through their bank. Having relied upon the advice and recommendations of Mr.

Smith, after his presentation in July, 2005, they made a commitment to invest $300,000. They provided $150,000 of that on the next day, advising Mr. Smith that they would provide the balance of $150,000 when the sale of Mr. Wardrope’s interest in a commercial property was completed. [ 111 ] As it turned out, he argued, the investment was nothing more than a Ponzi scheme, which the defendant now acknowledges, but denied having that knowledge at the time of securing the plaintiff’s investment. [ 112 ] He pointed out that Mr.

Smith knew that he was being questioned, in March of 2005, by the Ontario Securities Commission in relation to this very investment (Sabourin and Sun), and yet he withheld that information from the plaintiffs and sold them on the investment in July of that year. [ 113 ] Further, he pointed out that he failed to discuss with them that there was risk with this investment, telling them that it was secure and guaranteed. He further didn’t question them as to their own risk tolerance, nor did he question them as to income and other resources. [ 114 ] In questioning, Mr. Semple pointed out that Mr.

Smith acknowledged that he was ordered by the Ontario Securities Commission to disgorge $1 million in commissions that he received in relation to the Sabourin and Sun investment scheme. [ 115 ] He argued that Mr. Smith introduced the investment to the plaintiffs and sold them on it as being a good investment for them. He also said that Mr. Smith has indicated that he intends to pay back these plaintiffs, although that has not occurred. [ 116 ] Mr. Semple argued that Mr.

Smith owed a duty of care to his clients in that he made representations to them in relation this investment; he recommended it as being a good investment for them; and thus, a fiduciary duty arose: all the elements of trust, reliance and so on, were, he said, present in this transaction. [ 117 ] To that end, he urged the court to find the defendants both liable in negligence and breach of contract and breach of fiduciary duty. He argued that Mr.

Smith owed a duty to give knowledgeable and full disclosure and advice to the plaintiffs, including a description of the risks of the investment. [ 118 ] He argued that Mr. Smith failed to question the plaintiffs in relation to their risk tolerance, and put but false information on their investment application in relation to income and other assets. He argued that this showed a lack of reasonable care, skill, and competence as an investment advisor.

To that end, he said that the defendant recommended an unsuitable, risky investment to his clients, who were unsophisticated and of modest means, and used their daughter to get to them.

Clearly, this investment was unsuitable for the needs of the plaintiffs and carried a high risk for people of modest means, such as the plaintiffs, which risk was never disclosed by the defendants to the plaintiffs. [ 119 ] He asked the court to find the defendants liable to his clients for the $300,000 original investment lost and interest on that amount at either the rate of 17.52%, which was the rate of investment return that was supposedly guaranteed, or alternatively, to apply interest in accordance with the Courts of Justice Act . Defence Argument [ 120 ] Mr.

Sereda, on behalf of his clients, Shane Smith and Synergy Group 2000 Inc., pointed out no one was happy in these circumstances, where the plaintiff lost money. He argued that the facts do not show that the Sabourin and Sun investment was a scam, fraud or Ponzi scheme, but rather that losses occurred due to the principle, Peter Sabourin, “going to the dark side” and taking money out of the investment program. [ 121 ] He argued that the court needs to consider what was happening at the time that Mr. Smith was involved in the Sabourin and Sun

investments in that:

a) Sabourin and Sun had been operating for many years;

b) It had received support and “attention” of the media, the Royal Bank, Diane Francis, senior editor of the Financial Post, and Garth Turner;

c) That things fell apart because of the despicable acts of its principle, Peter Sabourin;

d) The loss the plaintiffs sustained was a result of the malfeasance of Peter Sabourin and not because of anything undertaken by the defendants. [ 122 ] He further advised that his clients were acting as investment agents and were not directly employed by Sabourin and Sun and were not acting as financial advisors. [ 123 ] He urged the court not to find that Mr. Smith held himself out to be a licensed financial advisor or a member of any organization, subject to a professional code of conduct. [ 124 ] He acknowledged that the case law would apply a higher standard of care to Mr.

