IN THE MATTER OF:

THE RULES OF THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA AND ALVIN RUPERT JONES

STATEMENT OF ALLEGATIONS

Further to a Notice of Hearing dated June 17, 2019, Enforcement Staff make the following

allegations:

PART I – REQUIREMENTS CONTRAVENED

Between June 2015 and April 2017, the Respondent engaged in, and facilitated investments for

two clients in an outside business activity without informing, and without the approval of, his

Dealer Member contrary to Dealer Member Rule 18.14 and Consolidated Rule 1400 (prior to

September 1, 2016, Dealer Member Rule 29.1)

PART II – RELEVANT FACTS AND CONCLUSIONS

Overview

1. The Respondent engaged in an undisclosed outside business activity between June 2015

and April 2017 (“Relevant Period”) involving a retail home product, namely a garden

hose (the “Business”).

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2. Throughout the Relevant Period the Respondent undertook several activities for the

Business including acting as a Director and CFO, incorporating a numbered company,

providing cash flow projections and price lists, dealing with suppliers, and soliciting

investors.

3. The Respondent facilitated investments in the Business by two of his clients at his

Dealer Member.

4. The Respondent was aware that his Dealer Member’s policies required disclosure and

written approval before he could engage in outside business activities as matter of

identifying existing and potential conflicts of interest; however the Respondent failed to

do so in relation to the Business.

Background

5. The Respondent was a Registered Representative with Manulife Securities Inc.

(“Manulife”) from April 2004 until May 2018 when he was terminated for reasons that

included a client complaint in connection with, and failure to disclose, the Business.

The Business

6. The Respondent was introduced to the Business by AR who had been his client at

Manulife since approximately 2004. AR owned and operated a company that

manufactured plastic materials for use in other products. AR was interested in starting a

new venture focusing on producing hoses and in early 2015 approached the Respondent

for assistance.

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7. The Respondent did not personally invest any money into the Business; however, he

held a 25% interest in it until approximately April 2017 when he resigned from the

Business.

The Respondent’s Involvement in the Business

8. On August 14, 2015, the Respondent incorporated a federal numbered company for the

Business. Though the Respondent was the only Director at the time of incorporation,

ultimately the Articles of Incorporation listed four members on the Board of Directors:

• The Respondent;

• AR;

• SR, who the Respondent’s client; and

• LH, who was not the Respondent’s client.

9. On August 19, 2015 the Respondent obtained an Ontario Master Business Licence for

the Business.

10. The Respondent was the sole signatory on a declaration on at least two federal and

provincial forms related to the incorporation certifying he had “…relevant knowledge

and that [he was] authorized to sign…” the relevant forms.

11. In addition to acting as a Director, by as early as May 2016 the Respondent had agreed

to act and represented himself as the CFO and used this title in his email signature on

Business emails.

12. Throughout the Relevant Period the Respondent undertook a variety of other activities

for the Business as reflected in numerous emails, including the following:

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Date Email Communication Sent by Respondent Via Manulife email address June 10, 2015 Canvassing SR and LH re logo for the Business October 22, 2015 Advising outside party re AR’s company financials were “brisk”

and “requires more equipment in order to produce …exclusive line of clear (high tech) garden hoses for Home Hardware, Canadian Tire, etc.”

Via Sympatico email address November 10, 2015 Advising LH of Purchase Order re predecessor company of the

Business November 26, 2015 Advising AR, SR, LH and his client CM of intention to set up

meeting with a corporate lawyer to finalize a shareholder agreement, and minute books

Via Business email address with signature: “Chief Financial Officer.”

May 17, 2016 Advising LH, SR, AR, CM and a third party re copyright for the Business

May 26, 2016 Advising LH, SR, CM and third parties re his request that a cease and desist letter be written by a lawyer re civil action involving predecessor company to the Business

June 13, 2016 Advising third party re Vendor Agreement for the Business June 13-14, 2016 Advising LH, SR, CM and a third party re packaging count and

price list for hoses June 15, 2016 Request for competitive pricing from a third party supplier and

arranging for order of items to sample June 19, 2016 Advising third party and LH, SR, and CM re cash flow projections

for the Business June 21, 2016 Advising third party re AR company’s financials, finalizing

warehousing in US for the Business and getting purchase orders from Home Hardware and Amazon Prime

July 8, 2016 To third party supplier, advising the Respondent had tested the supplier’s product and request for order of product to complete small rush order for the Business

July 12, 2016 To LH requesting a design for a fillable purchase order form for shipping and billing to the Business

July 12, 2016 To a third party accountant requesting financing application and offer to provide financial statements for Business

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13. The Business was ultimately not successful, and in or about April 2017 the Respondent

resigned as Director.

The Respondent Facilitates Investment in the Business

14. Throughout the Relevant Period, the Respondent facilitated investments by two of his

Manulife clients in the Business.

