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ALBERTA SECURITIES COMMISSION

DECISION

Citation: Wealthstreet Inc., Re, 2011 ABASC 456 Date: 20110825

Wealthstreet Inc., Colin David Jones aka David Colin Jones and Rachael Poffenroth

Panel: Glenda A. Campbell, QC Beverley A. Brennan, FCA Glen D. Roane

Appearing: Carla Murray for Commission Staff

David Jones for himself

Rachael Poffenroth for herself

Submissions Completed: 8 July 2011

Date of Decision: 25 August 2011

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I. INTRODUCTION [1] In an amended notice of hearing dated 13 January 2011, staff ("Staff") of the Alberta Securities Commission (the "Commission") alleged that three respondents – Wealthstreet Inc. ("Wealthstreet"), Colin David Jones aka David Colin Jones ("Jones") and Rachael Poffenroth ("Poffenroth") (together, the "Respondents") – contravened Alberta securities laws and engaged in conduct contrary to the public interest, the specifics of the alleged misconduct being:

• in the case of all Respondents, by trading in and distributing Wealthstreet securities without registration and a prospectus or an exemption;

• in the case of Jones: • by acting as an advisor1 without registration; • by making misleading or untrue statements to investors; and • by engaging in an unfair practice to pressure investors into buying

securities from Wealthstreet. [2] The hearing into the merits of the allegations (the "Merits Hearing") began on 26 April 2011 and concluded on 29 April 2011. We received documentary evidence and heard testimony from one Staff investigator, five Alberta investors (for privacy reasons, we identify investor witnesses by their initials), the Trustee in Bankruptcy for Wealthstreet (the "Trustee") and Poffenroth. Jones attended only portions of the Merits Hearing, did not testify and cross-examined only some of the witnesses. Poffenroth attended the Merits Hearing and testified, but declined to cross-examine any witnesses. The Trustee testified; however, counsel for the Trustee did not attend the Merits Hearing. We received written argument from Staff on 27 May 2011. Although invited to do so, none of the Respondents provided written argument. In an email dated 12 July 2011, the Registrar of the Commission (the "Registrar") advised the panel that Staff did not request an opportunity to make oral argument and that the Registrar had received no communication from any of the Respondents on that matter. Accordingly, no oral arguments were made. [3] Our decision and reasons on the merits of the allegations against the Respondents follow. Stated briefly, we find that:

• contrary to sections 75(1)(a) and 110(1) of the Securities Act, R.S.A. 2000, c. S-4 (the "Act"), each of the Respondents illegally traded in and distributed securities of Wealthstreet;

• contrary to section 75(1)(b), Jones acted as an advisor without being registered

to do so; • contrary to section 92, Jones engaged in an unfair practice by unreasonably

pressuring at least one investor to purchase securities through Wealthstreet; and

1 The term "advisor" was used in Alberta securities laws until 28 September 2009, when it was replaced by "adviser". This decision uses the former terminology.

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• in so doing, each of the Respondents engaged in conduct contrary to the public interest.

II. PRELIMINARY MATTERS A. Jones's Participation in Merits Hearing [4] Jones participated sporadically in the Merits Hearing. He did not attend the first day of the Merits Hearing on 26 April, arrived late for the morning session on 27 April, did not attend the afternoon session on 27 April, arrived late for the morning session on 28 April, did not attend the afternoon session on 28 April, and did not attend the final morning of the Merits Hearing on 29 April 2011. [5] At the start of the Merits Hearing on the morning of Thursday 28 April 2011 Staff advised that "given that emotions were running quite high yesterday, we have requested and we do have security present for the rest of the hearing". Later that morning Staff indicated that they would be closing their case that afternoon, after the lunch break. The panel inquired as to whether any of the Respondents wished to call evidence. Poffenroth had earlier indicated that she was calling no witnesses, but was given until 1:00 pm that day to consider whether she wished to testify. Jones requested that he be allowed to call witnesses even though he had failed to provide the names of any proposed witnesses to the other parties as previously directed in earlier pre-hearing appearances, and he had yet to make arrangements with any such proposed witnesses, or even to contact some or all of them. Jones indicated that he was not ready to proceed with his case, and he gave no indication as to when he would be ready or his witnesses would be available. Jones also indicated that he might testify. Staff and Poffenroth opposed Jones's very late request to call witnesses. Counsel for the Trustee indicated through Staff that Jones should be required to provide "will say" statements, if allowed to call any witnesses. The panel advised Jones that it would adjourn to consider his request and deliver its decision when the Merits Hearing resumed at 1:00 pm. Jones indicated several times that he would not attend the Merits Hearing in the afternoon, for reasons unknown. [6] When the Merits Hearing resumed that afternoon, Staff stated that Jones had contacted Staff and asked Staff to advise the panel that "an incident in his driveway" over the noon hour precluded him from attending. No other explanation was given and no requests were made. The panel declined Jones's late request to call witnesses not previously identified to Staff and the other Respondents but ruled that Jones could testify should he wish to, such testimony to take place the next day. Poffenroth testified and completed her direct evidence that afternoon. Jones was not in attendance to cross-examine Poffenroth. Staff requested that their cross-examination of Poffenroth commence the next morning. Because Jones was not in attendance that afternoon, the clerk of the Commission was asked to communicate to Jones the panel's ruling on his request to call witnesses and to advise him that the Merits Hearing would resume Friday 29 April 2011 at 10:00 am with the cross-examination of Poffenroth. [7] At the start of the Merits Hearing on Friday morning the panel was advised by Staff that Jones may not attend because he had "some personal safety concerns". No elaboration was provided and, again, no requests were made of the panel. The Merits Hearing resumed with Staff's cross-examination of Poffenroth, followed by questioning by the panel, after which Poffenroth closed her case. With no representations from Jones, the panel declared that the

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evidence portion of the Merits Hearing was completed and that the Merits Hearing would proceed to the argument phase, with a schedule set out for the receipt of written arguments from the parties. The Merits Hearing was then adjourned at 10:58 am to await written argument from the parties. Subsequent to this, the Registrar of the Commission informed the panel of an email communication from Jones – which the Registrar had received at 10:45 am – in which Jones advised that a claimed incident at his home on Thursday 28 April 2011, apparently made known to the police, precluded his attendance at the Merits Hearing on Thursday afternoon and on the following morning, Friday 29 April 2011, and requested that "this hearing be postponed till a time that security can be arranged to secure my safety". That email and an earlier telephone conversation between Jones and the Registrar both occurred after the start of the Merits Hearing on Friday morning. We understand that the Registrar subsequently advised Jones that the evidence portion of the Merits Hearing had been completed. Jones then sent a second email communication stating: "I do not understand how this case can be closed if I was not safe to be in attendance and give my closing arguments or cross examination of Ms. Poffenroth." [8] The panel communicated the following response to all the parties:

With respect to Mr. Jones' cross-examination of Ms. Poffenroth, Mr. Jones had the opportunity to do so over a two-day period. First, as he had advised the panel earlier that morning, Mr. Jones did not attend on Thursday afternoon, with no sufficient explanation. Second, his non-attendance on Friday morning occurred without his having made a timely request for and establishing the need for measures such as increased security (security was already in place), an in-camera session or an adjournment. The only request received was one on Friday for an indefinite adjournment (with no supporting evidence) after the evidence portion of the Merits Hearing had been completed, closing arguments had been scheduled and all the other parties had left the hearing room. Ms. Poffenroth has now been excused as a witness. With respect to argument, Mr. Jones, as with the other parties, will have an opportunity to make closing argument to the panel. The panel has directed the following timetable for the submission of argument on the merits of Staff's allegations set out in the Amended Notice of Hearing dated 13 January 2011: • Staff are to provide their written argument on the merits of Staff's allegations to the panel

and each of the Respondents by the close of business on Friday 27 May 2011; • the Respondents, should they wish, are to provide their written argument on the merits of

Staff's allegations to the panel and each of the other parties by the close of business on Friday 24 June 2011;

• Staff are to provide their reply, if any, to the panel and to each of the Respondents by the close of business on Monday 4 July 2011; and

• oral argument is not necessary; however, if any party wishes to make oral argument to supplement their written argument, they are to notify the Registrar by no later than the close of business on Friday 8 July 2011 and a date will be set for that purpose.

All parties, including Mr. Jones, have been given ample time in which to prepare and submit closing argument on the merits of Staff's allegations for the panel's consideration. A second phase of the hearing will be held, in the event any of Staff's allegations are sustained, to hear evidence from the parties and their argument on appropriate sanction and costs. In the circumstances, the panel is prepared to reopen the hearing – should Mr. Jones wish to make such a request – for the purpose of hearing Mr. Jones' testimony under oath or on

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affirmation. If Mr. Jones wishes to so testify, he is to advise the Registrar by 3 pm Monday 2 May 2011. The panel would then hear Mr. Jones' evidence, for so long as required, commencing at 9:30 am on Wednesday 4 May 2011, but at no other date or time. This date is one of those originally scheduled for this hearing, as agreed to by all parties. [original emphasis]

