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MFDA Notice of Hearing

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Home › Notice of Hearing 201241 - RE: Rush, Robert Bruce



Notice of Hearing
File No. 201241



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: Robert Bruce Rush




NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a
hearing panel of the Pacific Regional Council (the “Hearing Panel”) of the Mutual Fund Dealers
Association of Canada (the “MFDA”) in the hearing room located at the MFDA offices at 650
West Georgia Street, Suite 1220, Vancouver, British Columbia on January 16, 2013 at 10:00
a.m. (Pacific), or as soon thereafter as the hearing can be held, concerning a disciplinary
proceeding commenced by the MFDA against Robert Bruce Rush (the “Respondent”). The
Hearing on the Merits will take place in Vancouver, British Columbia at a time and venue to be
announced.

DATED
this 21st day of November, 2012.

“Jason D. Bennett”

Jason D. Bennett

Corporate Secretary

Mutual Fund Dealers Association of Canada
121 King Street West, Suite 1000
Toronto, Ontario, M5H 3T9
Telephone: 416-943-7431
Facsimile: 416-361-9781
Email: corporatesecretary@mfda.ca

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NOTICE is further given that the MFDA alleges the following violations of the By-laws, Rules
or Policies of the MFDA:

Allegation #1: Between January 2007 and November 28, 2007 the Respondent engaged in
securities related business that was not carried on for the account of the Member and through the
facilities of the Member by recommending, referring, selling or facilitating the sale of securities
to at least clients KC and DC, and possibly to two other clients and 11 other individuals, outside
the Member, contrary to MFDA Rule 1.1.1(a) and 2.1.1.

Allegation #2: Between January 2007 and November 28, 2007, the Respondent had and
continued in another gainful occupation that was not disclosed to and approved by the Member
by recommending, referring, selling or facilitating the sale of securities to at least clients KC and
DC, and possibly to two other clients and 11 other individuals, outside the Member, contrary to
MFDA Rule 1.2.1(d).1

Allegation #3: Between January 2007 and November 28, 2007, the Respondent failed to comply
with the Member’s policies and procedures with respect to engaging in outside business
activities, contrary to MFDA Rules 1.1.2 and 2.5.1, and MFDA Rule 2.1.1.

Allegation #4: Commencing February 10, 2011, the Respondent has failed to cooperate with an
investigation commenced by the MFDA by failing to provide information and documents
concerning the matters under investigation and by failing to attend an interview, as requested by
MFDA Staff during the course of the investigation, contrary to s. 22.1 of MFDA By-law No. 1.

PARTICULARS

NOTICE is further given that the following is a summary of the facts alleged and intended to be
relied upon by the MFDA at the hearing:

Registration History

1.
The Respondent was registered in British Columbia as a mutual fund salesperson with

1 On December 3, 2012, MFDA Rule 1.2.1(d) was renumbered as 1.2.1(c).
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Sun Life Financial Investment Services (Canada) Inc. (“Sun Life”) from March 2005 until
November 28, 2007. During this time, the Respondent was located in Vernon, British Columbia.

2.
The Respondent is not currently registered in the securities industry in any capacity.

Allegation #1 – Securities related business outside the Member

(a)
Gold Quest International

3.
At all material times, KC and DC were spouses of one another and clients of Sun Life.
The Respondent was the mutual fund salesperson responsible for servicing their accounts.

4.
In spring 2007, the Respondent approached clients KC and DC and advised them of an
investment opportunity offered by Gold Quest International (“Gold Quest”) which was a
company that purportedly traded in foreign exchange currencies. The Respondent advised
clients KC and DC that the investment provided an 87 ½ percent one-year return.

5.
Relying on the Respondent’s recommendation, clients KC and DC provided the
Respondent with USD $5,000 to invest in Gold Quest on their behalf in or about May 2007.

6.
On or about May 5, 2008, the securities commissions of both British Columbia and
Manitoba published a joint investor alert regarding Gold Quest and subsequently issued cease
trade orders prohibiting Gold Quest from soliciting new investors in those provinces.

7.
On or about May 6, 2008, the United States Securities and Exchange Commission
(“SEC”) brought a proceeding against Gold Quest and its owners for violations of United States
federal securities laws. The SEC alleged, among other things, that Gold Quest was a Ponzi
scheme that had raised more than $27.9 million from over 2,100 investors resident in the United
States and Canada. The SEC obtained an order which, among other things, froze the assets of
Gold Quest’s principals and appointed a temporary receiver.

8.
Clients KC and DC received statements showing their investments in Gold Quest. In or
about June 2008, the Respondent contacted clients KC and DC and advised them that the Gold
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Quest investment had been determined to be a fraud and that they would not be repaid any of
their investment.

