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MFDA Agreed Statement of Facts

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File No. 201980

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

Re: Gurmeet Singh Bagga

Agreed Statement of Facts

I. INTRODUCTION

  1. By Notice of Hearing dated December 19, 2019, the Mutual Fund Dealers Association of Canada (the “MFDA”) commenced a disciplinary proceeding against Gurmeet Singh Bagga (the “Respondent”) pursuant to ss. 20 and 24 of MFDA By-law No. 1.
  2. The Notice of Hearing set out the following allegations:
    1. Allegation #1: Between about April 2014 and June 23, 2014, the Respondent engaged in securities related business that was not carried on for the account of the Member or conducted through its facilities by recommending, selling, or facilitating the sale of syndicated mortgage investments, contrary to the Member’s policies and procedures, and MFDA Rules 1.1.1, 2.1.1, 2.5.1, or 1.1.2.
    2. Allegation #2: Between about April 2014 and June 23, 2014, the Respondent engaged in an outside business activity that was not approved by the Member by working as a mortgage agent for a mortgage brokerage, contrary to the Member’s policies and procedures, and MFDA Rules 1.2.1(c) (now MFDA Rule 1.3), 2.1.1, 2.5.1, or 1.1.2.
    3. Allegation #3: Between about April 2014 and June 23, 2014, the Respondent participated in an unapproved referral arrangement by making referrals in respect of the sale of syndicated mortgage investments to at least 4 individuals, contrary to the Member’s policies and procedures, MFDA Rules 2.4.2, 2.1.1, 2.5.1, or 1.1.2, or the requirements of sections 13.7 to 13.10 of National Instrument 31-103.

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. Staff and the Respondent jointly request that the Hearing Panel determine, on the basis of this Agreed Statement of Facts, the appropriate penalty to impose on the Respondent.

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.

Registration History

  1. The Respondent became registered in Ontario as a mutual fund sales person (now known as a dealing representative) in 2008.
  2. From September 17, 2012 to June 23, 2014, the Respondent was registered in Ontario as a dealing representative with Sterling Mutuals Inc. (“Sterling Mutuals”), a Member of the MFDA.
  3. The Respondent is not currently registered in the securities industry in any capacity.
  4. At all material times, the Respondent carried on business in the Brampton, Ontario area.

