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Decision and Reasons

Re:

Decision and Reasons


Decision and Reasons (Misconduct)
File No. 201512

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: Edward Jonathan Okopny

Heard: February 29, 2016 in Toronto, Ontario
Decision and Reasons (Misconduct): April 21, 2016


DECISION AND REASONS
(Misconduct)

Hearing Panel of the Central Regional Council:

W. A. Derry Millar
Chair

Guenther Kleberg
Industry Representative

Colleen Waring
Industry Representative

Appearances:

Paul Blasiak
)
Counsel for the Mutual Fund Dealers

) Association of Canada
)

Edward Jonathan Okopny
)
In Person
)

)

)
Page 1 of 31

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INTRODUCTION

1.
By Notice of Hearing dated April 23, 2015, Staff of the Mutual Fund Dealers Association
of Canada (“MFDA”) alleged that Edward Jonathan Okopny (“Respondent”) violated the By-
laws, Rules or Policies of the MFDA set out below:

Allegation #1: On December 6, 2011, the Respondent processed two unauthorized
redemptions in the accounts of client MM in the amounts of $34,000 and $6,000,
thereby failing to deal fairly, honestly and in good faith with a client, and
engaging in business conduct which is unbecoming or detrimental to the public
interest, contrary to MFDA Rule 2.1.1.

Allegation #2: Between December 6, 2011 and March 29, 2012, the Respondent
engaged in personal financial dealings with client MM by borrowing and failing
to fully repay $40,000 from client MM, thereby giving rise to a conflict or
potential conflict of interest between the Respondent and client MM, which the
Respondent failed to address by the exercise of responsible business judgment
influenced only by the best interests of client MM, contrary to MFDA Rules 2.1.1
and 2.1.4.

Allegation #3: Between about June 2008 and March 29, 2012, the Respondent
engaged in dual occupations, which were not disclosed to or approved by the
Member, contrary to MFDA Rules 1.2.1(c) (formerly MFDA Rule 1.2.1(d))1 and
2.1.1.

Allegation #4: Commencing in March 2013, the Respondent failed to provide
documents and information requested by Staff and failed to attend an interview
with Staff for the purpose of investigating the Respondent’s conduct, contrary to
section 22.1 of MFDA By-law No. 1.

1 On December 3, 2010, MFDA Rule 1.2.1(d) was renumbered as MFDA Rule 1.2.1(c).
Page 2 of 31

2.
The hearing was held on February 29, 2016. Staff called Lucy Alfenore, a staff
investigator, as its witness. During the course of Ms. Alfenore’s evidence, Exhibits 5 and 6 were
introduced into evidence. While the Respondent did not deliver a Reply to the Notice of Hearing,
he attended the hearing and gave evidence. He was not represented by counsel.

3.
There was very little disagreement on the facts except with respect to Allegation #1.

II.
FACTS

4.
From January 25, 2005 to March 29, 2012, the Respondent was registered in Ontario as a
mutual fund salesperson with State Farm Investor Services (Canada) Co. (“State Farm”).

5.
From 2009 to 2012, the Respondent serviced client MM’s accounts at State Farm.
During this period, client MM was also the Respondent’s mother-in-law.

6.
On or about February 28, 2013, PM, who is client MM’s son, sent a complaint letter
dated February 28, 2013 (the “PM Complaint Letter”) to State Farm alleging, among other
things, that the Respondent processed unauthorized mutual fund redemptions in client MM’s
accounts.

7.
On or about March 5, 2013, this matter came to the attention of MFDA Staff (“Staff”)
when State Farm filed a report on the MFDA’s Member Event Tracking System (“METS”)
concerning the PM Complaint Letter.

8.
On January 31, 2014, Ms. Alfenore conducted an interview of client MM as part of her
investigation into the Respondent’s conduct. A copy of the transcript of the interview of client
MM was part of Exhibit “5”.



Page 3 of 31

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Allegation #1 – Unauthorized Redemptions

9.
On December 6, 2011, the Respondent processed two redemptions in client MM’s
accounts in the amounts of $34,000 and $6,000, net of deferred sales charges (collectively, the
“Redemptions”).2

10.
According to client MM’s date of birth as specified on her “New Account Application”
form, client MM was 82 years old at the time that the Redemptions were processed.

11.
During her interview with Staff, client MM stated that she did not instruct the
Respondent to process the Redemptions.

12.
Further, client MM stated that:

(a)
she did not meet with the Respondent on December 6, 2011; and
(b)
prior to her interview with Staff, she had never seen the redemption forms, which
she purportedly signed and which the Respondent used to process the
Redemptions.

13.
Client MM also stated that she did not become aware of the Redemptions until she
received her mutual fund account statements, which was “at least a month” after the date on
which the Redemptions were processed.

14.
In addition, client MM stated that on or about December 1, 2011, she suffered a serious
hand injury. As a result of the injury, client MM required a nurse to administer daily antibiotics
to her for a period of 30 days. Client MM also stated that the pain from the injury was so severe
that she was unable to “write a cheque” or “sign anything” and that if she “bent over, [she]
would just be in agony.”

2 Client MM incurred deferred sales charges of approximately $1,314 as a result of the Redemptions.
Page 4 of 31


15.
On December 8, 2011, the proceeds from the Redemptions were deposited in client
MM’s bank account at the Royal Bank of Canada (the “RBC Account”).

16.
In the PM Complaint Letter, PM stated that client MM contacted him after she received
her mutual fund account statements in February 2012 and informed him that she “did not
authorize [the Redemptions] and was shocked to see [her investments] had been cleared out.”
Upon hearing this, PM confronted the Respondent, at which time the Respondent “admitted
taking the money and assured [PM] he had a big investment coming in shortly and [client MM]
would be paid back in full with interest.”

17.
The Respondent testified that during September and October, 2011, his son had been
seriously ill and had been hospitalized at the Hospital for Sick Children. He was back in the
hospital in November, 2011. He and his wife were facing serious financial issues as the illness
of his son had impaired his ability to work. The Respondent believed that MM was aware of the
difficulties that he and his wife were having as she was communicating on a fairly regular basis
with her daughter, the Respondent’s wife.

