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Notice of Hearing
File No. 201407


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: Gabriel Richard Frank



NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a
hearing panel of the Central Regional Council (the “Hearing Panel”) of the Mutual Fund Dealers
Association of Canada (the “MFDA”) in the hearing room located at 121 King Street West, Suite
1000, Toronto, Ontario on April 15, 2014 at 10:00 a.m. (Eastern), or as soon thereafter as the
appearance can be held, concerning a disciplinary proceeding commenced by the MFDA against
Gabriel Richard Frank (the “Respondent”).

DATED this 3rd day of March, 2014.

“Rohit Kumar”

Rohit Kumar,

Director of Regional Councils

Mutual Fund Dealers Association of Canada
121 King Street West, Suite 1000
Toronto, Ontario
M5H 3T9
Telephone: 416-945-5136
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 2006 and April 2011, the Respondent recommended and implemented
leveraged investments in the accounts of 10 clients without obtaining the approval of the
Member prior to proceeding with the leveraged investments, contrary to the Member’s Policies
and Procedures, thereby interfering with the ability of the Member to supervise the trading
activity in the clients’ accounts and engaging in conduct unbecoming an Approved Person,
contrary to MFDA Rules 1.1.2 and 2.5.1 and 2.1.1.

Allegation #2: Between March 2011 and February 6, 2012, the Respondent engaged in personal
financial dealings with client AF by borrowing approximately $245,000 from client AF, of
which amount the Respondent repaid only $73,100, thereby creating a conflict or potential
conflict of interest between the Respondent and client AF which the Respondent failed to ensure
was addressed by the exercise of responsible business judgment influenced only by the best
interests of client AF, contrary to MFDA Rules 2.1.4 and 2.1.1.

Allegation #3: Commencing January 3, 2013, the Respondent failed to cooperate with an
investigation of his activities by the MFDA by failing or refusing to fulfill undertakings to
produce documents and information requested by the MFDA, contrary to section 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.
From January 2, 2002 to February 6, 2012, the Respondent was registered in Ontario as a
dealing representative (formerly known as a mutual fund salesperson) with Investors Group
Financial Services Inc. (“Investors Group” or the “Member”).
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2.
On or about February 6, 2012, Investors Group terminated the Respondent as a result of
the events described herein. The Respondent is not currently registered in the securities industry
in any capacity.

3.
During the material time giving rise to the allegations, the Respondent conducted mutual
fund business from an Investors Group branch office in Guelph, Ontario. The Respondent resides
in Guelph, Ontario.

Background

4.
On or about December 15, 2011, this matter came to the attention of MFDA Staff
(“Staff”) when Investors Group filed a report on the MFDA’s Member Event Tracking System
(“METS”) in accordance with MFDA Policy No. 6. The METS report stated that the
Respondent may have borrowed monies from clients and that Investors Group was conducting an
internal investigation.

5.
Investors Group commenced its investigation after receiving an email from the
Respondent on November 25, 2011 during the course of a client file review being conducted by
Investors Group’s Compliance Department in which the Respondent stated, among other things,
“I continue to borrow from anyone I can (friends and family) to make ends meet.”

6.
Following receipt of the METS report on December 15, 2011, Staff commenced an
investigation of the matter.

Allegation #1 – Undisclosed leveraged investments in client accounts

7.
At all material times, Investors Group’s Policies and Procedures provided that:

All leveraged investments must be supported by a written proposal and must be approved
by the Branch Manager and head office. A copy of the proposal, the required leverage
documents and any additional documentation deemed relevant to the leverage strategy
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must be submitted to the Branch Manager for review and approval prior to the leveraged
investment being submitted for funding.

8.
In February 2010, Investors Group commenced a review of a complaint made by client
AK in which she made a variety of allegations with respect to the handling of her account by the
Respondent.

9.
In June 2010, Investors Group commenced a review of the files of 15 clients whose
accounts were serviced by the Respondent based on concerns it had identified during the course
of reviewing client AK’s complaint (the “Client File Review”).

10.
On August 31, 2010, Investors Group issued a warning letter to the Respondent in
relation to client AK’s complaint. Investors Group determined that the Respondent had, among
other things, recommended that client AK borrow monies from a home equity line of credit
(“HELOC”) to purchase mutual funds for her account without the Respondent obtaining the prior
approval of Investors Group.

