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Re: Sama Tabesh

Agreed Statement of Facts

I. INTRODUCTION

  1. By Notice of Hearing dated February 28, 2017, the Mutual Fund Dealers Association of Canada (the “MFDA”) commenced a disciplinary proceeding against Sama Tabesh (the “Respondent”), among other Respondents, pursuant to ss. 20 and 24 of MFDA By-law No. 1.
  2. The Notice of Hearing set out the following allegations against the Respondent:
    1. Allegation #1:  Between 2008 and August 21, 2014, the Respondents falsified, fabricated or altered:
      1. clients’ Know-Your-Client (“KYC”) information such as income, net worth, investment objectives, and risk tolerance on account forms submitted to the Member, including new account application forms; and
      2. information on loan applications and client documents submitted to lenders, including bank statements, investment statements, pay stubs, or Canada Revenue Agency Notices of Assessment;

      in order to obtain at least six investment loans to purchase mutual funds on behalf of clients, thereby failing to observe the high standards of ethics and conduct in the transaction of business, and engaging in conduct unbecoming an Approved Person, contrary to MFDA Rule 2.1.1.

    2. Allegation #2:  Between 2008 and August 21, 2014, the Respondents failed to ensure that at least 6 investment loans recommended to clients were suitable for the clients and in keeping with the clients’ investment objectives, having regard to the clients’ relevant “Know-Your-Client” information and financial circumstances, contrary to the Member’s policies and procedures, and MFDA Rules 2.2.1 and 2.1.1.
    3. Allegation #3:  Commencing December 2013, the Respondents engaged in conduct unbecoming Approved Persons by providing false and misleading responses to the Member during the course of the Member’s investigation into their conduct, contrary to MFDA Rule 2.1.1.
    4. Allegation #6: Commencing in March 2015, the Respondent misled MFDA Staff during an interview conducted pursuant to an investigation, contrary to section 22.1 of MFDA By-law No. 1.

II. IN PUBLIC / IN CAMERA

  1. The Respondent and Staff of the MFDA (“Staff”) agree that this matter should be heard in public pursuant to Rule 1.8 of the MFDA Rules of Procedure.

III. ADMISSIONS AND ISSUES TO BE DETERMINED

  1. The Respondent has reviewed this Agreed Statement of Facts and admits the facts set out in Part IV herein. The Respondent admits that the facts in Part IV constitute misconduct for which the Respondent may be penalized on the exercise of the discretion of a Hearing Panel pursuant to s. 24.1 of MFDA By-law No. 1.
  2. Subject to the determination of the Hearing Panel, Staff and the Respondent jointly request that the Hearing Panel impose the following penalties and costs:
    1. A permanent prohibition on the Respondent’s authority to act and be registered as a mutual fund salesperson (now known as a dealing representative), pursuant to section 24.1(e) of By-law No. 1;
    2. A fine in the amount of $10,000, pursuant to s. 24. 1.1(b) of MFDA By-law No. 1; and
    3. Costs of the investigation and hearing in the amount of $5,000, pursuant to s. 24.2 of MFDA By-law No.1.
  3. The Respondent requests that the proposed fine and costs (totaling $15,000) should be payable over a period of 30 months from the date of an order of the Hearing Panel. The Respondent states that he does not have the resources required to pay the proposed fine and costs any sooner on the basis of his recent bankruptcy, from which he was fully discharged on July 26, 2017.
  4. Staff would ordinarily take the position that all fines and costs be paid within 12 months of the date of a Hearing Panel order. However, in the unique circumstances of this case, and in particular as a consequence of the Respondent’s recent discharge from bankruptcy, Staff consents to the Respondent’s payment proposal that the fine and costs be paid over a period of 30 months from the date of an order of the Hearing Panel (30 payment in the amount of $500).

IV. AGREED FACTS

  1. Staff and the Respondent agree that submissions made with respect to the appropriate penalty are based only on the agreed facts in Part IV and no other facts or documents. In the event the Hearing Panel advises one or both of Staff and the Respondent of any additional facts it considers necessary to determine the issues before it, Staff and the Respondent agree that such additional facts shall be provided to the Hearing Panel only with the consent of both Staff and the Respondent.  If the Respondent is not present at the hearing, Staff may disclose additional relevant facts, at the request of the Hearing Panel.
  2. Nothing in this Part IV is intended to restrict the Respondent from making full answer and defence to any civil or other proceedings against him.