[9] On 2 May 2011 Jones advised the Registrar that he did "not need to cross examine anyone at this point" and that he intended "to give closing arguments". On 3 May 2011 the panel reiterated to the parties that the Merits Hearing would now proceed to the argument phase and that closing arguments on the merits were to be provided in accordance with the timetable previously set out by the panel. As noted, Jones did not submit written argument, nor did he request the opportunity to present oral argument. [10] In the circumstances the panel is satisfied that Jones received a fair hearing and was accorded procedural fairness. B. Standard of Proof [11] It is well established that the standard of proof in Commission enforcement proceedings is the balance of probabilities civil standard (see F.H. v. McDougall, 2008 SCC 53 at paras. 40, 45-46). Thus, in this proceeding we determine whether Staff proved, on a balance of probabilities, the allegations made against the Respondents in the amended notice of hearing. [12] In making our findings, we relied on the testimony given before us and on the documents admitted into evidence. The latter included documents relating to investments (entered into evidence through either a Staff investigator or investor witnesses), corporate registry records, excerpts from transcripts of compelled interviews of Jones and Poffenroth (conducted under oath by Staff investigators) and Wealthstreet advertisements (both recorded and in print). We find that evidence – the testimony and recordings heard and the documents received – to be sufficiently clear, convincing and cogent to satisfy the balance of probabilities test in making our findings and conclusions set out below. III. FACTUAL BACKGROUND [13] We summarize the factual background relevant to our decision, derived from the testimony heard and the documentary evidence received. A. Respondents [14] Jones is an Alberta resident. Jones stated during his compelled interview with Staff on 3 February 2010 that he was a financial advisor. However, according to the 16 February 2011 certificate issued under section 218 of the Act and the 28 April 2011 supplemental certificate issued under section 218 of the Act (the "218 Certificates"), he was not registered under the Act in any capacity, including that of dealer, salesperson, advisor, adviser or investment fund manager from 1 January 2000 to 28 April 2011. Jones was licensed to sell life and disability insurance by the Alberta Insurance Council. He had been registered as a mutual fund salesperson at one time, but not since August 1991. [15] Poffenroth is an Alberta resident. She has no post-secondary education but had taken a course offered by the Investment Fund Industry of Canada. According to the 218 Certificates,

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Poffenroth was not registered as a dealer or salesperson under the Act from January 2000 to 16 February 2011. [16] According to Alberta Corporate Registration System ("CORES") records, 528484 Alberta Inc. was incorporated in Alberta on 8 May 1992 and, on 24 July 2003, changed its name to Wealthstreet. Wealthstreet carried on business in Calgary. As of July 2007, it operated from a building in Calgary, Alberta with a residential address of 7425 Macleod Trail SW (the "Building"). CORES records identify Jones as Wealthstreet's sole director and sole shareholder. Jones, by his own admission, was also Wealthstreet's chief executive officer ("CEO"). Poffenroth was the president of Wealthstreet from February 2007 to 19 March 2008. As of 1 August 2008 the management team of Wealthstreet consisted of Jones and Noreen Zowtuk ("Zowtuk"), Michael Arnold ("Arnold") and Derek Lalonde ("Lalonde"). [17] According to the 218 Certificates, Wealthstreet has not been registered as a dealer or salesperson under the Act from 1989 to 16 February 2011, and no prospectus has been filed or receipted in accordance with the Act in respect of a distribution of Wealthstreet securities since 1991. B. Wealthstreet 1. Operations [18] Wealthstreet carried on business providing financial advice, and financial planning, as well as marketing investment opportunities to Alberta residents, primarily retail investors. Wealthstreet described itself as "a boutique investment firm managing over $100 million in assets". Wealthstreet maintained a sales force of individuals that were described as "wealth designers" or "WEALTHCoaches". Wealthstreet also sold life insurance products. [19] Jones and Wealthstreet salespeople sold clients securities in other issuers. At least two of those issuers – Concrete Equities Inc. ("Concrete Equities") and the Dragon Fund Limited Partnership (which offered the "Dragon Fund" investment) – were entities in which Jones had an ownership or management connection. Jones was the CEO of Concrete Equities and sole director, officer and shareholder of the Dragon Fund Inc. (formerly the manager and administrator of the Dragon Fund Limited Partnership, whose general partner was Dragon Fund General Partner – also Jones-controlled entities). Jones, Zowtuk, Arnold and Lalonde were the trustees of the Dragon Fund. Wealthstreet's revenue was largely generated from the commissions paid to Jones and its salespeople from selling the various securities and insurance products. [20] Wealthstreet also sold to clients securities of its own issue – promissory notes, which we discuss in more detail below. [21] Wealthstreet actively promoted its services through hosting investment seminars, placing infomercials on television and radio, paying for Jones to make promotional radio and television appearances, posting promotional videos on its website, placing advertisements in the print media and providing brochures to prospective investors. For example, one brochure stated that:

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We specialize in acquiring the four to seven sources of income necessary to fulfill goals and aspirations in the retirement years. In other words, we look at what investments or savings you currently have, where you need to be and the time frame before retirement, assessing what is available to make these dreams a reality.

[22] Another brochure in evidence stated that:

Thirty minutes with a WEALTHSTREET wealth designer could have you in secure, growing and exciting investments that can make you look like Donald Trump when you're talking around the water cooler.

[23] Another brochure in evidence under the signature of Poffenroth claimed:

We are continually adding other services and investment opportunities to serve you like no other firm can. WEALTHSTREET is often asked, "How are you different?" We would like to answer that in two parts: • We truly do believe each family and/or individual is different with specific goals and

dreams and should not be profiled based on age. • Unlike the banks and most financial planners we would prefer that instead of having

you aiming to save millions in your savings pool and then draw from this capital in your retirement years, rather we believe that you should have many income[-]producing investments that have the potential to not only provide you an income in your retirement years but also have the potential to out-live you and your generation.

. . . [24] Other promotional material stated that:

David C. Jones, CEO and Founder, along with Rachael Poffenroth, President, and their well-schooled team of WEALTHCoaches make it their business to set themselves apart from other financial-services companies. . . . Clients are confident in knowing Jones and Poffenroth are continually working behind the scenes to sort through the mess of investment vehicles bringing only the best to their clients. WEALTHSTREET is known for being an active money manager.

[25] The evidence indicated that from March 2007 to June 2009 Wealthstreet spent in excess of $900 000 on its promotional activities. [26] Wealthstreet ceased operating in the fall of 2009. On 6 April 2010 Jones assigned Wealthstreet into bankruptcy. Alger & Associates Inc. (now Grant Thornton LLP) was appointed as trustee in bankruptcy of both Wealthstreet and 1415601 Alberta Ltd. ("141"; incorporated 23 July 2008, with Jones as shareholder, officer and director). The largest amount outstanding to Wealthstreet's unsecured creditors is the approximately $2 175 000 owing to the investors who lent money to Wealthstreet in return for promissory notes. The Trustee testified

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that he anticipates that with current realizations the Wealthstreet promissory note investors would receive a distribution of approximately 27 cents on the dollar. If realizations from a previous court order (referred to below) succeed, the distribution to unsecured creditors would increase to approximately 47 cents on the dollar. That amount could increase further if another potential realization succeeds.

2. Jones's Role [27] Jones was the self-described founder and CEO of Wealthstreet. Jones was the guiding mind of Wealthstreet and was primarily, if not solely, responsible for its investing decisions and activities. He was clearly the "face" of Wealthstreet. Jones was also the primary contact for investors and the main reason for prospective investors becoming Wealthstreet clients. While Wealthstreet employed a number of salespersons, Jones would generally meet with each client, review their circumstances and decide which investments being offered by Wealthstreet would be best for the client and what amount the client ought to invest in the particular offering. As Jones described his role in an October 2008 document provided to Wealthstreet clients and titled "A word from the President and CEO of WEALTHSTREET Inc.":

As it is impossible for me to meet each client individually I feel it is important to share some of my wisdom. Some of you may be aware that all of the investments WEALTHSTREET offers have been approved by me, even the variable percentages that would be available to a client's portfolio. . . . . . . WEALTHSTREET is currently on a campaign to contact as many clients as possible in the month of October and suggest the appropriate changes to their portfolios.

[28] Jones's background and role were described in various Wealthstreet promotional material:

Jones has worked in all four pillars of the financial industry: bank, trust, insurance and securities. His 25 years of experience and performance certify him world-wide within the top 1% of financial advisors, distinguishing him as a leader and authority in the financial industry. President Dave Jones is a life member of the Million Dollar Round Table certifying that he is one of the top one quarter of 1% of financial professionals in the world (www.mdrt.com). Dave's outstanding leadership provides you with some of the most solid wealth[-]building strategies in the world today. "I wouldn't recommend a product that I wouldn't use myself. We will not take a client's money and place it in an investment that hasn't been granted my personal seal of approval," says Jones.

[29] Jones described himself as a financial advisor. In a zoominfo online profile Jones stated that his employment history was as "Chief Financial Advisor" for Wealthstreet and that "Mr. Jones['s] expertise and performance rank him in the top 1% of all financial advisors worldwide". There was no evidence that Jones had ever been ranked by any organization as

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being "in the top 1% of all financial advisors worldwide" (or indeed anywhere) or, if so, the basis for the ranking. What is clear is that Jones was not registered to act as an advisor under Alberta securities laws.

3. Poffenroth's Role [30] Prior to joining Wealthstreet in September 2006 Poffenroth was employed as an account manager in the sales division at Direct Energy. Poffenroth and her father initially met Jones after she became impressed with Jones's performance on the radio. They made an appointment to discuss the investments available through Wealthstreet, at which appointment they were introduced to Jones. Jones seemed impressed by Poffenroth and a few hours later telephoned Poffenroth offering her a sales job at Wealthstreet, which she ultimately agreed to take. [31] Poffenroth's initial responsibility was to act as Jones's assistant, despite her title of "Alternative Investment Specialist". She or Jones would contact the client; Jones would meet with the client and review the client's financial situation, then decide what investments were best suited for the client and what amount of money the client should invest. Poffenroth would then complete the paperwork associated with the particular investment, as directed by Jones. Approximately three months later Poffenroth was promoted to Jones's executive assistant. [32] Poffenroth testified as to the situation within Wealthstreet:

The longer I was there, the more I realized how many grey lines in general business were being crossed, from paying his wife, who did nothing for the company; to transferring money from Wealthstreet account to his or his wife's account directly instead of having a paper trail; to having no employment contracts for the employees; to having messy accounting and et cetera. These are general things that I was aware were not right from my experience in managing and bookkeeping in business. I understand the severity of not playing by the rules, so I did my best to correct and suggest whatever I came across, to the best of my knowledge. There were many times when Dave Jones and I were in disagreement [as] to the severity of the matters, including accurate accounting and these other items I mentioned previously. . . .

