Order

WHEREAS on December 13, 2016, the Mutual Fund Dealers Association of Canada (the “MFDA”) issued a Notice of Application pursuant to section 24.3 of MFDA By-law No. 1 (the “By-law”) in respect of an application to be brought with notice to the respondents against International Capital Management Inc. (“ICM”), a Member of the MFDA, and John Paul Sanchez (“John”), an Approved Person of ICM and Javier Andreas Sanchez (“Javier”), an Approved Person of ICM (collectively, the “Respondents”); 

AND WHEREAS the application was brought on notice to the Respondents before a Hearing Panel of the Central Regional Council of the MFDA (the “Hearing Panel”) on December 16, 2016 at approximately 11:00 a.m. at the offices of the MFDA located at 121 King Street West, Suite 1000, Toronto, Ontario; 

AND WHEREAS pursuant to sections 24.3.1(a) of the By-law, if a Hearing Panel is satisfied that one or more of the conditions set out in sections 24.3.1(a)(i)-(viii) is applicable to an Approved Person named as a Respondent to a proceeding commenced pursuant to section 24.3 of the By-law, the Hearing Panel may upon application exercise the power to impose one of the penalties listed in section 24.3.3 of the By-law; 

AND WHEREAS pursuant to sections 24.3.2(a) of the By-law, if a Hearing Panel is satisfied that one or more of the conditions set out in sections 24.3.1(a)(i)-(xv) is applicable to a Member named as a Respondent to a proceeding commenced pursuant to section 24.3 of the By-law, the Hearing Panel may upon application exercise the power to impose one or more of the penalties listed in section 24.3.3 of the By-law on that Respondent;

AND WHEREAS pursuant to 24.3.3(b) of the By-law, the Hearing Panel may upon application by the MFDA impose terms and conditions on Membership or the authority of the Approved Person to conduct securities related business;

AND UPON READING the affidavit of Lara Rowles, Manager, Investigations of the MFDA, sworn December 15, 2016 and the affidavit of Matthew Brady, Managing Director, Compliance of the MFDA, sworn December 14, 2016;

AND UPON HEARING the submissions of counsel for Staff and counsel for the Respondents;

AND WHEREAS in the opinion of the Hearing Panel that the Respondents have failed to comply with the provisions of MFDA Rules 1.1.1(a) and (b); 

IT IS HEREBY ORDERED THAT:

 1.Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, commencing on Friday, December 16, 2016, ICM and its Approved Persons (including the Respondents John Sanchez and Javier Sanchez) shall cease to engage in any form of member business including but not limited to any securities related business[1] other than advising and trading with respect to prospectus qualified mutual funds and Guaranteed Investment Certificates guaranteed by the Canada Deposit Insurance Corporation (“GICs”), and in particular, they shall not directly or indirectly sell or facilitate investments in or loans to:

1. ICM;
2. Invoice Payment Systems Corporation (“IPS”) or any affiliated entity;
3. Energentium Inc. (“Energentium”) or any affiliated entity;
4. any entity that is related to or affiliated with ICM, IPS or Energentium;
5. any Approved Person or former Approved Person of ICM (including John Sanchez and Javier Sanchez), German Suarez, Mark Sanchez, Maria Conchita Sanchez or Maria Sanchez-Keane (the “Principals”);
6. a spouse or former spouse, parent, child, grandchild, sibling, niece or nephew of any of the Principals (“Related Individuals”);
7. any entity or individual that any one of the Principals:
   1. has ever loaned money to or invested money with;
   2. has ever held 20% or more of the shares of;
   3. has ever served as officer or director of;
   4. has ever held power of attorney for; or has ever had full or partial financial control of (including bank account signing authority)

(collectively 1 (a)-(g) are the “Financially Related Entities”)

2. Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, commencing on Friday, December 16, 2016, ICM shall not approve or otherwise authorize any Approved Persons of ICM (including the Respondents John Sanchez and Javier Sanchez) to engage in any outside business activities (i.e.; any business activities that are not carried on for the account of ICM) or referral arrangements except with respect to insurance products sold pursuant to a valid insurance license without the prior authorization of Staff and in particular, ICM shall not approve or otherwise authorize any Approved Persons of ICM to solicit, sell or otherwise facilitate investments in or loans to any Financially Related Entities or otherwise permit Approved Persons to facilitate investments other than prospectus qualified investments;

3. Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, commencing on Friday, December 16, 2016, John Sanchez and Javier Sanchez are prohibited from engaging in any outside business activities or referral arrangements except with respect to insurance products sold pursuant to a valid insurance license and in particular, John Sanchez and Javier Sanchez are prohibited from soliciting, selling, referring, or otherwise facilitating investments in or loans to any Financially Related Entities or otherwise facilitating investments that are not prospectus qualified investments;

4. Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, ICM and its Approved Persons (including the Respondents John Sanchez and Javier Sanchez) shall not enter into any personal financial dealings with any client of ICM or any individual who ceased to be a client of ICM within the past 5 years

5. Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, commencing on Friday, December 16, 2016, ICM and its Approved Persons (including the Respondents John Sanchez and Javier Sanchez) shall cease to engage in any form of advising or trading with respect to investments presently held or future investments in the Caldwell ICM Market Strategy Trust Fund;

Trust Accounts

6. Within 5 business days, ICM shall cease to operate a trust account and shall only be eligible to operate as a Level 2 dealer unless otherwise ordered by a Hearing Panel of the MFDA.

Notification To FundSERV

7. Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, within 5 business days of the date of this order, John Sanchez, the Ultimate Designated Person of ICM shall send a letter to FundSERV, copied to counsel for Staff, informing FundSERV that ICM is no longer authorized to operate a trust account and cannot accept client funds including redemption proceeds and shall attach a copy of this order to the letter.

Reporting Requirements

8. Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, the Respondents shall ensure that: 

1. all client complaints (including complaints regarding investments in or loans to any of the Financially Related Entities); and
2. information concerning possible contraventions of legal or regulatory requirements referenced in section 6.1(b) of MFDA Policy No. 6;

are reported to Staff within 2 business days and are otherwise dealt with in accordance with MFDA Rule 2.11 and MFDA Policy Nos. 3 and 6. 

Notification To Clients Of ICM

9. Within 5 business days, ICM shall send a letter to all clients of ICM informing clients that pursuant to an Order of the MFDA: 

1. ICM and its Approved Persons are restricted to advising or trading solely in prospectus qualified mutual funds and GICs; and
2. All cheques or other forms of payment for the purchase of mutual funds must be made payable to the issuer of the mutual funds and cannot be made payable to ICM and the proceeds of all redemptions will be paid by fund companies directly to clients.

10. The Respondents shall obtain the written approval of counsel for Staff with respect to the content of the letter to be sent to clients before sending the letter and shall notify counsel for Staff when the letter has been sent to all clients of ICM and shall provide counsel for Staff with a sample of the letter that was sent.

Production Of Information And Records To Staff

11. Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, within 3 business days, the Respondents shall provide Staff with a list of all bank and investment accounts (including bank accounts and investment accounts that have been closed) presently or previously owned or controlled in whole or in part by: 

1. ICM;
2. John Sanchez; and/or
3. Javier Sanchez;

including any bank account or investment account:

1. in respect of which John Sanchez and/or Javier Sanchez presently has signing authority (including co-signing authority);
2. in respect of which John Sanchez and/or Javier Sanchez previously had signing authority at any time since ICM became a Member of the MFDA;
3. of a Financially Related entity.