Smith, should it be found that he held himself out as such an individual. [ 125 ] He further argued that Mr.

Smith only made a presentation to the plaintiffs as an unlicensed agent and did not compel or try to convince the plaintiffs to invest; was not there to sell them anything; was rather there only to tell the plaintiffs what he “knew” about the Sabourin and Sun investment program. [ 126 ] Indeed, he suggested that it is the plaintiffs that should have been wary and concerned about the “off-shore” aspect of this investment and that they were in the best place to question and be concerned in relation to entering into the investment.

He pointed out that they did not ask any questions as to risk or security issues in relation to the investment and perhaps, therefore, contributed to their own loss. [ 127 ] Mr. Sereda argued that the plaintiffs were sophisticated investors insofar as Mr. Wardrope was at one time in his career a real estate broker and owned a commercial investment and served two terms as a city councillor. He pointed out that at one time he could have arranged mortgages for individuals and therefore could hardly be considered an “unsophisticated” investor. [ 128 ] He suggested that Mr.

Smith, as a favour to the plaintiffs and their daughter, agreed to act as an agent only in order to assist them in entering into the maligned investment. To that end, acting as an agent, he could not attract the responsibilities of a fiduciary. [ 129 ] He argued that these plaintiffs had no long-term relationship with Mr. Smith and had only one short meeting with them when he explained the investment. All Mr. Smith did, he said, was to explain the investment and accommodate the investment by completing forms that he thereafter turned over to Jeff Haver of Camdeton Investments.

He said that in relation to his own clients, he would have approached the matter differently, but he did not consider the plaintiffs to be his clients. [ 130 ] Further, he argued that Mr. Smith was only involved, as an agent, in relation to the initial $150,000 invested by the plaintiffs. He said his client had no involvement with the second $150,000 investment. [ 131 ] Mr. Smith, he said, could not disclose the Ontario Securities Commission investigation into this investment at the time he was involved with the plaintiffs.

He relied upon s. 16(1) of the Securities Act , which, he said, stands as a statutory bar against disclosure of anything to do with such an investigation. When asked by the court how he expected the court to accept such an argument, when Mr. Smith has been found to have breached many orders issued by the Securities Commission to the point where he has now been made the subject of a lifetime ban from securities trading, he argues that was not the issue.

Whether or not this investment was a security was the issue, and knowledge of the investigation would have made no difference to the plaintiffs. [ 132 ] He argued that acting as an agent, none of the prerequisites for finding a fiduciary relationship between the plaintiff and the defendant Shane Smith existed.

He said that their loss was not caused by the defendant, and cautioned the court to recognize that a fiduciary relationship is very fact-specific. [ 133 ] He argued that the court cannot let sympathy or the loss itself direct the result, but that the court must apply the law to the relationship that existed between the plaintiff and the defendant, that being, he argues, one of agency only. [ 134 ] Counsel for the defendants requested, by way of motion during the trial, that I declare that no evidence had been presented to connect the defendant corporation to the plaintiffs.

I denied the request, as will be explained below. Analysis Limitations Act Defence [ 135 ] In the defence to the plaintiff’s claim, Mr. Smith and his corporation, Synergy Group

(2000) Inc., pled that this action, as commenced by these plaintiffs on the 19 th of February 2009, was barred insofar as they knew or ought to have known that their investment had “gone sour” in 2005 or 2006. [ 136 ] The first maturity date of the impugned investment was the 29 th of November, 2007. What concerns the plaintiffs might have had as to whether or not their investment was safe prior to the 29 th of November 2007 is irrelevant. Until the 29 th of November, 2007

(extended to the 18 th of July 2008, unilaterally by Camdeton), no cause of action had arisen. Just as in a mortgage loan, a bank cannot call the loan prior to its due date, simply because they find out that the mortgagor has become unemployed and may not be able to pay their mortgage.