(b)
The Here and Now

9.
In or about the fall of 2007, while the Respondent was still registered as a mutual fund
salesperson with Sun Life and prior to the public revelations concerning Gold Quest, the
Respondent approached clients KC and DC with another investment opportunity, this time in a
company called “The Here and Now”, which purportedly produced radio-controlled dog collars.

10.
The Respondent advised clients KC and DC that by approximately May 2008 they
would:
a. receive repayment of their initial investment;
b. maintain ownership of shares in The Here and Now; and
c. begin receiving monthly dividend payments.

11.
Clients KC and DC received investment instructions and documents from the Respondent
to execute and to send directly to The Here and Now. Clients KC and DC provided $14,000
directly to The Here and Now for investment.

(c)
The investments were not approved for sale by the Member

12.
At the material time, neither Gold Quest or The Here and Now were investments that
were known to or approved by Sun Life for sale by its Approved Persons, including the
Respondent.

13.
The Respondent did not disclose to Sun Life his involvement in the sale of these
investments to clients KC and DC or to anyone else. Sun Life was not aware of the
Respondent’s activities until it was served with Notice of a Civil Claim by clients KC and DC in
January 2011, as described in Allegation #4 below.

(d)
Loss of purported investment

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14.
To Staff’s knowledge, clients KC and DC have lost all of their investments totaling
$19,000 in Gold Quest and The Here and Now and there is no reasonable prospect that the
monies will be recovered.

(e)
Additional clients and other individuals

15.
During the course of MFDA Staff’s investigation, it received information that the
Respondent may have referred at least two additional clients and at least 11 other individuals to
invest in Gold Quest as follows:

Name
Amount invested
Commencement date
Client
KP
$4,100
February 21, 2007
Yes
SB
$900
April 23, 2007
Yes
TB
$9,100
May 18, 2007
No
DB
$9,900
January 8, 2007
No
TF $1,900 February
1,
2007
No
RH
$5,000
July 20, 2007
No
SH
$503.15
August 27, 2007
No
GJ
$500
March 1, 2007
No
AJ
$7,000
May 15, 2007
No
ML
$500
May 15, 2007
No
WL
$1,000
May 15, 2007
No
MR $4,900 February
7,
2007
No
RW
$1,000
April 12, 2007
No
13 $45,803.15

16.
MFDA Staff has been unable to confirm the details of the investments in Gold Quest by
these clients and other individuals due to the Respondent’s failure to cooperate with MFDA
Staff’s investigation, as described below. Further particulars of the allegations in paragraph 15
will be provided if or when the Respondent cooperates with MFDA Staff’s investigation.

17.
By engaging in the conduct described above, the Respondent engaged in security related
business that was not carried on for the account of and through the facilities of Sun Life, contrary
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to MFDA Rules 1.1.1(a) and 2.1.1.

Allegation #2 – Undisclosed dual occupation

18.
In the event that the Respondent’s activities in respect of Gold Quest and The Here and
Now did not constitute securities related business, then the Respondent had and continued in
another gainful occupation that was not disclosed to and approved by Sun Life, contrary to
MFDA Rule 1.2.1(d).

Allegation #3 – Policies and procedures of the Member

19.
Sun Life’s policies and procedures manual (the “PPM”) in effect in 2008 required its
Approved Persons to obtain written consent from Sun Life in order to engage in any business or
occupation other than acting as an advisor for Sun Life. The PPM specifically prohibited its
Approved Persons from selling products and services offered by other financial organizations
and prohibited selling, representing or promoting any investments or business opportunities,
unless they have been approved in writing by Sun Life.

20.
The Respondent did not seek or receive approval from Sun Life to engage in any of the
activities described in Allegations #1 and #2, which activities were prohibited unless specifically
in writing by Sun Life.

21.
Between January 2007 and November 28, 2007, the Respondent failed to comply with
Sun Life’s policies and procedures with respect to the activities described in Allegations #1 and
#2, contrary to MFDA Rules 1.1.2 and 2.5.1, and MFDA Rule 2.1.1.

Allegation #4 – Failure to cooperate

22.
On or about January 11, 2011, Sun Life received a Notice of Civil Claim from clients KC
and DC in relation to the Respondent’s sale of the Gold Quest and the Here and Now Investment
products.

23.
On January 12, 2011, Sun Life filed a METS event report with the MFDA. Shortly
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thereafter, MFDA Staff commenced an investigation of the Respondent’s activities.

24.
By letter dated January 20, 2011, sent by registered and regular mail to the Respondent,
MFDA Staff requested that the Respondent provide a written statement to assist in its
investigation into the Respondent’s alleged facilitation of investment by clients KC and DC in
Gold Quest and The Here and Now. Staff requested a response from the Respondent by no later
than February 10, 2011. The letter sent by registered mail was returned undelivered, and the
letter sent by regular mail letter was not returned to the MFDA. The respondent did not respond
to MFDA Staff’s letter.