The Respondent’s Registration History and Work History at WFG

  1. The Respondent is one of 14 named Respondents in this proceeding.[1] He, along with all of the other named Respondents, operated out of the same branch office of WFG Securities Inc. (“WFG”) or one of its predecessor companies, located in Mississauga, Ontario (the “Branch”).
  2. From March 7, 2008 to August 21, 2014, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with WFG.
  3. Commencing December 2012, the Respondent’s (and the Branch’s) branch manager was one of the other named Respondents to this proceeding, Attal Golzay (“Attal”).
  4. While working at the Branch, the Respondent held the title of Senior Marketing Director (“SMD”). The SMD designation meant that the Respondent was entitled to receive a portion of commissions and fees payable to other mutual fund salespersons who reported to him.
  5. The other SMDs at the Branch were the following individuals, all of whom are named Respondents to this proceeding: Attal, Saadet Kolgekaya (“Kolgekaya”), Sayed Mohammed Zobair Hashimi (“Zobair”), Mustafa Sayed Hashimi (“Mustafa”) and Mohammad Yunas Masood (“Masood”).

Allegation #1 – Falsification of KYC Information and Client Documents

  1. Between 2008 (when he first became a registered Approved Person of WFG) and August 21, 2014 (when his registration was terminated by WFG), the Respondent participated with the other named Respondents in this proceeding in a Branch-wide practice of recommending to clients that they borrow monies and use the proceeds of the investment loans to purchase mutual funds for their accounts at WFG.
  2. Along with the other Respondents, the Respondent engaged in a widespread scheme at the Branch which involved falsifying, fabricating or altering clients’ Know-Your-Client (“KYC”) information on account forms submitted to WFG including new account application forms, and information on client documents submitted to lenders such as bank statements, investment statements, pay stubs, or Canada Revenue Agency Notices of Assessment, in order to obtain investment loans to purchase mutual funds in client accounts.
  3. In particular, in the course of assisting the clients to obtain the investment loans, the Respondent, along with the other named Respondents in this proceeding, prepared and submitted new client account forms (“NCAFs”) and loan applications, which he knew or ought to have known contained falsified, fabricated, incorrect, and/or misleading information. Among other things, the Respondent:
    1. inflated the market values of the clients’ residences on the loan applications without consulting the clients about the market values of their residences or by ignoring the market value estimates provided by the clients;
    2. reported on the loan applications and/or NCAFs that the clients held cash or liquid assets which the clients did not hold or which the Respondent inflated in value;
    3. reported on the clients’ loan applications that the clients held other investments which the clients did not in fact hold or which the Respondent inflated in value;
    4. reported on the loan applications and/or NCAFs that the clients had “good” investment knowledge and a “high” risk tolerance when the clients had limited to nil investment knowledge and a risk tolerance less than “high”;
    5. reported on the clients’ loan applications that the clients owned properties or other assets (such as cars) which the clients did not own or which the Respondent inflated in value;
    6. failed to report the true nature and extent of the clients’ liabilities on the loan applications when many of the clients had material liabilities, and without making adequate or any inquiries to determine whether the clients had any liabilities;
    7. inflated the clients’ net worth on the clients’ NCAFs and loan applications; and
    8. inflated the clients’ income on the clients’ NCAFs and loan applications.
  4. In addition, the Respondent:
    1. falsified, fabricated or altered information; and/or
    2. requested and had Lieu falsify, fabricate or alter information;

    contained in documents provided by the clients.  These falsified, fabricated or altered client documents included, among other things, bank statements, investment statements, pay stubs, Canada Revenue Agency Notices of Assessment, T4s, etc.

