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MFDA Notice of Hearing

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2017117

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

Jon Robert Snelson

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 (“Hearing Panel”) of the Mutual Fund Dealers Association of Canada (“MFDA”) in the hearing room at the MFDA offices, located at 121 King Street West, Suite 1000, Toronto, Ontario on February 15, 2018 at 10:30 a.m. (Eastern), or as soon thereafter as the hearing can be held, concerning a disciplinary proceeding commenced by the MFDA against Jon Robert Snelson (“Respondent”).

DATED: Nov 22, 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 October 9, 2014 and March 8, 2015, the Respondent failed to disclose to the Member that he had been appointed to the Board of Directors of a junior mining company, thereby engaging in an undisclosed and unapproved outside business activity, contrary to the Member’s policies and procedures, and MFDA Rules 1.2.1(c) (now MFDA Rule 1.3), 2.1.1, 2.5.1 and 1.1.2.

Allegation #2: Between August 19, 2015 and November 13, 2015, the Respondent recommended, sold and/or facilitated the sale of investments to at least 15 clients and 4 individuals totaling approximately $310,000 in debentures offered by a junior mining company, thereby engaging in securities related business which was not carried on for the account of the Member or conducted through its facilities, contrary to MFDA Rules 1.1.1, 2.1.4, and 2.1.1.

Allegation #3: Between August 19, 2015 and November 13, 2015, the Respondent engaged in an undisclosed and unapproved outside business activity by recommending, selling and/or facilitating the sale of investments to at least 15 clients and 4 individuals totaling approximately $310,000 in debentures offered by a junior mining company, contrary to the Member’s policies and procedures and MFDA Rules 1.2.1(c) (now MFDA Rule 1.3), 2.1.1, 2.5.1 and 1.1.2.

Allegation #4: Between March 11, 2015 and November 24, 2015, the Respondent misled the Member with respect to his involvement with the sale of debentures of a junior mining company and the remuneration he received in respect of these activities, 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. Between April 16, 2007 and January 29, 2016, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative)[1] with IPC Investment Corporation (“IPC”), a Member of the MFDA.
  1. The Respondent resigned from IPC on January 19, 2016.
  1. At all material times, the Respondent conducted business in Mississauga, Ontario.
  1. The Respondent is not currently registered in the securities industry in any capacity.

The Respondent was Appointed as a Director of Threegold

  1. At all material times, IPC’s policies and procedures required its Approved Persons to disclose, and obtain approval in order to engage in any outside business activities.
  1. In 2010, the Respondent became a shareholder of a junior mining company, Threegold Resources Inc. (“Threegold”). Threegold’s headquarters are located in Val d'Or, Québec and it is listed on the TSX Venture Exchange.
  1. Between May and September 2014, Threegold was cease traded in Ontario, British Columbia, Manitoba, Québec, and Alberta for failing to file audited annual financial statements for the year ended December 31, 2013, management’s discussion and analysis relating to the audited annual financial statements, and certification of the filings as required by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings.
  1. On October 9, 2014, the Respondent was appointed to Threegold’s Board of Directors. The Respondent did not disclose this appointment to IPC.
  1. From 2014 to March 2015, the Respondent earned $60,000 from his involvement with Threegold.
  1. On March 9, 2015, the Respondent completed IPC’s OBA/Community Service Questionnaire (“OBA Questionnaire”) and disclosed for the first time that he had been appointed to Threegold’s Board of Directors. In the OBA Questionnaire and in response to further inquiries from IPC’s compliance staff, the Respondent provided, among other things, the following information:
    • Threegold is “a junior mining exploration company focusing on gold and precious metals;
    • The Respondent’s “[g]eneral duties as a Director are to act in a way the director considers (in good faith) is most likely to promote the success of the company”;
    • The Respondent is not involved in the investment of any monies relating to Threegold;
    • In response to the question in the OBA Questionnaire, “Are any IPC clients involved with this activity?”, the Respondent stated, “No”;
    • The Respondent does not receive any remuneration from acting as a Director of Threegold.
  1. On March 12, 2015, IPC approved the Respondent acting as a Director of Threegold as an outside business activity based on the information provided by the Respondent.
  1. At the time that IPC approved the Respondent to act as a Director of Threegold, IPC advised the Respondent, in writing, that “[i]f there are any material changes with your OBA or you are no longer involved with an outside business activity, please email…with the details of the change.”
  1. By engaging in the conduct described above, between October 9, 2014 and March 8, 2015, the Respondent failed to disclose to IPC that he had been appointed to the Board of Directors of Threegold, thereby engaging in an undisclosed outside business activity contrary to the policies and procedures of the Member and MFDA Rules 1.2.1(c) (now MFDA Rule 1.3), 1.1.2, 2.5.1, and 2.1.1.

