How the P.E.I. government inked a deal with a company that became embroiled in a securities investigation

Teresa Wright twright@theguardian.pe.ca
Published on November 28, 2014

Businessman Paul Maines, left, and Finance Minister Wes Sheridan have waged a public war of words against one another in recent months.

©Guardian illustration

This is Part 2 of The Guardian’s investigation into P.E.I.’s failed E-gaming plan. For Part 1, visit: How Prince Edward Island almost made millions from Internet gambling

The Prince Edward Island government hoped to cash in on millions from Internet gambling with a plan that would have seen the province become an online gaming hub for the whole country.

But after more than three years of work, “legal and technical challenges” were identified with the E-gaming plan, and it was scrapped in February 2012.

But there was another idea pitched to the P.E.I. government by the same company that would have paved the way for Internet gambling regulation in P.E.I. That plan aimed to turn P.E.I. into a financial services centre, similar to the Cayman Islands or Dublin, Ireland.

The idea was to attract international tech and banking companies to bring their back-office operations to P.E.I. They would benefit from having a North American presence with low corporate taxes for routing their transactions. Prince Edward Island would benefit from a boom in IT jobs and a stimulated economy.

But, just like the Internet gambling proposal, this idea never materialized.

It did, however, lead the province to sign a deal with a company that would later become embroiled in a securities investigation.

The handling of that investigation, and a subsequent settlement, may yet prove problematic for some government officials and other well-connected business people on the Island, with a threat of potential legal action looming in the near future.

 

The proposal

It was the U.K.-based firm Simplex that worked in 2011-12 with P.E.I. government and Mi’kmaq Confederacy officials on a proposal to make P.E.I. the first and only Internet gambling regulator for Canada.

But this company was interested in P.E.I. for more than just E-gaming. It was considering making the province its potential North American headquarters.

When the province asked Simplex to come up with a plan for E-gaming, the company came back with a proposal to make gaming the first of several phases that would have made P.E.I. a financial transaction ‘hub’ for the continent.

In its August 2011 report to government and the Mi’kmaq Confederacy, Simplex suggested its 'Global Transaction Platform' would be attractive to many financial and I.T. companies, “which are, or will be, considering moving some or all of their operations to P.E.I.”

Data centres, bank outsourcing, corporate payments, financial cloud and messaging services — these were just some of the services that could have been attracted to the Island, creating hundreds of high-wage IT jobs and badly needed economic development for the province.

 

Province signs MOU with ‘shell company’

After the P.E.I. government said its final no to E-gaming in February 2012, there were those who still wanted to explore the Simplex proposal to turn P.E.I. into a financial services hub.

Businessman Paul Maines was one of those people. He was director of business development for a company called Capital Markets Technologies (CMT). CMT was a 32 per cent owner of Simplex, and Maines presented himself to the province as a business partner of Simplex CEO Philip Walsh. As a major shareholder in Simplex, Maines was interested in finding new business ventures for Simplex’s expansion and growth.

So when Maines approached Innovation P.E.I. with the proposal to locate a financial services centre in the province, government officials were interested.

A memorandum of understanding (MOU) was signed in July 2012 between Innovation P.E.I. and a numbered company, which was operating under the trade name Trinity Bay Technologies and had formerly been called Financial Markets Technologies. This company was a wholly owned subsidiary of Maines’ company CMT, and its sole director was local businessman Paul Jenkins.

The 30-day MOU was to “set out the parameters for the parties to commence formal negotiations … to establish a financial services centre in the province,” the agreement states. It was later extended by an additional 30 days.

P.E.I. Finance Minister Wes Sheridan has told The Guardian it was Maines who walked away from the MOU before it expired, after providing no official documentation for the technology needed to support the financial services hub.

Sheridan also says he believes Maines may not have been truthful in presenting his company as a 32 per cent owner in Simplex. Sheridan believes that’s why he never produced the necessary information to Innovation P.E.I.

But Maines has documentation to prove CMT was a major shareholder of Simplex. When Simplex was bought recently by a larger U.S.-based company called Bottom Line Technologies, a share purchase agreement lists CMT as a shareholder and

beneficiary of the sale.

 

Securities investigation

Around the time the MOU between Maines’ company and the province ended, a complaint was filed about Maines, CMT and its subsidiary companies with the Securities Commission of P.E.I.

