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MFDA Case Summary

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Home › Case Summary 200925 - RE: Bick Financial Security Corporation


Contact: Hugh Corbett
CASE SUMMARY # NO. 200925
Director of Litigation
December 7, 2009
Phone: 416-943-4685
Email: hcorbett@mfda.ca
MFDA Case Summary
Enforcement
This case summary was prepared by Staff of the MFDA.


Hearing Panel accepts Settlement Agreement with Bick Financial
Security Corporation

Nature of
A Hearing Panel of the Central Regional Council of the Mutual Fund Dealers
Proceeding
Association of Canada (“MFDA”) has approved a Settlement Agreement
between the MFDA and Bick Financial Security Corporation (“Bick”), a
Member of the MFDA.

By-Laws,
At a hearing held on September 24, 2009, the Hearing Panel considered the
Rules, Policies Settlement Agreement in which Bick admitted that it committed a number of
Violated
compliance deficiencies (the “Deficiencies”), including:

(a) prior to June 30, 2008, it failed to produce a comprehensive daily
trade report recording all securities transactions that were required to
be reviewed in accordance with MFDA Policy 2, thereby failing to
fully conduct such review, contrary to MFDA Rule 5.1(a) and MFDA
Policy No. 2;
(b) prior to February 1, 2008, it failed to implement policies and
procedures relating to maintaining adequate records of trade
supervision that was conducted, including records of trades reviewed
and records of inquiries made, responses received and resolutions
achieved, contrary to MFDA Rules 2.2.1, 2.5.1, 2.5.4 and MFDA
Policy No. 2;
(c) prior to June 30, 2008, it failed to establish, implement and maintain
adequate policies and procedures for the review and approval of
advertisements, sales communications and client communications so
as to prevent the distribution to clients and member of the public of
materials that violated MFDA Rules, contrary to MFDA Rules 2.7.2,
2.8.2 and 2.8.3(a);

(d) prior to October 2007, it failed to maintain evidence demonstrating
that it had approved all advertisements, sales communications and
client communications (including website content) that were sent to its
clients or made accessible to its clients or members of the public,
contrary to MFDA Rules 2.7.3, 2.7.2, 2.8.2, and 2.5.4; and
(e) between October 1, 2005 and June 30, 2008, it failed to establish,
implement and maintain adequate policies and procedures to assess
and supervise the suitability of leveraging recommendations that its
Approved Persons made to clients, contrary to MFDA Rules 2.2.1,
2.5.1, 2.5.4, and MFDA Policy No. 2.

MFDA Rule 2.2.1 states:
2.2.1 “Know-Your-Client”. Each Member and Approved Person shall use
due diligence:
(a) to learn the essential facts relative to each client and to each order or
account accepted;
(b) to ensure that the acceptance of any order for any account is within the
bounds of good business practice;
(c) to ensure that each order accepted or recommendation made for any
account of a client is suitable for the client and in keeping with the client's
investment objectives; and
(d) to ensure that, notwithstanding the provisions of paragraph (c), where a
transaction proposed by a client is not suitable for the client and in keeping
with the client’s investment objectives, the Member has so advised the client
before execution thereof.

MFDA Rule 2.5.1 states:
2.5.1 Member Responsibilities. Each Member is responsible for
establishing, implementing and maintaining policies and procedures to ensure
the handling of its business is in accordance with the By-laws, Rules and
Policies and with applicable securities legislation.

MFDA Rule 2.5.4 states:
2.5.4 Maintenance of Supervisory Review Documentation. The Member
must maintain records of all compliance and supervisory activities undertaken
by it and its partners, directors, officers, compliance officers and branch
managers pursuant to the By-laws and Rules.

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MFDA Rule 2.7.2 states:
2.7.2 General Restrictions. No Member shall issue to the public, participate
in or knowingly allow its name to be used in respect of any advertisement or
sales communication in connection with its business which:
(a) contains any untrue statement or omission of a material fact or is
otherwise false or misleading, including the use of a visual image such as a
photograph, sketch, drawing, logo or graph which conveys a misleading
impression;
(b) contains an unjustified promise of specific results;
(c) uses unrepresentative statistics to suggest unwarranted or exaggerated
conclusions, or fails to identify the material assumptions made in arriving at
these conclusions;
(d) contains any opinion or forecast of future events which is not clearly
labeled as such;
(e) fails to fairly present the potential risks to the client;
(f) is detrimental to the interests of the public, the Corporation or its
Members; or
(g) does not comply with any applicable legislation or the guidelines, policies
or directives of any regulatory authority having jurisdiction over the Member.