18.
The Respondent testified:

(a)
He called MM in early December, 2011. He asked her for financial help and MM
indicated she would be willing to help the Respondent and his wife.
(b)
On December 6, 2011, he went to visit MM at which time she signed the
paperwork for the Redemptions. At the time, MM had an injury to her hand
caused by a cat bite.
(c)
On December 6, 2011, he and MM went to the Royal Bank in New Hamburg and
MM transferred $4,000 from her account to the Respondent’s Royal Bank account
electronically. MM used her bank card to access her account to carry out the
transaction. The transaction was conducted by the manager of the branch.
(d)
The redemption paperwork was submitted to State Farm and the Redemptions
processed to MM’s account. The amount of the Redemptions was $40,000 from
MM’s two State Farm accounts.
Page 5 of 31


(e)
On December 9, 2011, he returned to New Hamburg picked up MM and went to
the Royal Bank. They met with the bank manager to conduct the transaction.
The $40,000 was transferred from MM’s account to his account electronically.
MM again used her bank card to access her account to carry out the transaction.
(f)
On December 9, 2011, he provided MM with a handwritten letter indicating he
anticipated being able to pay back the funds within six weeks.
(g)
He denied signing anything, including the redemption forms, on behalf of MM.
(h)
He thought that MM could afford to make the loan as he knew that on December
14, 2011, “she had a $10,000 GIC maturing that would certainly give her some
financial protection in the interim until I was able to pay her back.” MM had told
him this.

19.
While initially the Respondent indicated that he returned to New Hamburg to meet with
MM on December 8, 2011, he subsequently stated that it was December 9, 2011. Given that the
Redemptions were deposited into MM’s account on December 8, 2011, and the withdrawal of
$40,000 was made on December 9, 2011, it seems more likely that the second visit to the Royal
Bank took place on December 9, 2011, rather than December 8, 2011.

Allegation #2 – Borrowing from a Client

20.
During her interview with Staff, client MM stated that:

(a)
on December 9, 2011, the Respondent requested that she provide a personal loan
to him;
(b)
she agreed to loan the Respondent whatever funds were available in the RBC
Account; and
(c)
as she was not aware of the Redemptions, she believed that the balance of the
RBC Account was approximately $3,000 to $4,000.

21.
Immediately prior to the deposit of the Redemptions, the actual balance of the RBC
Account was $2,672.67.
Page 6 of 31

22.
Later on December 9, 2011, the Respondent attended at a Royal Bank of Canada branch
location with client MM. At that time, $40,000 was withdrawn from the RBC Account. Client
MM provided a loan to the Respondent in the amount of the withdrawal. However, as she was
unaware of the Redemptions (and of the fact that they had been deposited in the RBC Account),
client MM understood that the amount of the loan was $3,000 “or less”.

23.
In a signed written statement to State Farm’s insurance affiliate dated June 26, 2013, the
Respondent admitted that he received a loan from client MM in the amount of $40,000, which he
failed to fully repay. Specifically, the Respondent stated the following:

… I confirm that I received $40,000 as a loan from [client MM] with the
understanding that she would be repaid within 4-6 weeks, and if not, then she
would be repaid 1% interest based on the original principal. To date, I have only
repaid $6,400 in June 2012, the remainder is still outstanding.
These monies, received from [client MM], were used to pay down my family’s
personal debt. …

24.
The Respondent’s repayment of $6,400 was recorded in an undated note which was
signed by the Respondent and client MM (the “Repayment Note”). Among other things, the
Repayment Note stated that:

(a)
the repayment was in respect of the “December 2011 Loan” from client MM to
the Respondent and CO (the daughter of client MM and the Respondent’s then-
spouse);
(b)
$6,400 had been paid to client MM;
(c)
the payment represented “$4000 cash and 6% interest on the $40,000 loan”; and
(d)
the “principle (sic) loan of $40,000 plus service charges incurred, will be paid
back as soon as expected funds are received by [the Respondent]”.

25.
On July 19, 2012, client MM commenced a civil lawsuit against the Respondent and CO
to recover, among other things, the monies she had loaned to the Respondent as described above.

Page 7 of 31


26.
On September 24, 2012, client MM obtained a default judgment from the Ontario
Superior Court of Justice against the Respondent and CO (the “Default Judgment”).

27.
In June 2013, a Notice of Garnishment was issued to State Farm in respect of the monies
owed by the Respondent as a result of the Default Judgment. The Notice of Garnishment was
fully paid and client MM recovered her money.

Allegation #3 – Undisclosed and Unapproved Dual Occupations

28.
On May 24, 2005, the Respondent signed a “State Farm Securities Products Agreement”,
which stated the following under the heading “Section 3.8 Outside Activities and Securities
Disclosure Form”:

[State Farm] must approve and monitor any outside business or activities with
which the [Respondent] may be, or become, engaged.

29.
In addition, the 2011 State Farm Compliance Manual stated the following under the
heading “Undisclosed Business Activities”:

Salespersons must inform [State Farm] of all business activities they engage in
other than dealings with State Farm Mutual Automobile Insurance Company, its
subsidiaries, and affiliates. The Outside Business Activities questionnaire must be
completed and submitted within 5 business days and should include the following
information:
 The name and nature of the business
 The title/position held
 The number of hours to be devoted to the business
 If the position is paid or volunteer
 Any conflict of interest that may arise
If there is a material change in any outside business activity, [State Farm] must be
informed.

Page 8 of 31

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30.
On March 30, 2012 (one day following his resignation from State Farm), the Respondent
submitted an Outside Business Activities Questionnaire to State Farm. In the questionnaire, the
Respondent stated that he had been involved in an outside business activity with Globacorp
Developments International (“Globacorp”). Apart from indicating that Globacorp was engaged
in “Real Estate Development”, the Respondent did not provide further details regarding the
nature of his duties.