11.
During the review of client AK’s complaint, the Respondent had advised Investors Group
that he had not implemented leveraged investments in the accounts of any other clients without
Investors Group’s approval. In fact, upon completion of the Client File Review, Investors Group
determined that nine of the 15 accounts it reviewed held leveraged investments for which the
Respondent had not obtained the prior approval of Investors Group:

File
Client
Leverage
Date of
Disclosed to the
Amount
Leverage
Member
Strategy
1
JW and LW
$75,000
September 2006
Yes
2
RM & DM
$98,000
2006
No
3
JA and CA
None
N/A
N/A
4
IW
$100,000
October 2008
No
5
HS and JS
$195,000
October 2006
No
6
IS and CS
$250,000
October 2008
No
7
DC
None
N/A
N/A
8
JY
None
N/A
N/A
9
FF
$100,000
October 2008
No
10
DB and LM
$250,000
October 2009
No
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File
Client
Leverage
Date of
Disclosed to the
Amount
Leverage
Member
Strategy
11
RL and LL
$375,000
April 2008
No
12
PK
$100,000
October 2007
No
13
$100,000
No
14
MZ and CM
$100,000
November 2008
No
15
PK and CK
$100,000
March 2007
Yes

12.
On December 24, 2010, based on the results of the Client File Review, Investors Group
placed the Respondent under internal disciplinary close supervision in relation to the undisclosed
leveraging activity in the client accounts.

13.
In March 2011, client AF, acting on the Respondent’s recommendation, secured a loan1
for $112,000 against his condominium and in April 2011, purchased $110,524.75 of mutual
funds for his account. The Respondent indicated on client AF’s account documents that the
monies used to purchase the mutual funds had not been borrowed.

14.
As described in Allegation #2 below, the Respondent engaged in extensive personal
financial dealings with client AF, which eventually led client AF to contact Investors Group with
his concerns. It was in the course of reviewing those concerns that Investors Group determined
that the Respondent had not obtained Investors Group’s approval prior to proceeding with the
leveraged investment in client AF’s account.

15.
On November 25, 2011, in response to a request from Investors Group for additional
information concerning the leveraged accounts identified during the Client File Review, the
Respondent sent Investors Group the aforementioned email in which he disclosed, among other
things, that he was in financial distress and made the statement that “I continue to borrow from
anyone I can (friends and family) to make ends meet.”2

1 The loan consisted of a mortgage for $110,226.08 and a line of credit for $1,774.92.
2 As stated in the “Overview”, following receipt of this email, Investors Group commenced its internal investigation
of the Respondent’s activities and filed a METS report with the MFDA.
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16.
The Respondent failed or refused to cooperate fully with Investors Group’s requests for
additional information regarding the Client File Review and his leveraging activity, which
prevented Investors Group from completing the Client File Review in a timely manner. On
February 6, 2012, Investors Group terminated the Respondent as a result of, among other things,
his unwillingness to respond to requests for information and the undisclosed leveraging activity
in client accounts.

17.
By engaging in the conduct described above, between 2006 and April 2011, the
Respondent recommended and implemented leveraged investments in the accounts of at least 10
clients without obtaining the approval of the Member prior to proceeding with the leveraged
investments, contrary to the Member’s Policies and Procedures, thereby interfering with the
Member’s ability to supervise the trading activity in the clients’ accounts and engaging in
conduct unbecoming an Approved Person, contrary to MFDA Rules 1.1.2 and 2.5.1 and 2.1.1.

Allegation #2 – Personal financial dealings with client AF

18.
In January 2011, the Respondent met and hired AF to work at the Respondent’s call
centre.3 The purpose of the call centre was to generate client leads for the Respondent through
cold calling.

19.
On February 2, 2011, AF became a client of Investors Group whose account was serviced
by the Respondent. Client AF subsequently transferred all of his investments to Investors Group
and, as described in Allegation #1 above, made a leveraged investment in the amount of
approximately $110,000 in his account at Investors Group in April 2011 acting on the
Respondent’s recommendation.

20.
Between March 24, 2011 and December 22, 2011, the Respondent borrowed a total of
$245,407.97 from client AF. Client AF provided the Respondent with a total of at least 15
cheques and bank drafts made payable to the Respondent personally in amounts ranging from

3 AF is the same individual as client AF described in Allegation #1 above.
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$500 to $65,000.4 The Respondent then deposited the cheques and bank drafts in his personal
bank account.

