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MFDA Notice of Hearing

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201687

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

James Edward Curtis

Amended 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 at the MFDA offices, located at 121 King Street West, Suite 1000, Toronto, Ontario on January 26, 2017 at 9:00 a.m. (Eastern), or as soon thereafter as the hearing can be held, concerning a disciplinary proceeding commenced by the MFDA against James Edward Curtis (the “Respondent”).

DATED: Mar 15, 2017

"Bernadette Devine"

Bernadette Devine

Assistant Corporate Secretary

Mutual Fund Dealers Association of Canada
121 King St. West, Suite 1000
Toronto, ON M5H 3T9
Telephone: 416-943-5143
Fax: 416-361-9781
E-mail: corporatesecretary@mfda.ca



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

Allegation #1: Between about January and April 2014, the Respondent failed to follow a series of compliance directives from the Member requiring the Respondent to reassess the suitability of his recommendations to clients to hold 100% of their investments in a single precious metal sector fund and, where appropriate, make recommendations to reduce the clients’ concentration in the fund, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #2: Between about January and April 2014, the Respondent arranged for at least 75 clients to complete updated Know-Your-Client (“KYC”) forms which increased the clients’ risk tolerance, in order to ensure that the clients’ KYC information matched his recommendations to hold 100% of their investments in a single precious metal sector fund, contrary to MFDA Rules 2.2.1 and 2.1.1.

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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. Since October 1997, the Respondent has been registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with IPC Investment Corporation (“IPC”), a Member of the MFDA.
  1. Prior to being registered with IPC, the Respondent was registered from January 1995 to February 1996 as a mutual fund salesperson with PFSL Investments Canada Ltd.
  1. At all material times, the Respondent carried on business from a sub-branch located in Waterloo, Ontario.
  1. At all material times, the Respondent was also licensed to sell insurance.

Complaint by Client ER

  1. In or about June 2010, the Respondent became the mutual fund salesperson at IPC responsible for servicing the mutual fund accounts of client ER. Client ER’s initial investments were comprised of a transfer of her retirement pension savings to IPC and totaled approximately $200,929.
  1. Client ER was retired at the time of the investments and, according to the New Account Application Forms completed at the time of client ER’s accounts being opened, lived on a fixed income, had a limited net worth, “novice” investment knowledge, and was seeking diversified risk in her portfolio.
  1. On or about November 8, 2010, the Respondent invested 100% of client ER’s investments in the Dynamic Strategic Gold Class fund (the “Gold Fund”), a fund that was at the time identified in its prospectus as “moderate risk”.
  1. On or about November 30, 2010, client ER invested an additional $50,000 with the Respondent, who invested 100% of the monies in the Gold Fund.
  1. In the period subsequent to her initial investments, client ER experienced significant losses in her accounts.
  1. In or about June 2013, client ER complained to IPC that, among other things, the investments recommended by the Respondent were not suitable for her.
  1. In or about September 2013, IPC paid client ER the amount of $119,787.

Complaint by Clients HM & WM

  1. In or about February 2006, the Respondent became the mutual fund salesperson at IPC responsible for servicing the mutual fund accounts of clients HM and WM, spouses of one another. Clients HM and WM’s initial investments were comprised of a transfer of their retirement savings to IPC.
  1. In or about June 2010, the Respondent invested 100% of clients HM and WM’s investments (approximately $206,362) in the Gold Fund.
  1. At the time the Respondent invested clients HM and WM’s investments in the Gold Fund, they were both 83 years old, retired, lived on a fixed income, and had limited investment knowledge.
  1. In the period subsequent to investing in the Gold Fund, clients HM and WM experienced significant losses in their accounts.
  1. In or about June 2016, clients HM and WM complained to IPC that, among other things, the investments recommended by the Respondent were not suitable for them.
  1. In or about October 2016, IPC paid clients HM & WM the amount of $62,094.

