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201516

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

John Richard Wolfenden

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 at the MFDA offices, located at 121 King Street West, Suite 1000, Toronto, Ontario on August 25, 2015 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 John Richard Wolfenden (the “Respondent”).

DATED: Jun 18, 2015

"Sarah Rickard"

Sarah Rickard

Director of Regional Councils

Mutual Fund Dealers Association of Canada
121 King St. West, Suite 1000
Toronto, ON M5H 3T9
Telephone: 416-945-5143
Fax: 416-361-9781
E-mail: corporatesecretary@mfda.ca



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

Allegation #1:  Between June 2010 and October 2013, the Respondent borrowed $20,000 from client MP and $80,000 from client JM, thereby engaging in personal financial dealings with clients which gave rise to a conflict or potential conflict of interest between the Respondent and the clients that the Respondent failed to address by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to MFDA Rules 2.1.1 and 2.1.4.

Allegation #2:  The Respondent failed to report to the Member within two (2) business days or at all, client MP’s complaint received on May 15, 2013 regarding the Respondent’s failure to repay the monies he borrowed from client MP which constituted a complaint in respect of personal financial dealings with a client, contrary to MFDA Policy No. 6, subsection 4.1(b)(v).

Allegation #3:  Between August 8, 2013 and September 17, 2013, the Respondent misled the Member with respect to his personal financial dealings with client MP and client JM, thereby interfering with the Member’s ability to conduct a reasonable supervisory investigation of the Respondent’s activities and failing to observe high standards of ethics and conduct in the transaction of business, contrary to MFDA Rule 2.1.1.

433715 v2

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 has been registered in the securities industry at various times since 1999.
  1. From June 12, 2006 to October 1, 2013, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with FundEX Investments Inc. (“FundEX”), a Member of the MFDA.
  1. On October 1, 2013, FundEX terminated the Respondent as a result of the events described herein. The Respondent is not currently registered in the securities industry in any capacity.
  1. At all material times, the Respondent conducted business in the Sarnia, Ontario area.

Allegation #1 – Borrowing from Clients

  1. At all material times, FundEX’s policies and procedures prohibited its Approved Persons, including the Respondent, from borrowing from clients.
  1. In 2010, the Respondent and his spouse, BW, purchased a cottage for $215,000 (the “Cottage”). In order to help pay for the Cottage, the Respondent borrowed a total of $100,000 from client MP and client JM.
Client MP
  1. From 2006 to 2013, the Respondent serviced client MP’s account at FundEX.
  1. In June 2010, the Respondent requested that client MP provide a personal loan to BW and him so that they could purchase the Cottage.
  1. On June 22, 2010, client MP loaned $20,000 to the Respondent (the “MP Loan”). The MP Loan was recorded in a promissory note which was signed by the Respondent, BW, and client MP (the “Promissory Note”).  Among other things, the Promissory Note stated that:
  1. the Respondent and BW promised to pay client MP a principal sum of $20,000 plus interest at a rate of 5% per annum calculated annually not in advance; and
  2. the principal and interest were due to be paid in full on or before June 30, 2011.
  1. The Respondent did not repay any amount of the MP Loan by June 30, 2011.
  1. In November 2011, instead of repaying the monies owed to client MP, the Respondent purchased a tract of land adjacent to the Cottage for $40,000.
  1. In February 2012, client MP telephoned the Respondent and requested that the Respondent repay the MP Loan. The Respondent told client MP that he was unable to repay him at that time but that he would repay him in June 2012.  The Respondent did not repay any amount of the MP Loan by June 2012.
  1. On May 15, 2013, client MP telephoned the Respondent and demanded that the Respondent repay the MP Loan by no later than May 22, 2013 (the “Demand for Repayment”). During the telephone call, client MP conveyed to the Respondent his frustration at not yet having been repaid the monies he had loaned to the Respondent.
  1. On May 31, 2013, the Respondent took out a bank draft in BW’s name in the amount of $20,000 and repaid the principal sum of the MP Loan to client MP. The Respondent did not pay any interest that was due on the MP Loan.
Client JM
  1. From 2006 to 2013, the Respondent serviced client JM’s account at FundEX.
  1. In June 2010, the Respondent requested that client JM provide a mortgage loan to him so that he and BW could purchase the Cottage. The Respondent knew that client JM had previously provided mortgage loans to other individuals.
  1. On June 30, 2010, client JM loaned $80,000 to the Respondent (the “JM Loan”). The terms of the JM Loan were recorded in a mortgage agreement (the “Mortgage Agreement”).  Among other things, the Mortgage Agreement stated that:
  1. the principal amount of the JM Loan was $80,000;
  2. the Respondent provided a charge over land to client JM;
  3. the interest rate of the JM Loan was 5%;
  4. the “Balance Due Date” of the JM Loan was June 30, 2012; and
  5. the Respondent was to provide client JM “with a series of 12 post-dated cheques annually on the commencing date, the 30th day of June in each year”.
  1. The Respondent did not repay the JM Loan when it became due.
  1. The Respondent repaid the JM Loan in early 2014.
  1. By engaging in the conduct described above, the Respondent engaged in personal financial dealings with client MP and client JM, which gave rise to a conflict or potential conflict of interest between the Respondent and the clients that the Respondent failed to address by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to MFDA Rules 2.1.1 and 2.1.4.

