MFDA Notice of Hearing

463208 v1

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 March 1995 to November 20, 2013, the Respondent was registered as a mutual fund salesperson (now known as a dealing representative) with HollisWealth Advisory Services Inc. (“HollisWealth”) and predecessor Member firms.[1]

2. At all material times, the Respondent carried on business from a sub-branch located in Kinburn, Ontario.

3. Effective November 20, 2013, HollisWealth terminated the Respondent. The Respondent is not currently registered in the securities industry in any capacity.

Allegation # 1 – Personal Financial Dealings with Clients

4. At all material times, each of the Member’s policies and procedures prohibited its Approved Persons, including the Respondent, from borrowing from clients.

Clients WR and DR

5. From the mid-1980s to November 2013, the Respondent serviced the mutual fund accounts of clients WR and DR.

6. Client WR died on January 1, 2016 at age 85.  Client DR is 81 years old.

7. In or about 2002, the Respondent requested a loan in the approximate amount of $89,800 from clients WR and DR.

8. The Respondent represented to clients WR and DR that he would pay them 10% interest on the loan, and that this would be a better return than they were receiving on their mutual fund investments.

9. Clients WR and DR agreed to the Respondent’s request and loaned the Respondent approximately $89,800 (the “WR/DR-Loan”).

10. The Respondent processed redemptions in the mutual fund accounts of client WD and DR in order to fund the loan to him.

11. The terms of the WR/DR-Loan were recorded in an undated promissory note drafted by the Respondent (“WR/DR-Promissory Note”). Among other things, the WR/DR-Promissory Note stated:
    1. the Respondent agreed to repay clients WR and DR the sum of $89,800;
    2. payments of $800 per month from the Respondent to clients WR and DR were to start July 30, 2002 and finish June 30, 2003;
    3. the Respondent agreed to repay clients WR and DR the balance of the loan by July 11, 2003;
    4. the amount of $89,800 was “completely guaranteed” by a life insurance policy held by the Respondent “when alive and or deceased”.

12. In 2002 and 2003, the Respondent made $800 per month payments to clients WR and DR totaling approximately $9,600, after which he made no further payments to them. The Respondent has not repaid approximately $80,000 he still owes to clients WR and DR.

Clients RB and DB

13. From the mid-1970s to 2011, the Respondent serviced the mutual fund accounts of clients R&D B.

14. Clients RB and DB are 77 and 70 years old, respectively.

15. From about 2001 to 2005, the Respondent requested seven loans in the approximate total amount of $491,900 from clients RB and DB, as follows:

16. Clients RB and DB agreed to each of the Respondent’s requests and loaned the Respondent approximately $491,900 (the “RB/DB-Loans”).

17. The Respondent processed multiple redemptions in the mutual fund accounts of clients RB and DB in order to fund their loans to him.

18. The terms of the RB/DB-Loans were not committed to writing and the loans were not secured. The Respondent agreed verbally to pay clients RB and DB 10% interest on the amounts he borrowed from them.

19. From about 2001 to 2011, the Respondent repaid approximately $285,116 in respect of interest to clients RB and DB, as follows:

20. In January 2011, the Respondent gave clients RB and DB a cheque in the amount $100,000; however, he placed a “stop payment” on the cheque such that clients RB and DB were not able to cash the cheque.

21. On or about November 29, 2011, the Respondent gave clients RB and DB a payment in the amount of $25,000, after which he made no further payments to them.

22. The Respondent has not repaid the approximately $466,900 principal amount he still owes to clients RB and DB in respect of the $491,900 he borrowed from them. Additionally, the Respondent has not repaid the approximately $262,490 interest on the principal borrowed that he still owes to clients RB and DB.

Client RM

23. From 1996 to November 2013, the Respondent serviced the mutual fund accounts of client RM.

24. Client RM is 66 years old.

25. In or about 2005 to 2006, the Respondent requested a loan in the approximate amount of $45,600 from client RM.

26. Client RM agreed to the Respondent’s request and loaned the Respondent approximately $45,600 (the “RM-Loan”).

27. The terms of the RM-Loan were recorded in an undated promissory note drafted by the Respondent (“RM-Promissory Note”). Among other things, the RM-Promissory Note stated:
    1. the Respondent agreed to repay client RM the sum of $45,600 on June 20, 2006;
    2. the Respondent agreed to pay interest to client RM at a rate of 14% per annum;
    3. the amount of $45,600 was “completely guaranteed” by a life insurance policy held by the Respondent “when alive and or deceased”; and
    4. were client RM to die, the Respondent would pay the sum of $45,600 to RM’s spouse.

28. There is no evidence that the Respondent repaid the loan or paid interest to client RM.

Clients AS and DS

29. From in or about 2001 to April 2009, the Respondent serviced the mutual fund accounts of clients AS and DS.

30. Client DS died May 7, 2008 at age 91. Client AS died November 29, 2008 at the age 84.

31. In March 2001 and March 2002, the Respondent requested two loans in the approximate total amount of $135,000 from clients AS and DS, as follows:

32. Clients AS and DS agreed to the Respondent’s requests and loaned the Respondent approximately $135,000 (the “AS/DS-Loans”).

33. The terms of the AS/DS-Loans were not committed to writing and the loans were not secured. The Respondent agreed verbally to pay clients AS/DS-Loans a return on the amounts he borrowed from them. The precise interest rate of the AS/DS-Loans is not known.

