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MFDA Agreed Statement of Facts

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File No. 201750

IN THE MATTER OF A DISCIPLINARY HEARING PURSUANT TO SECTIONS 20 AND 24 OF BY-LAW NO. 1 OF THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA

Re: Paula Louise Kendrick

Agreed Statement of Facts

INTRODUCTION

  1. By Notice of Hearing dated April 19, 2017, the Mutual Fund Dealers Association of Canada (“MFDA”) commenced a disciplinary proceeding against Paula Louise Kendrick (“Respondent”) pursuant to ss. 20 and 24 of MFDA By-law No. 1.
  1. The Notice of Hearing set out the following allegations:
    1. Allegation #1: between January 2010 and July 2014, the Respondent referred 25 clients and 4 other individuals to companies selling an exempt market product, and received at least $74,666.70 in referral fees for doing so, thereby engaging in securities related business that was not carried on for the account of or through the facilities of the Member, and participating in a referral arrangement to which the Member was not a party, contrary to MFDA Rule 1.1.1, and sections 13.7 to 13.10 of National Instrument 31-103.
    2. Allegation 2: between 2011 and 2014, the Respondent falsely denied that she was a party to any referral arrangements in audit forms and annual compliance questionnaires submitted to the Member, thereby misleading the Member and interfering with its ability to supervise her conduct and ensure that its business is compliant with MFDA Rules and applicable securities legislation, contrary to MFDA Rules 2.1.1, 2.5.1, 2.10 and 1.1.2.

II. IN PUBLIC/IN CAMERA

  1. The Respondent and Staff of the MFDA (“Staff”) agree that this matter should be heard in public pursuant to Rule 1.8 of the MFDA Rules of Procedure.

III. ADMISSIONS AND ISSUES TO BE DETERMINED

  1. The Respondent has reviewed this Agreed Statement of Facts and admits the facts set out in Part IV herein. The Respondent admits that the facts in Part IV constitute misconduct for which the Respondent may be penalized on the exercise of the discretion of a Hearing Panel pursuant to s. 24.1 of MFDA By-law No. 1.
  1. Staff and the Respondent jointly request that the Hearing Panel determine, on the basis of this Agreed Statement of Facts, the appropriate penalty to impose on the Respondent. The appropriate reprimand (if any), pursuant to s. 24.1.1 (a) of MFDA By-law No. 1, the amount of the appropriate fine (if any) to impose on the Respondent, pursuant to s. 24. 1.1(b) of MFDA By-law No. 1, the length of the appropriate suspension, revocation or prohibition (if any) to impose on the Respondent, pursuant to s. 24.1.1 (c) – (e) of MFDA By-law No. 1, the appropriate conditions to impose on the Respondent, pursuant to s. 24.1.1 (f) of MFDA By-law No. 1, and the appropriate amount of costs (if any) of the investigation and hearing to be awarded against the Respondent, pursuant to s. 24.2 of MFDA By-law No. 1.
  1. Staff is seeking a penalty of at least $75,000, costs of $5,000, and a suspension of a period of 2 years.
  1. The Respondent claims to be impecunious and is limited in her ability to pay a fine or costs.

IV. AGREED FACTS

  1. Staff and the Respondent agree that submissions made with respect to the appropriate penalty are based only on the agreed facts in Part IV and no other facts or documents. In the event the Hearing Panel advises one or both of Staff and the Respondent of any additional facts it considers necessary to determine the issues before it, Staff and the Respondent agree that such additional facts shall be provided to the Hearing Panel only with the consent of both Staff and the Respondent. If the Respondent is not present at the hearing, Staff may disclose additional relevant facts, at the request of the Hearing Panel.
  1. Nothing in this Part IV is intended to restrict the Respondent from making full answer and defence to any civil or other proceedings against her.

Registration History

  1. The Respondent was registered as a mutual fund salesperson (now known as a “dealing representative”) with Portfolio Strategies Corporation (“PSC”), a Member of the MFDA, in Alberta from August 30, 2005 to March 23, 2016, in British Columbia since April 24, 2006, and in Ontario since January 23, 2007.
  1. From June 2000 to August 2005, the Respondent was registered as a mutual fund salesperson with Generation Financial Corp., a former Member of the MFDA.
  1. From September 1999 to June 2000, the Respondent was registered as a mutual fund salesperson with World Marketing Alliance of Canada.
  1. During the material time, the Respondent was also licensed in Alberta as a life insurance agent with Canada Life Insurance Company.
  1. The Respondent is not currently registered in the securities industry in any capacity. As a result of her termination by PSC and of the referral of the subject matter of this Agreed Statement of Facts to the MFDA, the Respondent has been unable to secure employment in the securities industry and has been unemployed as a dealing representative since March 23, 2016.
  1. At all material times, the Respondent conducted business in the Calgary, Alberta area.