31.
On April 3, 2012, the Respondent sent an email to staff of State Farm containing the
subject line: Addendum to Outside Business Interest form. In the email, the Respondent stated,
among other things, that :

(a)
he was involved with Globacorp between June 2008 to April 2011;
(b)
Globacorp was engaged in land development in Panama;
(c)
his title at Globacorp was that of “Manger (sic) – Sales Development (Eastern
Canada)”; and
(d)
he had travelled to Panama to take part in Globacorp’s business dealings in that
country.

32.
In his signed written statement dated June 26, 2013, the Respondent stated that between
June 2008 and June 2011, he held the positions of “Director of Corporate Development” and
“Director of Sales Eastern Canada” with Globacorp and Globadigm Group (“Globadigm”). The
Respondent stated that Globacorp/Globadigm was in the business of “land development” and
that he was involved “with the attempted marketing of [Globacorp/Globadigm] to real estate
brokers.”

33.
The Respondent had represented Globacorp in business dealings with Keller Williams
Realty Inc. (“KW”)3. Specifically, an internal KW email dated May 21, 2010, indicated that the
Respondent, on behalf of Globacorp, contacted Kellie Ramsay of KW in order to:

(a)
discuss a “commercial real estate deal … located in Panama”; and

3 KW is an international real estate franchise based in the United States.
Page 9 of 31


(b)
offer to sell to KW numerous “KW Internet addresses outside of the United
States”, which had been purchased by Globacorp.

34.
In addition, in the PM Complaint Letter, PM stated that the Respondent was involved in
business activity in Panama, which was unrelated to his duties at State Farm. Specifically, PM
stated:

While supposedly representing State Farm, [the Respondent] was regularly taking
trips ranging from 7-14 days to Panama to cultivate an investment. [The
Respondent] actually approached me one day and tried to get me to invest in the
“teak business”. I respectfully declined. I inquired if this was a conflict of
interest with his State Farm business, and he said that it was not. I found that
difficult to believe.

35.
At no time during the period of his registration with State Farm, did the Respondent seek,
or obtain approval from, State Farm to engage in any business activities on behalf of Globacorp
or Globadigm, or to engage in any other dual occupations.

36.
Further, during a compliance audit conducted by State Farm in November 2009, the
Respondent answered “no” to the following question:

Other than as … a salesperson for [State Farm] is the [Respondent] involved in
ANY outside business activities? [Emphasis in original]

37.
At the hearing, the Respondent acknowledged his involvement with Globacorp and
Globadigm Group; however, he testified because he had no contract with either entity; was not
paid by either entity; and the development was in Panama, he did not consider it to be any form
of employment or outside venture.

Page 10 of 31

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38.
He testified that when he started to travel to Panama “I notified State Farm. LG, who
was the agency representative that my agency dealt with, was made aware prior to my first trip to
Panama. And that my plan would be to travel there on a fairly regular basis with the intent of
learning about land development through my friend.”4

39.
An email dated February 26, 2016, from his friend, JSC, the Senior Director of
Globacorp Developments International to MFDA Staff was marked as Exhibit 6. In the email,
JSC stated that:

(a)
The Respondent owed him funds exceeding CDN $16,500 loaned to the
Respondent on or about November 10, 2011, which was fully repaid to JSC, with
interest by the Respondent on or about December 16, 2011;
(b)
The Respondent worked with Globacorp Developments International, a member
of the Globadigm Group, as Director of Corporate Development and in a sales
capacity from May, 2008, to March, 2012; and
(c)
The Respondent indicated to Globacorp Developments International that he had
obtained approval from my the required the parties, within State Farm, to work
with Globacorp Developments International.

Allegation #4 – Failure to Cooperate

40.
On March 25, 2013, Sarah Vandervoort, a Case Assessment Officer in the MFDA
Enforcement Department, sent a letter by registered and regular mail to the Respondent
requesting that he provide Staff with information and documents regarding several METS reports
submitted to the MFDA by State Farm. In particular, Ms. Vandervoort’s letter requested that the
Respondent respond by April 15, 2013 with respect to the following:

(a)
the complaint received by State Farm from PM;
(b)
the Respondent’s dual occupations; and
(c)
the garnishment order received by State Farm from the Canada Revenue Agency.

4 The friend’s initials are JSC.
Page 11 of 31

41.
On May 14, 2013, having not received a response from the Respondent, Ms. Vandervoort
sent a second letter by registered and regular mail to the Respondent requesting that he provide
Staff with the information and documents by May 28, 2013.

42.
On May 16, 2013, the Respondent telephoned Ms. Vandervoort and stated that he had
received, and was in the process of responding to, both of her letters.

43.
On May 29, 2013, the Respondent again telephoned Ms. Vandervoort and requested that
the deadline for his response to the letters be extended. Ms. Vandervoort granted the Respondent
an extension to June 5, 2013. The Respondent did not respond to Ms. Vandervoort’s letters by
June 5, 2013.

44.
On June 11, 2013, Ms. Vandervoort sent another letter by registered and regular mail to
the Respondent requesting that he provide Staff with the information and documents by June 19,
2013. In her letter, Ms. Vandervoort advised the Respondent that the matter would be escalated
to the MFDA’s Investigations group should the Respondent fail to provide the information and
documents to the MFDA by June 19, 2013. The Respondent did not respond to Ms.
Vandervoort’s letter by June 19, 2013.

45.
On July 9, 2013, Ms. Alfenore assumed carriage of the MFDA’s investigation of the
Respondent’s conduct. On the same date, Ms. Vandervoort sent a letter by registered and regular
mail to the Respondent advising him that the matter had been escalated to the MFDA’s
Investigations group.

46.
On January 24, 2014, Ms. Alfenore telephoned the Respondent and left a voice message
requesting that the Respondent contact her to discuss the investigation of his conduct. The
Respondent did not respond to Ms. Alfenore ‘s voice message.