MFDA Rule 2.7.3 states:
2.7.3 Review Requirements. No advertisement or sales communication shall
be issued unless first approved by a partner, director, officer, compliance
officer or branch manager who has been designated by the Member as being
responsible for advertisements and sales communications.

MFDA Rule 2.8.2 states:
2.8.2 General Restrictions. No client communication shall:
(a) be untrue or misleading or use an image such as a photograph, sketch,
logo or graph which conveys a misleading impression;
(b) make unwarranted or exaggerated claims or conclusions or fail to identify
the material assumptions made in arriving at these conclusions;
(c) be detrimental to the interests of clients, the public, the Corporation or its
Members;
(d) contravene any applicable legislation or any guideline, policy, rule or
directive of any regulatory authority having jurisdiction over the Member; or
(e) be inconsistent or confusing with any information provided by the
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Member or Approved Person in any notice, statement, confirmation, report,
disclosure or other information either required or permitted to be given to the
client by a Member or Approved Person under the By-laws, Rules, Policies or
Forms.

MFDA Rule 2.8.3(a) states:
2.8.3 Rates of Return
(a) In addition to complying with the requirements in Rule 2.8.2, any client
communication containing or referring to a rate of return regarding a specific
account or group of accounts must be based on an annualized rate of return
and explain the methodology used to calculate such rate of return in sufficient
detail and clarity to reasonably permit the client to understand the basis for
the rate of return.

MFDA Rule 5.1(a) states:
5.1 REQUIREMENT FOR RECORDS
Every Member shall keep such books, records and other documents as are
necessary for the proper recording of its business transactions and financial
affairs and the transactions that it executes on behalf of others and shall keep
such other books, records and documents as may be otherwise required by the
Corporation. Such books and records shall contain as a minimum the
following:

(a) blotters, or other records, containing an itemized daily record of:
(i) all purchases and sales of securities;
(ii) all receipts and deliveries of securities, including certificate
numbers;
(iii)all receipts and disbursements of cash;
(iv) all other debits and credits, the account for which each
transaction was effected;
(v) the name of the securities;
(vi) the class or designation of the securities;
(vii)
the number or value of the securities;
(viii)
the unit and aggregate purchase or sale price; and
(ix) the trade date and the name or other designation of the person
from whom the securities were purchased or received or to
whom they were sold or delivered.

MFDA Policy No. 2 states:

I. Establishing and Maintaining Procedures
Effective self-regulation begins with the Member establishing and
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maintaining a supervisory environment which both fosters the business
objectives of the Member and maintains the self-regulatory process. To that
end a Member must establish and maintain procedures which are supervised
by qualified individuals. A major aspect of self-regulation is the ongoing
education of staff in all areas of sales compliance…
III. Branch Office Account Supervision
Each branch manager must undertake certain activities within the branch for
purposes of assessing compliance with the Member's policies and procedures
and regulatory requirements. These activities should be designed to identify
failures to adhere to required policies and procedures and provide a means of
revealing and addressing undesirable account activity…
IV. Head Office Account Supervision
A two-tier structure is required to adequately supervise client account
activity. While the head office or regional area level of supervision by its
nature cannot be in the same depth as branch level supervision, it should
cover the same elements. Head office review should be focused on unusual
activity or reviews that cannot be carried out at the branch level.

Penalty
Under the terms of settlement, Bick agreed to the following penalties:
(a) it shall pay a fine in the amount of $10,000, pursuant to s. 24.1.2(b)
of the By-law;
(b) it shall retain an independent monitor to assist it in resolving the
Deficiencies as well as any other compliance deficiencies that the
independent monitor identifies during its review, pursuant to
s. 24.1.2(g) of the By-law; and
(c) it shall pay costs of this proceeding in the amount $2,500, pursuant to
s. 24.2 of the By-law.

Summary of

In October 2005, MFDA Staff conducted a compliance examination of Bick
Facts
in order to assess the Member’s compliance with MFDA Rules, By-laws and
Policies. The examination identified that Bick had committed Deficiencies
(as this term is defined above). A second compliance examination of Bick
conducted by MFDA Staff in August 2008 revealed that the Deficiencies had
not been addressed by Bick. The August 2008 examination also revealed that
Bick’s policies and procedures were inadequate to supervise leveraging
recommendations to clients by its Approved Persons and had no procedures
to assess the suitability of leveraging for clients. As a result, MFDA Staff
commenced enforcement proceedings against Bick.
For greater detail, see the Reasons for Decision, dated November 12, 2009,
posted on the MFDA’s website in the “Enforcement” section under
“Completed Cases”.
DM #220433
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