Toronto Argonauts defensive back Adrion Smith and Winnipeg Blue Bombers Albert Johnson battle for the ball during first half CFL action in Toronto on Thursday Aug. 10, 2000.FRANK GUNN/The Canadian Press
Former football star Adrion (Pee Wee) Smith has agreed to pay $57,500 to settle accusations that he participated in the illegal distribution of securities involving an Oklahoma-based oil drilling company.
The Ontario Securities Commission approved a settlement agreement Friday with Mr. Smith, who admitted to selling securities without proper registration and without an approved prospectus. He also received an eight-year ban from being registered to work in the investment industry.
Mr. Smith, 43, played in the Canadian Football League for 12 seasons, including 10 for the Toronto Argonauts. He was a four-time CFL All-Star, and won three Grey Cup championships with the Argos in 1996, 1997 and 2004.
After retiring from football in 2005, he turned his focus to the investment sector, co-founding investment firm Ground Wealth Inc. in Cambridge, Ont., with business partner Michelle Dunk.
The investment firm's sole line of business was marketing partnership agreements to investors in Armadillo Energy Inc., a private Nevada-based oil company with drilling operations in Oklahoma. The OSC said investors were promised monthly proceeds from oil leases.
Ground Wealth sold $5.3-million worth of Armadillo partnership agreements to more than 130 Canadian investors in 2010 and 2011, including 68 in Ontario, the regulator said. Ground Wealth kept 24 per cent of the funds it raised from investors – or about $1.3-million – as its marketing fee for organizing the sales.
In 2012, investors were told oil extraction had declined and Armadillo would have to be restructured with reduced partnership payments.
"Armadillo securities initially provided some return to some of the investors, but partnership payments have not been made since late 2012," OSC lawyer Jon Feasby told a settlement hearing Friday.
Investors were provided with a document entitled "prospectus" before they purchased the units, and were given an ownership certificate labelled "stock certificate" on their documents.
But the OSC alleged no prospectus was ever filed and approved by regulators as required under securities laws, and Ground Wealth was not registered to sell securities in Ontario.
Outside of the hearing Friday, Mr. Smith said he first got involved in Ground Wealth when its predecessor company, J.A.M.M. Tours Inc., began offering football camps. He said the company was turned into an investment firm by his former partner, Ms. Dunk, and he did not understand what it was doing.
He said his involvement came from "trusting the wrong people."
Mr. Feasby told the hearing that Mr. Smith's involvement in the company was primarily in a "banking" role as a person with signing authority over accounts, but added that he also trained sales staff who were marketing the partnership units, helped host a dinner for prospective investors, and went to Oklahoma with some investors to tour the oil drilling operations.
He said Mr. Smith deserved a significant penalty because he was previously registered to work in the investment sector, so should have understood his responsibilities to investors.
Mr. Feasby said the OSC typically requires that people pay penalties up front from settlement agreements, but said Mr. Smith has recently been discharged from bankruptcy and doesn't have the money.
Mr. Smith said outside the hearing that he is no longer working in the investment industry and is currently working with at-risk youth.
In a settlement agreement on Jan. 6, Ground Wealth agreed to pay $1.3-million to the OSC, which equals the commissions it received from the partnership sales. Ms. Dunk agreed to an eight-year ban from selling securities or working in the investment industry, and was ordered to pay penalties and costs of $57,500.
Janet McFarland