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Re: Christopher John Davies

Agreed Statement of Facts

I. INTRODUCTION

  1. By Notice of Hearing dated November 18, 2019, the Mutual Fund Dealers Association of Canada (the “MFDA”) commenced a disciplinary proceeding against Christopher John Davies (the “Respondent”) pursuant to ss. 20 and 24 of MFDA By-law No. 1.
  2. The Notice of Hearing sets out the following allegations:
    1. Allegation #1: Between February 2014 and July 2017, the Respondent misappropriated or failed to account for at least $434,252.35 received from four clients, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.1, 1.1.2 and 2.5.1.
    2. Allegation #2: In or about April 2, 2014, the Respondent solicited or received $25,000 from two clients to make a joint investment with the clients in an unapproved investment outside the Member, thereby:
      1. engaging in securities related business that was not carried on for the account of the Member and through the facilities of the Member, contrary to the Member’s policies and procedures, and MFDA Rules 1.1.1, 2.1.1, 1.1.2, and 2.5.1; or
      2. engaging in personal financial dealings with the clients, which gave rise to a conflict or potential conflict of interest which the Respondent failed to disclose to the Member, or failed to address by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.4, 2.1.1, 1.1.2, and 2.5.1.
    3. Allegation #3: Between May 2015 and July 2017, the Respondent entered false or misleading notes regarding his communications with clients relating to trades on the Member’s back office system, contrary to MFDA Rules 2.1.1, 1.1.2 and 5.1(b).
    4. Allegation #4: Commencing in or about August 2017, the Respondent made false or misleading statements to the Member during the course of an investigation into his conduct, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.1, 2.5.1 and 1.1.2.
    5. Allegation #5: Commencing on or about November 29, 2018, the Respondent failed to cooperate with an investigation by Staff of the MFDA into his conduct, 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

  1. The Respondent has reviewed this Agreed Statement of Facts and admits the facts set out in Part V herein. The Respondent admits that the facts in Part V 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 submits and the Respondent does not oppose that, at a minimum, the appropriate sanction to impose on the Respondent is a permanent prohibition from conducting securities related business while in the employ of or association with a Member of the MFDA.

IV. ISSUES TO BE DETERMINED

  1. Staff and the Respondent jointly request that the Hearing Panel determine, on the basis of this Agreed Statement of Facts and the additional evidence and submissions of the parties, as set out below, the following:
    1. whether, commencing on or about November 29, 2018, the Respondent failed to cooperate with an investigation by Staff of the MFDA into his conduct, contrary to section 22.1. of MFDA By-law No. 1; and
    2. the appropriate fine (if any) to impose on the Respondent, pursuant to 24. 1.1(b) of MFDA By-law No. 1 and the appropriate amount of costs (if any) of the investigation and hearing to be awarded against the Respondent, pursuant to s. 24.2 of MFDA By-law No.1.
  2. Staff and the Respondent agree that both Staff and the Respondent may lead evidence at the hearing on the merits that is relevant to the allegation that the Respondent failed to cooperate with Staff’s investigation into his conduct.
  3. Staff and the Respondent further agree that the Respondent may lead evidence at hearing on the merits that is relevant to the Respondent’s financial, personal, and familial situation. This evidence will be tendered solely for the purpose of the Hearing Panel’s determination of the appropriate sanction and for no other purpose. Staff may lead any responding evidence at its discretion, and may cross-examine any witnesses tendered by the Respondent.
  4. Staff and the Respondent agree that neither party may lead evidence other than as provided for in paragraphs 7 and 8 above. Staff and the Respondent agree that submissions made with respect to the appropriate sanction are based only on the agreed facts in Part IV and no other facts or documents, subject to paragraphs 7 and 8 above. For greater clarity, neither party may lead evidence that is solely relevant to and/or inconsistent with the Respondent’s admissions a set out in Part V.
  5. 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.
  6. Nothing in this Part V is intended to restrict the Respondent from making full answer and defence to any civil or other proceedings against him.