  5. The Respondent submitted the falsified, fabricated or altered client documents to lenders as part of the applications for investment loans he had prepared for clients.
  6. The Respondent states that he engaged in the activities described in paragraph 16-21 above along with all of the other named Respondents within the Branch: Mahmoud Rihawi (“Rihawi”), Attal, Ajmal Golzay, Roomal Golzay (“Roomal”), Mustafa, Zobair, Kolgekaya, Hammond Lieu (“Lieu”), Rhea Galias Fortes (“Fortes”), Shameel Rawani (“Shameel”), Anjum Pathan and Masood.
  7. The Respondent further states that, along with the other SMDs at the Branch (Attal, Kolgekaya, Zobair, Mustafa and Masood), he devised and implemented the scheme and activities described in paragraphs 15-20 above.
  8. The Respondent engaged in the activities described in paragraph 16-21 above, without the knowledge or instructions of the clients, to ensure that the information contained in the client documents matched the false information that the Respondent had reported on the clients’ NCAFs and loan applications. In particular, the Respondent engaged in these practices in order to make it appear as though the clients satisfied WFG’s requirements regarding the use of leveraging and to increase the likelihood that the lenders would approve the investment loans.
  9. Between 2008 and August 21, 2014, the Respondent recommended to at least 6 clients for which he was the servicing mutual fund salesperson that they obtain investment loans that he knew or ought to have known the clients could otherwise not afford and for which, without the clients’ knowledge, he falsified at least 6 documents submitted to WFG and/or the lenders in the manner described above.
  10. Commencing in or about February 2012, the Respondent and the other named Respondents to this proceeding arranged for Lieu to falsify, fabricate or alter all client documents on their behalf. The Respondent states that he and the other Respondents requested Lieu do so on the basis that Lieu was more adept and quicker at doing so than all of the other named Respondents.
  11. The Respondent states that for every client document that he requested Lieu falsify, fabricate or alter, he paid Lieu a fee of between $30 and $300, depending on the complexity of the necessary alteration(s). In total, the Respondent states that he paid Lieu approximately $900 for Lieu’s alterations, fabrications or falsifications of client documents.

Allegation #2 – Failure to Ensure Loan Recommendations were Suitable

  1. At all material times, WFG’s policies and procedures required its Approved Persons, including the Respondent, to assess and determine whether a leveraged investment recommendation was suitable for a client having regard to certain criteria. In particular, WFG’s policies and procedures stated:

General:  It must be kept in mind at all times that leveraging (borrowing for securities purchases), as with any investment strategy, is not suitable for all clients.  Before leveraging is used, it is important that you carefully review the matter for suitability based on the specific investment objectives, needs, investing experience, financial position and their capacity to service debt load

As per MR 0069, it is important to provide your clients with a balanced presentation that includes a full review of the risks of leveraging as well as the benefits. Your notes must be kept for any meeting or conversation that is part of the planning process or that leads to a transaction of any kind. These notes should be maintained in the client’s file.

Leveraging Parameters.  Clients must have the following as a minimum:

  • Clients must have a risk tolerance of 100% medium or higher;
  • The total borrowed funds to invest must not exceed 30 % of a client’s verifiable net worth and 50% of the client’s verifiable liquid net worth;
  • The client’s total debt payments must not exceed 35% of the client’s gross income;
  • Client investment knowledge must be good or above;
  • Minimum income must be $25,000 or more;
  • Client investment horizon must be long term;
  • Client must be able to afford to service their debt load using their own demonstrated personal income. The following methods to fund a loan will not be included as income when applying for approval: systematic withdrawal plans (SWP’s) and cash distributions from underlying funds;
  • For portfolios in excess of $25,000 representatives should consider diversifying to a number of individually chosen funds or a managed portfolio product offered by WFG approved providers;
  • Independent legal advice (“ILA”) may be required for all loans of $250,000 or more. If this is already a requirement of the lender you will not be required to obtain additional ILA.
  1. The Respondent recommended investment loans to at least 6 clients, as described above, without taking adequate or any steps to ensure that the loans were suitable for the clients.
  2. The clients to whom the Respondent recommended a leveraged investment strategy had limited to no investment knowledge, had limited to no prior investing experience, and had never previously borrowed monies to invest.
  3. In addition, the Respondent knew or ought to have known that the 6 clients could not afford to pay the costs of servicing the investment loans from their own personal income or withstand the risk of investment loss associated with using borrowed monies to invest.
  4. The Respondent engaged in the conduct described in paragraphs 16-27 above in order to:
    1. increase the likelihood that the lenders would approve the clients’ investment loans; and
    2. make it appear to WFG’s supervisory and compliance staff as though the clients satisfied WFG’s requirements regarding the use of leveraging, as set out in its policies and procedures, when the clients did not satisfy these requirements.
  5. By engaging in the conduct described above, the Respondent was able to sell more mutual funds to clients, thereby inflating the sales commissions and fees he otherwise would have been entitled to receive.