[33] Much to the surprise of Poffenroth – and, apparently, many of the Wealthstreet employees – in February 2007, Jones promoted Poffenroth to the position of president of Wealthstreet, purportedly so he could concentrate on investment selection and promotional activities for Wealthstreet. Poffenroth said she did not immediately accept the position because she did not feel she was competent, given her lack of relevant education and experience. Jones convinced Poffenroth to assume the position, assuring her that he would train her and monitor her activities. Poffenroth said that her responsibilities focused on the business's operations – administration, human resources and promotional activities – with Jones responsible for the investment side of the business. [34] Poffenroth testified that, although she held the title of president, she took her instructions from Jones, who was Wealthstreet's directing mind. She relied on Jones to ensure that Wealthstreet operated legally and that she did not take any action that might be questionable or detrimental to the interests of Wealthstreet or its investors. She said that Jones was the one who met with investors and advised them about the various securities offered by

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Wealthstreet. She described her role with investors as limited to promotional and ongoing investor relations activities, although the evidence indicated that she was also involved with the paperwork of at least some of the investors, even after taking on the role of president. Poffenroth characterized herself as one of the innocent and naïve people taken advantage of by Jones. [35] This testimony as to her inexperience in the business world and her limited role as Wealthstreet's president conflicted with an affidavit in evidence before us, which Poffenroth swore 12 August 2009 (the "Poffenroth Affidavit") in support of her application for default judgment arising from her claim for wrongful dismissal as Wealthstreet's president. In the Poffenroth Affidavit, Poffenroth deposed that, as president, she was responsible for Wealthstreet's day-to-day operations, including managing and overseeing the financial performance of Wealthstreet sales associates and Wealthstreet's overall financial well-being. She said that she actively identified investment opportunities for Wealthstreet, promoted investments being offered by Wealthstreet and dealt with investor relations issues. She noted that during her tenure as president Wealthstreet's annual revenue grew from $1 million to $4 million. [36] The documentary evidence before us indicates that Poffenroth, in her capacity as president, oversaw the placement and timing of various Wealthstreet advertisements on television and radio, prepared Wealthstreet promotional brochures and marketing materials, and personally appeared and participated in some Wealthstreet promotional activities. She also sent letters to Wealthstreet clients soliciting interest in securities it was selling. For example, Poffenroth, as Wealthstreet's president, sent a letter dated 18 October 2007 to investor witness KC that advised:

. . . As an appreciated client and investor of the new WEALTHSTREET building we are pleased to offer 2 exclusive opportunities. Please find enclosed summary sheets for these 2 great investments. Both investments are limited in time and availability, please review and book an appointment to make sure you do not miss out. . . .

[37] As president of Wealthstreet, Poffenroth's compensation included a monthly commission and a quarterly bonus – the former based on the sales of investments by Wealthstreet salespeople, including Jones; the latter on Wealthstreet's performance in the quarter. For example, her commission for January and February 2008 was $58 785 and her bonus for the first quarter of fiscal 2008 was $59 649. She also was to receive an annual bonus. From January 2007 until March 2008 when she ceased to be employed by Wealthstreet, Poffenroth received approximately $695 000. Poffenroth has also asserted a claim against the bankrupt estate of Wealthstreet for a further $629 432 plus interest and fees for money owing to her by Wealthstreet from her role as president of Wealthstreet. She claims that she was wrongfully dismissed or forced to resign by Jones on 19 March 2008.

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[38] Based on all the evidence before us, we conclude that Poffenroth's testimony minimized her role as Wealthstreet's president and that the Poffenroth Affidavit exaggerated her role as president. We find that she did start as Jones's assistant, rose (without proper qualifications or experience) to the position of Wealthstreet's president, and was involved primarily in the operations side of the business rather than the investment side. However, she clearly did have a role in the investment side through actions such as writing letters to investors, communicating with investors and acting as "MC" of various sessions which were designed to raise money for and through Wealthstreet. She also acknowledged that she was aware at the time – not just at the Merits Hearing, after-the-fact – that there were some lines being crossed. C. The Promissory Notes

1. The Offering [39] In 2007 Wealthstreet solicited clients to loan money to Wealthstreet for the purpose of purchasing and improving the Building, which was to become the location of Wealthstreet's head office (although investor RM did not learn until after his investment that it was being directed to the Building). Prospective investors were told that their investments would be for a one-year term maturing on 1 August 2008 and would bear interest at the rate of 10% per year. This was consistent with the documentation in evidence – clients who decided to lend money to Wealthstreet received a Promissory Note in their favour dated 1 August 2007 (the "Promissory Note"). The Promissory Note required Wealthstreet to pay the investor the principal amount lent together with interest on the principal amount at the rate of 10% per annum, payable on the maturity date of 1 August 2008 (the "Maturity Date"). Many of the Promissory Notes were executed by Jones on behalf of Wealthstreet. [40] On 16 November 2007 Wealthstreet filed with the Commission a 14 November 2007 Form 45-106F1 Report of Exempt Distribution (the "Exempt Distribution Report") disclosing that it had distributed, by way of private placement, securities – 94 Promissory Notes in the aggregate amount of $3 302 000 (93 in Alberta; the other in Saskatchewan). The Exempt Distribution Report disclosed that Wealthstreet relied on the exemptions provided for in sections 2.3 (accredited investor) and 2.5 (family, friends and business associates) of National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106") to distribute the Promissory Notes to investors. Jones, on behalf of Wealthstreet, signed the certificate certifying that the statements made in the Exempt Distribution Report were true. [41] On 27 July 2007 Wealthstreet had purchased the Building for $2 890 000 and spent a further $944 334.21 on improvements. The total amount of money invested in the Building by Wealthstreet was approximately $3 834 334. [42] On the Maturity Date Wealthstreet paid all investors their 10% interest. Although Jones and his team at Wealthstreet encouraged Promissory Note investors to renew their Promissory Note investments for another one-year term, 31 investors (representing approximately one-third of the money lent under the Promissory Notes) chose not to do so and were repaid their principal. The remaining investors renewed their Promissory Notes for a further one-year term and were given a replacement document headed "Amendment to Promissory Note" (the "Amended Promissory Note"). The Amended Promissory Note provided for a new maturity

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date of 1 August 2009 for payment of the principal amount, together with interest on the principal amount, again at an interest rate of 10% per year. 2. Building Transferred [43] Concurrent with Wealthstreet encouraging investors to renew their Promissory Notes, Jones and Wealthstreet were apparently contemplating the transfer of the Building to 141. On 23 July 2008 Jones incorporated 141 and was its sole director and shareholder. On 11 August 2008 Wealthstreet sold the Building to 141 for a deemed purchase price of $2 810 000. No money was paid on the completion of the transfer to 141. At the time of the transfer, 141 obtained a mortgage from a bank in the amount of $1 965 000. The bank registered its mortgage against the title to the Building. 141 then paid $1.5 million of the mortgage proceeds to Wealthstreet. 141 never paid the remaining approximately $1.31 million of the deemed purchase price to Wealthstreet; that balance was recorded on the books and records of Wealthstreet and 141 as a debt owing from 141 to Wealthstreet. There was no documentation evidencing the indebtedness or any security provided by 141, nor were an interest rate and other terms of repayment stipulated for the debt owing by 141 to Wealthstreet from the sale of the Building. [44] According to the Trustee, Wealthstreet accounting records obtained by him showed that Wealthstreet used the $1.5 million to make principal repayments ($1 145 000) and interest payments ($330 200) owing under the Promissory Notes. [45] After it sold the Building to 141, Wealthstreet made monthly rental payments of $16 800 to 141. 3. Wealthstreet Defaults on Amended Promissory Notes [46] On 31 July 2009 Jones as CEO of Wealthstreet sent an email communication to Amended Promissory Note investors advising them that Wealthstreet had been affected by the recession and "will not be in a position to pay neither the interest nor the principal at this time". Jones advised that Wealthstreet was "in the process of negotiating deals to facilitate the repayment of these notes", which could take a few months. [47] On 4 August 2009 Jones as president and CEO of Wealthstreet sent a further communication to Amended Promissory Note investors. In that communication Jones advised that Wealthstreet was "aggressively pursuing" financing to pay out the Amended Promissory Notes but that "this process could take up to six months". Jones commented that it was "not WEALTHSTREET who caused the economy to be affected so dramatically" and that the significant economic downturn had made it more difficult and time-consuming to finance. Jones also cautioned that litigation "has the potential to stop this process and potentially require receivership, or worse". [48] As noted, Wealthstreet's operations ceased in the fall of 2009; the Trustee calculated that $2 157 000 remained owing to Amended Promissory Note investors at that time. As noted, Amended Promissory Note investors may receive as little as 27 cents on the dollar – or perhaps up to 47 cents or more.