Facts

  1. On April 12, 2014, while registered with Sterling Mutuals, the Respondent completed his certification as a mortgage agent.
  2. On or about April 24, 2014, the Respondent became licensed with the Financial Services Commission of Ontario (“FSCO”) as a mortgage agent and, without obtaining the prior approval of Sterling Mutuals, began working as a mortgage agent with T1CM Principal Secured Mortgages Inc. (“T1PSM”), a company licensed with FSCO as a mortgage broker.
  3. T1PSM had a referral arrangement with, among others, Terrasan 327 Royal York Rd. Limited (“Terrasan”). Terrasan’s principal asset was a residential condominium development in Toronto, which was marketed to investors as “On the Go Mimico”.
  4. On or about April 28, 2014, the Respondent recommended, sold, or facilitated the sale of a syndicated mortgage investment associated with On the Go Mimico to individual MM, as described in paragraph 34 below.
  5. On April 29, 2014, the Respondent informed Sterling Mutuals that he had completed his certification as a mortgage agent and submitted a request to Sterling Mutuals for approval to engage in an outside business activity working as a mortgage agent. He did not disclose to Sterling Mutuals his involvement with T1PSM or syndicated mortgage investments.
  6. On the same date, Sterling Mutuals sent the Respondent an e-mail and requested that he provide information in order for Sterling Mutuals to assess whether to approve his outside business activity, including the name and address of the mortgage broker he would be doing business through, his title, and a description of his duties. Sterling Mutuals did not grant approval to the Respondent to engage in an outside business activity acting as a mortgage agent. 
  7. Between April 29, 2014 and June 4, 2014, the Respondent did not reply to the e-mail request from Sterling Mutuals for additional information concerning his proposed outside business activities as a mortgage agent. The Respondent states that he missed or was not aware of the April 29 email from Sterling Mutuals until he received a call from a Sterling Mutuals representative on or about June 4, 2014 asking him to reply to the email.
  8. Although the Respondent had not received approval from Sterling Mutuals to engage in outside business activities as a mortgage agent, the Respondent continued to act as a mortgage agent for T1SPM and continued to engage in activities in furtherance of the sale of syndicated mortgages.
  9. On or about May 6, 2014, the Respondent recommended, sold, or facilitated the sale of a syndicated mortgage investment associated with On the Go Mimico to individual GB, as set out in paragraph 34 below.
  10. On or about the same date, the Respondent recommended, sold, or facilitated the sale of a syndicated mortgage investment associated with On the Go Mimico to individuals NS and SS, as set out in paragraph 34 below.
  11. In total, while registered with Sterling Mutuals, the Respondent recommended, sold, or facilitated the sale of three syndicated mortgage investments totaling approximately $128,000 to 4 individuals (the “Investors”), as set out in paragraph 34 below. The syndicated mortgage investments had a two year term, with an option to renew for a third year, after which the principal was to be repaid to the Investors.
  12. Starting in or about June 2014, while registered with Sterling Mutuals, the Respondent received fees totaling approximately $12,800 from T1PSM to compensate him for his activities in furtherance of the sale of syndicated mortgage investments.
  13. On June 4, 2014, the Respondent replied to the April 29, 2014 e-mail from Sterling Mutuals, stating, “Sorry for the delay. Somehow I missed your email. The details are below”. Among other things, he informed Sterling Mutuals for the first time that he intended to process business through T1PSM, his title was mortgage agent, and his duties included “prospect clients for mortgages, syndicated mortgages, loans and related products”.
  14. On June 6, 2014, Sterling Mutuals advised the Respondent that it could not approve his activity as a mortgage agent unless the Respondent confirmed that he was aware of the prohibition against conducting securities related activities outside of the dealer, including offering syndicated mortgages, and confirmed that he would not refer, sell, or advise in syndicated mortgages or any other securities.
  15. On June 10, 2014, the Respondent resigned from Sterling Mutuals as an Approved Person and dealing representative.
  16. The Respondent did not inform Sterling Mutuals that he:
    1. had engaged in outside business activities as a mortgage agent with T1PSM starting on or about April 24, 2014 (prior to obtaining approval from Sterling Mutuals);
    2. recommended, sold or facilitated the sale of syndicated mortgage investments to 4 individuals while registered with Sterling Mutuals that had not been processed for the account of the Member or through the facilities of the Member; and
    3. had received fees totaling approximately $12,800 from T1PSM.
  17. On June 23, 2014, Sterling Mutual terminated the Respondent’s registration as a result of his resignation from the Member on June 10.

The Syndicated Mortgage Investments

  1. Prior to the completion of the On the Go Mimico developments, Terrasan ceased all payments of distributions to Investors in the syndicated mortgage investment.
  2. On February 24, 2017, pursuant to an order of the Ontario Superior Court of Justice, a receiver was appointed to take control of Terrasan’s assets, including the On the Go Mimico project.
  3. On September 5, 2018, the Superintendent of Financial Services imposed an administrative penalty on T1PSM and revoked its mortgage broker license.
  4. On October 15, 2019, the Ontario Superior Court of Justice issued a distribution order that, among other things, approved a distribution by the receiver to investors in the syndicated mortgage investments associated with the On the Go Mimico Project based on their pro rata interest in the project. In respect of the Investors, the Court order approved a distribution of approximately 81.7% of their respective principal investments, totaling $104,620.96.