The Respondent Sold Threegold Debentures to Investors

  1. At all material times, IPC’s policies and procedures required that its Approved Persons only offer products it had approved for sale, and that all products be sold through IPC.
  1. Between August 9, 2015 and November 13, 2015, the Respondent recommended, sold and/or facilitated the sale of investments to at least 15 IPC clients and 4 individuals totaling approximately $310,000 in debentures offered by Threegold, as described below:

Date of Investment

Investor

Amount of Investment

IPC Client?

August 19, 2015

Investor 1

$100,000

Yes

August 22, 2015

Investor 2

$10,000

Yes

August 28, 2015

Investor 3

$30,000

Yes

August 28, 2015

Investor 4

$10,000

Yes

August 31, 2015

Investor 5

$10,000

Yes

September 1, 2015

Investor 6

$10,000

No

September 2, 2015

Investor 7

$10,000

No

September 3, 2015

Investor 8

$20,000

Yes

September 3, 2015

Investor 9

$10,000

Yes

September 8, 2015

Investor 10

$10,000

No

September 9, 2015

Investor 11

$10,000

Yes

September 10, 2015

Investor 12

$10,000

Yes

September 10, 2015

Investor 13

$10,000

Yes

September 10, 2015

Investor 14

$10,000

Yes

September 11, 2015

Investor 15

$10,000

Yes

September 14, 2015

Investor 16

$10,000

Yes

October 8, 2015

Investor 17

$10,000

Yes

October 10, 2015

Investor 18

$10,000

Yes

November 13, 2015

Investor 19

$10,000

No

TOTAL

19

$310,000

 

  1. All of the investors in the debentures signed a “Loan Agreement” with Threegold, which stated the “[b]orrower hereby warrants that the loan may be converted into shares” subject to certain conditions which Threegold “expected” would be met.
  1. The debentures included the following terms with respect to the use of the proceeds raised from the investors:
    1. Threegold will use the first $30,000 to “bring the company to good standing with Computershare, the lawyers, and the TSX”;
    2. Threegold will use $50,000 to $60,000 to complete an initial report validating the historical data on a property known as “Lotus”;
    3. Threegold will use $15,000 to make an option payment on the Lotus property;
    4. Threegold will hold all funds raised over and above $100,000 in trust, until the work in points (a) and (b) are complete;
    5. upon the positive validation of the historical data from the Lotus property, the debenture will be converted into flow-through shares in Threegold as per the terms and conditions of the debenture offering; and
    6. should the validation process of the Lotus property prove negative, the funds will be returned to investors plus 5% interest for the use of the funds.
  1. The Respondent signed all of the Loan Agreements as the “Authorized Signatory” for Threegold.
  1. The Threegold debentures were not approved for sale by Approved Persons of IPC.
  1. None of the transactions involving the Threegold debentures were conducted for the account of IPC or through its facilities as required by MFDA Rule 1.1.1.
  1. By recommending, selling and/or facilitating the sale of investments to at least 15 clients and 4 individuals totaling approximately $310,000 in debentures offered by Threegold, the Respondent engaged in securities related business which was not carried on for the account of IPC or conducted through its facilities, contrary to MFDA Rules 1.1.1 and 2.1.1.
  1. In addition, the Respondent’s conduct gave rise to a conflict of interest between his interests as a Director and shareholder of Threegold and his clients’ interests, which the Respondent failed to disclose to IPC, and ensure it was addressed by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to MFDA Rule 2.1.4.