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D. Other Questionable Transactions [49] On 12 August 2008 141 transferred $400 000 of the remaining Building mortgage money to Dragon Fund Inc., apparently to fund Dragon Fund Inc.'s purchase of land located near Airdrie, Alberta (the "Airdrie Lands"). At about the same time Wealthstreet paid $136 404.98 through the Dragon Fund entities to assist in the purchase of the Airdrie Lands. The Trustee stated that neither 141 nor Wealthstreet received any consideration for the money paid to or on behalf of the Dragon Fund entities. As was the case with the sale of the Building, there was no documentation evidencing the debt, no security was provided and no interest rate or other repayment terms were stipulated for the money paid to the Dragon Fund entities by 141 and Wealthstreet. As noted above, Jones was the sole director and shareholder of Wealthstreet, 141 and the Dragon Fund entities, and he directed and controlled their affairs. Jones, Zowtuk, Arnold and Lalonde were the trustees and promoters of the Dragon Fund. [50] In late 2009 Dragon Fund Inc. transferred the Airdrie Lands to 1505792 Alberta Ltd. ("150") for $1 and assumption of the existing mortgage that had an original principal amount of $3 585 000. The directors of 150 were Zowtuk, Arnold and Lalonde. At the time of transfer, Arnold, also one of the Dragon Fund trustees, deposed in the associated Affidavit Re Value of Land that the value of the Airdrie Lands was $8.9 million. As a result, the Trustee concluded that equity in the Airdrie Lands in excess of $5.3 million was transferred to 150 for $1.00. The Airdrie Lands were apparently sold for approximately $10 million in 2010. [51] In February 2010 141 sold the Building for $2.9 million. [52] In May 2010 the Trustee applied to the Court of Queen's Bench of Alberta ("Queen's Bench Court") to have Wealthstreet's sale of the Building to 141 declared a transfer at undervalue, and requiring 141 to pay to Wealthstreet $1 310 000, being the money that should have been paid to it in connection with the Building transfer. The Trustee in his affidavit filed in support of the application indicated that Wealthstreet's transfer of the Building to 141 "rendered Wealthstreet insolvent". The Trustee also applied to have 141's transfer of $400 000 to Dragon Fund Inc. and Wealthstreet's transfer of $136 405 to Dragon Fund entities declared transfers at undervalue and declared void as against the Trustee, consequently impressing the Airdrie Lands with a trust in favour of 141 and Wealthstreet of those amounts. On 20 July 2010 the Queen's Bench Court granted the Trustee's application and made the requested orders, which have not been appealed. E. Investors' Evidence 1. General [53] We heard from five investor witnesses, all Calgary residents. Each of them heard of Jones or Wealthstreet through Jones's radio or television promotional segments or was told of Jones or Wealthstreet by others who had heard those segments. One of the radio stations has a spiritual focus; the investor witnesses hearing Jones on that station felt that Jones shared their values. All of the investor witnesses invested in the Promissory Notes, as well as other securities offered through Wealthstreet. All attended at least one Wealthstreet seminar. Through those seminars and Wealthstreet's other promotions, they consistently heard the message of Jones's expertise.

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[54] All of the investor witnesses had home equity lines of credit – some pre-dated their involvement with Jones; some were taken out as a result of Jones's advice and encouragement. All of the investor witnesses currently owe money on those lines of credit – one owes $540 000; another owes $350 000 and is in danger of losing her home. [55] None of the investor witnesses qualified under the registration and prospectus exemptions claimed by Wealthstreet in the Exempt Distribution Report.

2. Individual Investors (a) RM

[56] Between 2004 and 2005, after the radio exposure to Jones and Wealthstreet, RM attended a number of Wealthstreet evening seminars and a number of "super seminars" that Wealthstreet held twice a year for larger audiences. RM and others would meet Jones and speak to him after those sessions. RM explained that after he retired in 2005 he began his "due diligence" on Jones by attending the Wealthstreet seminars, but did not invest any money with Wealthstreet at that time. RM stated that borrowing against home equity was "a theme throughout the presentations that I attended". Jones did not discuss the risks involved, but explained the concepts of maximizing leverage and protecting against mortgage fraud (Jones claimed mortgage-free homes were subject to mortgage fraud). RM learned through the Wealthstreet seminars of two real estate projects offered by Concrete Equities that had provided good returns and "were living up to what the projections were". RM said he gained confidence about investing through Jones and Wealthstreet after reading in a Wealthstreet brochure that Jones had 25 years of experience in the financial industry and was in the top 1% of investment advisors in the world. RM was convinced that Jones was a financial advisor. RM also knew that Jones claimed to approve all Wealthstreet investment offerings. Following these positive experiences, RM booked an appointment with Jones to discuss investment options for him and his spouse. [57] RM and his wife met with Jones to review their financial circumstances and objectives, and Jones facilitated their various investments offered by or through Wealthstreet. RM and Jones had a general discussion about RM's assets, including the value of his residence and other investments, his income streams (including his pension) and his investment goals. RM described Poffenroth, who attended one meeting he had with Jones, as Jones's assistant (given the timing of the meeting, that appears to describe accurately Poffenroth's role at that point). RM said that Poffenroth was in attendance at some of the Wealthstreet seminars, acting as a master of ceremonies and introducing speakers at the super seminars, but he did not recall her speaking at the seminars. [58] RM described a number of investment opportunities offered to him through Wealthstreet by Jones. Of these, he purchased limited partnership units in Castleridge Shopping Centre ($150 000) and Concrete Equities Place ($50 000). He did not invest in the other investment opportunities described by Jones (other than the Promissory Notes and Amended Promissory Notes). [59] In June 2007 Jones introduced the Promissory Note investment to RM. Jones told RM that he was putting together a group of investors and would use their pooled money to invest in

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a variety of ventures as they came along. Jones was offering to pay investors an annual interest rate of 10%. RM said the investment interested him and his wife because, as advised by Jones, if they funded their investment by taking out a 6% interest-only line of credit secured by their home, the difference in interest rates would earn them a 4% return and they could deduct the interest payments in a tax-effective manner against other income. [60] In July 2007 RM and his wife each invested $50 000 in Wealthstreet and subsequently received a Promissory Note evidencing their investment. RM testified that at the time of their Promissory Note investment no one advised them that they had to qualify or meet certain requirements before they could make the Promissory Note investment. Nor did Jones discuss any risks – he "was very positive". [61] After he and his wife had lent money to Wealthstreet in return for their Promissory Notes, RM learned that Jones had decided to use money raised from Promissory Note investors to purchase the Building, rather than investing the money in a number of different projects and ventures. [62] RM said that at no time did either he or his wife consider themselves as having any personal or close business relationship with Jones. RM said that after he and his wife had invested $300 000 through Jones, RM walked past Jones at one of the super seminars and Jones did not seem to know who RM was. RM's testimony revealed that neither he nor his wife qualified as an accredited investor at any time when they made their investments with Wealthstreet through Jones. [63] On 1 August 2008 RM and his wife each received a cheque from Wealthstreet in the amount of $5000 for the interest owing to them under the Promissory Notes. Earlier, in June 2008, RM and his wife were contacted by Wealthstreet representatives (Jones and Arnold) to discuss options for their principal – renew the Promissory Note for a further one-year term, invest the money into the Dragon Fund or receive the money back. RM and his wife decided to renew the Promissory Note investment for a further one-year term and received an Amended Promissory Note. On 31 July 2009 and 4 August 2009, they received the communications from Jones stating that their principal and interest would not be paid at that time. [64] RM and his wife invested a total of $300 000 through Wealthstreet, including $100 000 in the Promissory Notes. RM said that they now receive no cash flow from these investments and are required to service the line of credit obligation (originally $150 000). Because Wealthstreet is in bankruptcy, RM sees no prospect of recovering the full amount of their principal.

(b) KC [65] KC, 40 at the time of the Merits Hearing, had been maximizing contributions to her registered retirement savings plan ("RRSP") since she was 18 years old. She had utilized the services of financial advisors, who had primarily advised her to invest in mutual funds. She was somewhat disenchanted with the advice and service she had received from other advisors when a colleague suggested she contact Jones from Wealthstreet – the colleague had heard of

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Jones through his appearances on television and radio. Before then, KC had heard of neither Jones nor Wealthstreet. [66] In November 2006 KC met with Jones and Poffenroth to discuss her investment portfolio. Before her meeting with Jones, KC read a Wealthstreet brochure and recalled being quite impressed with the description provided of Jones's accomplishments as a financial advisor. KC believed Jones to be a financial advisor. Jones reviewed her RRSP portfolio, inquired about her income and assets and discussed her financial objectives. KC told Jones that she wanted enough money saved, at age 45, to have the financial freedom to work at a job she enjoyed and travel. She told Jones that she did not want to risk losing her principal amount. Although KC had two home equity lines of credit, she had only accessed $15 000, leaving her with credit available in excess of $525 000. [67] Jones told KC that he could achieve her financial objectives. He advised KC that if she invested the money available to her from her home equity lines of credit, she would receive a greater return from the securities he recommended than the interest she was obliged to pay on the lines of credit, and the interest payments would also be tax-deductible. Jones advised KC that this leveraging strategy would grow her portfolio to an amount that would enable her to retire at age 45. He did not mention any risks associated with this leveraging strategy. KC executed the documentation necessary to transfer RRSP money to a trust company, so the funds could then be directed to securities offered by Wealthstreet. [68] The first investment Jones recommended to KC was to invest $200 000 of her RRSP money with Concrete Equities in its commercial strip mall at Castleridge. Jones advised KC that investing her money in commercial real estate would balance out the residential revenue property that she held in her portfolio. KC stated that Poffenroth completed the paperwork at the November 2006 meeting, based on Jones's direction. [69] In February 2007 KC attended a Wealthstreet seminar. She described the seminar at which Poffenroth, acting as "MC or the main representative for Wealthstreet", introduced the various speakers who were promoting the different investments being offered by Wealthstreet. Jones, one of the speakers, talked about changes at Wealthstreet, including the appointment of Poffenroth to president (which would enable Jones to spend more time looking for suitable investment opportunities), and the new Wealthstreet premises located in the Building. KC also visited the Wealthstreet website on which Jones discussed Wealthstreet's aim to help individuals achieve their investment goals. The website also emphasized integrity, a representation KC testified was important to her. [70] KC met with Jones in February 2007. Jones advised KC to invest specific amounts of her RRSP money in two investments being offered by Wealthstreet. [71] KC was to meet again with Jones in June 2007. However, Poffenroth instead introduced KC to Arnold and advised KC that Arnold was taking over many of Jones's accounts. Poffenroth advised KC that Arnold, Jones's protégé, would discuss potential investments with her and assured KC that Jones would still oversee her account – no investment would be made without Jones's review. Jones himself later attended the meeting

