MFDA Notice of Hearing

599794

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. The Respondent was registered as a mutual fund salesperson (now known as a dealing representative) in Ontario from December 8, 2014 to September 14, 2016, and in Quebec from April 28, 2015 to September 14, 2016, with Scotia Securities Inc. (“Scotia”), a Member of the MFDA.

2. From September 3, 2014 to October 20, 2014, and from November 2, 2004 to March 20, 2009, the Respondent was registered as a mutual fund salesperson in Ontario with PFSL Investments Canada Ltd., a Member of the MFDA.

3. From March 24, 2010 to June 29, 2013, and from June 21, 1999 to August 14, 2004, the Respondent was registered as a mutual fund salesperson in Ontario with TD Investment Services Inc., a Member of the MFDA, and its predecessors TD Asset Management Inc. and CT Investment Management Group.

4. At all material times, the Respondent conducted business in the greater Ottawa region.

Background

5. At all material times, Scotia maintained a policies and procedures manual (“PPM”) which prohibited discretionary trading by its Approved Persons.

6. Scotia’s PPM also stipulated that customer instructions must be received at the time of the trade, and that when taking telephone trade instructions from a client the Approved Person must document those instructions by recording the following information on an Investment Directions account form:
   1. the time and date when instructions were obtained;
   2. the name of the person providing the instructions;
   3. the transaction type – purchase, redemption, switch, other;
   4. the fund name;
   5. the dollar amount or number of units;
   6. a summary of any discussions with the customer, including any MFR/Personal Banking Advisor/Small Business Banking Advisor recommendation, regardless of whether the customer acted on the recommendation and any alternatives discussed; and
   7. for mutual fund purchases, transfers and switches, the check boxes on the Investment Directions form must be completed to confirm the required verbal disclosures have been made, understood and acknowledged by the customer.

7. On April 1, 2016, the Respondent met with client JB to review the status of client JB’s Registered Retirement Savings Plan (“RRSP”) and Tax Free Savings Account (“TFSA”).

8. During the meeting, client JB informed the Respondent that he intended to retire in approximately two to three years. The Respondent updated the Know-Your-Client form (“KYC Form”) that the Member had on file for client JB’s RRSP to reflect this new information and a change in client JB’s investment objectives. The Respondent also completed a new KYC Form for client JB’s TFSA but no changes were made to the investment objectives listed for client JB’s TFSA.

9. The Respondent and client JB also discussed changes to the current account holdings for both his RRSP and TFSA as a result of client JB’s intention to retire in the near future. The Respondent provided client JB with documentation relating to certain investments for client JB to consider. However, client JB did not agree to make any changes to the holdings in either of his accounts.

10. On April 2, 2016, an “Unsuitable Holdings Report” (the “Report”) was generated by Scotia’s compliance monitoring systems for client JB’s RRSP account because the holdings in his portfolio were not consistent with client JB’s updated KYC information and the existing account holdings were therefore flagged as unsuitable.

11. After observing the Report, Branch Manager MM discussed options with the Respondent for addressing address the suitability concerns that had been flagged in client JB’s RRSP account, and directed her to contact client JB to review those options and obtain instructions.

12. On April 4, 2016, the Respondent disregarded the directive that she had received from Branch Manager MM and processed switches in client JB’s RRSP and his TFSA prior to obtaining any instructions from client JB.

13. Prior to the switch being completed by the Respondent, the only product held by client JB in both his RRSP and his TFSA was the Scotia Diversified Monthly Income Fund, a medium risk fund. The Respondent switched the entirety of client JB’s RRSP holdings, approximately $269,505.15, to the Scotia Innova Balanced Income Portfolio Fund, a low risk fund. The Respondent switched the entirety of client JB’s TFSA holdings, approximately $27,902.20, to the Scotia Partners Growth Portfolio Fund, a medium risk fund.

14. In order to process the switch trades, the Respondent signed and submitted Investment Directions account forms that falsely indicated that, at 1:00 PM on April 4, 2016, the Respondent had discussed and obtained instructions from client JB to proceed with the switch transactions requested on the forms.

15. The Respondent informed client JB that the switches had been processed in his accounts by leaving him a voicemail message. Client JB did not receive the voicemail message that day.

16. On or about April 5, 2016, the Respondent falsely reported to Branch Manager MM that client JB had decided to change the composition of his portfolio by switching his existing holdings.

17. On April 11, 2016, client JB contacted the Respondent and requested that the transactions be reversed as he had not authorized the switches processed in his RRSP and TFSA.

18. On the same day, the Respondent prepared and submitted an “SSI Dealer Account Investment Adjustment Request” (“Adjustment Request Form”) to reverse the switches that had been processed in client JB’s accounts. On the Adjustment Request Form, the Respondent indicated that the reason for processing the adjustment transaction was to reverse a “switch without client consent”.

Allegation # 1 – Discretionary Trading

19. By engaging in the conduct described above, the Respondent processed two switches totaling approximately $297,407.35 in the accounts of client JB without the knowledge or authorization of client JB, thereby engaging in unauthorized discretionary trading, contrary to MFDA Rules 2.3.1(a) and 2.1.1 and the policies and procedures of the Member.

Allegation #2 – Reporting False Information to a Branch Manager

20. By engaging in the conduct described above at paragraph 16, the Respondent falsely reported to her Branch Manager MM, in response to Branch Manager MM’s supervisory inquiries with respect to the suitability of the switches, that client JB had instructed her to process switches in his RRSP and TFSA.

21. The Respondent’s conduct interfered with Scotia’s ability to supervise her trading activities.

22. By engaging in the conduct described above, the Respondent acted contrary to MFDA Rules 1.1.2, 2.5.1, 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: Maria L. 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) 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.