Allegation #3 – The Respondent Misled WFG

  1. In December 2013, WFG received a client complaint alleging that Rihawi, one of the other Approved Persons at the Branch and a named Respondents to this proceeding, had recommended unsuitable investment loans in the client’s account (the “Rihawi Complaint”).
  2. Upon receipt of the Rihawi Complaint, WFG commenced an investigation.
  3. On June 13, 2014, the Respondent, along with Rihawi, Attal, Mustafa, Roomal, Rawani, Masood, Fortes and Lieu, all of whom were Approved Persons at the Branch and are named Respondents to this proceeding, attended meetings to discuss, and devise a collective response to, WFG’s investigation.
  4. During the June 13, 2014 meetings, the Respondent and the other named Respondents to this proceeding agreed not to reveal to WFG the scheme described at paragraphs 15-26 above or their roles in falsifying, fabricating or altering client information in NCAFs, loan applications, or client documents submitted with the loan applications. Instead, the Respondents agreed to maintain a unified response, and deny any knowledge, responsibility or wrongdoing with respect to the falsified, fabricated or altered documents.
  5. In July 2014, WFG received a client complaint alleging that Kolgekaya had recommended and implemented an unsuitable leveraged investment strategy in the complaining client’s account (the “Kolgekaya Complaint”).
  6. In July 2014 WFG compliance staff expanded its investigation of the Rihawi and Kolgekaya Complaints to review all leveraged activity at the Branch, including activity pertaining to the Respondent’s conduct.
  7. By the end of July 2014, WFG compliance staff suspended all of the named Respondents to this proceeding, including the Respondent, pending a further investigation into their activities.
  8. On July 31, 2014, WFG compliance staff obtained statements from the Respondent, who falsely stated to WFG, among other things, that he did not know who or why client documents and records at the Branch had been falsified, fabricated or altered.
  9. The Respondent therefore provided false and misleading responses to the Member during the course of the Member’s investigation into his conduct.
  10. On August 21, 2014, WFG terminated the Respondent as a result of the conduct described in this Agreed Statement of Facts.

Additional Factors

  1. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
  2. In admitting the facts and contraventions in this Agreed Statement of Facts, the Respondent provided MFDA Staff with evidence pertaining to:
    1. his and the Branch’s practice of falsifying, fabricating or altering clients’ KYC information on account forms submitted to the Member;
    2. information on loan applications and client documents submitted to lenders in order to facilitate and obtain investment loans to purchase mutual funds for clients which loans the clients did not otherwise qualify for; and
    3. his (and the other named Respondents to this proceedings) efforts to mislead, and conceal from, WFG about his and the Branch’s misconduct.
  3. The Respondent takes responsibility and expresses remorse for his actions.
  4. In recognition of the Respondent’s admissions and cooperation with Staff, and taking into account the Respondent’s recent bankruptcy and current financial situation, Staff has agreed to the proposed penalties and costs set out in paragraph 5 above.

Misconduct Admitted

  1. By engaging in the conduct described above, the Respondent admits that:
    1. between 2008 and August 21, 2014, he falsified, fabricated or altered:
      1. clients’ Know-Your-Client (“KYC”) information such as income, net worth, investment objectives, and risk tolerance on account forms submitted to the Member, including new account application forms; and
      2. information on loan applications and client documents submitted to lenders, including bank statements, investment statements, pay stubs, or Canada Revenue Agency Notices of Assessment;

      in order to obtain at least 6 investment loans to purchase mutual funds on behalf of clients, thereby failing to observe the high standards of ethics and conduct in the transaction of business, and engaging in conduct unbecoming an Approved Person, contrary to MFDA Rule 2.1.1;

    2. between 2008 and August 21, 2014, he failed to ensure that at least 6 investment loans recommended to clients were suitable for the clients and in keeping with the clients’ investment objectives, having regard to the clients’ relevant “Know-Your-Client” information and financial circumstances, contrary to the Member’s policies and procedures, and MFDA Rules 2.2.1 and 2.1.1; and
    3. Commencing December 2013, the Respondents engaged in conduct unbecoming Approved Persons by providing false and misleading responses to the Member during the course of the Member’s investigation into their conduct, contrary to MFDA Rule 2.1.1.

Execution of Agreed Statement of Facts

  1. This Agreed Statement of Facts may be signed in one or more counterparts which together shall constitute a binding agreement.
  1. A facsimile copy of any signature shall be effective as an original signature.

[1] After issuance of the Notice of Hearing in this matter on February 28, 2017, Staff of the MFDA withdrew all allegations made as against Juliene da Rosa Lima.

  • Sama Tabesh
    Sama Tabesh
  •  

    “Shaun Devlin”

    Staff of the MFDA
    Per: Shaun Devlin
    Senior Vice-President,
    Member Regulation – Enforcement