Page 12 of 31


47.
On February 5, 2014, Ms. Alfenore spoke with CO (the Respondent’s former spouse) by
telephone and CO informed her that the Respondent was residing at ******************,
Markham, Ontario, *** *** (the “New Address”).

48.
On February 7, 2014, Ms. Alfenore sent a letter by registered and regular mail to the
Respondent at the New Address requesting that the Respondent contact her by February 21, 2014
in order to arrange a date for an interview. Ms. Alfenore also arranged for the letter to be
personally served on the Respondent by a process server. The process server was unable to
personally serve the Respondent with the letter but posted the letter on the door of the house at
the New Address. The Respondent did not respond to Ms. Alfenore’s letter by February 21,
2014.

49.
On March 3, 2014, Ms. Alfenore telephoned the Respondent and left a voice message
advising the Respondent of her letter dated February 7, 2014 and requesting that the Respondent
contact her in order to arrange a date for an interview. The Respondent did not respond to Ms.
Alfenore’s voice message.

50.
On April 4, 2014, Ms. Alfenore sent a letter by regular mail to the Respondent at the New
Address requesting that the Respondent contact her and attend at an interview on April 30, 2014.
Ms. Alfenore arranged for the letter to be personally served on the Respondent by a process
server. The process server was unable to personally serve the Respondent with the letter but
delivered the letter to the Respondent’s mother who was present at the New Address.

51.
On April 9, 2014, Ms. Alfenore left a voice message for the Respondent advising him of
her letter dated April 4, 2014 and the April 30, 2014 interview date, and requesting that he
contact her. The Respondent did not respond to the voice message.

52.
The Respondent did not, at any time, attend an interview. Prior to the issuance of the
Notice of Hearing, the Respondent did not contact Staff, in any way, since May 29, 2013.

Page 13 of 31


53.
Due to the Respondent’s failure to cooperate with Staff’s investigation, Staff has been
unable to investigate the full nature and extent of, among other things: the Respondent’s
activities with respect to the monies he borrowed from client MM, including whether he
pressured or coerced client MM to withdraw the funds; and the Respondent’s activities with
respect to the dual occupations.

54.
At the hearing, the Respondent admitted that he had failed to cooperate with MFDA
Staff. He testified “I wasn’t in a good place. I think dealing with some health challenges with
my son for quite some time, and quite frankly he was my priority and everything else that fell to
the wayside. It wasn’t the right thing to do. I have no better explanation other than when I
parted ways with State Farm, I felt I was done with all of this, and I just didn’t make the
necessary time to address it properly.”

III.
MFDA RULES

55.
MFDA Rule 1.2.1 sets out the required individual qualifications of salespersons and in
Rule 1.2.1(c) provides for “Dual Occupations”. The rule states that “an Approved Person may
have, and continue in, another gainful occupation, provided that:

(iii) Member Approval. The Member for which the Approved Person carries on
business either as an employee or agent is aware and approves of the Approved
Person engaging in such other gainful occupation.”

56.
MFDA Rule 1.1.2 provides:

1.1.2 Compliance by Approved Persons. Each Approved Person who conducts
or participates in any securities related business in respect of a Member in
accordance with Rule 1.1.1(c)(i) or (ii) shall comply with the By-laws and Rules
as they relate to the Member or such Approved Person.

57.
MFDA Rule 2.1.1 sets out the standard of conduct to be met by Members and Approved
Persons. It states:

Page 14 of 31


2.1.1 Standard of Conduct. Each Member and each Approved Person of a
Member shall:
(a) deal fairly, honestly and in good faith with its clients;
(b) observe high standards of ethics and conduct in the transaction of business;
(c) not engage in any business conduct or practice which is unbecoming or
detrimental to the public interest; and
(d) be of such character and business repute and have such experience and
training as is consistent with the standards described in this Rule 2.1.1, or as may
be prescribed by the Corporation.

58.
MFDA Rule 2.1.4 deals with “Conflicts of Interest. The Rule states:

2.1.4 Conflicts of Interest
(a) Each Member and Approved Person shall be aware of the possibility of
conflicts of interest arising between the interests of the Member or Approved
Person and the interests of the client. Where an Approved Person becomes aware
of any conflict or potential conflict of interest, the Approved Person shall
immediately disclose such conflict or potential conflict of interest to the Member.
(b) In the event that such a conflict or potential conflict of interest arises, the
Member and the Approved Person shall ensure that it is addressed by the exercise
of responsible business judgment influenced only by the best interests of the client
and in compliance with Rules 2.1.4(c) and (d).
(c) Any conflict or potential conflict of interest that arises as referred to in Rule
2.1.4(a) shall be immediately disclosed in writing to the client by the Member, or
by the Approved Person as the Member directs, prior to the Member or Approved
Person proceeding with the proposed transaction giving rise to the conflict or
potential conflict of interest.
(d) Each Member shall develop and maintain written policies and procedures to
ensure compliance with Rules 2.1.4(a), (b) and (c).

59.
By-law No. 1, s. 21 states:

21. POWER TO CONDUCT EXAMINATIONS AND INVESTIGATIONS
The Corporation shall make such examinations of and investigations into the
conduct, business or affairs of any Member, Approved Person of a Member or
any other person under the jurisdiction of the Corporation pursuant to the By-laws
and/or the Rules as it considers necessary or desirable in connection with any
matter relating to compliance by such person with:
21.1 the By-laws, Rules or Policies of the Corporation;
Page 15 of 31


21.2 any securities legislation applicable to such person including any rulings,
policies, regulations or directives of any securities commission; or
21.3 the by-laws, rules, regulations and policies of any self-regulatory
organization.