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and further explained that he was changing his role – he would no longer spend time with individual clients, but would focus his efforts on finding more lucrative investments for Wealthstreet clients. At the start of the meeting, Arnold sat down with KC and reviewed her assets and financial objectives. When Jones arrived, he directed Arnold to use $100 000 from one home equity line of credit to purchase $100 000 of limited partnership units in Concrete Equities offerings and $100 000 from the other to purchase a Promissory Note. Jones told KC that the Promissory Note investment would "balance out" her portfolio and that she would receive "a guaranteed 10 percent interest per annum". KC said that Jones discussed no risks associated with investing in the Promissory Notes. Poffenroth picked up a $100 000 cheque from KC that she had obtained from her home equity line of credit to invest in the Promissory Note. [72] KC recalled that when she was completing the documentation for one of the investments, a question in the document asked "Are you a personal friend of David Jones?" Poffenroth told KC that ". . . you're a personal friend of David Jones; . . . everyone's a personal friend of David Jones" and indicated that to qualify for the investment KC had to place her initials on the document to indicate that she was a close personal friend of Jones. KC complied even though she said she was not a close personal friend or close business associate of Jones. In connection with the Promissory Note investment, KC signed a Representation Letter stating that she was an accredited investor on the basis that she was an individual that owned financial assets having an aggregate realizable value before taxes, but net of any related liabilities, exceeding $1 million. KC said that she had initialled that category because no one from Wealthstreet had explained to her that she could not include her properties in calculating whether her assets exceeded $1 million. KC's testimony revealed that she did not qualify as an accredited investor at any time when she made her investments, including the Promissory Note, with Wealthstreet. [73] In October 2007 KC received an invitation to an appreciation dinner Wealthstreet was hosting for Promissory Note investors. KC did not attend the dinner, but later received a letter dated 18 October 2007 from Poffenroth, as president of Wealthstreet, noting KC's absence and offering her, as "an appreciated client and investor", two new investment opportunities and enclosing information summaries on the investments. [74] KC received in the mail a document titled "07 Wealthstreet Review". The 07 Wealthstreet Review set out Jones's "Market Report Times" on various television and radio stations, advised that Poffenroth, as president, ran Wealthstreet's day-to-day operations and advised that Jones's new role was as follows:

WEALTHSTREET now has over 3500 clients, and [Jones] is taking on a new role within the company. [Jones] now focuses his time on sorting through the mountain of investment offerings to hand-pick the best ones for our clients. Between this judgment process, daily market reports on several radio stations, weekly television appearances, seminars and ongoing training of the WEALTHCoaches, he is unable to service the individual client. We assure our clients that [Jones] is more hands-on with training and intuitive investment selection than ever before. For the clients of WEALTHSTREET this means a broader range of investment selections and a pro-active financial planning approach with a personal WEALTHCoach.

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[75] The 07 Wealthstreet Review also stated: . . . Jones will recommend products to our client base only as they fit the prescribed portfolio structure. . . . Please check with your WEALTHCoach before making an investment outside the WEALTHSTREET office to ensure proper balance is in alignment with the successful WEALTHSTREET model.

[76] In August 2008 KC received a cheque from Wealthstreet for $10 000 as payment for the 10% interest owing under the Promissory Note. KC met with Arnold, who convinced her to renew the Promissory Note for a further one year with its guaranteed 10% return. KC received and executed an Amended Promissory Note dated 12 June 2008. [77] KC invested a total of $779 000 through Jones and Wealthstreet – $259 000 from her RRSP and $520 000 borrowed from her home equity lines of credit. In April or May 2009 KC realized there may be a problem with her Wealthstreet investments when she sought repayment of her money owing under the Amended Promissory Note and was told that only Jones could deal with her request. Jones never did speak with KC. Wealthstreet has yet to repay KC the amounts owing under her Amended Promissory Note. [78] KC still retains her Wealthstreet investments. As discussed above, KC is unlikely to be repaid her entire principal amount owing under the Amended Promissory Note. KC continues to make payments on her home equity lines of credit, of which $540 000 remains owing. Asked how her investments in Wealthstreet have affected her attitude about investing, KC responded that she is afraid to trust any financial advisors. She also stated that she could not understand how a person could be "promoting yourself to be knowledgeable of financial investments unless you were actually licensed". (c) JD [79] JD began, in 2005 or 2006, to listen to Wealthstreet infomercials by Jones on the radio. JD gained the impression that Wealthstreet was a stock-investing company and Jones was reporting on Wealthstreet's gains and losses for stock market picks made by him for the day. JD came to realize in approximately 2008 that was not the case – the investments Wealthstreet and Jones steered their clients towards were different than simple stock market picks. [80] In early February 2007 JD and his wife attended their only Wealthstreet seminar. JD's notes of that seminar included the following comments made by Jones:

• You should have four to seven income streams in order to retire • Bullet Proof 50% of your portfolio, Growth & Income 40% of your portfolio, 10%

speculation • Your house as an asset must be put to work - you can't eat a doorknob • 1 in 7 Albertans will be the victim or attempted victim of mortgage fraud • House rich, cash poor: people who own a house worth a great deal, but they can't afford the

property taxes • Millrise Plaza - 95% ROI, Deer Valley Station 95% ROI, SNC Lavalin 109.6% ROI

[81] After the seminar, JD and his wife booked an appointment at Wealthstreet with a view to reworking their portfolio. JD understood that Wealthstreet's role was to ascertain its clients'

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financial health – their debts, assets and investments – then determine where a client's money should be invested – high-risk, medium-risk or low-risk investments. JD believed that Jones, as the head of Wealthstreet "was equipped to give financial advice and guide us on our financial investments". At that meeting Jones reviewed the financial position of JD and his wife and discussed their financial goals. Jones recommended that JD and his wife, who had no money at the time to invest, borrow money from their existing home equity line of credit so that they could invest in the securities offered by Wealthstreet. According to JD, Jones seemed to view the line of credit as "investment capital meant to be used". Poffenroth, whom JD understood to be president of Wealthstreet, stopped in during the meeting, but JD and his wife had no other dealings with her. [82] Following Jones's advice, JD and his wife borrowed money from their home equity line of credit and invested in investments offered by Wealthstreet, such as limited partnership offerings. JD understood that Wealthstreet and its salespersons, including Jones, received commissions for selling these investments to clients. [83] By July 2007 Arnold, JD's Wealthstreet coach, had introduced the Promissory Note investment to JD and his wife. Arnold described the investment as a short-term loan to Wealthstreet – one year with a 10% interest return – to fund Wealthstreet's purchase of the Building and make improvements to the Building. JD and his wife borrowed $50 000 from their pre-existing home equity line of credit and invested that money in the Promissory Note. JD recalled no risks associated with the Promissory Note being explained to him; he recalled the tone of the discussion as one of a low-risk investment. Nor was he told that he had to qualify or meet any requirements before he could invest. JD and his wife did sign the Representation Letter and initialled the category representing that they were close personal friends of a director, executive officer or control person of Wealthstreet. Contrary to that representation, JD testified that he was not a close personal friend or close business associate of Jones; his testimony clearly indicated that he was also not a close personal friend or close business associate of Poffenroth. Apparently Arnold told JD and his wife that signing the Representation Letter and initialling the close friend category was a mere formality or technicality that had no bearing on the investment. JD's testimony revealed that he and his wife did not qualify as accredited investors at the time they made their Promissory Note investment. [84] Although presented with the option of renewing the Promissory Note for a further one-year term, JD and his wife decided not to do so. In August 2008 Wealthstreet paid them $55 000, being the amount of the principal and interest owing under the Promissory Note. [85] JD and his wife still hold the other investments they purchased through Wealthstreet, which totalled approximately $110 000. They currently owe approximately $100 000 on their home equity line of credit and will not recover their entire principal invested in those investments. JD described the negative impact this investing experience has had on him and his wife and their reluctance to make future investments: "I feel as though the system sort of failed me in providing adequate guidance on the right kinds of investments and the right way to invest." JD and his wife feel especially betrayed by Jones, whom they trusted because of their shared Christian faith.

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(d) KB [86] KB began using Jones as his financial advisor, coinciding with hearing Jones on the radio, starting in approximately 2003, when Jones was with "Intelligent Financial". KB later attended several Wealthstreet seminars at which Jones spoke about the particular investments that Wealthstreet was offering at the time. There, Jones spoke about the benefits associated with using money from a home equity line of credit to make investments, which he described as "good debt". Jones also mentioned using a home equity line of credit for investments during one-on-one meetings with KB. [87] In approximately 2003 KB met with Jones and another salesperson to discuss investments. Jones reviewed KB's financial position, assets, liabilities and financial goals. KB said Jones told him that if he invested in Wealthstreet investments, in five years KB would have doubled his money and paid off his line of credit. KB did not recall Jones discussing risks associated with this leveraging strategy. Following Jones's advice, KB set up a home equity line of credit. KB described Jones as his financial advisor – giving him financial advice, advising him on his investments, and advising him on funding his purchase of investments from his home equity line of credit. [88] KB purchased a number of investments through Wealthstreet following advice given him by a number of the Wealthstreet coaches. The money for these investments came from KB's home equity line of credit and from other investments that he transferred out of on Jones's advice. KB assumed that Wealthstreet and the salespersons, including Jones, received fees from the issuers whose investments they were selling. Although KB had met Poffenroth and understood her to be the CEO or vice-president of Wealthstreet, he had no direct dealings with her. [89] KB said that although he was receiving this advice from a number of Wealthstreet coaches he was assured by them that Jones was personally reviewing KB's investment portfolio to ensure that each investment was a "good fit". KB said that Jones's review of his portfolio was important to him. [90] In 2007 KB received a telephone call from Jones soliciting KB's interest in investing in the Promissory Note – the money would be used for purchasing or renovating the Building. Jones told KB that if he invested in the Promissory Note he would be in the same inner circle as a few select others, and would have the same investments as Jones. Jones asked KB to invest $30 000 and told KB that Jones would, in one year, pay him 10% interest ($3000) and return his principal. KB considered the Promissory Note "almost guaranteed", although Jones did not use the word "guarantee". KB purchased the Promissory Note with $30 000 borrowed from his home equity line of credit. KB recalled no risks associated with the Promissory Note being explained to him or that he had to qualify or meet any requirements before he could invest. KB's testimony revealed that he did not qualify as an accredited investor at the time he made his Promissory Note investment. When he was completing the paperwork for the Promissory Note investment, KB was told to initial or check the box beside the statement that he was a close personal friend of Jones, who was Wealthstreet's CEO. When he asked why he was to do this, he was told by one of the Wealthstreet coaches that it was "just a formality". KB said that