25.
By letter dated February 4, 2011, sent by registered and regular mail to the Respondent,
MFDA Case Assessment Staff requested that the Respondent provide the requested
documentation and information no later than February 23, 2011. The letter sent by registered
mail was unclaimed, and the letter sent by regular mail was not returned to MFDA offices. The
Respondent did not respond to MFDA Staff’s letter.

26.
By letter dated February 28, 2011, sent by registered and regular mail to the Respondent,
MFDA Staff again requested that the Respondent provide the requested documentation and
information by March 14, 2011, failing which the matter would be referred to investigation for
review as to possible commencement of a disciplinary proceeding against the Respondent for
failing to cooperate with MFDA Staff’s investigation. The letter sent by registered mail was
unclaimed, and the letter sent by regular mail was not returned to MFDA offices.

27.
By a further letter dated February 28, 2012, MFDA Staff requested that the Respondent
reply within five days of receipt of the letter in order to schedule his attendance at an interview.
This letter was personally served on the Respondent on March 1, 2012. The Respondent did not
contact MFDA Staff in response to this letter.

28.
By letter dated April 19, 2012, MFDA Investigation Staff wrote the Respondent and set
out the history of attempts by MFDA Staff to contact the Respondent. MFDA Staff also sought
to schedule and interview with the Respondent. MFDA Staff provided the Respondent with
copies of the letters described above dated January 20, 2011, February 4, 2011, and both letters
dated February 28, 2011. MFDA Staff’s April 19, 2012 letter as well as MFDA Staff’s previous
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letters were personally served on the Respondent on April 20, 2012.

29.
On June 11, 2012, the Respondent emailed MFDA Staff stating that he was responding to
correspondence from the MFDA Staff regarding a civil claim involving clients KC and DC. The
Respondent advised that he had legal counsel who was unavailable due to surgery, and that the
Respondent wanted to address some of MFDA Staff’s questions. Although the Respondent
provided some information relevant to MFDA Staff’s inquiries in his email, a number of Staff’s
items requested by Staff were not answered. The Respondent also advised that his counsel can
address MFDA Staff’s other concerns and questions when he returns after his surgery.

30.
On June 12, 2012, MFDA Staff called the Respondent and left a voicemail and sent an
email to the Respondent requesting that he reply by June 20, 2012 in order to schedule an
interview to occur between June 25 and July 6, 2012. The Respondent responded to MFDA
Staff via telephone and stated he would be out of the country from June 22 to July 18, and that he
was going to speak with his legal counsel to confirm counsel’s availability to attend the
interview. MFDA Staff and the Respondent discussed tentative dates for an interview to be held
on July 19 or July 20, 2012. The Respondent undertook to contact MFDA Staff on June 13,
2012 to confirm his attendance on the proposed interview dates. The Respondent did not contact
MFDA Staff on June 13, 2012.

31.
On June 14, 2012, MFDA Staff wrote the Respondent confirming that he had failed to
contact MFDA Staff on June 13, 2012 and that MFDA Staff had scheduled the interview to
occur on July 20, 2012. MFDA Staff also sent a letter on June 14, 2012 to the Respondent that
was personally served on June 14, 2012, which advised the Respondent to contact Staff by 5:00
p.m. on June 14, 2012, failing which the Respondent’s interview will proceed on July 20, 2012 at
a venue specified in the letter. MFDA Staff’s letter advised the Respondent that should he fail to
attend at the scheduled interview, MFDA Staff would seek authorization to commence an
enforcement proceeding which may include an allegation that he failed to cooperate with MFDA
Staff. The Respondent did not respond to MFDA Staff on June 14, 2012.

32.
On June 26, 2012, MFDA Staff sent a letter to the Respondent by registered and regular
mail and email notifying him that the matter was escalated to enforcement counsel.

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33.
On June 26, 2012, the Respondent emailed MFDA Staff and advised, among other things,
that if MFDA Staff has appointed legal counsel, then he had “the right to secure legal counsel”
and that the July 20, 2012 interview “may not work”.

34.
On June 28, 2012, MFDA Staff emailed the Respondent, and advised him, among other
things, that the interview was scheduled to occur on July 20, 2012, and that Staff expected his
attendance pursuant to section 22.1 of MFDA By-law No. 1.

35.
On June 28, 2012, the Respondent emailed Staff indicating that he was hiring counsel and
that he would “advise if the interview date is acceptable”. The Respondent also asked MFDA
Staff questions about MFDA enforcement procedure.

36.
On June 28, 2012, MFDA Staff responded to the Respondent’s questions and advised that
if he had any questions about the litigation process that he could contact enforcement counsel.