60.
By-law No. 1, s. 22 provides:

22. INVESTIGATORY POWERS
22.1 For the purpose of any examination or investigation pursuant to this By-
law, a Member, Approved Person of a Member or other person under the
jurisdiction of the Corporation pursuant to the By-laws or the Rules may be
required by the Corporation:
(a)
to submit a report in writing with regard to any matter involved in any
such investigation;
(b)
to produce for inspection and provide copies of the books, records and
accounts of such person relevant to the matters being investigated; and to attend
and give information respecting any such matters;
(c)
to make any of the above information available through any directors,
officers, employees, agents and other persons under the direction or control of
the Member, Approved Person or other person under the jurisdiction of the
Corporation;
and the Member or person shall be obliged to submit such report, to permit such
inspection, provide such copies and to attend, accordingly. Any Member or
person subject to an investigation conducted pursuant to this By-law may be
invited to make submission by statement in writing, by producing for inspection
books, records and accounts and by attending before the persons conducting the
investigation. The person conducting the investigation may, in his or her
discretion, require that any statement given by any Member or person in the
course of an investigation be recorded by means of an electronic recording device
or otherwise and may require that any statement be given under oath.

IV.
SUBMISSIONS

A.
MDFA Staff

61.
Staff provided written submissions to the panel setting out in detail their position on the
four allegations before us.
Page 16 of 31



Allegation #1 – Unauthorized Redemptions

62.
Staff alleges that the Respondent contravened MFDA Rule 2.1.1 by processing two
unauthorized redemptions in the accounts of client MM.

63.
Staff submits that MFDA Hearing Panels have held that processing trades in a client’s
account without the knowledge or approval of the client is a contravention of the standard of
conduct set out in Rule 2.1.1.

64.
Staff submits that trading without client authorization amounts to egregious misconduct if
the purpose of the transaction is to deceive the client so that the Approved Person may benefit at
the client’s expense.

65.
In the present case, Staff submits that the evidence establishes that the Respondent:

(a)
processed two unauthorized redemptions in client MM’s accounts in the amounts
of $34,000 and $6,000, net of deferred sales charges;
(b)
unbeknownst to client MM, arranged for the proceeds from the unauthorized
redemptions to be deposited in client MM’s RBC Account; and
(c)
arranged for client MM to provide him with a loan in the amount of nearly the full
balance of the RBC Account, without informing client MM that the unauthorized
redemptions were previously deposited in the RBC Account.

Page 17 of 31

link to page 18 link to page 18
Allegation #2 – Borrowing from a Client

66.
Staff alleges that the Respondent contravened MFDA Rules 2.1.4 and 2.1.1 by borrowing
and failing to fully repay monies from client MM. Staff submits that MFDA Rule 2.1.4
articulates the requirement for Approved Persons to be aware of potential conflicts of interests
between Approved Persons and clients; places a mandatory obligation on Approved Persons to
immediately disclose such conflicts to the Member should they arise; and imposes a
corresponding obligation on the Approved Person and the Member to ensure that such conflicts
are addressed by the exercise of responsible business judgment influenced only by the best
interests of the client.

67.
Staff submits that MFDA Hearing Panels have held that borrowing money from a client
results in a conflict of interest under Rule 2.1.4.5

68.
Staff submits that there would be few, if any, circumstances in which an Approved
Person who borrowed funds from a client would be able to demonstrate that the inherent conflict
had been addressed by the exercise of responsible business judgment influenced only by the best
interests of the client. Staff submits that such conduct is aggravated when the client monies are
used for the Respondent’s personal use and/or are not repaid to the client.

69.
Staff submits that MFDA Hearing Panels have also held that that when an Approved
Person solicits and accepts money and fails to pay it back or otherwise account for it, the
Approved Person engages in conduct that is contrary to MFDA Rule 2.1.1.6

70.
Staff submits that the evidence establishes that the Respondent:

5 See: Ryan (Re), [2011] Hearing Panel of the Central Regional Council, MFDA File No. 201014, Panel
Decision dated April 6, 2011 at para. 19; Tonnies (Re), [2005] Hearing Panel of the Prairie Regional
Council, MFDA File No. 200503, Panel Decision dated June 27, 2005 at P. 14.
6 See: Jones (Re), [2011] Hearing Panel of the Central Regional Council, MFDA File No. 201008, Panel
Decision dated February 7, 2011 at para. 19; Puri (Re), [2007] Hearing Panel of the Pacific Regional
Council, MFDA File No. 200715, Panel Decision dated October 22, 2007 at para. 33.
Page 18 of 31

link to page 19 link to page 19
(a)
borrowed $40,000 from client MM;
(b)
used the borrowed funds to pay his personal debts; and
(c)
apart from a $6,400 repayment, failed to repay the balance of the loan.

Allegation #3 – Undisclosed and Unapproved Dual Occupations

71.
Staff alleges that the Respondent contravened MFDA Rules 1.2.1(c) (formerly MFDA
Rule 1.2.1(d)) and 2.1.1 by engaging in dual occupations, which were not disclosed to or
approved by State Farm.

72.
MFDA Rule 1.2.1(c) provides that an Approved Person may have and continue in
another gainful occupation, provided that, among other things, the Member is aware and
approves of the Approved Person engaging in such other occupation.

73.
Staff submits that MFDA Hearing Panels have held that engaging in a gainful occupation
outside the business of the Member without advising and obtaining the approval of the Member,
contrary to Rule 1.2.1(c), is a serious offence, as:

The need for a Member to know what other occupations and businesses its
employee might be engaged in is obvious. There are many reasons why a
Member must know what its employees are doing. We will mention only two of
what seem to us to be the most important reasons. The first is that a failure to
know about an employee’s other commercial activities impinges upon the
Member’s ability to properly supervise its employee. The second reason is that
the Member could be exposed to litigation alleging that the AP’s activity was
within the scope of his/her employment with the Member.7

74.
Staff submits that MFDA Hearing Panels have also held that such conduct is contrary to
the standard of conduct required of industry participants, as set out in Rule 2.1.1.8

