Proceedings

 

 

IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S. 5, AS AMENDED
AND
IN THE MATTER OF PATRICK JOSEPH KINLIN

Hearing: August 22, 2000

Panel: John A. Geller, Q.C. - Vice-Chair
M. Theresa McLeod - Commissioner
Robert W. Davis, F.C.A. - Commissioner

Counsel: Ian Smith - For the Staff of the
Ontario Securities Commission

DECISION AND REASONS

These proceedings were commenced by Notice of Hearing dated July 4, 2000. In itsStatement of Allegations attached to the Notice of Hearing, the staff ("Staff") of theCommission made the following allegations.

    "1. Patrick Joseph Kinlin (the "Respondent") was registered with the Commission as asalesperson with Toronto securities dealers Mutual Investco Inc. ("Mutual") (fromDecember 1, 1984 to December 31, 1992), Wealth Works Financial Inc. ("WealthWorks") (from November 26, 1997 to July 20, 1998) and Keybase Investments Inc.("Keybase") (from August 17, 1998 to June 22, 1999).

    2. The Respondent was terminated by Mutual on December 31, 1992. In theirtermination letter, Mutual advised the Commission that the Respondent "carries onbusiness in a manner inconsistent with Mutual Life Policies."

    3. When Wealth Works dismissed the Respondent on July 20, 1998, Wealth Worksadvised the Commission that the Respondent had been dismissed for cause,specifically, for the following reasons:

      - Failure...to make [himself] available for training and supervision

      - Use of "cookie cutter" portfolios and failure to address [Wealthwork's]concerns over this approach

      - Length of time [the Respondent] left substantial funds sitting in cash despitenumerous reminders

      - Misrepresentation to dealership with regard to in-house complianceprocedures

    4. When Keybase dismissed the Respondent on June 22, 1999, Keybase advised theCommission that the Respondent had been dismissed with cause. Keybaseattached to its Notice of Termination a copy of a letter from Keybase to theRespondent, the text of which is as follows:

      In the past few days we have received calls from various partiesinquiring about your whereabouts and some client calls questioningthe status of their investments. We are very concerned about theseinquiries and have tried to contact you by telephone at numeroustimes to no avail.

      Based on the serious nature of these inquiries which stipulate yourinvolvement in undisclosed activities outside of Keybase's offerings,though to parties other than Keybase's clients, are deemed improperby that of a Keybase representative [sic]. By doing so, you areevading Keybase's supervision. Keybase will not tolerate suchbehaviour and we are hereby giving you notice that effectiveimmediately your mutual fund licence with us is terminated.

    5. During his tenure as a registrant, the Respondent was authorized to sell mutualfunds and other securities to members of the public. However, while theRespondent did invest some of his clients' money in these securities, much of it wasdiverted by the Respondent for his own personal use.

    6. On January 10, 2000, before the Honourable Mr. Justice Porter of the Ontario Courtof Justice, the Respondent entered a plea of guilty to 28 counts of fraud over$5,000.00 contrary to the Criminal Code. Mr. Justice Porter accepted that plea,entered convictions and sentenced the Respondent to 5 years in prison. TheRespondent was also ordered to make compensation in the amount of$12,582,820.75 to 63 separate individuals or couples, the victims of theRespondent's frauds.

    7. The Respondent admitted before the Court that, in respect of the each of thesevictims, he employed a similar method of defrauding them of their money. TheRespondent agreed that the following summary of his conduct, read in by Counselfor the Crown, was an accurate accounting:

      The method of the [Respondent's] scheme is consistent, andessentially applies to each and every unfortunate victim.

      [The Respondent] was the sole director of Kinlin Financial ServicesIncorporated, located at 357 Bay Street, Suite 600, in the City ofToronto. [The Respondent] was licensed in the Province of Ontario tosell life insurance, mutual funds, and guaranteed investmentcertificates. He was not licensed to broker stocks or bonds.