37.
MFDA Staff received no further communications from the Respondent.

38.
On July 20, 2012, MFDA Staff attended for the interview at the time and location
specified in MFDA Staff’s letter dated June 14, 2012, and confirmed by email on June 28, 2012.
The Respondent failed to attend the interview.

39.
The Respondent has not answered MFDA Staff’s request for documents and information,
and has failed to attend at an interview for the purpose of an investigation.

40.
As a result of the Respondent’s failure to cooperate, MFDA Staff has been unable to
determine the full nature and extent of the Respondent’s conduct, including, among other things,
the details of the Respondent’s dealings with clients KC and DC, and whether the Respondent
recommended, referred or facilitated purchases of investments outside the books and records of
Sun Life by additional clients and other individuals.

41.
By virtue of the foregoing conduct, the Respondent has failed to cooperate with an
MFDA investigation, contrary to s. 22.1 of MFDA By-law No. 1.

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NOTICE is further given that the Respondent shall be entitled to appear and be heard and be
represented by counsel or agent at the hearing and to make submissions, present evidence and
call, examine and cross-examine witnesses.

NOTICE is further given that MFDA By-laws provide that if, in the opinion of the Hearing
Panel, the Respondent:

 has failed to carry out any agreement with the MFDA;

 has failed to comply with or carry out the provisions of any federal or provincial statute
relating to the business of the Member or of any regulation or policy made pursuant
thereto;

 has failed to comply with the provisions of any By-law, Rule or Policy of the MFDA;

 has engaged in any business conduct or practice which such Regional Council in its
discretion considers unbecoming or not in the public interest; or

 is otherwise not qualified whether by integrity, solvency, training or experience,

the Hearing Panel has the power to impose any one or more of the following penalties:

(a) a reprimand;

(b) a fine not exceeding the greater of:

(i)
$5,000,000.00 per offence; and
(ii)
an amount equal to three times the profit obtained or loss avoided by such person
as a result of committing the violation;

(c) suspension of the authority of the person to conduct securities related business for such
specified period and upon such terms as the Hearing Panel may determine;

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(d) revocation of the authority of such person to conduct securities related business;

(e) prohibition of the authority of the person to conduct securities related business in any
capacity for any period of time;

(f) such conditions of authority to conduct securities related business as may be considered
appropriate by the Hearing Panel;

NOTICE is further given that the Hearing Panel may, in its discretion, require that the
Respondent pay the whole or any portion of the costs of the proceedings before the Hearing
Panel and any investigation relating thereto.

NOTICE is further given that the Respondent must serve a Reply on Enforcement Counsel and
file a Reply with the Corporate Secretary within twenty (20) days from the date of service of this
Notice of Hearing.

A Reply shall be served upon Enforcement Counsel at:

Mutual Fund Dealers Association of Canada
121 King Street West, Suite 1000
Toronto, Ontario
M5H 3T9

Attention: David Halasz

Fax: 416-361-9073

Email: dhalasz@mfda.ca

A Reply shall be filed by:
(a) providing 4 copies of the Reply to the Corporate Secretary by personal delivery, mail or
courier to:
The Mutual Fund Dealers Association of Canada
121 King Street West
Suite 1000
Toronto, ON M5H 3T9
Attention: Office of the Corporate Secretary; or

(b) transmitting 1 copy of the Reply to the Corporate Secretary by fax to fax number 416-
361-9781, provided that the Reply does not exceed 16 pages, inclusive of the covering
page, unless the Corporate Secretary permits otherwise; or
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(c) transmitting 1 electronic copy of the Reply to the Corporate Secretary by e-mail at
CorporateSecretary@mfda.ca.

A Reply may either:

(i)
specifically deny (with a summary of the facts alleged and intended to be relied upon
by the Respondent, and the conclusions drawn by the Respondent based on the
alleged facts) any or all of the facts alleged or the conclusions drawn by the MFDA in
the Notice of Hearing; or

(ii)
admit the facts alleged and conclusions drawn by the MFDA in the Notice of Hearing
and plead circumstances in mitigation of any penalty to be assessed.

NOTICE is further given that the Hearing Panel may accept as having been proven any facts
alleged or conclusions drawn by the MFDA in the Notice of Hearing that are not specifically
denied in the Reply.

NOTICE is further given that if the Respondent fails:

(a) to serve and file a Reply; or
(b) attend at the hearing specified in the Notice of Hearing, notwithstanding that a Reply
may have been served,

the Hearing Panel may proceed with the hearing of the matter on the date and the time and place
set out in the Notice of Hearing (or on any subsequent date, at any time and place), without any
further notice to and in the absence of the Respondent, and the Hearing Panel may accept the
facts alleged or the conclusions drawn by the MFDA in the Notice of Hearing as having been
proven and may impose any of the penalties described in the By-laws.
End.

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