The Guardian has obtained a copy of the affidavit that Steven Dowling, a Justice Department lawyer, filed to the province’s superintendent of securities. The affidavit says the original complaint came in September 2012 by two employees of ScotiaMcLeod, Edward Curran and Yousef Hashimi.

They told Dowling they were “in possession of information about what they perceived to be suspicious trading or advising activity being undertaken in Prince Edward Island.”

They told Dowling Maines had approached them with an “investment opportunity,” telling them all about Simplex’s exciting technology platform and that his company, CMT, was a part owner of Simplex.

Hashimi told the Justice Department lawyer he had been getting enquiries from both clients and non-clients who had been solicited by Maines for investment. He gave Dowling a list of people he understood had invested in Maines’ company, CMT.

Dowling followed up with some of those people, including: Mark Rodd, who invested $50,000, Garth Jenkins, who invested $100,000, and Paul Jenkins, who also invested $100,000.

Dowling noted Paul Jenkins was also listed as the sole director of a numbered company that was a wholly owned subsidiary of CMT — the same numbered company that had signed the MOU earlier that year with the province.

Jenkins told Dowling he was aware of this numbered company but had no knowledge of the MOU and had no idea how he had become a director. He said he owned many numbered companies and “did not actively keep track of them all,” the affidavit states.

He resigned as director that day.

Throughout his interviews with Islanders who had been solicited to invest in CMT, Dowling notes repeatedly these investors were never advised of the term ‘accredited investor” or its meaning nor were they presented with any kind of offering document or prospectus.

A prospectus is a document that provides details about an investment, disclosing information necessary for investors to make an informed decision.

 

Cease-trade order leads to settlement

Shortly after Dowling filed his affidavit to the provincial superintendent of securities in February 2013, the Justice Department issued a news release saying it was seeking a temporary stop-trade order against Maines, and his companies CMT and FMT/Trinity Bay Technologies.

The superintendent listed several grounds for seeking the order, including an allegation Maines and the companies traded in securities without issuing receipts for a prospectus.

After months of back and forth legal dealings that were closed to the public and the media, a settlement was reached between the CMT and the securities superintendent. As part of the settlement, CMT was ordered to pay a total of $15,000 in administrative penalties and investigative costs. The company was also ordered to refund all “unsophisticated” investors.

It remains unclear how many of CMT’s investors received refunds, but The Guardian has obtained a copy of the company’s list of investors, as of March 5, 2013. A number of high-profile names are included in this list, including government lawyer William Dow and conflict of interest commissioner Neil Robinson. These individuals are no longer believed to be shareholders of CMT.

Legal action threatened

Maines maintains his belief that he has been the target of a smear campaign mounted by local investors and officials within the P.E.I. government. He questions why the Justice Department issued news releases regarding the securities dealings with his companies.

Maines also takes strong issue with public statements made by Finance Minister Sheridan that he and his company had nothing to do with the gaming file and Simplex.

In an email to The Guardian, Maines’ lawyer, Gary Jessop, called these assertions by Sheridan “factually incorrect.”

Jessop says he met with the premier’s chief of staff, Alan Campbell, and Executive Council clerk Steven McLean in October of 2012 in his role as CMT’s counsel, “to discuss the alleged complaint filed against CMT and Maines. During that meeting, CMT’s business on the province including the e-gaming project was discussed,” Jessop said in the email.

“Given the corporate structures of CMT, Simplex and (CMT’s subsidiaries) … there is no way that the government of P.E.I. or MCPEI could have dealt directly with Simplex to the exclusion of CMT, it is just not possible. It is also not possible that the government was not aware of CMT’s involvement with Simplex in the e-gaming and related matters.”

In the end, neither E-gaming nor the financial services hub proposals ever materialized.

But Maines has told The Guardian he intends to file a defamation suit against some of those involved in the securities investigation, and intends to subpoena Sheridan and other officials on the gaming file.

Sheridan, for his part, says he is not concerned.

“(Maines) was out there selling securities to people based on the concept that the government was going to do a deal … and people bought into it,” Sheridan said.

“This is a disgruntled company that was found to be acting against the law in Prince Edward Island, so they’re trying to uphold their reputation in other jurisdictions.”

To date, nothing has yet been filed in court.

 

twright@theguardian.pe.ca

Twitter.com/GuardianTeresa