Allegation #1: Securities Related Business Outside the Member

  1. Between 2010 and 2012, the Respondent engaged in securities related business that was not carried on for the account or processed through, the facilities of PSC when she entered into an approved referral arrangement with Birnco Financial Group Ltd. (“Birnco”), a financial planning, mortgage, life insurance, and group benefits firm registered as a life insurance agency with the Alberta Insurance Council. The referral arrangement contemplated that the Respondent would refer clients and other individuals to an exempt market security. The Respondent entered into the referral arrangement through her position as a licensed life insurance agent.
  1. Through the referral arrangement with Birnco, the Respondent referred clients and other individuals to an exempt market real estate offering by UrbanStar Glendale Manor Inc. (“Glendale Manor”), operating under the UrbanStar Group of Companies (“UrbanStar”). UrbanStar raises capital through exempt market offerings for the acquisition and development of commercial real estate in Alberta.
  1. The Respondent received an 8% referral fee from Birnco for each referral made.
  1. Without the knowledge, authorization or approval of PSC, the Respondent referred the following clients and other individuals to the Glendale Manor exempt market offering:

Investor

Amount Invested

PSC Client?

BM

$20,000

Yes

DF

$20,000

No

DB

$20,000

Yes

SD

$10,000

Yes

LH

$10,000

Yes

CD

$10,000

Yes

DH

$10,000

Yes

DF

$20,000

Yes

AP

$30,000

Yes

DN

$20,000

Yes

DS

$10,000

Yes

LD

$15,000

Yes

AN

$70,000

Yes

DL

$20,000

Yes

RW

$10,000

Yes

JM

$20,000

Yes

HF

$10,000

Yes

LD2

$20,000

Yes

KN

$10,000

Yes

BW

$10,000

Yes

DW

$10,000

No

Total

$375,000

  1. Of the clients referred to in paragraph 19, above, the following clients were either friends or relatives of the Respondent, as follows:
    1. DF, who invested $40,000, is the husband of the Respondent; and whose investment originated from joint funds shared with the Respondent;
    2. BM, who invested $20,000, was the ex-boyfriend of the Respondent and a personal friend;
    3. RW, who invested $20,000, is the brother-in-law of the Respondent; and
    4. DW, who invested $10,000, is the ex-husband of the Respondent and a personal friend.
  1. Between 2010 and 2012, the Respondent received a total of $45,936.70 in referral fees from Birnco in respect of the referrals for the Glen Manor exempt market offering. Of that amount, approximately $5,600 of the referral fees were generated by the family or friends referred to in paragraph 20 above. The Respondent did not report these referral fees to PSC and none of the referral fees were processed through the facilities of PSC or recorded on its books and records. PSC did not have a referral arrangement with Birnco or in respect of the Glendale Manor exempt market offering.
  1. On or about July 25, 2012, the president of UrbanStar, DG, contacted the Respondent via e-mail to offer a referral fee arrangement on another UrbanStar exempt market offering, namely UrbanStar Windy Ridge Phase 1 Inc. (“Windy Ridge”). The Respondent was promised a 17% referral fee for each referral made to Windy Ridge.
  1. The Respondent did not disclose to PSC or obtain authorization or approval from PSC to engage in securities related business by participating into a referral arrangement in connection with the Windy Ridge exempt market offering.
  1. Between February 2013 and July 2014, without the knowledge, authorization or approval of the PSC, the Respondent referred the following clients and individuals to the Windy Ridge exempt market offering:

Investor

Securities Purchased

Amount Invested

Distribution Date

Referral Fees Received

 PSC Client?