V. AGREED FACTS

Registration History

  1. Commencing August 9, 2001, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative).
  2. From July 26, 2006 to August 31, 2017, the Respondent was registered in Ontario as a dealing representative with Royal Mutual Funds Inc. (the “Member”), a Member of the MFDA.
  3. On August 31, 2017, the Member terminated the Respondent as a result of the events described below.
  4. At all material times, the Respondent carried on business in the St. Thomas and London, Ontario area.

The Member’s Policies and Procedures

  1. At all material times, the Member’s policies and procedures:
    1. prohibited its Approved Persons form misappropriating and/or misusing client money;
    2. prohibited its Approved Persons from engaging in securities related business outside the Member;
    3. required that its Approved Persons identify actual or potential conflicts of interest; report and disclose actual or potential conflicts of interest; and eliminate or appropriately manage actual or potential conflicts of interest; and
    4. required Approved Persons to cooperate with internal and external investigations, and provide “honest, accurate, complete and timely information.”

Clients BD and TD

  1. At all material times, Clients BD and TD were clients of the Member whose accounts were serviced by the Respondent. Clients BD and TD were aged 70 years and 84 years, respectively, were spouses and retired.
Redirected monies from Clients’ Account and Unauthorized Redemptions
  1. Between February 22, 2014 and March 5, 2015, the Respondent misappropriated $205,499.59 from the joint non-registered account of Clients BD and TD at the Member. Without the knowledge or authorization of Clients BD and TD, the Respondent:
    1. changed the distribution payment option on the account from “reinvest” to “cash (direct deposit)”, and entered his own bank account as the destination account, so that all distributions made by the clients’ investments would be paid to the Respondent; and
    2. in three instances, signed client BD’s signature on transaction forms, redeemed mutual funds from the clients’ account at the Member and directed the proceeds to the Respondent’s own bank account.
The Film Production Investment
  1. On or about April 2, 2014, the Respondent solicited and received $25,000 from Clients BD and TD to invest in a film production related investment (the “Film Production Investment”).
  2. The Film Production Investment is a security.
  3. The Respondent provided Clients BD and TD with a signed note which confirmed that the Respondent received a $25,000 bank draft from Clients BD and TD, and further indicated that the money was for a joint investment in the Film Production Investment, with the profits to be split evenly between Clients BD and TD and the Respondent.
  4. The Respondent invested the $25,000 in the Film Production Investment under his name only. The Respondent invested an additional $50,000 in his wife’s name, using money he misappropriated from Clients BD and TD.
  5. The Respondent’s recommendation and sale of the investment in the Film Production Investment to Clients BD and TD was not done for the account of the Member or through the facilities of the Member.
  6. The Respondent did not disclose his joint investment with Clients BD and TD in the Film Production Investment to the Member.
  7. The Respondent’s joint investment in the Film Production Investment with Clients BD and TD gave rise to a conflict of interest that the Respondent failed to disclose to the Member or address by the exercise of responsible business judgment influenced only by the best interests of the clients.
Payment to Clients BD and TD using monies obtained from other clients
  1. In or around April 2015, Clients BD and TD began to ask for the repayment of their investment in the Film Production Investment. At around the same time, Clients BD and TD noticed a significant decrease in their mutual fund holdings and questioned the Respondent.
  2. On or about June 11, 2015, the Respondent paid Clients BD and TD $177,531.26, at which time Clients BD and TD transferred their investments outside the Member.
  3. On September 14, 2016, the Respondent paid Clients BD and TD $8,333.33, purportedly as partial repayment of their investment in the Film Production Investment.
  4. The Respondent obtained the monies to pay Clients BD and TD from two other mutual fund clients (Client MM and Client JV), as described in greater detail below.
  5. The Respondent misappropriated or failed to account for at least $27,968.33 received from Clients BD and TD. The Respondent further failed to return or account for $16,666.67 of the $25,000 that was to be invested in the Film Production Investment.
  6. The Member’s affiliate compensated Client BD and TD for the money misappropriated from them by the Respondent.