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he was not a close personal friend or close business associate of Jones or any other Wealthstreet coach or employee. [91] On 1 August 2008 KB received a cheque from Wealthstreet in the amount of $3000 for the interest owing under the Promissory Note. Earlier, in June 2008, KB was contacted by Jones to discuss whether he would renew the Promissory Note for a further one-year term. KB decided to renew the Promissory Note investment for a further one-year term. In evidence is the Amended Promissory Note dated 12 June 2008 and executed by KB and a Wealthstreet representative. [92] In June or July 2009 KB started calling Jones to find out when he would get paid the principal and interest owing under the Amended Promissory Note. He could not get hold of Jones but eventually talked to one of the Wealthstreet insurance salespeople who told KB that all the "bad press" about Concrete Equities and Wealthstreet's association with it may make it difficult for KB to get his money back right away. In approximately October 2009 Jones finally called KB and told him that they were selling the Building and that the Amended Promissory Note investors would then get their money back. That was the last time that KB spoke with Jones; matters worsened after that point. [93] KB currently owes $192 000 on his home equity line of credit – $180 000 of which was borrowed following Jones's advice. KB is currently making interest-only payments with no realistic prospect of paying off the line of credit until he sells his home and moves into a smaller residence. He no longer invests, being wary of placing his money and trust with anyone. (e) MLR [94] MLR is a 76 year old widow. Because her husband did not believe in RRSPs they had never invested their money in securities. After her husband passed away she decided to invest the inheritance money she had received from her mother with Jones, whom she regularly listened to on the radio. [95] MLR first met with Jones in a "little office" before he started Wealthstreet. Jones told her that he had his papers to act as a financial advisor and that the radio station had conducted a background check on him. MLR believed that Jones was a financial advisor because he was on the radio giving financial advice; she believed he was her financial advisor because he discussed her financial objectives with her and gave her recommendations on investments. He told her which investments, given her financial position, would best meet her objectives – a monthly stream of income for her old age and money for her children. [96] MLR attended three Wealthstreet seminars at which Jones and others discussed a number of investments being offered by Wealthstreet. At the conclusion of one of the seminars, Jones came over to MLR and told her that if she did not do something to protect her home, which was her main asset, someone could steal it from her. Jones explained to MLR that because she owned her home mortgage-free, there were people who might try to refinance it in their name, and she would lose her house. To protect against this, Jones advised her to take out a home equity line of credit and then invest that money in securities offered by Wealthstreet.

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Jones said that regardless of which investment she chose, she would receive all her money back with interest within five years. Jones did not discuss the risks of borrowing against her home to invest. MLR said that she believed Jones because he had a lot of experience. [97] MLR decided to follow Jones's advice, and Jones made the arrangements for the home equity line of credit. Using the money borrowed from her home equity line of credit, MLR purchased a number of investments through Wealthstreet recommended to her by Jones or other Wealthstreet salespersons. MLR understood that Wealthstreet and the salespersons, including Jones, received money for themselves through investors, but was unsure how that was structured. MLR had no dealings with Poffenroth. [98] In addition to the investments being offered through Wealthstreet, MLR also purchased a Promissory Note. Jones contacted MLR soliciting her interest in a Promissory Note. Jones explained to MLR that the money would be used to purchase the Building that would house Wealthstreet's head office and would have "one floor for street children so that they had a place to go instead of staying on the street". In her testimony, Poffenroth characterized this as one example of Jones telling people whatever "they needed to hear to get them involved". Jones told MLR that the Promissory Note term was one year, after which she would receive return of her principal and interest. In July 2007 MLR borrowed $50 000 from her home equity line of credit and used that money to purchase the Promissory Note. MLR did not recall being told of any risks associated with the Promissory Note or being told that she had to qualify or meet certain requirements before she could invest. MLR's testimony revealed that she did not qualify as an accredited investor at the time she made her Promissory Note investment. MLR said that she was not a close personal friend or close business associate of Jones or any other Wealthstreet coach or employee. [99] On 1 August 2008 MLR received a $5000 cheque from Wealthstreet for her Promissory Note interest. Jones had earlier contacted MLR and asked her for a year's extension to pay back the amount owing under the Promissory Note because he could not afford to pay her the entire amount. MLR agreed, and she was provided with an Amended Promissory Note. [100] MLR borrowed a total of $350 000 from her home equity line of credit, which money she invested in investments marketed by Wealthstreet and in the Promissory Note. MLR currently owes that amount. Her required monthly payments are $8000, which she cannot pay. MLR has no realistic prospect of repaying the amount owed on her home equity line of credit and believes that she is soon to lose her home to the lender. IV. ANALYSIS A. Trading and Distributing Securities 1. Allegations and Regulatory Regime [101] Staff alleged the Respondents illegally traded in and distributed the Promissory Notes to some or all of the 93 Alberta investors contrary to sections 75(1)(a) and 110 of the Act. [102] At the date of the sale of the Promissory Notes, section 75(1)(a) of the Act prohibited a person or company from trading in a security if not registered to do so with the Executive Director of the Commission (the "Executive Director"), unless an exemption applied.

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[103] Section 1(jjj) of the Act broadly defines "trade" to include "any sale or disposition of a security for valuable consideration" (at section 1(jjj)(i)) and "any act, advertisement, solicitation, conduct or negotiation made directly or indirectly in furtherance" of a trade (at section 1(jjj)(vi)). Thus, a trade includes not only an actual sale of securities but also any act in furtherance of a sale of securities. Whether a particular act is in furtherance of a trade is a question of fact, which is considered in context, including its effect on investors. Actions that constitute acts in furtherance of a trade include: accepting investor money; depositing investor money into bank accounts; preparing and providing forms or agreements for signature by investors; meeting with individual investors; conducting or holding information sessions with investors; preparing and disseminating advertisements, newsletters and other promotional material; and hiring salespersons to sell securities (see, for example, Re Maitland Capital Ltd., 2007 ABASC 357 (appeal dismissed Maitland Capital Ltd. v. Alberta (Securities Commission), 2009 ABCA 186); Re KCP Innovative Services Inc., 2007 ABASC 584; and Re Gold-Quest International Corp., 2010 ABASC 18). [104] Section 1(ggg) of the Act provides a broad definition of "security", including "any bond, debenture, note or other evidence of indebtedness" (section 1(ggg)(v)). [105] Section 110(1) of the Act prohibits the distribution of a security if no prospectus has been filed with the Commission and receipted by the Executive Director, unless an exemption applies. [106] Section 1(p) of the Act defines "distribution" as including "a trade in securities of an issuer that have not been previously issued", such as securities that are issued directly to the purchaser from the issuer's treasury or first created then issued. "Issuer" is defined in section 1(cc) of the Act to include a company that has outstanding securities. 2. Securities, Trades and Distributions [107] Investors loaned money to Wealthstreet for an initial term of one year. Wealthstreet's indebtedness to each investor was evidenced by the Promissory Note providing that, in return for the loan of money, Wealthstreet would pay the investor a rate of return of 10% of the principal invested per annum and that at the end of the one-year term would return the investor's principal and the agreed 10% interest. [108] The Promissory Notes were, we find, "notes" or "evidence of indebtednesses" and thus securities under section 1(ggg)(v) of the Act. [109] The evidence is clear that Wealthstreet sold its securities – the Promissory Notes – for valuable consideration to investors, including Albertans. These selling activities to Alberta investors were, we find, acts of trading by Wealthstreet in its securities within the meaning of section 1(jjj)(i) of the Act. [110] Jones created, solicited and sold Promissory Notes to investors for valuable consideration. He retained counsel in connection with the Promissory Notes used to document the loan arrangements with investors. Jones personally solicited, met and discussed the

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Promissory Note investment with many of the investors who purchased the Promissory Notes, and he personally sold the Promissory Notes to investors, including investor witnesses RM, KC, KB and MLR. We therefore find that Jones engaged not only in sales or trades of the Promissory Notes in Alberta but also in acts in furtherance of such trades within the meaning of sections 1(jjj)(i) and 1(jjj)(vi) of the Act. [111] The evidence is that Poffenroth did not personally solicit or sell the Promissory Notes to investors. However, Poffenroth assisted some investors in completing the paperwork to finalize their Promissory Note investments and accepted investor money – such as she did with investor witness KC. She was also involved in promotions and advertising for Wealthstreet. In addition Poffenroth was the president of Wealthstreet during the time its Promissory Notes were being sold to investors and thereby authorized, permitted or acquiesced in Wealthstreet's sale of the Promissory Notes. We therefore find that Poffenroth engaged in acts in furtherance of sales or trades of the Promissory Notes within the meaning of section 1(jjj)(vi) of the Act. [112] In conclusion, we find that each of the Respondents traded in securities in Alberta. [113] The Promissory Notes sold to investors by Wealthstreet had not been previously issued, so the Respondents' trades were also "distributions" of securities in Alberta. Our findings are consistent with the conduct of the Respondents – they must have believed that the sales of the Promissory Notes were trades and distributions of securities when Wealthstreet filed the Exempt Distribution Report.

3. No Registration or Prospectus [114] We found that the Respondents traded in and distributed securities in Alberta. [115] The evidence is clear that none of the Respondents were registered to trade in securities in Alberta at any time during the sales of the Promissory Notes and that Wealthstreet had not filed a prospectus with the Commission to distribute the Promissory Notes. [116] Unless the Respondents reasonably relied on available and applicable registration and prospectus exemptions provided under Alberta securities laws for all of their respective trades and distributions made without registration and a prospectus, they will be found to have contravened sections 75(1)(a) and 110(1) of the Act.

4. Purported Use of Exemptions [117] As evidenced by the Exempt Distribution Report, Wealthstreet purported to rely on two exemptions from the registration and prospectus requirements set out in NI 45-106 for the sales of the Promissory Notes: sales of securities made to accredited investors or to family, close personal friends and close business associates of Wealthstreet's directors, executive officers or control persons. It was incumbent on the Respondents who were trading in and distributing securities without registration or a prospectus to take whatever steps were reasonably necessary to satisfy themselves that one or another of those exemptions was available and could be relied on for each trade or distribution at the time of that trade or distribution.

