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MFDA Notice of Hearing

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HomeCurrent Hearings2017113 - Donald John McIntyre › NOH2017113

2017113

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

Donald John McIntyre

NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a hearing panel of the Prairie Regional Council (“Hearing Panel”) of the Mutual Fund Dealers Association of Canada (“MFDA”) in the hearing room at the MFDA offices, located at 800 - 6th Avenue S.W., Suite 850, Calgary, Alberta on January 22, 2018 at 10:00 a.m. (Mountain), or as soon thereafter as the appearance can be held, concerning a disciplinary proceeding commenced by the MFDA against Donald John McIntyre (“Respondent”). The Hearing on the Merits will take place in Saskatoon, Saskatchewan at a time and venue to be announced.

DATED: Nov 16, 2017

"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 January 2010 and November 2015, the Respondent recommended to approximately 423 clients that the clients concentrate all or a substantial portion of their investment holdings in precious metals sector funds, without using adequate due diligence to assess the suitability of his investment recommendations on a client-by-client basis having regard to the essential Know-Your-Client (“KYC”) information relevant to each individual client, contrary to MFDA Rules 2.2.1[1] and 2.1.1.

Allegation #2: Between January 2010 and November 2015, the Respondent failed to use due diligence to learn and accurately record the essential KYC factors relevant to each client, and to each order and account that he accepted, in order to ensure that the clients’ KYC information matched his investment recommendations to concentrate all or a substantial portion of the clients’ investment holdings in precious metals sector funds, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #3: Between January 2010 and November 2015, the Respondent misrepresented, failed to fully and adequately explain, and/or omitted to explain the risks of investing in precious metals sector funds that he recommended to clients, thereby failing to present the investment recommendations to the clients in a fair and balanced manner, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #4: Between April 2013 and November 2015, the Respondent obtained, possessed and, in some instances, used to process transactions, 3 pre-signed client account forms in respect of 2 clients, contrary to MFDA Rule 2.1.1.

Allegation #5: Between December 2009 and January 2015, the Respondent altered 19 account forms in respect of 14 clients by altering information on the account forms without having the clients initial the alterations, 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

  1. The Respondent has been registered in the securities industry since 2001.
  1. From March 2001 to November 2015, the Respondent was registered in Saskatchewan as a mutual fund salesperson (now known as a dealing representative[2]) with Sun Life Financial Investment Services (Canada) Inc. (“Sun Life”), a Member of the MFDA. The Respondent was also registered in Alberta from October 2001 to November 2015, and in Ontario until December 2014.
  1. On or about November 23, 2015, Sun Life terminated the Respondent as a result of the conduct described below.
  1. The Respondent is not currently registered in the securities industry in any capacity.
  1. At all material times the Respondent conducted business in the Maklin, Saskatchewan area.

The Gold Strategy

  1. Between January 2010 and November 2015, the Respondent recommended an investment strategy to his clients whereby the clients would purchase precious metals (predominantly, gold) sector mutual funds (“Gold Strategy”).
  1. In the course of recommending the Gold Strategy to clients, the Respondent represented that, among other things, as a result of international government monetary and debt policies, investing in gold and precious metals was a low risk investment strategy which would preserve clients’ capital.
  1. The Gold Strategy resulted in clients holding investments which were concentrated in precious metals sector funds. The Respondent serviced the accounts of approximately 462 clients.  As of June 2015:
    1. 76% of the clients serviced by the Respondent held greater than 90% of their portfolios in precious metals sector funds;
    2. 10% of the clients serviced by the Respondent held between 50% to 90% of their portfolios in precious metals sector funds;
    3. 5% of the clients serviced by the Respondent held between 20% to 50% of their portfolios in precious metals sector funds; and
    4. only 9% of the clients serviced by the Respondent held less than 20% of their portfolios in precious metals sector funds.
  1. Overall, as of June 2015, approximately 90% of the Respondent’s $17.9 million in assets under administration were invested in precious metals sector funds. Approximately 99% of the assets invested in precious metals were invested in two high risk funds.
  1. The Respondent did not recommend that clients diversify their investment holdings.