The plaintiffs may have had concerns, but until the due date passed, they had no cause of action. [ 137 ] The statement of claim was issued on the 19 th of February, 2009, in relation to a cause of action that arose, at the earliest, on the 29 th of November, 2007, and therefore the plaintiffs’ action is not barred by the Statute of Limitations. [ 138 ] Further, as I have determined below, that the defendant Shane Smith and his corporation were in a fiduciary relationship with the plaintiffs, the Limitations Act would not apply, it being an equitable remedy. [3] [ 139 ] Having determined that the plaintiffs action was not Statute-barred, the court must answer the following questions:

(1) Was Mr. Smith and/or Synergy Group

(2000) Inc. a fiduciary?

(2) If the answer is yes, did either or both the defendants breach this fiduciary obligation?

(3) If there was a breach of the fiduciary obligations, what compensation is appropriate?

(4) If the defendants were not in a fiduciary relationship with the plaintiffs, are they still liable in negligence?

(5) If the defendants were negligent, what damages are payable? Was Shane Smith and/or Synergy Group

(2000) Inc. in a fiduciary relationship with the plaintiffs? [ 140 ] Fiduciary obligations can arise in many circumstances dependent upon the particular nature of the relationship in question. [4] Fiduciary obligations can clearly arise in certain common relationships, such as broker and investor, trustee and beneficiary and even principle and agent. [5] [ 141 ] In relationships where a fiduciary obligation has been imposed, the following are the most common characteristics found:

(1) Scope for the exercise of some discretion or power;

(2) That power or discretion can be exercised unilaterally so as to affect the beneficiary’s legal or practical interests;

(3) A peculiar vulnerability to the exercise of that discretion or power. [6] [ 142 ] The question to ask is whether, given all the surrounding circumstances, one party could reasonably have expected that the other party would act in the former’s best interests with respect to the subject matter, at issue. Discretion, influence, vulnerability and trust are non-exhaustive examples of evidential factors to be considered in making this determination. [7] [ 143 ] On the facts of the case before me, it is clear that Shane Smith stood in a fiduciary relationship with the plaintiff John Wardrope and Linda Wardrope.

He had undertaken to act solely on behalf of the plaintiffs and had relinquished his own self-interest in that regard, except for the commission that he would receive for carrying out the advice that he gave to, and arranging the impugned investment for, the plaintiffs. [ 144 ] The plaintiffs trusted and had confidence in Shane Smith. After all, their daughter worked for him, and as they said, they believed he was a financial advisor and had expertise in investments. He, they thought, would not recommend an unsafe or risky investment. Their daughter and her husband were good friends of Shane Smith and his wife.

They could not believe that he would steer them in the wrong direction, given the fact that their daughter worked for him and was friends with him, and given what they understood to be his financial background. [ 145 ] In these circumstances, the plaintiffs had every right to believe that any advice given to them in relation to the impugned investment would be honest. They themselves had no investment experience, believed Shane Smith to be a financial advisor and, as he himself said in giving evidence, he had described to them the business of Synergy Group

(2000) Inc. as being in the relationship of helping to develop small businesses and joint ventures. He told them that their investment was absolutely safe and in fact guaranteed and was “110% secure”. Clearly, the elements of discretion, influence, vulnerability and trust were present. [ 146 ] Shane Smith was in a fiduciary relationship with John Wardrope and Linda Wardrope. [ 147 ] When Mr. John Wardrope gave evidence he was clear, and I accept his evidence without reservation, that Mr.

Smith said the investment was secured with a bond to guarantee it and involved 125 European banks with a “110% collateral guarantee”. [ 148 ] I also accept his evidence that Mr. Smith never told him that he was acting as an agent for Jeff Haver, Camdeton Trading or any other entity. I also accept his evidence that he knew that Mr. Smith would be receiving a commission on the sale of the investment to them, however, I am equally satisfied that he and his wife had no idea of the hidden commissions that Mr. Smith had and would continue to receive in relation to this investment scheme. [ 149 ] As Mr.

Wardrope said “we never really understood it.” Further, had he known that the investment was subject to an Ontario Securities Commission investigation, he and his wife would have never invested in it. Unfortunately, as he said, they found out it was a “Ponzi scheme”, sometime in 2007.