      Through an extensive network of social contacts and personal friends,that began almost thirty years ago, [the Respondent] actively soughtfunds from private individuals to invest in the markets described,including those for which he was not licensed.

      [The Respondent] offered a wide range of financial services to hisclients that included retirement planning, investment counselling,personal and business insurance, estate planning, and estateadministration. Annual information statements were provided,purporting to provide his clients with a concise picture of their financialprogress, and were statements upon which his clients relied to accesstheir investment progress, and to assess it as well.

      [The Respondent] also augmented his familiarity and access to hisclients' affairs by preparing and filing their personal income taxreturns, preparing wills that named him as the executor and oftentrustee of the estate, and by acquiring power of attorney.

      In his role, [the Respondent] often directly received cash funds fromhis clients, with the understanding that they'd be invested in theclient's name and to their benefit. These transactions includedconverting existing RRSP funds, RRIF funds, GIC's and otherinvestments into purportedly higher-yield accounts chosen by [theRespondent]. The client would provide [the Respondent] with acheque in the amount the client intended to invest. [The Respondent]was told to invest the money, and he undertook to do so to the benefitof the client from whom he had received the money.

      [The Respondent] frequently advised the client verbally as to thespecifics of the pending investment, and financial statements weresent out thereafter by Kinlin's company. In actuality, the financialstatements were simply fabrications from blank sheets of papertailored to reflect the false representations that [the Respondent] hadmade to his clients, and designed to satisfy a client's request fordocumentation of the transactions.

      All of the revenue that [the Respondent] received over the course ofthe years from his clients was directed to a Toronto Dominion Bankaccount, located on the Queensway, in the City of Etobicoke. As themoney entered that account, [the Respondent] immediately withdrewthe funds to support his own lavish lifestyle.

      ..........

      At approximately the end of May of 1999, it appeared obvious to [theRespondent] that his fraudulent transactions were soon to bediscovered. He was in dire need of money. [...]

      By June 5, 1999, [the Respondent] had desperately attempted toraise funds by demanding money of some of his friends. When thisfailed, he fled the country to the U.S.

      A Provisional Warrant was obtained for the arrest of [the Respondent]in June of 1999. American police, acting on the authority of theProvisional Warrant, arrested [the Respondent] in a hospital inNorristown, Pennsylvania, a suburb of Philadelphia.

      In August of 1999, the Canadian government commenced extraditionproceedings for the return of [the Respondent] to face criminalcharges.

      On September 9, 1999, [the Respondent] was returned to Canada,and on September 10 he appeared in a Toronto court to face thecriminal charges outlined in the information before Your Honourtoday.

    8. In addition to this general summary of the Respondent's modus operandi, Counselfor the Crown read in facts in relation to individual victims. These facts were alsoadmitted by the Respondent. Reference was also made to Victim ImpactStatements filed by the Crown. Some victims also made oral statements to theCourt.

    9. In the course of delivering his Reasons for Sentence, Mr. Justice Porter made thefollowing comments:

      I must say in my experience on the bench I have not run into such aloss as I have encountered today in this matter. It is mind-boggling tosay the least.

      You have heard counsel talk about trust. Essentially, our society isbased on trust, and when people fail in their trust it is very distributingto say the least.

      I have listened to the people who were good enough to put theirwords on paper or speak to me, and I am brokenhearted for you, quitefrankly. I wish I could wave a wand and say, "Here we are. Here'syour money. Go home", but unfortunately you realize I can't do that,and unfortunately from what I've heard I don't think [the Respondent]is going to be able to do that either.

      ..........

      But we get back to this horrendous breach of trust and the pain thatit has occasioned to you. I heard the word "despicable". I couldn'tagree with you more, and although as [counsel for the Respondent]points out perhaps all these funds weren't for personal use. I find thatdifficult to believe.

    10. It is the position of Staff that the conduct alleged above, which conduct theRespondent admitted to the Court, constitutes conduct contrary to the publicinterest."