BH

10 Units[1]

$10,000

February 24, 2013

$11,900

Yes

DF

10 Units

$10,000

February 24, 2013

Yes

LS

10 Units

$10,000

February 24, 2013

Yes

MS

10 Units

$10,000

February 24, 2013

Yes

JT

10 Units

$10,000

February 24, 2013

Yes

RH

10 Units

$10,000

February 24, 2013

Yes

AE

10 Units

$10,000

January 29, 2014

$6,800

Yes

BH

10 Units

$10,000

January 29, 2014

Yes

AP

10 Units

$10,000

January 29, 2014

Yes

PK

10 Units

$10,000

January 29, 2014

No

MW

30 Units

$30,000

April 11, 2014

$5,100

No

DF

29 Units

$29,000

July 14th, 2014

$4,930

No

TOTAL

$159,000

TOTAL

$28,730

 
  1. Of the clients referred to in paragraph 24, above, the following clients were either the Respondent herself, or her close family:
    1. DF, who invested $39,000, is the husband of the Respondent;
    2. PK, who invested $10,000, is the Respondent; and
    3. MW, who invested $30,000, is the son of the Respondent.
  1. Between February 2013 and July 2014, the Respondent received a total of $28,730.00 in referral fees from UrbanStar in respect of the Windy Ridge exempt market offering. Of that total amount, $13,430.00 in referral fees was generated in sales from the Respondent herself or by her husband or son.
  1. As set out above, the Respondent referred a total of 25 clients and 4 other individuals to the Glendale Manor and Windy Ridge offerings, and received referral fees totaling $74,666.70. Of that total amount, $19,300.00 was paid either by the Respondent herself or by people close to her.
  1. The Respondent did not report these referral fees to PSC and none of the referral fees were processed through the facilities of PSC or recorded on its books and records. PSC did not have a referral arrangement with UrbanStar or in respect of the Glendale Manor exempt market offering.
  1. In the course of her communications and meetings with clients and other individuals with respect to the Glendale Manor and Windy Ridge exempt market offerings, the Respondent, among other things:
    1. informed clients and other individuals about the Glendale Manor and Windy Ridge offerings;
    2. advised clients and other individuals to attend the sales presentations regarding these offerings;
    3. assisted clients and other individuals to sign the subscription agreements and other required documentation to participate in the offerings; and
    4. received compensation totaling $74,666.70 as referenced above, in connection with the referrals.
  1. The Respondent also failed to comply with section 13.8 of National Instrument 31-103 with respect to the Glendale Manor and Windy Ridge exempt market offerings by, among other things, failing to ensure the following occurred prior to referring clients and other individuals to the exempt market offerings:
    1. that PSC entered into a written agreement with Glendale Manor or Windy Ridge;
    2. that PSC recorded all referral fees obtained by the Respondent; and
    3. that written disclosure of the information as required by Section 13.10 of National Instrument 31-103 was provided.
  1. The Glendale Manor and Windy Ridge exempt market offerings were not investments that were approved by PSC for sale by its Approved Persons, including the Respondent. The transactions involving the exempt market offerings were not processed for the account or through the facilities of PSC.
  1. The Respondent did not disclose to PSC that she was referring clients and other individuals to the Glendale Manor and Windy Ridge exempt market offerings or that she was receiving compensation for doing so. PSC did not have a referral arrangement with Birnco or UrbanStar.

Allegation #2: Misleading the Member

  1. At all material times, PSC had written policies and procedures that required its Approved Persons to comply with all MFDA Rules and requirements and prohibited its Approved Persons from engaging in securities related business outside of PSC and entering into a referral arrangement unless PSC approved of the arrangement and was a party to it.
  1. The Respondent completed an annual questionnaire provided by PSC each year which required the Respondent to disclose whether she was a party to any referral arrangements.
  1. The Respondent submitted a 2011 Approved Person Audit Interview Form to PSC in which the Respondent acknowledged that she was familiar with the procedures regarding referral arrangements as described in PSC’s policies and procedures manual and MFDA Rules on permitted referral arrangements. The Respondent incorrectly attested in the form that she did not have any referral arrangements.
  1. In addition, from 2012 to 2014, the Respondent submitted annual compliance certification forms to PSC in which the Respondent was required to disclose whether she was a party to any referral arrangements. For each year, the Respondent incorrectly attested that she was not a party to any referral arrangements.
  1. The Respondent states that she honestly but mistakenly believed that she was not required to disclose any referral agreements at the time she signed the 2011 Approved Person Audit Interview Form and 2012-2014 annual compliance certification forms as she had believed that she was able to conduct this activity through her insurance license. The Respondent acknowledges that she ought to have known that she had entered into a referral arrangement at the time she signed the above mentioned interview form and compliance certification forms.

Additional Factors

  1. There have been no complaints against the Respondent and, to date, there is no evidence of investor harm arising out of the Respondent’s conduct described herein.
  1. The Respondent has cooperated fully with Staff during the course of the investigation.
  1. The Respondent states that as a result of her dismissal and as a dealing representative on March 26, 2016, the Respondent has suffered economic detriment in the amount of approximately $120,000 to date.

Misconduct Admitted

  1. By engaging in the conduct described above, the Respondent admits that she:
    1. between January 2010 and July 2014, referred 25 clients and 4 other individuals to companies selling an exempt market product, and received at least $74,666.70 in referral fees for doing so, thereby engaging in securities related business that was not carried on for the account of or through the facilities of the Member, and participating in a referral arrangement to which the Member was not a party, contrary to MFDA Rule 1.1.1, and sections 13.7 to 13.10 of National Instrument 31-103.
    2. between 2011 and 2014, incorrectly denied that she was a party to any referral arrangements in audit forms and annual compliance questionnaires submitted to the Member, thereby misleading the Member and interfering with its ability to supervise her conduct and ensure that its business is compliant with MFDA Rules and applicable securities legislation, contrary to MFDA Rules 2.1.1, 2.5.1, 2.10 and 1.1.2.

V. EXECUTION OF THE AGREED STATEMENT OF FACTS

  1. This Agreed Statement of Facts may be signed in one or more counterparts which together shall constitute a binding agreement.
  1. A facsimile copy of any signature shall be effective as an original signature.

[1] Units consisted of subordinated debentures with a term of 10 years and providing for deferred simple interest, with all such deferred interest to be paid at the end of year 5 and deferred simple interest of 4% accruable in years 6-10, with the total paid upon maturity. Units also consisted of Class B common shares at an issuance price of $5.00 per share.

DATED: Sep 23, 2017

"Paula Louise Kendrick"

Paula Louise Kendrick

“Shaun Devlin”

Staff of the MFDA
Per: Shaun Devlin
Senior Vice-President,
Member Regulation – Enforcement

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