Allegation #2 – Failure to Report Complaint in respect of Personal Financial Dealings

  1. As described above in paragraph 13, client MP made the Demand for Repayment to the Respondent on May 15, 2013.
  1. MFDA Policy No. 6, subsection 4.1(b)(v) requires an Approved Person to report to his or her Member, within 2 business days, whenever the Approved Person becomes aware of a complaint from any person (in any form) against him or her involving allegations of personal financial dealings with a client.
  1. The Demand for Repayment constituted a complaint in respect of the Respondent engaging in personal financial dealings with client MP, which the Respondent was required to report to FundEX within 2 business days of being made aware of the event in accordance with the requirements of MFDA Policy No. 6, subsection 4.1(b)(v). The Respondent failed to report the Demand for Repayment within 2 business days or at all.
  1. As described below, FundEX did not become aware of the Demand for Repayment or the personal financial dealings between the Respondent and client MP until about July 19, 2013 when it received a complaint directly from client MP.
  1. By engaging in the conduct described above, the Respondent failed to comply with the requirements of MFDA Policy No. 6, subsection 4.1(b)(v).

Allegation #3 – Misleading the Member

  1. On or about July 19, 2013, client MP submitted complaints to FundEX and to the MFDA alleging, among other things, that the Respondent borrowed $20,000 from him.
  1. Prior to receiving a complaint from client MP, FundEX had not been aware of any personal financial dealings between the Respondent and his clients.
  1. On July 31, 2013, FundEX requested a written statement from the Respondent advising, among other things, of the details of the MP Loan and whether the Respondent had borrowed monies from any other clients.
  1. By letter dated August 8, 2013, the Respondent provided his written statement to FundEX. In the letter, the Respondent misled FundEX by:
  1. stating that the MP Loan was entered into between BW and client MP;
  2. failing to disclose that he was also a party to the MP Loan; and
  3. failing to disclose that he had entered into the JM Loan with client JM.
  1. On August 13, 2013, as a result of the complaint by client MP, FundEX conducted a sales compliance review of the Respondent. During the sales compliance review, the Respondent falsely stated that he had never borrowed money from clients.  The Respondent also falsely stated that the MP Loan was between BW and client MP and that he was not a party to the MP Loan.
  1. By letter dated August 27, 2013, the Respondent provided another written statement to FundEX in respect of the complaint by client MP. In the letter, the Respondent again failed to disclose his own involvement in the MP Loan and continued to suggest that the MP Loan was only between BW and client MP. 
  1. In the letter dated August 27, 2013, the Respondent acknowledged that he had entered into the JM Loan with client JM. This was the first time that the Respondent disclosed to FundEX that he had borrowed monies from client JM.
  1. On September 16, 2013, FundEX requested a further written statement from the Respondent regarding the Respondent’s personal financial dealings with client MP and client JM.
  1. By letter dated September 17, 2013, the Respondent provided his written response to FundEX. In the letter, the Respondent acknowledged, for the first time, that he was a party to the MP Loan. 
  1. By misleading FundEX in the manner described above, the Respondent interfered with the ability of FundEX to conduct a reasonable supervisory investigation of the Respondent’s activities and failed to observe high standards of ethics and conduct in the transaction of business, contrary to MFDA Rule 2.1.1.

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;
  • has engaged in any business conduct or practice which such Regional Council in its discretion considers unbecoming or not in the public interest; or
  1. 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:

  1. a reprimand;
  2. a fine not exceeding the greater of:
  1. $5,000,000.00 per offence; and
  2. an amount equal to three times the profit obtained or loss avoided by such person as a result of committing the violation;
  1. prohibition of the authority of the person to conduct securities related business in any capacity for any period of time;
  2. 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;
  3. revocation of the authority of such person to conduct securities related business;
  4. 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 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, ON M5H 3T9
Attention: Paul Blasiak
Fax:  416-361-9073
Email: pblasiak@mfda.ca

a Reply shall be filed by:

  • 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, ON M5H 3T9
Attention: Office of the Corporate Secretary; or

  • transmitting one (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
  • transmitting one (1) electronic copy of the Reply to the Office of the Corporate Secretary by e-mail at corporatesecretary@mfda.ca.

A Reply may either:

  • 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
  • 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:

  • to serve and file a Reply; or
  • 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.