7 Mawer (Re), [2014] Hearing Panel of the Prairie Regional Council, MFDA File No. 201331, Panel Decision
(Misconduct) dated April 3, 2014 at para. 32, Mawer (Re), [2014] Hearing Panel of the Prairie Regional
Council, MFDA File No. 201331, Panel Decision (Misconduct) dated April 3, 2014 at para. 32.
8 Mawer (Re), supra, Staff’s Book of Authorities; Popen (Re), [2012] Hearing Panel of the Central
Regional Council, MFDA File No. 201136, Panel Decision dated September 24, 2012.
Page 19 of 31

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75.
Staff submits that the evidence establishes that the Respondent:

(a)
held the positions of “Director of Corporate Development” and “Director of Sales
Eastern Canada” with Globacorp Developments International (“Globacorp”) and
Globadigm Group (“Globadigm”), companies which were in the business of land
development;
(b)
marketed Globacorp and Globadigm to real estate brokers; on behalf of
Globacorp, engaged in commercial real estate dealings (related to a project
located in Panama) with a representative of Keller Williams Realty Inc. (“KW”);
(c)
on behalf of Globacorp, offered to sell “internet addresses” to KW; and
(d)
failed to disclose his involvement in Globacorp or Globadigm to State Farm.

76.
In correspondence to State Farm, the Respondent claimed he did not receive
compensation from Globacorp or Globadigm. Staff submits that “another gainful occupation” is
not limited to instances where the Approved Person has been compensated for his activities. In
Dhindsa (Re)9, the Hearing Panel made a finding of failing to disclose other gainful occupations
despite the respondent in that case having “insisted he did not make any money from [the]
activity.”

77.
In Mawer (Re)10, the Hearing Panel held that the term “gainful occupation” is broad
enough to include an occupation from which the Approved Person expects or hopes to derive
some compensation, profit or other benefit.

78.
Staff submits that it is reasonable to infer that the Respondent (at a minimum) hoped to
derive a profit from his commercial real estate and other business dealings on behalf of
Globacorp.

9 Dhindsa (Re), [2012] Hearing Panel of the Pacific Regional Council, MFDA File No. 201119, Panel Decision
dated May 15, 2012 at para. 5.
10 Mawer (Re), supra, at paras. 34-35.
Page 20 of 31


79.
Staff submits that in correspondence to State Farm, the Respondent acknowledged that
he had hoped that his position at Globacorp would result in future compensation or profit to him.
Specifically, the Respondent stated:

Was there to be a point in the future where [the Respondent’s activity on behalf of
Globacorp] was to become an outside business interest? Yes, definitely, but we
had not gotten to that stage yet.

80.
Staff submits that the Respondent’s activities on behalf of Globacorp constituted a
gainful occupation.

Allegation #4 – Failure to Cooperate

81.
Staff alleges that the Respondent contravened s. 22.1 of MFDA By-law No. 1 by failing
to cooperate with Staff’s investigation of his conduct.

82.
Staff submits that pursuant to s. 21 of MFDA By-law No. 1, the MFDA has a duty to
conduct examinations and investigations of a Member, an Approved Person, and any other
person under its jurisdiction as it considers necessary or desirable in connection with any matter
related to that Member’s or person’s compliance with, among other things, the By-laws, Rules
and Policies of the MFDA.

83.
In carrying out its s. 21 duty, the MFDA is authorized to request and oblige a Member,
Approved Person or any other person under its jurisdiction to:

(a)
submit a report in writing with regard to any matter involved in any investigation;
(b)
produce for investigation and provide copies of the books, records and accounts
of such person relevant to the matters being investigated;
(c)
attend and give information respecting such matters; and
(d)
make any of the above information available through any directors, officers,
employees, agents and other persons under the direction or control of the
Member, Approved Person or other person under the jurisdiction of the MFDA.
Page 21 of 31

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84.
Staff submits that the Member, Approved Person or other person under investigation is
obliged to cooperate with the s. 21 requirements.

85.
Staff submits that this obligation is consistent with the duties owed by all members of
self-governing professions. In Artinian v. College of Physicians and Surgeons of Ontario11, the
Ontario Divisional Court stated that “fundamentally, every professional has an obligation to
cooperate with his self-governing body”.

86.
Staff submits that an Approved Person must provide Staff with information and
documentation, and attend an interview with Staff when requested to do so. To hold otherwise
would hinder the MFDA’s ability to investigate the conduct of registrants in the mutual fund
industry and prevent the MFDA from fulfilling its regulatory mandate to protect the public.

87.
Staff submits that the evidence establishes that the Respondent has refused to submit
information and documents requested by Staff and has disregarded requests that he attend an
interview with Staff.

88.
Staff provided us with the chart set out below which summarizes Staff’s requests to the
Respondent to submit information and documents and/or to attend an interview. We accept the
chart as accurate based on our review of the evidence.

DATE
FROM
TO
RESPONSE
March 25, 2013
Staff (S. Vandervoort) – letter
The Respondent
No response.

11 Artinian v. College of Physicians and Surgeons of Ontario (1990), 73 O.R. (2d) 704 (Div. Ct.), at para. 9.
Page 22 of 31


DATE
FROM
TO
RESPONSE
May 14, 2013
Staff (S. Vandervoort) – letter
The Respondent
On May 16, 2013, the Respondent
telephoned Staff and stated that he had
received, and was in the process of
responding to, both of Staff’s letters.
On May 29, 2013, the Respondent
again telephoned Staff and requested
that the deadline for his response to
the letters be extended. Staff
extended the deadline from May 28,
2013 to June 5, 2013.
The Respondent did not respond to
Staff’s letters by June 5, 2013
June 11, 2013
Staff (S. Vandervoort) – letter
The Respondent
No response.
January 24, 2014
Staff (L. Alfenore) – voice The Respondent
No response.
message
February 7, 2014
Staff (L. Alfenore) – letter
The Respondent
No response.
March 3, 2014
Staff (L. Alfenore) – voice The Respondent
No response.
message
April 4, 2014
Staff (L. Alfenore) – letter
The Respondent
No response.
April 9, 2014
Staff (L. Alfenore) – voice The Respondent
No response.
message

B.
Respondent’s Submissions

89.
The Respondent did not file written submissions in response to the Staff’s Submissions.
The Respondent made oral submissions at the conclusion of the evidence.