Staff filed a number of exhibits to prove its allegations, including transcripts of a hearingbefore the Honourable Mr. Justice Porter of the Ontario Court of Justice held on January10, 2000 in which the Respondent entered the guilty plea referred to in paragraph 6 of theStatement of Allegations. Staff is entitled to rely on this transcript as evidence of theRespondent's admission of the facts which he admitted at such hearing, and Staff is alsoentitled to rely on the Respondent's conviction as proof of the facts which support theconviction. (See In the Matter of Larry Woods (1995), 18 OSCB 4625 at 4626).

We find that Staff has proved the facts asserted by it in its Statement of Allegations.

We agree with Mr. Justice Porter that the Respondent's conduct was "despicable". Heencouraged his clients to rely on him to invest their money in their best interest, and then,in the face of his fiduciary obligations to them, made off with their money, which he usedfor his own purposes. The amounts involved were substantial, and the effect on those whohe led to put their trust in him, and who did so, was devastating.

As the Commission said in In the Matter of Richard Thomas Slipetz (2000), 23 OSCB 5322at 5323:

    We find that Mr. Slipetz held himself out to the witnesses Tzogas, Conlin, Demoeand Miller as an investment professional who could be relied on to advise thewitness well and take care of the witness' interests, and on whom the witness coulddepend for disinterested investment advice. He sought and obtained the trust ofthese witnesses. As a result, Slipetz was in a fiduciary relationship with thesewitnesses and had, in equity, a strict obligation to deal fairly, honestly and in goodfaith with them. This obligation existed as a matter of general law. (See:Hodgkinson v. Simms [1994] 3 S.C.R. 337 at 419; Burke v. Corry (1959), 19 D.L.R.(2d) 252; In the Matter of E.A. Manning et al. (1995), 18 O.S.C.B 5317 at 5339.)We find that Mr. Slipetz breached his fiduciary duty, and, instead of acting in thebest interests of those to whom he owed the duty, took advantage of and cheatedthem.

    We find that, instead of investing moneys which he received from these witnessessolely for investment purposes, Mr. Slipetz misappropriated these moneys and usedthem for his own purposes. In our view, such an action goes to the very essenceof the duties and responsibilities of a registrant under the Securities Act. (See: Inthe Matter of Thomas Douglas Thomson (1969), 4 O.S.C.B. 160 at 164.) We canthink of no more serious type of a failure by a registrant to comply with hisobligations under the Act to his customers.

Staff has argued that the Respondent's conduct was so egregious that we should concludethat he should never be trusted to again trade in securities, and that, for the protection ofinvestors and the marketplace, it is necessary for us to order that trading in any securitiesby the Respondent cease permanently. We agree that the Respondent's actions havemade it clear that he should never again be trusted to participate in the markets of thisprovince.

We considered, however, permitting the Respondent to trade through a registeredintermediary for the account of a registered retirement savings plan of which he was thesole beneficiary. However, Staff has referred us to the Commission's decision in In theMatter of David G.C. Andrus (1998), 21 OSCB 4777 at 4784, where the Commission said,in dealing with a request to permit a respondent, whose conduct had been found to beegregious, to continue to engage in certain personal trading:

    "It is therefore for the panel to weigh the facts demonstrated in the case anddecide how far it is appropriate to go in limiting the future activities of arespondent to protect the public interest".

    "Although excessive regulation should be avoided, when a danger to the public isdemonstrated through egregious conduct, as in the present case it is better to beon the side of safety. Accordingly, we order that trading in any securities by Andruscease permanently."

We agree. The Respondent's conduct in this case was certainly egregious. As we havesaid, it was despicable. In our view, we should, like the panel in Andrus, err on the sideof safety, safety of investors and the marketplace.

 

Accordingly, we order, pursuant to paragraph 127(1)2 of the Securities Act, that trading inany securities by the Respondent cease permanently.

 

September 20, 2000

John A. Geller         M. Theresa McLeod       Robert W. Davis