[ 150 ] I also accept Mrs. Wardrope’s evidence, without reservation, that Shane Smith assured them they would not lose anything, that he “wrote and said all the things that one wants to hear” in relation to a proposed investment, including putting the name “E.P. Taylor” on the investment explanation sketch. [ 151 ] I accept her evidence that he assured him that he had done his due diligence and put “a lot of people into it”, and that he most definitely recommended it to them as a safe, secure investment.

As she said, he presented himself as a financial advisor who said this was a good investment for them. [ 152 ] I also accept her evidence, without reservation, that when confronted, Shane Smith assured them, through their daughter, that he was going to pay them back. As Mr.

Smith was a fiduciary, did he breach his fiduciary obligations to the plaintiffs? [ 153 ] I find that Shane Smith breached his fiduciary obligations to the plaintiffs. [ 154 ] Shane Smith did not disclose to the plaintiffs that the very investment vehicle that he was recommending that they invest in, was the subject of the Ontario Securities Commission and that he himself and his corporation were the subjects of that investigation. [ 155 ] He told the plaintiffs that their investment was guaranteed and fully secured, such that they would receive the return of their principle and the applicable rate of interest without question.

At no time did he provide evidence to the court that he knew this to be true. When he met with the plaintiffs, he prepared an elaborate sketch, which led the plaintiffs to believe that he was accurate in his statements that the investment was “110% secure”.

In his evidence, however, he stated that what he told them was not based on actual knowledge, but rather on his belief in the investment because he had attended a seminar sponsored by the Royal Bank many years prior at the Holiday Inn in Peterborough, where the principle of Sabourin (Peter Sabourin) was one of the speakers; and the same individual had appeared on a number of TV and radio shows. [ 156 ] Further, Mr.

Smith did not disclose to them that he had a business relationship with Jeff Haver of Camdeton Trading, nor that he was receiving commissions from not only their investment, but from the many agents who worked for him.

In fact, the reality was that Shane Smith had made arrangements such that he was receiving compensation on an upward referral system, whereby he was paid on the referrals he made to Sabourin and Sun as well as on the sales made by his agents. [ 157 ] At the time he sold the investment to the plaintiffs, he was well aware of the Ontario Securities Commission’s inquiries, as he had already been interviewed by its staff. [8] As a result of a written submission received from counsel for the defendants, dated December 20, 2012, it is confirmed that Mr.

Smith, in his evidence, voluntarily relinquished his professional designation, with a view of conducting business outside of the financial services and products regulated and overseen by various professional groups. As suggested by defendants counsel, such associations have their own particular Codes of Conduct, complaint process, education and continuing education requirements and disciplinary methods. The defendants withdrew from investment advisor status in order to sell this scheme. That does not excuse the defendants’ conduct in this matter.

Even if, as the defendants argued, they were only agents, they still attracted the obligations of fiduciaries. [ 158 ] The plaintiffs should have been provided independent advice based on the defendant’s knowledge of them. The plaintiffs signed the non-disclosure agreement presented to them by Mr Smith and, in compliance with that document, discussed the investment with no one.

Both the plaintiffs and the defendant Smith gave evidence that at no time did he admit that there was a risk in the investment in question; he did not even discuss their own risk tolerance; he opined that they should consider cashing in their RRSPs and mortgaging their house in order to attain the sterling return on investment rate of 17.52% all part of the referral commission scheme that he was benefitting from and that he did not disclose to the plaintiffs. [9] [ 159 ] The foregoing would lead one to conclude that the defendant, personally and through his corporation, was working as a promoter of the investment scheme, as he received undisclosed commissions from the proponent of the scheme and not from the plaintiffs themselves.

Receiving such commissions meant that he had a financial interest in the transaction that was diametrically opposed to the interests of the plaintiffs. [ 160 ] These plaintiffs were extremely vulnerable in that they trusted Shane Smith, based upon their knowledge of him through their daughter, and based upon the touting of his own investment experience that he imparted to them at the time of his meeting to explain and obtain their involvement in the investment scheme. They believed Shane Smith when he said their money was at no risk. They believed Shane Smith when he said it was 110% secure, guaranteed.