12. Pursuant to ss. 24.3.3(b), the Respondents (including all Approved Persons of ICM) shall provide information and access to documentation and other records including electronic records that are requested by Staff and copies or print outs of any records that Staff requests in order to facilitate Staff’s investigation and ensure compliance with any order issued by the Hearing Panel and/or with MFDA By-laws, Rules and Policies, including but not limited to:

1. records including documentation and correspondence associated with all member business (including but not limited to securities-related business) that was facilitated by Approved Persons of ICM but was not carried on for the account of ICM, processed through the facilities of ICM and/or recorded on the books and records of ICM;
2. financial records including financial statements and banking records (including bank statements, transaction summaries, deposit books and cancelled cheques) of any bank account that John Sanchez or Javier Sanchez or ICM has power, possession, control or signing authority for including without limitation, if applicable, the bank account records of Energentium, IPS, 136155 Ontario Inc., 1634792 Ontario Inc., 1876692 Ontario Inc., 2029984 Ontario Ltd. and 2029986 Ontario Ltd.;
3. information and documentation concerning the interests, shareholdings, loans, roles, responsibilities, relationship or other association between the Respondents, Approved Persons of ICM or clients or former clients of ICM with any of the Financially Related Entities;
4. information, records and files associated with client accounts and transactions that were processed for clients (including without limitation, new account application forms, know-your-client records, trade processing records, trade orders, records of investments made by clients including promissory notes issued, records of client instructions received including notes of Approved Persons and correspondence exchanged with clients, asset or account transfer documents, limited trading authorizations, powers of attorney on file for clients, financial information including tax records provided by clients to ICM or any of its present or former Approved Persons, disclosure forms and documents that were provided to or signed by present or former clients of ICM, client statements, portfolio summaries, reports, recommendations and analysis prepared in respect of accounts or investments held by clients or recommendations made to clients by present or former Approved Persons of ICM and access to any records including electronic records associated with transactions processed for clients or former clients of ICM including those associated with any back office system that ICM presently uses or used in the past);
5. appraisals of ICM and any assets that ICM has a financial interest in; and
6. appraisals of IPS and Energentium and any assets that those entities own or control.

Privilege Protocol

13. Immediately (and not later than 5 p.m. on Monday, December 19, 2016), the Respondents shall provide a list of any hard copy documents that were obtained by Staff during an attendance at the office of ICM on November 15, 2016 (the “Hard Copy Documents”) over which the Respondents assert a claim of privilege and the basis for that claim of privilege.

14. As soon as the list of Hard Copy Documents over which privilege claims are being asserted has been delivered or after 5 p.m. on December 19, 2016 if no list has been delivered, Staff is authorized to review any of the Hard Copy Documents that are not subject to a claim of privilege by the Respondents.

15. The Respondents shall comply with the terms of the privilege protocol set out in a letter from counsel for Staff dated November 24, 2016 including without limitation in respect of electronic records of ICM that were imaged by Digital Evidence International Inc. Subject to any agreement confirmed in writing by counsel for Staff, upon the expiry of the timelines set out in the privilege protocol, Staff is authorized to access and review electronic documents in respect of which no claim of privilege has been asserted by the Respondents.

Required Filings

16. Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, ICM shall continue to prepare, deliver and file on a timely basis, all documents required to be filed pursuant to MFDA requirements and Ontario securities law, including without limitation all applicable registration filings, monthly and annual reports to the MFDA, and account statements where applicable.

17. If at any time a non-party to this proceeding, with the exception of the bodies set out in section 23 of MFDA By-law No. 1, requests production of or access to exhibits in this proceeding that contain personal information as defined by the MFDA Privacy Policy, then the MFDA Corporate Secretary shall not provide copies of or access to the requested exhibits to the non-party without first redacting from them any and all personal information, pursuant to Rules 1.8(2) and (5) of the MFDA Rules of Procedure.

18. The next appearance in this proceeding is scheduled to take place on January 24, 2017 commencing at 11:00 a.m. (Eastern).

[1] MFDA By-law No. 1 defines “securities related business” as follows: “securities related business” means any business or activity (whether or not carried on for gain) engaged in, directly or indirectly, which constitutes trading or advising in securities for the purposes of applicable securities legislation in any jurisdiction in Canada, including for greater certainty, securities sold pursuant to exemptions under applicable securities legislation.