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MFDA SETTLEMENT AGREEMENT

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Home › Settlement Agreement 201438 - RE: Kahlon, Jarnail


Settlement Agreement
File No. 201438


IN THE MATTER OF A SETTLEMENT HEARING
PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA


Re: Jarnail S. Kahlon



SETTLEMENT AGREEMENT

I.
INTRODUCTION

1.
By Notice of Settlement Hearing, the Mutual Fund Dealers Association of Canada (the
“MFDA”) will announce that it proposes to hold a hearing to consider whether, pursuant to
section 24.4 of By-law No. 1, a hearing panel of the Central Regional Council (the “Hearing
Panel”) of the MFDA should accept the settlement agreement (the “Settlement Agreement”)
entered into between Staff of the MFDA (“Staff”) and the Respondent, Jarnail S. Kahlon.

II.
JOINT SETTLEMENT RECOMMENDATION

2.
Staff conducted an investigation of the Respondent’s activities. The investigation
disclosed that the Respondent had engaged in activity for which the Respondent could be
penalized on the exercise of the discretion of the Hearing Panel pursuant to s. 24.1 of By-law No.
1.
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3.
Staff and the Respondent recommend settlement of the matters disclosed by the
investigation in accordance with the terms and conditions set out below. The Respondent agrees
to the settlement on the basis of the facts set out in Part IV herein and consents to the making of
an Order in the form attached as Schedule “A”.

4.
Staff and the Respondent agree that the terms of this Settlement Agreement, including the
attached Schedule “A”, will be released to the public only if and when the Settlement Agreement
is accepted by the Hearing Panel.

III.
ACKNOWLEDGEMENT

5.
Staff and the Respondent agree with the facts set out in Part IV herein for the purposes of
this Settlement Agreement only and further agree that this agreement of facts is without
prejudice to the Respondent or Staff in any other proceeding of any kind including, but without
limiting the generality of the foregoing, any proceedings brought by the MFDA (subject to Part
XI) or any civil or other proceedings which may be brought by any other person or agency,
whether or not this Settlement Agreement is accepted by the Hearing Panel.

IV.
AGREED FACTS

Registration History

6.
The Respondent was registered in the mutual fund industry from December 2001 to June
2014.

7.
From September 28, 2009 until he was terminated effective June 9, 2014, the Respondent
was registered in Ontario as a mutual fund salesperson with Investia Financial Services Inc.
(“Investia”), a Member of the MFDA.

8.
At all material times, the Respondent conducted business in Brampton, Ontario.

9.
The Respondent is not currently registered in the securities industry in any capacity.
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Background

10.
At all material times, Investia’s policies and procedures contained the following
prohibition on the collection and use of blank pre-signed account forms:

Under no circumstances should an Investia Representative be holding pre-signed
documents in a client file. A signed form that is only partially complete is still
considered a pre-signed form.

11.
Investia’s compliance staff detected the conduct which is the subject of this Settlement
Agreement during a routine sales compliance audit of the Respondent’s client files completed in
about January 2014.

Blank Pre-Signed and Photocopied Trade Forms

12.
Between about May 2012 and January 2014, the Respondent obtained, maintained and, in
some instances, used to process trades, 21 blank pre-signed trade forms in respect of 16 clients.
In particular, the Respondent:

(a)
obtained, and used to process trades, 11 photocopies of blank pre-signed Order
Instruction Forms; and
(b)
obtained, and maintained in client files, 9 original blank pre-signed Order
Instruction Forms and 1 facsimile of a blank pre-signed Order Instruction Form.

13.
With regards to the conduct described in subparagraph 12(b) above, the blank pre-signed
Order Instruction Forms were undated and, therefore, could be used by the Respondent to
process trades in the future.

14.
On or about May 3, 2014, the Respondent provided the following written statement to
Investia explaining his conduct with respect to the blank pre-signed forms:

I have been asked to provide a statement regarding the pre-signed forms identified in my
annual sales compliance review. Many of my clients are long time clients, and old
friends and family friends who have faith in me, and trust me both as a friend and
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investment consultant. They also live further than 20km from my office, and each one of
these clients requested that they provide pre-signed forms to save them the hassle of
travelling. They authorized all trades that were made in their accounts by phone to
myself, and I am in the process of having each client sign off attesting to this (as a part of
my compliance review resolutions). In the future, I will ensure that this practice does not
take place, and under no circumstances will I hold any pre-signed forms.

15.
The Respondent had not obtained limited trade authorizations in respect of the 16 clients
for which he obtained, maintained and, in some instances, used to process trades, blank pre-
signed trade forms. As a result, the Respondent was not permitted to execute trades based upon
instructions received from the clients by telephone.