21.
Client AF obtained the monies which he lent to the Respondent by redeeming mutual
funds held in his account at Investors Group. These redemptions resulted in client AF incurring
deferred sales charges in some instances, which amounts the mutual fund company deducted
from the redemption proceeds it paid to client AF. In those cases where client AF incurred a
deferred sales charge, the Respondent added the amount of the deferred sales charge to the
amount he was obligated to repay client AF.

22.
As set out in the chart below, over the course of the material time, the Respondent
prepared five promissory notes which he provided to client AF as evidence of the Respondent’s
indebtedness to client AF:

Date of
Date of
Loan
Amount
Interest
Interest
Principal
loan
Promissory Maturity
Borrowed
Rate Per
Payable
plus
Note
Date
Annum
Interest
June 15,
July 29,
July 15,
$125,000.00 12%
$16,250.00 $141,250.00
2011
2011
2012
September
September
September
$26, 038.45
12%
$3,124.61
$29,163.06
1, 2011
9, 2011
1, 2012
October 7,
October 7,
October 1,
$42,274.28
12%
$5,072.91
$47,347.19
2011
2011
2012
November
November
November
$42,095.24
12%
$5,051.43
$47,146.67
18, 2011
18, 2011
18, 2012

December
February 1, $10,000.00
N/A
$500.00
$10,500
30, 2011
2012
Totals


$245,407.97
$29,998.95 $275,406.92

23.
According to client AF, the Respondent said he was using the borrowed monies to serve
as seed capital for an investment the Respondent was making with some partners in apartment
ventures. According to the Respondent, he told client AF that he was borrowing the monies to
finance the ongoing costs of running his call center and to pay for client development seminars
he conducted. The Respondent has not provided an accounting of how he spent or invested the

4 Although the total of this series of 15 cheques amounted to only $200,000, both the Respondent and client AF
agree that the total amount the Respondent borrowed was $245,407.97.
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borrowed monies, nor has he provided documentary evidence of the source(s) of funds used to
repay client AF $73,100.

24.
The Respondent did not disclose his personal financial dealings with client AF to
Investors Group. At all material times, the Respondent was aware that Investors Group’s policies
and procedures prohibited Approved Persons from borrowing from clients.

25.
In December 2011, client AF contacted Investors Group to express his concerns about his
loans to the Respondent. Client AF identified the Respondent but did not identify himself and
did not file a formal complaint. As noted above, on December 15, 2011 Investors Group had
filed a METS report notifying the MFDA that the Respondent may have borrowed monies from
clients and that Investors Group had commenced an internal investigation.

26.
By email dated December 20, 2011, Investors Group requested that the Respondent
confirm in writing if he had borrowed monies from any of his clients, and if so, to provide a list
of those clients and the details of the loans. By email on January 3, 2012, the Respondent falsely
responded to Investors Group, “To respond, I have not borrowed any money from any clients.”

27.
In February 2012, client AF again contacted Investors Group to express his concerns
about his loans to the Respondent. On this occasion, client AF identified himself but requested
that his concerns remain confidential.

28.
As described in Allegation #1 above, on February 6, 2012, Investors Group terminated
the Respondent for, among other things, his undisclosed leveraging activity in client accounts
and his failure to respond to requests for information in a timely manner.

29.
In March 2012, client AF provided Investors Group with the details of his loans to the
Respondent.

30.
Between February 10, 2012 and August 2012 (i.e. the period following his termination by
Investors Group), the Respondent repaid client AF a total of $73,100 on account of the loans by
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way of 8 separate payments. Following the completion of its review and investigation, Investors
Group compensated client AF for the remaining amount owing to him.

31.
On November 14, 2012, during the course of Staff’s investigation, Staff conducted an
interview of the Respondent during which the Respondent admitted, among other things, that he
had borrowed monies from three other clients, including his parents, in addition to client AF.
The Respondent claimed that he had repaid all of these three other clients in full but has failed to
provide documentary evidence of the repayments.

32.
By borrowing $245,407.97 from client AF between March 2011 and February 6, 2012, of
which amount the Respondent repaid only $73,100, the Respondent engaged in personal
financial dealings with client AF, thereby creating a conflict or potential conflict of interest
between the Respondent and client AF which the Respondent failed to ensure was addressed by
the exercise of responsible business judgment influenced only by the best interests of client AF,
contrary to MFDA Rules 2.1.4 and 2.1.1.

