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MFDA Notice of Hearing

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201688

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

Bernd Franz Adolf Niermann

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 March 15, 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 Bernd Franz Adolf Niermann (the “Respondent”).

DATED: Dec 7, 2016

"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 August 2008 and November 7, 2014, the Respondent borrowed $71,600 from three clients, thereby giving rise to a conflict of interest which 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 2.1.4 and 2.1.1.

Allegation #2: Between July 2008 and November 2014, the Respondent misled the Member on annual compliance attestations, and during the course of the investigation into his conduct, by failing to disclose that he had borrowed monies from clients, thereby interfering with the ability of the Member to supervise the Respondent, contrary to MFDA Rules 1.1.2, 2.5.1 and 2.1.1.

Allegation #3: Commencing on December 12, 2014, the Respondent misled MFDA Staff about borrowing monies from clients, thereby failing to cooperate with an investigation by MFDA Staff into his conduct, contrary to section 22.1 of MFDA By-law No. 1 and MFDA Rule 2.1.1.

Allegation #4: Between November 24, 2005 and July 28, 2014, the Respondent obtained and maintained blank or partially complete pre-signed account forms, and/or altered account forms after the clients had signed them, contrary to MFDA Rule 2.1.1.

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 March 25, 2004 to November 7, 2014 when he was terminated as result of the events described below, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with IPC Investment Corporation (“IPC”), a Member of the MFDA. At all material times, the Respondent was also licensed in Ontario to sell insurance.
  2. At all material times, the Respondent carried on business in the Collingwood, Ontario area.

Borrowing Monies from Clients

  1. At all material times, IPC’s policies and procedures prohibited its Approved Persons from borrowing monies from clients on the basis that it creates a conflict of interest which cannot be resolved.
  2. As described in greater detail below, between August 2008 and November 2012, the Respondent borrowed $71,600 from three clients.
Client AP
  1. On July 28, 2004, client AP became a client of IPC. At all material times, the Respondent was the mutual fund salesperson responsible for servicing client AP’s accounts at IPC.
  2. On April 5, 2012, the Respondent borrowed $3,600 from client AP. The Respondent provided client AP with a promissory note in respect of the monies he borrowed which provided that the Respondent would pay client AP interest of 7% per annum, and repay the principal of the loan by no later than January 5, 2013.
  3. At that time of the April 2012 loan, client AP was approximately 75 years old and a vulnerable client.
  4. On April 30, 2012, client AP ceased to be a client of IPC.
  5. On May 4, 2012, the Respondent borrowed $24,000 from client AP. The Respondent provided client AP with a promissory note in respect of the monies he borrowed which provided that the Respondent would pay client AP interest of 7% per annum, and repay the principal of the loan by no later than February 4, 2013.
  6. On September 11, 2012, the Respondent borrowed $1,300 from client AP. The Respondent provided client AP with a promissory note in respect of the monies he borrowed which provided that the Respondent would pay client AP interest of 7% per annum, and repay the principal of the loan by no later than January 11, 2013.
  7. The Respondent used the monies he borrowed from client AP to pay his personal expenses.
  8. As of January 22, 2015, the Respondent had not repaid the monies he borrowed from client AP.
Client AT
  1. Since November 23, 2005, client AT has been a client of IPC. At all material times, the Respondent was the mutual fund salesperson responsible for servicing client AT’s accounts at IPC.
  2. In about August 2008, the Respondent borrowed $50,000 from client AT.
  3. At the time of the August 2008 loan, client AT was 68 years old and a vulnerable client.
  4. Client AT obtained the monies that he loaned to the Respondent from his line of credit (the “LOC”).
  5. At the time of the loan, the Respondent agreed to pay client AT $454 per month and interest calculated at the rate of 5.25% over the LOC interest rate charged to client AT.
  6. On August 25, 2008, the $50,000 debt was registered as a second mortgage on the Respondent’s personal residence in favour of client AT.
  7. On March 13, 2014, the Respondent repaid the monies he owed to client AT and the second mortgage was discharged. The Respondent repaid these monies by borrowing monies from his insurance clients.
Client PL
  1. From July 23, 2003 to March 24, 2014, client PL was a client of IPC. At all material times, the Respondent was the mutual fund salesperson responsible for servicing client PL’s accounts at IPC.
  2. On November 13, 2012, the Respondent borrowed $18,000 from client PL. The Respondent agreed to pay interest to the client PL which fluctuated from 6% to 10% per annum based on the timing of the Respondent’s repayment of the loan.
  3. At the time of the loan, client PL was 64 years old and a vulnerable client.
  4. The Respondent used the monies he borrowed from client PL to pay his personal expenses.
  5. From January to April 2014, client PL made repeated requests to the Respondent to repay the loan.
  6. During this period, client PL also advised the Respondent that she was considering contacting IPC’s Head Office to report the loan arrangement. On April 2, 2014, the Respondent responded to client PL and advised that he would likely be terminated if she reported the loan arrangement to IPC’s Head Office.
  7. On April 9, 2014, the Respondent repaid the monies he owed to client PL. The Respondent repaid these monies by borrowing monies from his insurance clients.
  8. By virtue of the foregoing, the Respondent borrowed $71,600 from three clients, thereby giving rise to a conflict of interest which 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 2.1.4 and 2.1.1.