16.
On February 5, 2014, Investia sent letters to all of the clients serviced by the Respondent
to determine whether the Respondent had engaged in any unauthorized trading activity in the
clients’ accounts. None of the clients reported any concerns to Investia.

17.
On February 18, 2014, Investia placed the Respondent on close supervision.

18.
On May 9, 2014, Investia terminated the Respondent, in good standing, effective June 9,
2014 on the basis of unresolved compliance deficiencies, including the events at issue in this
Settlement Agreement, detected during sales compliance reviews.

Additional Factors

19.
No clients serviced by the Respondent have complained about his conduct.

20.
There is no evidence that the Respondent received any financial benefit from engaging in
the misconduct described above, beyond the commissions or fees he would ordinarily be entitled
to receive had the transactions been carried out in the proper manner.

21.
The Respondent cooperated with Investia’s internal investigation into his conduct.

22.
The Respondent has expressed remorse for his actions.
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23.
The Respondent has not previously been the subject of MFDA disciplinary proceedings.
However, in about November 2011, Investia detected, during a sales compliance audit, that the
Respondent had been using corrective fluid (i.e., “white-out”) to correct errors on account forms
without obtaining the initials of the client to acknowledge the correction. Investia directed the
Respondent to stop this practice. There is no evidence that the Respondent failed to comply with
this directive.

24.
By entering into this Settlement Agreement, the Respondent has saved the MFDA the
time, resources and expenses associated with conducting a full hearing of the allegations.

V.
CONTRAVENTIONS

25.
The Respondent admits that, between about May 2012 and January 2014, he obtained,
maintained and, in some instances, used to process trades, 21 blank pre-signed trade forms in
respect of 16 clients, contrary to MFDA Rule 2.1.1.

VI.
TERMS OF SETTLEMENT

26.
The Respondent agrees to the following terms of settlement:

(a)
the Respondent shall pay a fine in the amount of $5,000 pursuant to s. 24.1.1(b) of
MFDA By-law No. 1, payable as follows:

i.
$500 shall be paid upon acceptance of the settlement by the Hearing Panel;

ii.
9 installments of $500 shall be paid on or before the final business day of
each month following the acceptance of the settlement by the Hearing Panel;

(b)
the Respondent shall pay costs in the amount of $2,500 pursuant to s. 24.2 of
MFDA By-law No. 1, payable as follows:

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i.
$250 shall be paid upon acceptance of the settlement by the Hearing Panel;
ii.
9 installments of $250 shall be paid on or before the final business day of
each month following the acceptance of the settlement by the Hearing Panel;

(c)
the Respondent shall in the future comply with MFDA Rule 2.1.1; and
(d)
the Respondent will attend in person, on the date set for the Settlement Hearing.

VII.
STAFF COMMITMENT

27.
If this Settlement Agreement is accepted by the Hearing Panel, Staff will not initiate any
proceeding under the By-laws of the MFDA against the Respondent in respect of the facts or
contraventions described in Parts IV and V of this Settlement Agreement, subject to the
provisions of Part X below. Nothing in this Settlement Agreement precludes Staff from
investigating or initiating proceedings in respect of any facts or contraventions that are not set
out in Parts IV and V of this Settlement Agreement or in respect of conduct that occurred outside
the specified date ranges of the facts and contraventions set out in Parts IV and V, whether
known or unknown at the time of settlement. Furthermore, nothing in this Settlement Agreement
shall relieve the Respondent from fulfilling any continuing regulatory obligations.

VIII. PROCEDURE FOR APPROVAL OF SETTLEMENT

28.
Acceptance of this Settlement Agreement shall be sought at a hearing of the Central
Regional Council of the MFDA on a date agreed to by counsel for Staff and the Respondent.

29.
Staff and the Respondent may refer to any part, or all, of the Settlement Agreement at the
settlement hearing. Staff and the Respondent also agree that if this Settlement Agreement is
accepted by the Hearing Panel, it will constitute the entirety of the evidence to be submitted
respecting the Respondent in this matter, and the Respondent agrees to waive his rights to a full
hearing, a review hearing before the Board of Directors of the MFDA or any securities
commission with jurisdiction in the matter under its enabling legislation, or a judicial review or
appeal of the matter before any court of competent jurisdiction.

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30.
Staff and the Respondent agree that if this Settlement Agreement is accepted by the
Hearing Panel, then the Respondent shall be deemed to have been penalized by the Hearing
Panel pursuant to s. 24.1.2 of By-law No. 1 for the purpose of giving notice to the public thereof
in accordance with s. 24.5 of By-law No. 1.

31.
Staff and the Respondent agree that if this Settlement Agreement is accepted by the
Hearing Panel, neither Staff nor the Respondent will make any public statement inconsistent with
this Settlement Agreement. Nothing in this section is intended to restrict the Respondent from
making full answer and defence to any civil or other proceedings against him.