The Respondent’s Activities Relating to the Threegold Debentures Were Not Disclosed to or Approved by IPC

  1. In the event that the Respondent’s activities relating to the Threegold debentures did not constitute securities related business, then the Respondent’s conduct constituted an outside business activity which was not disclosed to and approved by IPC, contrary to MFDA Rules 1.2.1(c) (now MFDA Rule 1.3) and 2.1.1.
  1. As stated above, IPC approved the Respondent acting as a Director of Threegold on March 12, 2015 based upon the information he provided to IPC regarding the nature and scope of his activities. The Respondent did not disclose to IPC that he intended to raise monies from clients and other individuals to fund Threegold’s operations.
  1. The Respondent did not disclose to IPC that, between August 9, 2015 and November 13, 2015, he had recommended, sold and/or facilitated the sale of investments to at least 15 clients and 4 individuals totaling approximately $310,000 in debentures offered by Threegold at the time he engaged in these activities.
  1. The Respondent’s conduct relating the Threegold debentures exceeded the scope of what IPC had approved the Respondent to do as a Director of Threegold.
  1. The Respondent failed to abide by the condition imposed by IPC at the time it approved him to act as a Director of Threegold, which required the Respondent to notify IPC “[i]f there are any material changes with your OBA” (see paragraph 12 above). The Respondent knew or ought to have known that his involvement with the Threegold debentures was a material change because IPC had specifically asked him in the OBA Questionnaire whether “any IPC clients [were] involved with this activity?” and he had stated “No”.
  1. In addition, on November 24, 2015, the Respondent failed to disclose his involvement with the Threegold debentures when he completed IPC’s annual compliance questionnaire (the “Compliance Questionnaire”). In response to the question, “Have you sold or do you promote any investments other than mutual funds (offered by simplified prospectus), GICs and if you are life licensed, segregated funds and other insurance products?”, the Respondent falsely stated, “No.”

Allegation #4 – Misleading the Member

  1. On or about March 9, 2015, the Respondent advised IPC that he received no remuneration from his involvement with Threegold. This information was false and misleading as particularized below:
    • In 2014, the Respondent earned $30,000 from Threegold for “professional consulting services”;
    • For the three-month period ended March 31, 2015, the Respondent earned $30,000 for “professional consulting services”.
  1. In addition, the Respondent completed the Compliance Questionnaire on November 24, 2015. In response to the question, “Have you sold or do you promote any investments other than mutual funds (offered by simplified prospectus), GICs and if you are life licensed, segregated funds and other insurance products?”, the Respondent stated “No.” The Respondent’s response was false and misleading as he had, by that time, sold investments in Threegold to 15 clients and 4 individuals totaling $310,000.
  1. By engaging in the conduct described above, the Respondent misled the Member with respect to his involvement with the sale of debentures of a junior mining and the remuneration he received in respect of these activities, contrary to MFDA Rule 2.1.1.

Additional

  1. On December 3, 2015, the Respondent was appointed Chief Financial Officer (“CFO”) of Threegold. On December 15, 2015, the Respondent advised IPC that he had become the CFO of Threegold, with an annual salary of $60,000.  On December 21, 2015, in response to IPC’s questions, “Are any clients involved in this activity?  Do you solicit clients for this activity?, the Respondent stated, “I am not sure what you mean, are any clients involved in this activity.  Some of my clients have advanced funds to Threegold in the form of debentures.”  On December 28, 2015, in response to IPC’s request, the Respondent provided IPC with the names of the clients who invested in Threegold and a copy of the Loan Agreement.
  1. On January 12, 2016, IPC informed the Respondent that it would not approve his outside business activity relating to Threegold.
  1. On January 19, 2016, the Respondent resigned from IPC.

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: Michelle Pong
Fax: (416) 361-9073
Email: mpong@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] On September 28, 2009 when National Instrument 31-103 came into force, the Respondent’s registration category was changed from mutual fund salesperson to dealing representative.

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