Allegation #1 – Unauthorized Redemptions

90.
The Respondent submits that MM, his mother-in-law, was aware that he and her
daughter, his wife, needed financial help and she agreed to provide that help. The Respondent
submits that MM was aware that she was signing the Redemption forms on December 6, 2011.
Page 23 of 31

91.
The Respondent points to the statement of claim in the action commenced by MM against
him and her daughter for repayment of not only the $40,000 but the $20,000 she lent to them
earlier, in which she pleads that in December 2011, the Respondent withdrew from MM’s
account at the Royal Bank $4,000 without her knowledge or approval and pleads that he sought
to borrow on behalf of he and his wife an additional $30,000. The Respondent submits that this
statement does not appear in the complaint filed by PM nor in MM’s interview transcript.

92.
The Respondent points to other contradictions he alleges between the evidence of MM
and his evidence or other documents in the record. He submits that the evidence points to the
fact that on December 6, 2011, MM’s hand was not bandaged; although, she had already been
bitten by the cat and it was sore. On December 9, 2011, her hand was bandaged. The injury to
her hand made her signature on the redemption forms appears as it does. He submits that if he
had signed the Redemption forms as alleged the signature would “at least somewhat closely
resemble the original signature that was held on file, which it did not.”

93.
The Respondent submits that on December 6, 2011, when he and MM attended at the
Royal Bank and she transferred $4,000 to him that transfer could not have taken place without
her approval as she had to use her bank card to make the transfer. The same is true for the
transfer of $40,000 on December 9, 2011. He submits that the evidence of MM supports the
submission that MM attended at the Royal Bank with him not only on December 6, 2011, but
also on December 9, 2011.

Allegation #2 – Borrowing from a Client

94.
The Respondent acknowledges that he borrowed the money from his mother-in-law,
MM, but considered her as a member of his family and not as a client when he borrowed the
money.

Page 24 of 31


Allegation #3 – Undisclosed and Unapproved Dual Occupations

95.
He testified because he had no contract with either entity; was not paid by either entity;
and the development was in Panama, he did not consider it to be any form of employment or
outside venture.

96.
The Respondent submits that he had no contract with Globacorp and Globadigm and he
was not paid by either entity. He further submits that as the development was in Panama, he did
not consider it to be any form of employment or outside venture. He also submits that there was
never any financial dealings with KW. As he put it in his submissions “it was solely regarding
them looking at the project in Panama to perhaps market throughout North America, if and when
such time it got to that stage, which to this date it is not.”

Allegation #4 – Failure to Cooperate

97.
The Respondent acknowledged in his evidence that he failed to cooperate with MFDA
Staff.

V.
ANALYSIS AND DECISION

A.
Introduction

98.
The By-laws, Rules and Policies of the MFDA support its mandate to regulate the
distribution side of the Canadian mutual fund industry in order to protect the investor public and
strengthen public confidence in the Canadian mutual fund industry.

B.
Allegation #1 – Unauthorized Redemptions

99.
Allegation #1 is:

Page 25 of 31


On December 6, 2011, the Respondent processed two unauthorized redemptions
in the accounts of client MM in the amounts of $34,000 and $6,000, thereby
failing to deal fairly, honestly and in good faith with a client, and engaging in
business conduct which is unbecoming or detrimental to the public interest,
contrary to MFDA Rule 2.1.1.

100.
We have set out above the text of MFDA Rule 2.1.1, Standard of Conduct. We agree
with Staff that an unauthorized redemption in the account of a client would be a violation of this
Rule. However, in order to find a violation of this Rule, we need to be satisfied that the evidence
on the balance of probabilities supports a finding that the Redemptions were unauthorized by
MM. Are we satisfied that it is more probable that MM did not authorize the Redemptions than
she did authorize the Redemptions?

101.
The evidence in support of this allegation was provided through the transcript of a
telephone interview of MM by MFDA Staff on January 31, 2014, over two years after the events
in question.

102.
The Respondent in his testimony acknowledged that he borrowed from his mother-in-law
who is also his client. The Respondent testified that MM signed the Redemptions and he did not.

103.
The Respondent submits that:

(a)
MM was aware that he and her daughter, his wife, needed financial help and she
agreed to provide that help. The Respondent submits that MM was aware that she
was signing the Redemption forms on December 6, 2011.
(b)
The Respondent points to the statement of claim in the action commenced by MM
against him and her daughter for repayment of not only the $40,000 but the
$20,000 lent to them earlier in which she pleads that in December 2011, the
Respondent withdrew from MM’s account at the Royal Bank $4,000 without her
knowledge or approval and pleads that he sought to borrow on behalf of he and
his wife an additional $30,000. The Respondent submits that this statement does
not appear in the complaint filed by PM nor in MM’s interview transcript.
Page 26 of 31


(c)
The Respondent points to other contradictions he alleges between the evidence of
MM and his evidence or other documents in the record. He submits that the
evidence points to the fact that on December 6, 2011, MM’s hand was not
bandaged; although, she had already been bitten by the cat and it was sore. On
December 9, 2011, her hand was bandaged. The injury to her hand made her
signature on the redemption forms appears as it does. He submits that if he had
signed the Redemption forms as alleged the signature would “at least somewhat
closely resemble the original signature that was held on file, which it did not.”
(d)
The Respondent submits that on December 6, 2011, when he and MM attended at
the Royal Bank and she transferred $4,000 to him that transfer could not have
taken place without her approval as she had to use her bank card to make the
transfer. The same is true for the transfer of $40,000 on December 9, 2011. He
submits that the evidence of MM supports the submission that MM attended at the
Royal Bank with him not only on December 6, 2011, but also on December 9,
2011.