IX.
FAILURE TO HONOUR SETTLEMENT AGREEMENT

32.
If this Settlement Agreement is accepted by the Hearing Panel and, at any subsequent
time, the Respondent fails to honour any of the Terms of Settlement set out herein, Staff reserves
the right to bring proceedings under section 24.3 of the By-laws of the MFDA against the
Respondent based on, but not limited to, the facts set out in Part IV of the Settlement Agreement,
as well as the breach of the Settlement Agreement. If such additional enforcement action is
taken, the Respondent agrees that the proceeding(s) may be heard and determined by a hearing
panel comprised of all or some of the same members of the hearing panel that accepted the
Settlement Agreement, if available.

X.
NON-ACCEPTANCE OF SETTLEMENT AGREEMENT

33.
If, for any reason whatsoever, this Settlement Agreement is not accepted by the Hearing
Panel or an Order in the form attached as Schedule “A” is not made by the Hearing Panel, each
of Staff and the Respondent will be entitled to any available proceedings, remedies and
challenges, including proceeding to a disciplinary hearing pursuant to sections 20 and 24 of By-
law No. 1, unaffected by this Settlement Agreement or the settlement negotiations.

34.
Whether or not this Settlement Agreement is accepted by the Hearing Panel, the
Respondent agrees that he will not, in any proceeding, refer to or rely upon this Settlement
Agreement or the negotiation or process of approval of this Settlement Agreement as the basis
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for any allegation against the MFDA of lack of jurisdiction, bias, appearance of bias, unfairness,
or any other remedy or challenge that may otherwise be available.

XI.
DISCLOSURE OF AGREEMENT

35.
The terms of this Settlement Agreement will be treated as confidential by the parties
hereto until accepted by the Hearing Panel, and forever if, for any reason whatsoever, this
Settlement Agreement is not accepted by the Hearing Panel, except with the written consent of
both the Respondent and Staff or as may be required by law.

36.
Any obligations of confidentiality shall terminate upon acceptance of this Settlement
Agreement by the Hearing Panel.

XII.
EXECUTION OF SETTLEMENT AGREEMENT

37.
This Settlement Agreement may be signed in one or more counterparts which together
shall constitute a binding agreement.

38.
A facsimile copy of any signature shall be effective as an original signature.

DATED this 14th day of December, 2014.

“Ramanpreet Dhaliwal”

“Jarnail S. Kahlon”
Witness – Signature

Jarnail S. Kahlon

Ramanpreet Dhaliwal
Witness – Print name

“Shaun Devlin”

Staff of the MFDA
Per: Shaun Devlin
Senior Vice-President,
Member Regulation – Enforcement
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Schedule “A”
Order
File No. 201438

IN THE MATTER OF A SETTLEMENT HEARING
PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA

Re: Jarnail S. Kahlon



ORDER



WHEREAS on [date], the Mutual Fund Dealers Association of Canada (the “MFDA”)
issued a Notice of Settlement Hearing pursuant to section 24.4 of MFDA By-law No. 1 in respect
of Jarnail S. Kahlon (the “Respondent”);

AND WHEREAS the Respondent entered into a settlement agreement with Staff of the
MFDA (the “Settlement Agreement”), in which the Respondent agreed to a proposed settlement
of matters for which the Respondent could be disciplined pursuant to ss. 20 and 24.1 of By-law
No. 1;

AND WHEREAS the Hearing Panel is of the opinion that, between about May 2012 and
January 2014, the Respondent obtained, maintained and, in some instances, used to process
trades, 21 blank pre-signed trade forms in respect of 16 clients, contrary to MFDA Rule 2.1.1;
Page
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IT IS HEREBY ORDERED THAT the Settlement Agreement is accepted, as a
consequence of which:

1. The Respondent shall pay a fine in the amount of $5,000 pursuant to s. 24.1.1(b) of MFDA
By-law No. 1, payable as follows:

(i)
$500 shall be paid upon acceptance of the settlement by the Hearing Panel;
(ii)
9 installments of $500 shall be paid on or before the final business day of each
month following the acceptance of the settlement by the Hearing Panel;

2. The Respondent shall pay costs in the amount of $2,500 pursuant to s. 24.2 of MFDA By-law
No. 1, payable as follows:

(i)
$250 shall be paid upon acceptance of the settlement by the Hearing Panel;
(ii)
9 installments of $250 shall be paid on or before the final business day of each
month following the acceptance of the settlement by the Hearing Panel;

3.
The Respondent shall in the future comply with MFDA Rule 2.1.1.

DATED this [day] day of [month], 20[ ].

Per: __________________________

[Name of Public Representative], Chair

Per: _________________________

[Name of Industry Representative]

Per: _________________________

[Name of Industry Representative]

DM 415104 v1
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