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MFDA Notice of Hearing

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HomeCurrent Hearings201789 - Sebastian Eduardo Encalada › NOH201789

201789

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

Sebastian Eduardo Encalada

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 November 14, 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 Sebastian Eduardo Encalada (“Respondent”).

DATED: Sep 6, 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:

  1. Allegation #1: Between March 2015 and October 2015, the Respondent opened an account for an individual and processed 18 transactions in the account, without the individual’s knowledge or authorization, thereby engaging in:
    1. discretionary trading, contrary to MFDA Rules 2.3.1 and 2.1.1; and/or
    2. conduct that increased the Respondent’s chances of qualifying for a bonus or other compensation through a branch incentive program, which gave rise to a conflict or potential conflict of interest with the interests of the individual that the Respondent failed to address by the exercise of responsible business judgment influenced only by the best interests of the individual, contrary to MFDA Rules 2.1.4 and 2.1.1.
  2. Allegation #2: Between March 2015 and October 2015, the Respondent signed an individual’s signature or initials on two account forms in order open an account and process 18 transactions in the individual’s account, contrary to MFDA Rule 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. Between November 9, 2012 and November 3, 2016, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with TD Investment Services Inc. (“TDIS”), a Member of the MFDA.
  1. At all material times, the Respondent operated out of a TDIS branch located in Brampton, Ontario.
  1. The Respondent is not currently registered in the securities industry in any capacity.

Unauthorized Discretionary Trading

  1. At all material times, IM was a retail banking client of TD Canada Trust (“TD Bank”). IM was not a client of TDIS until the Respondent, without the knowledge or authorization of IM, opened an account for IM at TDIS and processed trades in the account, as described in greater detail below.
  1. In February 2015, IM sold his home and deposited the proceeds from the sale into his savings account at TD Bank.
  1. On March 15, 2015, the Respondent contacted IM by telephone to discuss options for the use of the proceeds from the sale of IM’s house. The Respondent had previously arranged a mortgage at TD Bank for a separate investment property that IM had purchased.
  1. IM was considering the purchase of another home in the near future and did not want to subject his money to any investment risk. Therefore, IM informed the Respondent that he wanted to open a high interest savings account and maintain the proceeds of the home sale on deposit in that bank account.
  1. On March 27, 2015, without the knowledge or authorization of IM, the Respondent completed a Non-Registered Account Application Form (“NRAAF”) in IM’s name, and processed two (2) purchases in the account:
    1. TD Monthly Income Fund in the amount of $40,000; and
    2. TD Comfort Balanced Portfolio in the amount of $60,000.
  1. On the same day, the Respondent also set up, without the knowledge or authorization of IM, a Pre-Authorized Purchase Plan (“PPP”) that automatically invested an additional $500 each month from IM’s savings account into each of the two funds described above.
  1. Between March 27, 2015 and October 22, 2015, the unauthorized PPP resulted in 14 additional trades being processed in IM’s account, including the purchase of $3,500 of units of the TD Monthly Income Fund and $3,500 of units of the TD Comfort Balanced Portfolio.
  1. IM did not meet with the Respondent on March 27, 2015, authorize the Respondent to open a mutual fund account for him, sign the NRAAF, or authorize the fund purchases or the implementation of the PPP.
  1. The Respondent signed IM’s signature or initials on the NRAAF in order to open an account for IM at TDIS and process the transactions described in paragraphs 8-10 above.
  1. On July 23, 2015, the Respondent prepared and completed a Transaction and Account Maintenance Form (the “Transaction Form”) for IM’s account at TDIS, and processed two (2) additional purchases in the account:
    1. TD Monthly Income Fund in the amount of $10,000; and
    2. TD Comfort Balanced Portfolio in the amount of $35,000.
  1. IM did not meet with the Respondent on July 23, 2015, sign the Transaction Form, or authorize the Respondent to process fund purchases in IM’s account at TDIS.
  1. The Respondent signed IM’s signature or initials on the Transaction Form in order to process the transactions described in paragraph 13 above.
  1. By processing unauthorized trades in IM’s account at TDIS (as compared to depositing the monies into a high interest savings account), the Respondent increased his chances of qualifying for a bonus or other compensation through an incentive program at the Respondent’s branch office.
  1. In about July 2015, IM noticed that he was receiving statements indicating that a mutual fund account had been opened in his name and that purchases had been processed in the account without his knowledge or authorization.
  1. At that time, IM left voicemail messages for the Respondent inquiring about the unauthorized trades but the Respondent did not contact him. IM then contacted TDIS with regards to the Respondent’s conduct.
  1. In September 2015, the Respondent went on medical leave from TDIS.

Allegation #1 – Unauthorized Discretionary Trading and Conflict of Interest

  1. As described above, the Respondent opened an account for IM, and processed 18 transactions in the account, without IM’s knowledge or authorization, thereby engaging in discretionary trading, contrary to MFDA Rules 2.3.1 and 2.1.1.
  1. In addition, the Respondent’s conduct increased his chances of qualifying for a bonus or other compensation through a branch incentive program, which gave rise to a conflict or potential conflict of interest with the interests of IM that the Respondent failed to address by the exercise of responsible business judgment influenced only by the best interests of IM, contrary to MFDA Rules 2.1.4 and 2.1.1.

Allegation #2 – Signature Falsification

  1. As described above, the Respondent signed IM’s signature or initials on two account forms in order to open an account for IM at TDIS, and process 18 transactions in IM’s account, 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 Respondents 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: David Babin
Fax: (416) 361-9073
Email: dbabin@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 Director of Regional Councils 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 Director of Regional Councils 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.