104.
There was no opportunity for the Respondent to cross-examine MM on her evidence and
there was no opportunity for the panel to observe her. It is clear from reading the transcript
which was marked as part of Exhibit 5 that MM was confused about some of the events of
December, 2011. Given her age and the passage of time between December, 2011, and the
interview on January 31, 2014, we are not surprised by this. However, in the face of the
Respondent’s denials in relation to the signing of the Redemptions, the balance is not tipped in
favour of the position taken by Staff.

105.
We are not persuaded that based on the evidence before us that Staff have made out on a
balance of probabilities this allegation.

106.
As a result, we find that Allegation #1 has not been established.

Page 27 of 31


C.
Allegation #2 – Borrowing from a Client

107.
Allegation #2 is:

Between December 6, 2011 and March 29, 2012, the Respondent engaged in
personal financial dealings with client MM by borrowing and failing to fully
repay $40,000 from client MM, thereby giving rise to a conflict or potential
conflict of interest between the Respondent and client MM, which the Respondent
failed to address by the exercise of responsible business judgment influenced only
by the best interests of client MM, contrary to MFDA Rules 2.1.1 and 2.1.4.

108.
Staff relies as well on Rule 2.1.1 (Standard of Conduct) which is set out above.

109.
We agree with Staff that the Respondent contravened MFDA Rules 2.1.1 and 2.1.4 by
borrowing money from and failing to fully repay client MM.

110.
At the hearing, the Respondent admitted that he borrowed $4,000 from client MM on
December 6, 2011, and $40,000 on December 9, 2011. He testified that “I certainly did borrow
these funds or from client MM with the intent of repaying far sooner than I was able to.” It
makes no difference that MM was his mother-in-law as well as his client. For the purposes of
his duties and responsibilities as an Approved Person, MM was his client.

111.
We note that although the Respondent did not repay the monies to client MM directly,
except for the $6,400 which represented the $4,000 loan and $2,400 and interest, he did pay the
balance of $40,000 plus the earlier $20,000 loan indirectly by way of State Farm remitting the
funds owed by the Respondent in response to the notice of garnishee issued by MM.

112.
The panel finds that Allegation #2 has been established.

D.
Allegation #3 – Undisclosed and Unapproved Dual Occupations

113.
Allegation #3 is:

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link to page 29
Between about June 2008 and March 29, 2012, the Respondent engaged in dual
occupations, which were not disclosed to or approved by the Member, contrary to
MFDA Rules 1.2.1(c) (formerly MFDA Rule 1.2.1(d))12 and 2.1.1.

114.
MFDA Rules 1.2.1(c) (Dual Occupations) and 2.1.1 read:

1.2.1(c)(iii) Member Approval. The Member for which the Approved Person
carries on business either as an employee or agent is aware and approves of the
Approved Person engaging in such other gainful occupation.

2.1.1 Standard of Conduct. Each Member and each Approved Person of a
Member shall:
(a) deal fairly, honestly and in good faith with its clients;
(b) observe high standards of ethics and conduct in the transaction of business;
(c) not engage in any business conduct or practice which is unbecoming or
detrimental to the public interest; and
(d) be of such character and business repute and have such experience and
training as is consistent with the standards described in this Rule 2.1.1, or as may
be prescribed by the Corporation.

115.
The Respondent admits that he had a relationship with Globacorp and Globadigm;
however, he submits that because he had no contract with either entity; was not paid by either
entity; and the development was in Panama, he did not consider it to be any form of employment
or outside venture. It is clear on the evidence that he wanted to learn about the land development
business. He engaged with KW with respect to the business. We do not accept that the
Respondent did not expect at some point to earn something from the time he was spending and
travel expenses he was incurring in relation to the land development business in Panama for
Globacorp and Globadigm.

12 On December 3, 2010, MFDA Rule 1.2.1(d) was renumbered as MFDA Rule 1.2.1(c).
Page 29 of 31


116.
In our view, he had a responsibility to disclose his relationship to State Farm and based
on the documents in evidence before us he failed to do so. While he said in his testimony that he
told LG of State Farm of his relationship, he did not disclose the relationship on the forms he
was required to complete. In our view, in order for the Member to be properly apprised by an
Approved Person and to be in a position to provide its approval, an Approved Person must
follow the procedures laid down by the Member which the Respondent did not do.

117.
It is instructive that on March 30, 2012, the day after the Respondent resigned from his
position with State Farm, he completed and submitted to State Farm an “Outside the Business
Activities – Questionnaire” in which he disclosed his relationship to Globacorp.

118.
The panel finds that Allegation #3 has been established.

E.
Allegation #4 – Failure to Cooperate

119.
Allegation #4 is:

Commencing in March 2013, the Respondent failed to provide documents and
information requested by Staff and failed to attend an interview with Staff for the
purpose of investigating the Respondent’s conduct, contrary to section 22.1 of
MFDA By-law No. 1.

120.
The Respondent admits that he did not cooperate with Staff. The evidence makes it clear
that the Respondent did not cooperate with Staff.

121.
We agree with Staff that the failure to cooperate hinders the MFDA’s ability to
investigate the conduct of registrants in the mutual fund industry and prevents the MFDA from
fulfilling its regulatory mandate to protect the public.

122.
The panel finds that Allegation #3 has been established.

Page 30 of 31


VI.
CONCLUSION

123.
We find that the Staff of the MFDA have established on the evidence before us that the
Respondent has committed violations of the MFDA Rules as set out in the Allegations #2, 3 and
4 made against the Respondent.

124.
As a result of these findings of misconduct, we need to address the issue of penalty. We
direct that the Registrar proceed to set a date for hearing of submissions with respect to the
appropriate penalty.

125.
A number of the submissions of the Respondent were submissions that go to penalty as
opposed to liability. The Respondent may make those submissions at the penalty hearing.


DATED this 21st day of April, 2016.

“W. A. Derry Millar”
W. A. Derry Millar

Chair
“Guenther
Kleberg”
Guenther Kleberg

Industry Representative
“Colleen
Waring”
Colleen Waring

Industry Representative

DM 473442 v1
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