They relied upon what they believed to be his honest advice. Given the fact that he had a financial interest in the investment scheme, which he did not disclose to them, clearly, his advice was not without conflict. Given the fact that he knew of the Ontario Securities Commission investigation into the investment scheme and given his self-interest in it, his advice to them was marred by self-interest and deceit. [ 161 ] John Wardrope gave evidence that he was looking for a guaranteed investment because he is 12 years older than his wife and wanted a guaranteed investment for her.

The defendant’s presentation to the plaintiffs convinced them that this was a secured, guaranteed investment which he recommended it to them. He said that it would be a good investment for them . He told them they would lose nothing. [ 162 ] Even though he recommended this investment to them, Mr.

Smith was unaware of the plaintiffs’ investment experience; their tolerance for investment risk; the extent of their assets and income; and he never discussed with them the possible risks in the investment, or his hidden or secret interest in the investment scheme. [ 163 ] But for Shane Smith’s advice to the plaintiffs, they would never have invested in Sabourin and Sun. They trusted him and

believed that he was acting on their behalf, as their advisor, and in their best interests. Since Mr. Smith breached his fiduciary obligations, what compensation is owed by him to the Wardropes? [ 164 ] The plaintiffs are asking that the court grant them equitable compensation for breach of Mr. Smith’s fiduciary obligations. The purpose of equitable compensation is to put the plaintiffs in as good as position as they would have been in, had the breach of fiduciary obligation not occurred. [ 165 ] Negligence was pled as an alternative cause of action by the plaintiffs in this matter.

Counsel for the defendants argued that I should consider whether or not the plaintiffs contributed to their own investment loss, such that any damages awarded to them should be reduced. [ 166 ] Counsel for the defendants suggested that a prudent investor should have realized that the proposed investment scheme was simply too good to be true.

A guaranteed return on investment of 17.52% (which in effect would be compounded by leaving the interest invested to accumulate until the maturity date of November 29 th , 2007) should have alerted the plaintiffs for the need to obtain independent advice from their banker or an accountant. For Mr. Smith to argue that the plaintiffs should have realized this investment was too good to be true, is incredible, given his long career as an investment advisor, mutual fund and life insurance professional and involvement in what he described as joint ventures and small business development.

If anyone should have known that this investment was too good to be true, it was the defendant Shane Smith. For him to give evidence that he had to give up his “professional designation”, in order to sell this scheme is equally incredible. Shane Smith received commissions in this scheme, which he knew, as a former registered investment advisor, was the sale of a security in breach of securities law.

He knew this when he sold the investment to the plaintiffs. [ 167 ] While the plaintiffs may not have been required to act in as reasonable and prudent a manner as might be required in a negligence or breach of contract case, losses that are the result of the plaintiffs’ unreasonable actions may be barred. [10] There appears to be no bar to the application of contributory negligence in determining the quantum of equitable compensation. [11] As Justice Gray said in Lemberg [12] : The question is whether it is equitable, in the particular circumstances of the case, to reduce the recovery of the plaintiff because he or she failed to take some reasonable step that might have reduced or eliminated the loss. [ 168 ] In the case before me, I do not believe that the plaintiffs’ damages should be reduced.

The plaintiffs in this case relied completely upon Shane Smith and his recommendations and advice in relation to the impugned investment. They gave evidence that they did not fully understand the investment, but trusted Mr. Smith. As he said, the transaction was a good investment for them that they should enter into, even to the extent that he suggested that other investors were cashing in their RRSPs and mortgaging their homes, and that they should consider this in order to achieve this extremely high rate of return on their available capital.

Clearly but for their investing in this scheme, they would not have lost their money. Certainly, had they spoken to their lawyer, banker or accountant, they may have decided against following the advice of Mr. Smith. [ 169 ] Melinda Morgan’s evidence was that she performed clerical functions, and in particular, in relation to this investment product, processed for each investment presented by the agents:

(1) An investment cheque;

(2) A non-disclosure document signed by the investors ;

(3) Three different forms that investors signed, the particulars of which she could not recall. [ 170 ] One thing that was of great concern to the court was her description of the “non-disclosure agreement” that interested investors had to sign before a presentation was made to them. She understood the non-disclosure document to require that they not discuss the proposed investment with anybody, such as a lawyer, another investment advisor or a bank manager, or somebody of that nature. Based on the foregoing, the defendants cannot suggest that the plaintiffs contributed to their own losses.