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[118] It is possible that some of the Promissory Note investors may have qualified under the parameters of one or another of those exemptions. However, the evidence is clear, and we find, that the five investor witnesses did not qualify as accredited investors – they did not meet the specified income and asset thresholds – under section 2.3 of NI 45-106. The evidence is also clear, and we find, that the five investor witnesses were not (within the requirements set out in section 2.5 of NI 45-106) family of Jones (the sole director and control person of Wealthstreet) or Poffenroth (an executive officer of Wealthstreet), nor did they have sufficient bonds of interest or association to qualify as either close personal friends or close business associates of Jones or Poffenroth. Indeed it is clear that the Respondents were well aware that these exemptions were not available; there was even some counselling of some investors to falsify the representations they were asked to make in the Representation Letter that was used to complete the Promissory Note investment. [119] We therefore find that there was not an exemption available and applicable for all of the Respondents' respective trades and distributions of the Promissory Notes made without registration and a prospectus. Accordingly, we conclude that the Respondents contravened sections 75(1)(a) and 110(1) of the Act. B. Advising [120] Staff alleged that Jones acted as an advisor in Alberta without being registered to do so, contrary to section 75(1)(b) of the Act. Implicit in that allegation is the contention that the offerings made to investors through Wealthstreet were "securities" under the Act. We have already concluded that the Promissory Notes were securities. We also conclude that many, if not all, of the other investments offered through Wealthstreet to the investor witnesses, among others, were securities. For example, it is clear that the various Concrete Equities limited partnership units (purchased by RM, KC, JD, KB and MLR) are securities under sections 1(ggg)(i) and (v) of the Act. It is also clear that the Dragon Fund trust units (purchased by JD and KB and offered to RM) are securities under sections 1(ggg)(i), (v) and (viii); in evidence is an offering memorandum identifying those trust units as securities. [121] During the time Jones was advising investors to purchase securities being offered by Wealthstreet, section 75(1)(b) of the Act prohibited a person or company from acting as an advisor if not registered to do so with the Executive Director, unless an exemption applied. Section 1 at that time defined "advisor" as "a person or company engaging in or holding out the person or company as engaging in the business of advising others with respect to investing in or the buying or selling of securities or exchange contracts". [122] This Commission, in Re Kustom Design Financial Services Inc., 2010 ABASC 179, recently discussed various securities regulatory authorities' views on what activity constitutes "advising" (at paras. 216-19):

In Re Costello [(2003), 26 O.S.C.B. 1617], the OSC ruled (at para. 25): "The trigger for registration as an adviser is not doing one or more acts that constitute the giving of advice, but engaging in the business of advising." In determining whether a person or company engaged in the business of advising, advising need not be the only business activity that the person or company is conducting. Typically, though, isolated pockets of providing advice on specific investments or securities will not evidence that advice had been given for a business purpose.

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Further, it is unnecessary that any person followed or acted on the advice; the focus is on the action of giving the advice. In Re Donas, 1995 LNBCSC 18, the BCSC described the nature of communicating advice:

. . . The concise Oxford Dictionary of Current English (1990 ed.) defines "advice" as "words given or offered as an opinion or recommendation about future action or behaviour . . .". . . . As indicated by the definition of "advice", the nature of the information given or offered by a person is the key factor in determining whether that person is advising with respect to investment in or the purchase or sale of securities. A person who does nothing more than provide factual information about an issuer and its business activities is not advising in securities. A person who recommends an investment in an issuer or the purchase or sale of an issuer[']s securities, or who distributes or offers an opinion on the investment merits of an issuer or an issuer[']s securities, is advising in securities. . . .

This Commission recently commented on activity indicative of advising in Re Global Trading Center LLC, 2009 ABASC 614 (at paras. 32-33):

The determination of whether a person is "advising", for purposes of the Act, involves two considerations, described as follows by D. Johnston and K.D. Rockwell in Canadian Securities Regulation, 4th ed. (Markham: LexisNexis, 2006) at 359:

First, did the purported adviser express an opinion or make a recommendation? Merely reciting facts does not make one an adviser; recommending an investment or opining on the investment merits of an issuer or securities is advising. Second, did the purported adviser offer the recommendation in a way which reflected a business purpose? [original emphasis]

As to whether the person is in "the business of advising", this in our view connotes elements both of intended profit and a degree of organization, repetition or regularity – neither a gratuitous provision of advice nor a merely isolated act or incident would generally suffice to evidence a business.

Thus, the mere providing of factual information about a proposed investment does not constitute advising. Rather, advising involves a business of providing subjective views, opinions and recommendations on the merit or value of a specific investment or security to a person or company.

[123] Therefore, in determining whether a person or company acted as an advisor within the meaning of the Act, we consider two factors. First, was the person or company offering opinions on the merits of investing in the issuer or the securities being offered or recommending the purchase or sale of securities of a particular issuer? If so, this would be advising. Simply providing facts about an issuer and its business is not advising. Second, were such advising activities conducted in a manner indicative of a business purpose – intended profit, along with a level of organization, repetition or regularity?

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[124] Jones owned and operated Wealthstreet, a financial planning and advising business, and held himself out to clients and potential clients as a top "financial advisor". Consistent with his representations, Jones regularly, through his radio and television appearances and at Wealthstreet seminars, provided generic advice on capital market activities. He also gave specific advice to individuals on the investment merits of the various securities being offered for sale by Wealthstreet. Jones personally met with investors and reviewed their financial situations and investment objectives for the purpose of recommending particular securities to invest in and what securities were best suited for the individual's portfolio. Jones assured investors that he would personally review their securities portfolios to ensure that securities selected by Wealthstreet coaches were appropriate for the particular client's portfolio. Jones advised investors to fund the purchases of securities offered by Wealthstreet by transferring money they held in other investment vehicles, such as RRSPs and mutual funds, or borrowing money using the equity in their homes through a home equity line of credit or mortgage. Jones opined to some investors that the securities offered by Wealthstreet were preferable over securities they already had, thus recommending and endorsing the former. He also opined that the securities offered by Wealthstreet were lucrative enough to produce profits that would more than defray any loan costs incurred to purchase such securities. Jones was compensated for his advice by the commissions paid to him and Wealthstreet from the issuers whose securities Wealthstreet was selling. He also appears to have taken money originating from investors out of Wealthstreet for personal expenses, thus using it as another form of compensation. [125] The evidence is overwhelming that Jones offered opinions on the value or merit of securities and made those recommendations about securities with regularity throughout the course of his promoting and selling of securities offered by Wealthstreet to a considerable number of Alberta investors. He went far beyond simply providing factual information about issuers and securities. He expected to and did receive compensation from his advising activities. Thus, we find that Jones's advising activities were done with a business purpose – and that Jones was in the business of advising in securities. The limited exemptions then available for the advisor registration requirement were set out in section 3.7 of the former version of NI 45-106. Jones did not argue that any of those exemptions applied, and none appear to have been applicable. We conclude that no exemptions were available to Jones. [126] We therefore find that Jones acted as an advisor – by engaging in or holding himself out as engaging in the business of advising others with respect to investing in or the buying or selling of securities – without being registered to do so under the Act. This allegation is sustained. C. Untrue Statements [127] Staff alleged that Jones breached section 92(4.1) of the Act by making the misrepresentation particularized as follows:

. . . making statements that the [Promissory Note investors] would receive an annual return of 10% from their investment in the [Promissory] Notes.

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Staff's allegation did not extend to the Amended Promissory Notes. Staff argued that Jones's advice to one investor, investor witness KC, that the 10% interest was "guaranteed" was untrue, as the Promissory Note investment was in no way "guaranteed", such as by securing the debt by placing a charge on the Building. [128] As of the date of the distribution of the Promissory Notes, section 92(4.1) of the Act provided:

(4.1) No person or company shall make a statement that the person or company knows or reasonably ought to know

(a) in any material respect and at the time and in the light of the circumstances in which it is made, (i) is misleading or untrue, or (ii) does not state a fact that is required to be stated or that is necessary to

make the statement not misleading, and (b) would reasonably be expected to have a significant effect on the market price

or value of a security or an exchange contract. [129] Thus, to find that Jones contravened section 92(4.1) of the Act, we must conclude from the evidence that:

• Jones made a statement; and • Jones knew or reasonably ought to have known that the statement:

• in a material respect and in light of the circumstances in which it was made was misleading or untrue or omitted a fact required to be stated or necessary to make the statement not misleading; and

• would reasonably be expected to have a significant effect on the market

price or value of a security.

[130] There is no question Jones made statements to investors that the Promissory Notes would pay interest at a rate of 10% per annum; that representation was also documented in the Promissory Notes. But this was a true statement, and there was no evidence that it was untrue at the time it was made. In accordance with the terms of the Promissory Notes, on or about 1 August 2008, all Promissory Note investors received an interest payment of 10% as promised. Thirty-one investors also elected to and did receive repayment of their principal amount (representing approximately one-third of the money borrowed by Wealthstreet from the Promissory Note investors). [131] In our view the evidence and Staff's accompanying submissions were insufficient to establish Staff's allegation that Jones made untrue statements when he told investors that they would receive a 10% annual return on the Promissory Notes.

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[132] For these reasons, we do not find that Jones made statements that the Promissory Note investors would receive an annual return of 10% that he knew or reasonably ought to have known were untrue, contrary to section 92(4.1) of the Act. This allegation fails. D. Unfair Practice [133] Staff alleged that Jones engaged in an unfair practice particularized as follows:

. . . by putting unreasonable pressure on [investors] to purchase securities from Wealthstreet, including pressuring [investors] to borrow from their home equity through mortgages in order to invest in securities sold by Wealthstreet.

[134] At the relevant time, sections 92(3) and 92(5) of the Act provided:

(3) Subject to the regulations, no person or company, with the intention of effecting a trade in a security or exchange contract, shall

. . .