Allegation #1 – The Respondent Failed to Assess Suitability on a Client by Client Basis

  1. The Respondent failed to consider, adequately or at all, whether his recommendations to implement the Gold Strategy were suitable on a client-by-client basis, having regard to the essential KYC factors relevant to each individual client, prior to making the recommendations to the clients.
  1. The Respondent engaged in a standard practice of recommending that clients concentrate their investment holdings in precious metals sector funds, without regard to each client’s KYC information, based upon his views as to how these funds would perform.
  1. The Respondent failed to consider, adequately or at all, whether it was suitable for each client to hold non-diversified investments.
  1. By recommending to approximately 423 clients that the clients concentrate all, or a substantial portion, of their investment holdings in precious metals sector funds, without using adequate due diligence to assess the suitability of his investment recommendations on a client-by-client basis having regard to the essential KYC information relevant to each individual client, the Respondent engaged in misconduct contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation # 2 – The Respondent Failed to Learn and Accurately Record KYC Information

  1. In order to implement the Gold Strategy, the Respondent engaged in a practice of recording the following uniform KYC information for at least 788 client accounts, which comprised 95% of client accounts that the Respondent serviced:
  1. a time horizon of “20 years or more”;
  2. an investment objective of “100% aggressive growth”; and
  3. a risk tolerance of “100% high”.
  1. The Respondent recorded the KYC information described in paragraph 15 above, regardless of whether or not the client genuinely had a time horizon of 20 years or more, a high risk tolerance, or a 100% aggressive growth investment objective.
  1. The Respondent engaged in this practice in order to ensure that the KYC information that he had recorded for each client supported his investment recommendations to concentrate all, or a substantial portion, of the clients’ investment holdings in precious metals sector funds so that the precious metals sector funds that were purchased in each client account would appear to be suitable for the client.
  1. By virtue of the foregoing, the Respondent failed to use due diligence to learn and accurately record the essential KYC factors relevant to each client, and to each order and account that he accepted, in order to ensure that the clients’ KYC information matched his investment recommendations to concentrate all or a substantial portion of the clients’ investment holdings in precious metals sector funds, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #3 – The Respondent Misrepresented the Risks of the Gold Strategy

  1. As described above, in the course of recommending the Gold Strategy to clients, the Respondent represented that, among other things, investing in precious metals sector funds was a low risk investment strategy.
  1. The Respondent misrepresented, or failed to fully and adequately explain the risks of investing in precious metals sector funds, including the risks of holding non-diversified investments, the risks associated with holding high risk sector funds, and the risk that the Gold Strategy would not perform as he represented it would.
  1. To the extent that the Respondent explained some of the risks of investing in precious metals sector funds, he failed to provide a balanced presentation of the risks and minimized the risks when he described the funds as being a safe investment alternative.
  1. By virtue of the foregoing, the Respondent misrepresented, failed to fully and adequately explain, or omitted to explain the risks and benefits of investing in precious metals sector funds, thereby failing to ensure that his recommendations were suitable for the clients, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegations #4 and #5 – Pre-Signed and Altered Account Forms

  1. At all material times, Sun Life’s policies and procedures prohibited its approved persons, including the Respondent, from obtaining, holding, or using pre-signed or altered account forms.
  1. Between April 2013 and November 2015, the Respondent obtained, possessed and in 1 instance, used to process a transaction, 3 pre-signed account forms in respect of 2 clients.
  1. The pre-signed account forms consisted of two limited trade authorization forms and one order ticket.
  1. Between December 2009 and January 2015, the Respondent altered 19 account forms that were submitted in respect of accounts of 14 different clients by altering information on the account forms without having the clients initial the alterations to acknowledge approval of the changes that were made on the forms.
  1. The altered account forms consisted of:
    1. 8 order tickets;
    2. 3 application forms;
    3. 2 preauthorized contribution forms;
    4. 2 transfer instruction forms;
    5. 2 transfer authorization forms;
    6. 1 Know Your Client form; and
    7. 1 identity verification form.
  1. By virtue of the foregoing, the Respondent failed to deal fairly, honestly and in good faith with clients, observe high standards of ethics and conduct in the transaction of business and engaged in conduct that was detrimental to the public interest, 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
Prairie Regional Office
Suite 850, 800 – 6th Ave SW
Calgary, AB T2P 3G3
Attention: Justin Dunphy
Fax: 403-266-8858
Email: jdunphy@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.

[1] MFDA Rule 2.2.1 was amended in December 2010 and in February 2013.  In this Notice of Hearing, all references to the MFDA Rule 2.2.1 concern the version of the Rule that was in force prior to December 2010.
[2]In September 2009, the registration category mutual fund salesperson was changed to “dealing representative” when National Instrument 31-103 came into force.