They signed a document by which they agreed they could not obtain a second opinion or alternate investment advice. The plaintiffs learned of this investment through Mr. Smith, who used the plaintiff’s daughter in order to be able to approach them, just as he approached many other people, in order to sell this investment scheme to them. [ 171 ] Based upon this analysis, it is unnecessary for the court to address issues 4 and 5, given my findings of a fiduciary obligation. [ 172 ] To that end, Mr. Smith must compensate the plaintiffs fully for their losses.

I accept the plaintiffs’ evidence that the defendant Smith attended at their residence in order to pick up their initial $150,000 cheque and subsequent $150,000 cheque to invest on their behalf. I am not, however, prepared to consider compensating them to the extent that they would receive a 17.52% return on their investment. Rather, a reasonable rate of interest should be applied, in order to put the plaintiffs as nearly as possible in the position they would have been, but for the actions of Shane Smith. [ 173 ] The principle that the plaintiffs invested was $300,000.

Pre-judgment interest, in accordance with the Courts of Justice Act , from November 29 th , 2007 to December 4 th , 2012 would attract a rate of 4.8% ($39.45 per day for 1,831 days), for a total of $72,236.71. I believe that would reflect a reasonable rate of return on the plaintiffs’ money in all these circumstances.

[ 174 ] For all the foregoing reasons, I grant the plaintiffs’ judgment in the amount of $372,236.71. The judgment, of course, will attract post-judgment interest at the current Courts of Justice Act rate of 3%, commencing December 4 th , 2012. Is Synergy Group

(2000) Inc. also liable to the plaintiffs for this judgment? [ 175 ] The evidence presented in relation to Synergy Group

(2000) Inc. was that it is Shane Smith’s company, of which he is an officer, director and shareholder. [ 176 ] During the presentation to the plaintiffs, Shane Smith described this corporate entity to the plaintiffs and the work he was undertaking within that corporation in relation to joint ventures and small businesses. [ 177 ] On the customer account application, prepared by Shane Smith, Synergy Group is listed as the referring entity.

Given the hidden commission scheme, Synergy Group would appear to benefit from referrals by way of commissions, as did Shane Smith. [ 178 ] Further, the defendant Shane Smith, in his evidence, indicated that he would have given to the plaintiffs his business card, which he disclosed in his affidavit of documents, as showing “The Synergy Group

(2000) Inc.” This is the corporation that Mr.

Smith indicated that he described to the plaintiffs. [ 179 ] Certainly, from their evidence, it is clear the plaintiffs relied partially upon his involvement in that corporation as a reason for them placing trust and confidence in him, as an investment advisor. [ 180 ] At the end of the day, the plaintiffs’ evidence, which I accept, was that Shane Smith, as the president of Synergy purported to act as a financial advisor or investment counsellor for their benefit. [ 181 ] Smith’s own evidence was that he described Synergy to the plaintiffs and that led the plaintiffs to believe that he had special knowledge and expertise in connection with this investment and other financial matters personally and through his corporation. [ 182 ] The defendants did not lead any evidence to deny this allegation and therefore, I find the defendant Synergy Group

(2000) Inc. to be jointly and severally liable to the plaintiffs with Shane Smith, as the “referring entity” in the investment scheme, as documented by Shane Smith. [ 183 ] Judgment will issue accordingly as against both Shane Smith and his corporation, Synergy Group (2000), Inc. [ 184 ] As to costs, I will entertain written submissions, not to exceed 3 pages, together with a bill of costs. The plaintiffs shall have 10 days to submit their submissions, and the defendants shall have 10 days to respond to the plaintiffs’ submissions. “Mr. Justice D.S. Gunsolus” Released: January 15, 2013