(d) engage in an unfair practice. . . . (5) For the purpose of this section, "unfair practice" means any one or more of the following:

(a) putting unreasonable pressure on a person to purchase, hold or sell a security or exchange contract; (b) taking advantage of a person's inability or incapacity to reasonably protect his or her own interest because of physical or mental infirmity, ignorance, illiteracy, age or inability to understand the character, nature or language of any matter relating to a decision to purchase, hold or sell a security or an exchange contract; . . .

[135] Some investors do choose to purchase securities using money borrowed against their homes or other property. Clearly, there are certain risks to this strategy, as investors remain obliged to repay the loan (and pay interest), even if the value of the securities purchased with the borrowed money declines. Therefore, such a leveraging strategy may not be an appropriate or suitable strategy for all investors. [136] Jones, not a registered advisor, advised, indeed encouraged, Wealthstreet investors, regardless of their financial situation – collectively during seminars and individually – to take out or access a loan using the equity in their homes (in the form of a new or pre-existing line of credit or mortgage) and to use that money to purchase securities offered by Wealthstreet. Jones gave optimistic projections of greater annual rates of return generated from Wealthstreet investments compared to the cost of borrowing (the annual interest rates payable on their loans). While he frequently advised investors about the perils of mortgage fraud, which he claimed affected one in seven Albertans, he neglected to warn investors of the risks associated with leveraging – the fact that a line of credit obligation is a separate obligation distinct from the performance of any securities purchased with borrowed money, the possibility of investment loss or what would happen in a declining market.

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[137] Jones's most egregious activity in this regard – of which we heard evidence – related to investor MLR, a widow in her seventies, who, with no investment knowledge or experience, was especially vulnerable. When she started investing with Wealthstreet, MLR's main asset was her mortgage-free home. MLR relied exclusively on Jones's advice and expertise to assist her in providing for herself during her retirement years. We find that Jones was aware of this and, with that knowledge, took advantage of MLR's situation and unduly pressured her to take out a line of credit using the equity in her home to finance her purchases of what were essentially high-risk, illiquid securities offered by Wealthstreet. Jones brazenly convinced MLR that taking out a home equity line of credit would protect her home from being stolen from her – presumably he was suggesting that a charge registered in her name against her home's title would somehow prevent the mortgage fraud he claimed was so rampant. He also assured MLR that the return on her Wealthstreet investments would carry the line of credit payments. Jones was not the trusted financial advisor that MLR believed he was. In devastating contrast, Jones clearly had little or no regard for MLR's financial circumstances, investment needs and objectives when he encouraged her to use a leveraged investment approach. This was far too risky a strategy for her, exposing her as it did to risks of significant losses from which she might never recover. [138] We find that Jones engaged in an unfair practice when he took advantage of at least one Wealthstreet client (a senior citizen) and placed unreasonable pressure on her through scare tactics and falsehoods – convincing her that her home would be stolen from her unless she borrowed against its equity and used the borrowed money to purchase securities offered by Wealthstreet. The allegation is sustained. E. Conduct Contrary to the Public Interest 1. General [139] Staff alleged that Wealthstreet and Poffenroth engaged in conduct contrary to the public interest when they engaged in illegal trades and distributions of Wealthstreet securities and that Jones engaged in conduct contrary to the public interest when he engaged in illegal trades and distributions of securities, engaged in unregistered advising, made untrue or misleading statements to investors that they would receive a 10% return, and engaged in an unfair practice when he pressured investors to obtain money for Wealthstreet investments by borrowing against their homes. In written submissions, Staff contended that various other activities engaged in by Jones also comprised conduct contrary to the public interest; however, because such activity was not included in the allegation set out in the amended notice of hearing, we make no specific findings as to whether that activity was conduct contrary to the public interest. We restrict our determination to the proven allegations that were also alleged by Staff to be contrary to the public interest: illegal trades and distributions engaged in by all Respondents; illegal advising by Jones; and the unfair practice engaged in by Jones. 2. Registration and Prospectus Activity [140] The registration and prospectus requirements are designed to protect prospective investors – assisting them in making informed investment decisions – and to foster an efficient and fair Alberta capital market. The registration requirement is intended to ensure that a prospective investor receives the benefit of advice from a salesperson with the requisite

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proficiency and ethical standards and with knowledge of the investment being offered, as well as the investor's investment objectives, financial situation and risk tolerance. The prospectus requirement is intended to ensure that a prospective investor receives comprehensive and reliable information, in a prospectus, about the investment being offered, the entity offering the investment and the risks and benefits associated with the investment, with a view to enabling informed investment decision-making. Investors who do not receive these fundamental protections are exposed to the risk of harm that might follow from ill-informed and unsuitable securities investments. [141] All Respondents exhibited a general lack of attention to, or disregard for, the most basic principles of Alberta securities laws by selling securities in a manner that denied investors the fundamental protections afforded by the registration and prospectus requirements in Alberta. Illegal distributions harm investors – both the affected investors and investors in general who begin to question the fairness of the Alberta capital market and their confidence in that market. The Respondents' activities in this regard were clearly contrary to the public interest. 3. Advising Activity [142] Registrants are responsible for determining the investment needs and objectives of client investors. The advisor registration requirement is intended to ensure that investors receive sound investment advice by setting education and conduct standards for registered advisors and by providing ongoing monitoring and compliance obligations. In this case Jones engaged in unregistered advising in securities. Jones made many recommendations to clients to purchase specific securities that were not suitable for them, having regard to their investment needs and objectives. Jones used his various promotional and advertising activities to lend an air of legitimacy to his advising activities, even though he was illegally providing such advice as an unregistered advisor. Those promotional activities were often designed to appear as expert advice rather than what they really were – advertisements for the various securities and advising services that Jones and Wealthstreet were offering at the time. [143] Jones well knew that Wealthstreet clients and potential clients placed a considerable degree of trust and confidence in him, again fostered by advertising campaigns. The evidence is clear that Wealthstreet clients were relying heavily, if not exclusively, on Jones's advice in making their decisions to purchase the various securities being sold by Wealthstreet. His advice has turned out to be disastrous. Many of his recommended investments in securities have failed. His advice to investors to access investable funds using home equity lines of credit has left many of his clients with little or none of the promised cash flow to service those debts. Most of these investors will lose a substantial portion of the money they invested and have not received the promised returns. Several of Jones's clients now find themselves in financial hardship, caused by the highly questionable investment strategy recommended by Jones – leveraged investing in high-risk, illiquid securities. Some investors have lost their savings and retirement funds; many remain obliged to service debts incurred to purchase the securities. Some investors may even lose their homes. It is understandable that the investor witnesses have lost confidence in our capital market. Undoubtedly, other Wealthstreet investors, and other market participants who learn of their plight, will also have doubts about the integrity of our capital market.

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[144] In our view, Jones's unregistered advising activity was a serious violation of the Act and comprised the most egregious, damaging and dangerous conduct before us. By holding himself (and his company, Wealthstreet) out to the public as properly qualified to give advice on the investment merits of securities, Jones exposed investors to significant risks in dealing with unregistered entities and indeed caused actual and significant financial damage to those investors and to their confidence in the Alberta capital market. Jones's activities were not regulated by the Commission and did not comply with any of the investor-protection elements provided under Alberta securities laws. Jones has shown no remorse or concern in respect of his unregistered advising activities. His was extremely serious and contemptible misconduct. [145] We find that Jones's activities in this regard were clearly contrary to the public interest. 4. Unfair Practice Activity [146] The very act of engaging in an unfair practice – unreasonably pressuring or taking advantage of a potential investor for one's own purposes in the context of purchasing, holding or selling securities – is inherently contrary to the public interest. This prohibition under the Act is designed to protect some of the most vulnerable people in the Alberta capital market from precisely the type of activity in which Jones engaged. Jones used scare tactics and falsehoods to unduly pressure at least one Alberta investor (a senior citizen) to purchase securities using excessive leveraging; as a result, she may now lose her home – her main asset – which had previously been mortgage-free. Jones's obvious purpose was to obtain more investment money from that investor, with little heed given to the consequences for the investor. His unconscionable conduct was clearly contrary to the public interest. 5. Conclusion on Conduct Contrary to the Public Interest [147] We find that each Respondent not only contravened the Act but also engaged in conduct contrary to the public interest. That allegation is sustained. V. CONCLUSIONS [148] We found that:

• contrary to sections 75(1)(a) and 110(1) of the Act, each of the Respondents illegally traded in and distributed securities of Wealthstreet;

• contrary to section 75(1)(b), Jones acted as an advisor without being registered

to do so; • contrary to section 92, Jones engaged in an unfair practice by unreasonably

pressuring at least one investor to purchase securities through Wealthstreet; and • in so doing, each of the Respondents engaged in conduct contrary to the public

interest. [149] This decision concludes the Merits Hearing, the first phase of the hearing. It remains to be decided what, if any, orders for sanction or costs we should make against the Respondents. Staff are directed to provide their written submissions on the issues of sanction and costs to the

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panel (through the Registrar of the Commission) and to each of the Respondents by 4:30 pm on 21 September 2011. If, in turn, any Respondent wishes to respond to Staff's submissions on sanction and costs, those written submissions must be sent to the panel (through the Registrar), to Staff and to all other Respondents by 4:30 pm on 17 October 2011. Staff may then reply in writing to any such written submissions, that reply to be provided to the panel (through the Registrar) and to each of the Respondents by 4:30 pm on 26 October 2011. [150] A party wishing to make supplementary oral submissions or to adduce evidence on the issues of sanction and costs must advise the Registrar by 4:30 pm on 31 October 2011, indicating whether that party proposes to call witnesses and the amount of hearing time that party expects to require. Even if no party requests such an oral hearing, one may be required by the panel. The Registrar will inform the parties as to whether the oral hearing will proceed and on what date. 25 August 2011 For the Commission:

"original signed by" Glenda A. Campbell, QC

"original signed by" Beverley A. Brennan, FCA

"original signed by" Glen D. Roane