IPC’s Termination of the Respondent

12.18. On November 11, 2013, IPC issued a termination letter to the Respondent, with an effective termination date of January 10, 2014. The termination letter advised that the termination was due to the Member’s investigation of the complaint of client ER, the Respondent’s extensive use of precious metals investment products within his clients’ portfolios, and the Respondent’s views not aligning with IPC’s as to how best to manage client assets.

Change to Gold Fund Risk Rating

13.19. On or about December 5, 2013, Dynamic Funds (the mutual fund manufacturer) changed the risk rating of the Gold Fund from “medium” to “medium-to-high”.

IPC’s Rescission of the Respondent’s Termination

14.20. In or about early January 2014, the Respondent requested that IPC rescind his termination. After discussions with the Respondent, IPC agreed to rescind the Respondent’s termination.

The Respondent Fails to Follow IPC’s Directives

15.21. In or about early January 2014, IPC directed the Respondent to send a letter to 96 of his clients who were heavily concentrated in the Gold Fund (“the Letter”). The Letter was drafted by IPC but identified the Respondent as the author/sender. The Letter advised clients that:

  1. the Gold Fund had changed its risk rating from “medium” to “medium-to-high”;
  2. there were concentration issues in the client’s accounts; and
  3. the Respondent was seeking a meeting with the client to review and diversify the client’s account holdings.

16.22. IPC directed the Respondent to review each client’s account, and where necessary, make recommendations to reduce the client’s concentration in the Gold Fund. IPC sought the Respondent’s confirmation that he would follow this approach.

17.23. On or about January 10, 2014, the Respondent advised IPC that he had “many concerns” with the Letter, and that, in opposition to what IPC was directing, he was only willing to meet with his clients to adjust their risk tolerance on KYC forms to reflect the risk rating change in the Gold Fund.

18.24. On or about January 10, 2014, IPC directed the Respondent to confirm that he would, where necessary, make recommendations to clients to redeem the Gold Fund as part of a rebalancing exercise to reduce the concentration in their accounts.

19.25. On or about January 10, 2014, in opposition to what IPC was directing, the Respondent advised that if a client had questions or concerns regarding their current portfolio position, he would make recommendations “away from gold”.

20.26. On or about January 15, 2014, IPC sent the Letter to the Respondent’s clients.

21.27. In the months that followed, the Respondent met with 82 of the 96 clients who received the Letter, and advised his clients that:

  1. selling the Gold Fund would result in a deemed disposition; and
  2. in order to maintain their current concentration in the Gold Fund, they would have to complete an updated KYC form increasing their risk tolerance from “medium” to “medium-to-high”.

22.28. The Respondent failed to present the risks of holding investments concentrated in the Gold Fund in a fair and balanced manner.

23.29. Rather than reassess the suitability of recommendations to clients to be invested solely in the Gold Fund and, where appropriate, make recommendations to reduce the clients’ concentration in the Gold Fund, the Respondent arranged for at least 75 of the 82 clients he met with to complete updated KYC forms which increased the clients’ risk tolerance from “medium” to “medium-to-high”. The Respondent engaged in this activity to ensure that the clients’ KYC information matched his investment recommendations, without assessing the essential KYC factors relevant to each individual client.

24.30. Notwithstanding the directive provided by the Member, the Respondent adjusted the investment portfolios for only 3 of the 82 clients he met following the delivery of the Letter.

25.31. By failing to follow a series of directives from IPC requiring the Respondent to reassess the suitability of his recommendations to clients to hold 100% of their investments in the Gold Fund and, where appropriate, make recommendations to reduce the clients’ concentration in the Gold Fund, the Respondent engaged in conduct contrary to MFDAs Rules 2.2.1 and 2.1.1.

26.32. By arranging for at least 75 clients to complete updated KYC forms which increased the clients’ risk tolerance, in order to ensure that the clients’ KYC information matched his recommendations to hold 100% of their investments in the Gold Fund, the Respondent engaged in conduct contrary to MFDA Rules 2.2.1 and 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 Director of Regional Councils 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.

End.