Securities Related Business

  1. At all material times, Sterling Mutuals’ policies and procedures prohibited its Approved Persons from engaging in the sale of securities through any entity other than Sterling Mutuals.
  2. The Respondent recommended, sold, or facilitated the sale of syndicated mortgage investments associated with On the Go Mimico, totaling approximately $128,000 to 4  individuals, referenced in the table below:

Date

Individual

Mutual Fund Client

Amount of Investment

Investment

Fee Received

April 28, 2014

MM

No

$73,000

On the Go Mimico

$7,300

May 6, 2014

GB

No

$30,000

On the Go Mimico

$3,000

May 6, 2014

NS and SS

No

$25,000

On the Go Mimico

$2,500

Total

 

$128,000

$12,800

  1. The Respondent engaged in one or more of the following activities in furtherance of the sale to the Investors of the On the Go Mimico syndicated mortgage investments:
    1. introduced the individuals to the opportunity to invest in the syndicated mortgage investments;
    2. provided the individuals with promotional materials about the syndicated mortgage investments;
    3. discussed the terms and features of investing in the syndicated mortgage investments with the individuals;
    4. organized and attended meetings between the individuals and other representatives of T1PSM to provide further information about the syndicated mortgage investments; or
    5. assisted the individuals to complete paperwork for investments in the syndicated mortgage investments.
  2. As stated above, the Respondent received fees totaling approximately $12,800 from T1PSM to compensate him for his activities in furtherance of the sale of syndicated mortgage investments.
  3. The syndicated mortgage investments described above were not approved for sale by Approved Persons of Sterling Mutuals, including the Respondent.
  4. None of the syndicated mortgage investment sales described above were carried on for the account of Sterling Mutuals or processed through its facilities.
  5. By virtue of the foregoing, the Respondent engaged in securities related business that was not carried on for the account of the Member and processed through its facilities by recommending, selling, or facilitating the sale of syndicated mortgage investments, contrary to the Member’s policies and procedures, and MFDA Rules 1.1.1, 2.1.1, 2.5.1, or 1.1.2.

Unapproved Outside Business Activity

  1. At all material times, Sterling Mutuals’ policies and procedures required its Approved Persons to disclose to it and obtain approval to engage in any outside business activities.
  2. The Respondent failed to disclose to or to obtain approval from Sterling Mutuals prior to engaging in outside business activities as a mortgage agent on behalf of T1PSM and acting in furtherance of sales of syndicated mortgage investments issued by Terrasan.
  3. By virtue of the foregoing, the Respondent engaged in conduct contrary to the Member’s policies and procedures, and MFDA Rules 1.2.1(c) (now MFDA Rule 1.3), 2.1.1, 2.5.1, or 1.1.2.

Additional Factors

  1. The Respondent states that prior to June 6, 2014 (a) he did not know that recommending, selling or facilitating the sale of syndicated mortgage investments constituted engaging in securities related business outside the Member, and (b) that he believed he was following the regulations required of mortgage agents with regard to syndicated mortgage investments.. However, the Respondent acknowledges that:
    1. he had an obligation to use due diligence to determine whether products he was offering to individuals constituted securities that had to be approved for sale by the Member and sold for the account of the Member and through the facilities of the Member; and
    2. he was required to obtain approval from the Member before engaging in any outside business activity, including acting as a mortgage agent and offering any outside products or services including syndicated mortgage investments to individuals outside the Member.
  2. The Respondent has cooperated fully with Staff during the course of the investigation.
  3. The Respondent has not been the subject of previous disciplinary proceedings with the MFDA.
  4. As a result of the Respondent’s willingness to enter into the Agreed Statement of Facts, the time and expense associated with a fully contested hearing on the merits have been avoided.

Misconduct Admitted

  1. By engaging in the conduct described above, the Respondent admits that:
    1. between about April 2014 and June 23, 2014, he engaged in securities related business that was not carried on for the account of the Member or conducted through its facilities by recommending, selling, or facilitating the sale of syndicated mortgage investments, contrary to the Member’s policies and procedures, and MFDA Rules 1.1.1, 2.1.1, 2.5.1, or 1.1.2; and
    2. between about April 2014 and June 23, 2014, he engaged in an unapproved outside business activity by working as a mortgage agent for a mortgage brokerage without receiving prior approval from the Member, contrary to the Member’s policies and procedures, and MFDA Rules 1.2.1(c) (now MFDA Rule 1.3), 2.1.1, 2.5.1, or 1.1.2.

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

DATED: Sep 11, 2020

"Gurmeet Singh Bagga"

Gurmeet Singh Bagga

“Charles Toth”

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

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