Misleading the Member

  1. On January 27, 2004 and October 6, 2006, the Respondent signed IPC’s “Representative Policy and Procedure Compliance Certificate” attesting that he understood and would comply with the requirements outlined in IPC’s policies and procedures manual (the “PPM”). As stated above, IPC’s PPM included a prohibition on borrowing monies from clients.
  2. In about July 2008, IPC sent a Compliance Questionnaire to the Respondent that he was required to complete. The questionnaire included the following question: “Have you borrowed money from, or loaned money to clients within the last year?”  The Respondent falsely answered “No” to this question and submitted the completed questionnaire to IPC.
  3. On November 2, 2009, IPC conducted a routine review of the Respondent’s branch location. As part of this review, IPC required the Respondent to complete an Approved Persons Questionnaire. The Respondent falsely stated in the Approved Persons Questionnaire that he did not have any personal financial dealings with clients.
  4. In 2010, IPC circulated a Compliance Questionnaire to the Respondent that he was required to complete. The questionnaire included the following question: “Have you borrowed money from, or loaned money to clients within the past 24 months?”  The Respondent falsely answered “No” to this question and submitted the questionnaire to IPC.
  5. On November 22, 2010, IPC conducted a routine review of the Respondent’s branch location. During the review, IPC interviewed the Respondent who falsely stated that he had not borrowed money from clients.
  6. In 2012 and 2013, IPC sent Compliance Questionnaires to the Respondent that was he required to complete. The questionnaire included the following question: “Have you borrowed or lent funds to a client?”  The Respondent falsely answered “No” to this question and submitted the questionnaires to IPC.
  7. IPC became aware that the Respondent had borrowed monies from a former client (RB). On November 4, 2014, IPC interviewed the Respondent with respect to this conduct. During the interview with IPC, the Respondent was repeatedly asked if he had approached any other clients, prospective clients or any other persons to borrow money.  The Respondent acknowledged that he asked friends and family to loan him monies, but falsely stated that he not approached any clients or prospective clients for loans.
  8. By virtue of the foregoing, the Respondent misled the Member on annual compliance attestations, and during the course of the investigation into his conduct, by failing to disclose that he had borrowed monies from clients, thereby interfering with the ability of the Member to supervise the Respondent, contrary to MFDA Rules 1.1.2, 2.5.1 and 2.1.1.

Misleading the MFDA

  1. During the course of its review of the events described in this Notice of Hearing, MFDA Case Assessment Staff (“Staff”) sent a letter to the Respondent dated November 14, 2014 requesting that he provide: (1) the names of any clients that the Respondent had borrowed monies from; (2) the amounts he had borrowed; and (3) copies of any documents relating to the loans, including copies of any promissory notes.
  2. On December 12, 2014, the Respondent delivered a reply to Staff’s letter which was misleading as the Respondent failed to identify that he had borrowed monies from client AT or client PL.
  3. By virtue of the foregoing, the Respondent misled MFDA Staff about borrowing monies from clients, thereby failing to cooperate with an investigation by MFDA Staff into his conduct, contrary to section 22.1 of MFDA By-law No. 1 and MFDA Rule 2.1.1.

Blank-Signed Forms and Altered Account Forms

  1. Between November 24, 2005 and July 28, 2014, the Respondent obtained and maintained blank or partially complete pre-signed account forms, and/or altered account forms after the clients had signed them, as described below:

Client

Date

Form Violation

Form Type

RA

April 2, 2010

Blank Signed

Order entry form

MA

May 5, 2007

Altered Documents

Application

GD

July 28, 2014

Altered Documents

KYC

SF

N/A

Blank Signed

Redemption/ Purchase Form

DK

November 24, 2005

Altered Documents

KYC

FK

April 3, 2007

Altered Documents

KYC

JM

January 30, 2008

Blank Signed

PAC

CP

May 14, 2008

Blank Signed

Redemptions

JP

April 30, 2008

Altered Documents

KYC

DS

December 31, 2009

Blank Signed

Order entry form

December 29, 2009

Blank Signed

Order entry form

December 21, 2009

Blank Signed

Order entry form

December 18, 2009

Blank Signed

Order entry form

December 15, 2009

Blank Signed

Order entry form

February 13, 2008

Blank Signed

Order entry form

November 2, 2008

Blank Signed

Order entry form

June 2, 2008

Blank Signed

Order entry form

January 30, 2008

Blank Signed

Order entry form

WW

N/A

Blank Signed

Dealer-Representative Change Form

  1. By virtue of the foregoing, the Respondent violated the standard of conduct prescribed in 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: Maria Abate
Fax:  416-361-9073
Email: mabate@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.

END

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