34. From about 2001 to 2008, the Respondent repaid approximately $187,169 to clients AS and DS or their estate, as follows:

Client JF

35. From the mid-1980s to November 2013, the Respondent serviced the mutual fund accounts of client JF.

36. Client JF is 73 years old.

37. On or about September 11, 2013, the Respondent came to the home of client JF, and requested that client JF pay him the sum of $2,000 in respect of “fees” for financial services the Respondent had performed for client JF over the years. The Respondent required that the sum be paid to him in cash.

38. The Respondent accompanied client JF to his bank branch, and client JF withdrew $2,000 from his chequing account and paid it to the Respondent. The Respondent did not provide client JF with an invoice or any other documentation evidencing the $2,000 payment.

39. In or about November 2013, client JF learned that he should not have paid the Respondent any monies and requested that the Respondent repay him in full.

40. On December 23, 2013, the Respondent repaid client JF the sum of $2,000.

41. By engaging in personal financial dealings with eight clients, including failing to repay the clients in full or otherwise accounting for the monies he obtained from them, the Respondent placed his own interests ahead of the clients’ interests, thereby creating a conflict or potential conflict of interest which he failed to address by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to MFDA Rule 2.1.4 and Rule 2.1.1.

Allegation # 2 – Misleading the Member

42. At no time did the Respondent disclose to the various Members with whom he was registered that he was engaging in personal financial dealings with clients of the Member.

43. On or about November 4, 2009, in response to a Member compliance pre-audit questionnaire, the Respondent misled Dundee by providing written confirmation to Dundee that he had not engaged in any personal financial dealings with clients.

44. On or about December 2, 2009, during a Member compliance audit of his sub-branch, the Respondent misled Dundee by providing verbal confirmation to Dundee that he had not engaged in any personal financial dealings with clients.

45. In or about August 2012, in response to a Member compliance pre-audit questionnaire, the Respondent misled Dundee by providing written confirmation to Dundee that he had not engaged in any personal financial dealings with clients.

46. On or about August 24, 2012, during a Member compliance audit of his sub-branch, the Respondent misled Dundee by providing verbal confirmation to Dundee that he had not engaged in any personal financial dealings with clients.

47. On or about October 29, 2013[2], client DR advised the Respondent’s Branch Manager that in 2002 (as set out in more detail at paragraphs 5 to 12 above), the Respondent had borrowed approximately $89,800 from them and they had not been repaid in full by the Respondent.

48. Prior to receiving a complaint from client DR, HollisWealth (and its predecessors) had not been aware of any personal financial dealings between the Respondent and his clients.

49. On or about November 4, 2013, the Member questioned the Respondent regarding the monies he had borrowed from clients W&D R or other clients.

50. The Respondent misled HollisWealth by:
    1. denying that he had borrowed $89,800 from clients WR and DR and stating that the amount he had borrowed was 80,000;
    2. stating he would “take care of” the outstanding balance he owed to clients WR and DR;
    3. denying that he had any other loan arrangements with any other clients.

51. On or about November 12, 2013, the Member questioned the Respondent regarding the monies he had borrowed from clients WR and DR and other clients.

52. The Respondent misled the Member by:
    1. stating that he had repaid $1,700 every two months (totaling $56,000) to clients WR and DR since borrowing money from them in 2002;
    2. stating that he had spoken to client DR that day and would be resolving the balance he owed to clients WR and DR within six months;
    3. denying that he had borrowed $491,900 from clients RB and DB and stating that the amount he had borrowed was $125,000;
    4. stating that he had repaid clients RB and DB in full;
    5. denying that he had borrowed $135,000 from clients AS and DS and stating that the amount he had borrowed was $110,000; and
    6. denying that he had any other loan arrangements with any other clients.

53. After terminating the Respondent on November 20, 2013, HollisWealth sent letters to all of the Respondent’s clients requesting that the clients contact HollisWealth if the clients had made any personal loans involving the Respondent.

54. As detailed in paragraphs 13 to 22 above, clients RB and DB responded to HollisWealth confirming that the Respondent had borrowed monies from them. Client JF also responded to HollisWealth, as detailed in paragraphs 35 to 40 above.

55. By misleading the Members with whom he was registered with respect to his personal financial dealings with eight clients in the manner described herein, the Respondent interfered with the Members’ ability 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
• 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;
3. 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;
4. revocation of the authority of such person to conduct securities related business;
5. prohibition of the authority of the person to conduct securities related business in any capacity for any period of time;
6. 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: Lyla Simon
Fax:  416-361-9073
Email: lsimon@mfda.ca

A Reply shall be filed by:

1. providing four (4) copies of the Reply to the Office of the Corporate Secretary by personal delivery, mail or courier to:
   1. The Mutual Fund Dealers Association of Canada
      121 King Street West, Suite 1000
      Toronto, ON M5H 3T9
      Attention: Office of the Corporate Secretary; or
2. 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
3. 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:

1. 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
2. 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:

1. to serve and file a Reply; or
2. 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.

[1] Beginning March 23, 1995, the Respondent was registered with Balanced Planning Investment Corporation (“Balanced”). In October 2001, Balanced was acquired by Cartier, which (as described above) became a Member of the MFDA on May 15, 2002. On June 1, 2004, Cartier was amalgamated with Dundee Private Investors Inc. (“Dundee”), a Member of the MFDA. On November 1, 2013, Dundee changed its name to HollisWealth.
[2] At this time, the Member was still known as Dundee. As previously noted, Dundee changed its name to HollisWealth on November 1, 2013.