Client MM

  1. At all material times, Client MM was a client of the Member whose accounts were serviced by the Respondent.
Film Production Investment
  1. In or about May 2015, the Respondent told Client MM about the Film Production Investment. The Respondent assured Client MM it would generate a significant return.
  2. Between May 2015 and September 2015, Client MM agreed to invest $300,000 in the Film Production Investment:
    1. in or about May and June 2015, Client MM redeemed $200,000 from her two non-registered investment accounts with the Member and, at the Respondent’s instruction, used the money to obtain two bank drafts for $177,531.26 and $22,468.74 which she provided to the Respondent;
    2. in September 2015, Client MM redeemed $100,000 from one of her investment accounts with the Member and transferred the money to the Respondent’s personal bank account to be invested in the Film Production Investment.
  3. As discussed above at paragraph 27, the Respondent used the $177,531.26 bank draft to repay Clients BD and TD. The $22,468.74 bank draft and the $100,000 were deposited into the Respondent’s personal bank account and used for his personal benefit.
  4. The Respondent states that he had a $600,000 interest in the Film Production Investment, half of which he sold to Client MM in exchange for her $300,000.
  5. The Respondent admits that he has no documentary evidence from the film production company to substantiate that he had a $600,000 investment in the Film Production Investment, nor did he provide any documentation to Client MM to evidence the transfer of $300,000 of this investment to Client MM.
  6. There is no reasonable prospect of recovery from the Film Production Investment. Client MM has not received any return or repayment from the Film Production Investment.
  7. The Respondent failed to account for at least $300,000 received from Client MM.
Redirected monies from Client Accounts
  1. In December 2015, without Client MM’s knowledge or authorization, the Respondent changed the distribution payment option on one of Client MM’s accounts from “reinvest” to “Cash (direct deposit)”, and entered his own bank account as the destination account. As a result, the Respondent received a payment of $955.19.
  2. The Respondent misappropriated or failed to account for at least $955.19 he received from Client MM.
  3. The Member’s affiliate compensated Client MM for the money misappropriated from her and for which the Respondent failed to account.

Client JV

  1. At all material times, Client JV was a client of the Member whose account was serviced by the Respondent. Client JV was 66 years old and retired.
  2. On January 26, 2016, the Respondent changed the account statement delivery option on the Member’s system for Client JV from a paper statement to an electronic statement. This change did not require Client JV’s signature and was made without her knowledge or authorization. Client JV inquired with the Respondent why she was no longer receiving account statements. The Respondent advised that he would look into the matter, but he did not arrange for Client JV to receive account statements or follow-up with her.
Unauthorized Redemptions
  1. Between January 27, 2016 and March 9, 2017, the Respondent misappropriated $113,662.17 from Client JV’s non-registered investment account with the Member. The Respondent:
    1. had Client JV sign transaction forms that contained instructions for authorized redemptions and, unbeknownst to Client JV, instructions for unauthorized redemptions which the Respondent processed in her account and directed the proceeds to his personal bank account; and
    2. signed Client JV’s signature on transaction forms and processed redemptions of mutual funds and directed the proceeds to his personal bank account.
  2. As described above at paragraph 28, in or about September 2016, the Respondent paid Client BD and TD $8,333.33 from funds he misappropriated or failed to account for from Client JV.
  3. The Respondent misappropriated or failed to account for at least $113,662.17 he received from Client JV.
  4. In or about July 2017, the Respondent attempted to process a further redemption of $18,000 from Client JV’s account with the Member and direct the proceeds to his own bank account by signing Client JV’s signature on a transaction form.
  5. The financial institution where the Respondent had a bank account rejected the transfer of monies. The financial institution contacted Client JV, who confirmed the transfer was unauthorized, prompting the financial institution to advise the Member of the unauthorized transaction.
  6. Subsequently, the Member commenced an investigation into the Respondent’s misconduct.
  7. The Member’s affiliate compensated Client JV for the money misappropriated from her and for which the Respondent failed to account.