Client CM

15. The Respondent met CM through a mutual friend in 2013. CM had recently moved to

Toronto from the Bahamas. In May 2014, the Respondent opened an account at

Manulife for CM and assisted her with certain financing difficulties by introducing her to

a third party lender.

16. At the time CM was not employed, was approximately 50 years of age, not married, and

had no dependents. CM had never had an investment account prior to the one opened

by the Respondent. CM was not experienced in investing and relied upon the

Respondent for his advice and expertise.

17. Throughout the Respondent’s advisor relationship with CM, her profile consistently

reflected that the purpose of her account with him was for retirement income and that

her time horizon was ten or more years.

18. In December 2014 the Respondent first told CM about the Business at a social gathering.

He advised her that he projected sales of about $500,000 to $750,000 in the first year

and that he had an investor interested in investing half a million dollars. In or about

early 2015 the Respondent took CM on a tour of AR’s manufacturing company.

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19. In or about June 2015, having sold a piece of real estate, CM invested the proceeds of

the sale of approximately $350,000 with the Respondent. This amount constituted the

bulk of her net worth.

20. In November 2015 CM invested $100,000 for a 10% interest in the Business. The

Respondent sold various blue chip, diversified mutual funds and dividend paying

equities in CM’s account with him in order to fund the $100,000 investment.

21. CM understood that the Respondent held a 25% interest in the company and assumed

he would be contributing capital to the Business as well; however, CM ultimately

learned that the Respondent had made no financial contribution.

22. As indicated above, via a November 26, 2015 email to AR, SR, LH, and CM, the

Respondent advised that he had spoken with a corporate lawyer to finalize a

shareholder agreement.

23. In or about December 2015 the Respondent arranged for a meeting with AR, SR, LH, and

CM and the corporate lawyer to discuss the structure of the Business. According to an

unsigned Shareholder’s Agreement dated December 2015 the parties as shareholders

were to receive an interest in the Business as follows:

Name* Number and Class of Shares or Securities Convertible into Shares Alvin Jones 25 Common AR 25 Common CM 10 Common LH 12.5 Common SR 25 Common

*an unrelated third party was to receive 2.5 common shares

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24. In May 2016, the Respondent sold various blue chip securities, diversified mutual funds,

and dividend paying equities in CM’s account to fund an additional investment by her of

$50,000 for operating and start up costs of the Business.

25. The Respondent earned approximately $500 in commissions as a result of sales of

securities in CM’s account in relation to the Business.

26. The Respondent was aware that CM made two further investments in the Business in

2016: $45,000 in July for rent, and $10,000 in August for materials. CM did so at the

Respondent’s prompting. CM funded these investments by use of her Manulife line of

credit (“LOC”), as well as an unrelated bank LOC.

27. CM considered these investments as loans to the Business and that she would be the

first one paid back from profits.

28. Both of these LOC’s were secured against her Manulife portfolio held by the

Respondent, who also assisted her with opening the Manulife LOC.

29. In total CM invested $205,000 in the Business. In or about April 2017 CM received an

additional 10% interest in the Business from the Respondent’s own 25% interest, when

he resigned from the Business, bringing her total interest to 20%.

30. Following the failure of the Business, CM lost the whole of her investment and in June

2017 filed a complaint with Manulife and ultimately received a $100,000 settlement

with the firm. The Respondent did not contribute to this payment to CM.

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Client SR

31. The Respondent’s client SR had an investment account with him and was also a

Manulife Insurance Inc. client. SR had previously purchased two Manulife insurance

policies.

32. In or around mid-2015 he Respondent introduced SR to the Business and to AR.

33. The Respondent facilitated SR’s investment in the Business in October 2015 by assisting

SR to withdraw money out of one of his Manulife life insurance policies. SR invested

$50,000 in the Business for a 25% interest; he subsequently invested a further $50,000

to keep the Business operating.

34. Following the failure of the Business, in or about October 2017 SR filed a complaint with

Manulife. In or around March 2018 Manulife offered to settle with SR for a $50,000

payment; SR did not accept this offer.

Failure to Disclose

35. The Respondent was aware that Manulife’s policies:

• defined an outside business activity as “…any activity conducted by a registered

individual outside the dealer:…(b) involving any officer or director position or any

other equivalent positions, whether or not the organization [had] a business

purpose…”;

• identified “…both a regulatory and Manulife Securities policy that:…registered

individuals that wish to engage in any activity other than securities related

business….must disclose these to and receive written approval from the Branch

Supervisor prior to engaging in the activities”; and that

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• Manulife advisors ”...have an ongoing obligation to take reasonable steps to

identify existing and potential material conflicts of interest and to address these

in a fair, equitable and transparent manner consistent with the best interests of

…clients”.

36. The Respondent had previously engaged in outside business activities that he disclosed

to Manulife and for which he received written approval, including owning an

automobile leasing company in 2005 and a musical band in 2014.

37. The Respondent failed to disclose to, and obtain written approval from, Manulife before

engaging in the Business.

DATED at Toronto, Ontario this 17th day of June, 2019