Allegation #3 – Failure to Cooperate with MFDA Investigation

33.
On February 14, 2012, Investors Group filed a second METS report with the MFDA
pursuant to MFDA Policy No. 6 in relation to the Respondent’s personal financial dealings with
client AF. Upon receipt of the report, Staff commenced an investigation.

34.
Following two requests by the Respondent to reschedule his interview, Staff eventually
was able to interview the Respondent on November 14, 2012. During the course of the
Interview, the Respondent undertook to provide certain information and documents requested by
Staff in relation to the matters under investigation (the “Undertakings”). The initial deadline for
the Respondent to deliver his responses to the Undertakings was January 3, 2013. As set out in
the chart below, the Respondent has failed or refused to provide all of the Undertakings
notwithstanding numerous attempts by Staff to contact the Respondent in order to obtain the
responses to the Undertakings from him:

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Date
Content of Letter
Method of Delivery
Outcome
November 12,
Respondent’s counsel
Registered & regular
No response.
2012
provided with a list of the
mail
Undertakings and requested
Copy to Respondent.
to provide the Undertakings
on or before January 3, 2013.

Deadline: January 3, 2013
January 9, 2013
Asked Respondent’s counsel
Email
January 14, 2013 – Voicemail –
when Staff can expect to
Respondent advised Staff that he
Copy to Respondent
receive the Undertakings.
was still trying to complete the
Undertakings.
February 19,
Respondent requested to
Email
No response.
2013
advise Staff within 48 hours
Copy to Respondent’s
as to when Staff will receive
counsel.
the Undertakings.
Deadline: February 21, 2013
February 22,
Advised Respondent’s
Email
February 22, 2013 – Email –
2013
counsel that Staff had not
Counsel confirmed that he was
received the Undertakings.
still representing the Respondent
Queried whether counsel was
and it remained the Respondent’s
still representing the
intention to answer the
Respondent.
Undertakings.
February 25,
Requested Respondent’s
Email
No response.
2013
counsel to provide the
Undertakings that are
available immediately.
Deadline: February 25, 2013
March 5, 2013
Respondent’s counsel
Registered & regular
March 5, 2013 – Voicemail –
provided with a list of the
mail & email
Respondent asked Staff to call
Undertakings again and a
him to discuss the Undertakings.
Copy to Respondent.
chronology of
March 5, 2013 – Email –
communications regarding
Respondent advised that he did
the Undertakings. Requested
not receive Staff’s previous
Respondent to provide
emails as he was no longer using
additional information.
his previous email address and
Advised that should
that he will be contacting his
Respondent fail to provide the
lawyer.
Undertakings, Staff will seek
authorization to commence
enforcement proceedings for
failing to cooperate.
March 15, 2013
Requested Respondent’s
Email
April 1, 2013 – Email –
counsel to provide the
Respondent’s counsel advised
Copy to Respondent
Undertakings that were
that the Respondent expresses an
available and asked when
extreme anxiety level associated
Staff can expect to receive the
with the MFDA investigation
outstanding Undertakings.
which is inhibiting his ability to
complete the work required; and
that he seemingly is able to cope
adequately with other business
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Date
Content of Letter
Method of Delivery
Outcome
involvements, but he appears to
be completely paralyzed in
connection with the MFDA
investigation. Attached was a
note from the Respondent’s
doctor which indicated that the
Respondent was being referred
for treatment regarding his
anxiety condition.
May 7, 2013
Advised Respondent’s
Registered & regular
October 1, 2013 – Email –
counsel that the matter had
mail
Answers to undertakings 2, 4, 5,
been escalated to
6 and 10 provided to Staff.
Copy to Respondent
Enforcement Counsel.
Respondent’s counsel advised
that he cannot commit to when
answers may be available to the
remaining undertakings; and that
his retainer had been suspended.

35.
Commencing January 3, 2013, by failing or refusing to fulfill the Undertakings to
produce certain documents and information to Staff as described above, the Respondent has
failed to cooperate with an investigation of his activities by the MFDA, contrary to section 22.1
of MFDA By-law No. 1.

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;
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 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;

(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.

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NOTICE is further given that the Respondent must serve a Reply on Enforcement Counsel and
file a Reply with the Office of 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: Michelle Pong, Enforcement Counsel

Fax: 416-361-9073

Email: mpong@mfda.ca

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

(b) transmitting 1 copy of the Reply to the Office of 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 Office of the Corporate Secretary permits otherwise; or
(c) transmitting 1 electronic copy of the Reply to the Office of 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
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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.

DM 371428 v2

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