False or Misleading Notes on Member’s Back-Office System

  1. Between May 2015 and July 2017, the Respondent made false and misleading notes on the Member’s back-office system to process the redemptions from the accounts of Clients MM and JV, as described above.
  2. In the notes for Client MM, the Respondent falsely recorded that Client MM was redeeming mutual funds to make a loan to her sister or to purchase land with her sister. The Respondent further told Client MM that if anyone asked her about the redemptions, she should make corroborating false statements.
  3. In the notes for Client JV, the Respondent falsely wrote that Client JV was redeeming mutual funds to: (1) invest in her Tax Free Savings Account; (2) withdraw money for herself; or (3) help her daughter pay tuition.

Misleading the Member During its Internal Investigation

  1. On August 18, 2017, the investigative department of the Member interviewed the Respondent. During the interview, the Respondent made, among others, the following false or misleading statements:
    1. he denied misappropriating monies from Client JV, stating that he believed he was transferring monies from Client JV’s account to her daughter’s account and had inputted his own account by mistake;
    2. he asserted that he had received monies from Client JV solely for the purchase of timeshares for properties on her behalf;
    3. he asserted that Client MM had redeemed $200,000 worth of mutual funds to loan to Client MM’s sister for the purchase of a farm property;
    4. he admitted to receiving $100,000 from Client MM but falsely stated that he invested in the Film Production Investment in her name; and
    5. he denied misappropriating monies from any other clients.
  2. Later the same day, the Respondent contacted the Member’s investigator and admitted to “stealing” from Client JV, but denied misappropriating monies from Client MM or any other clients.

Misconduct Admitted

  1. By engaging in the conduct described above at paragraphs 17-30, 40-41, and 43-47, the Respondent admits that, between February 2014 and July 2017, he misappropriated or failed to account for at least $134,252.35 received from four clients, contrary to the Member’s policies and procedures and MFDA Rules 2.1.1, 1.12, and 2.5.1.
  2. By engaging in the conduct described above at paragraphs 32-39, the Respondent admits that between May 2015 and September 2015, he solicited and received $300,000 from a client, to invest in a film production related investment, for which he has failed to account, contrary to the Member’s policies and procedures and MFDA Rules 2.1.1, 1.1.2, and 2.5.1.
  3. By engaging in the conduct described above at paragraphs 19-25, the Respondent admits that, in or about April 2, 2014, he solicited and received $25,000 from two clients to make a joint investment with the clients in an unapproved investment outside the Member, thereby:
    1. engaging in securities related business that was not carried on for the account of the Member and through the facilities of the Member, contrary to the Member’s policies and procedures, and MFDA Rules 1.1.1, 2.1.1, 1.1.2, and 2.5.1; and
    2. engaging in personal financial dealings with the clients, which gave rise to a conflict or potential conflict of interest which the Respondent failed to disclose to the Member, or failed to address by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.4, 2.1.1, 1.1.2, and 2.5.1.
  4. By engaging in the conduct described above at paragraphs 52-54, the Respondent admits that, between May 2015 and July 2017, he entered false or misleading notes regarding his communications with clients relating to trades on the member’s back office system, contrary to MFDA Rules 2.1.1, 1.1.2, and 5.1(b).
  5. By engaging in the conduct described above at paragraphs 55-56, the Respondent admits that, commencing in or about August 2017, he made false or misleading statements to the Member during the course of an investigation into his conduct, contrary to the Member’s policies and procedures and MFDA Rules 2.1.1, 1.1.2, and 2.5.1.

VI. 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.
  2. An electronic copy of any signature shall be effective as an original signature.
  • Christopher John Davies
    Christopher John Davies
  • “Charles Toth”

    Staff of the MFDA
    Per: Charles Toth
    Vice-President, Enforcement

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