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MFDA Notice of Application

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IN THE MATTER OF AN APPLICATION
PURSUANT TO SECTION 24.3 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA

Notice of Application

NOTICE is hereby given that an application pursuant to section 24.3 of By-Law No. 1 of the Mutual Fund Dealers Association of Canada (the “MFDA”) will be brought by Staff of the MFDA (“Staff”), with notice to TeamMax Investment Corporation (“TeamMax” or the “Member”) and Antony Chau (“Chau”) (collectively, the “Respondents”), before a hearing panel of the MFDA’s Central Regional Council (the “Hearing Panel”) in the hearing room located at 121 King Street West, Suite 1000, Toronto, Ontario on July 8, 2014 at 10:00 am or as soon thereafter as the hearing can be held.

DATED: Jul 7, 2014

"Paige L. Ward"

Paige L. Ward

Mutual Fund Dealers Association of Canada
121 King St. West, Suite 1000
Toronto, ON M5H 3T9
Telephone: 416-943-5838
Fax: 416-361-9781
E-mail: corporatesecretary@mfda.ca



THE APPLICATION is for:

  1. Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, an order requiring TeamMax to perform, to the satisfaction of Staff, the following duties and responsibilities (the “Duties and Responsibilities”):
    1. TeamMax shall resolve any and all compliance deficiencies identified by Staff in regards to the operation of TeamMax (the “Deficiencies”); and
    2. TeamMax shall respond to all existing and future requests from Staff for information, documents and clarifications within the time periods specified in such requests
  1. Pursuant to s. 24.3.3(a) of MFDA By-law No. 1, within 30 days of the resignation or termination of both its current CCO and Independent Consultant, at its own expense and on terms acceptable to Staff, an order requiring TeamMax to:
    1. appoint another individual as its new CCO, other than Chau; or
    2. retain a new independent consultant;

    to perform all necessary and ongoing duties and functions of a CCO, as such duties and functions are prescribed by MFDA By-laws, Rules and Policies, including but not limited to MFDA Rule 2.5.3;

  1. Pursuant to s. 24.3.3(b) and s. 24.3.3(c) of MFDA By-law No. 1, an interim order prohibiting TeamMax from (the “Restrictions”):
    1. opening any new non-registered leveraged client accounts;
    2. making any new leveraged trade recommendations or processing any leveraged trades in any existing non-registered client accounts;
    3. hiring or retaining any new dealing representatives; and
    4. opening any new branch or sub-branch locations;

    without the prior written consent of Staff and until such time TeamMax has resolved all Deficiencies to the satisfaction of Staff;

  1. Pursuant to s. 24.3.3(b) of MFDA By-law No. 1, an order requiring Teammax to notify in writing all TeamMax Approved Persons of the Restrictions no later than 3 business days following the date of this Order;
  1. Subject to a further order of the Hearing Panel, an interim order prohibiting Chau from being registered as TeamMax’s Chief Compliance Officer (“CCO”), unless Chau gives Staff 60 days’ notice of his intention to seek registration as TeamMax’s CCO in order to allow Staff the opportunity to re-attend before the Hearing Panel to seek any orders or terms and conditions on Chau’s ability to conduct securities related business, pursuant to s. 24.3.3(b) of MFDA By-law No. 1;
  1. In the event that TeamMax breaches any of the Restrictions, does not perform the Duties and Responsibilities to the satisfaction of Staff, or does not comply with the terms set out in paragraph 2 above, an order permitting Staff to re-attend before the Hearing Panel to seek such further orders and directions as may be reasonably necessary to give effect to the terms of this Order, including an order suspending the rights and privileges of Membership of TeamMax in the MFDA, and such re-attendances may be made with or without notice to TeamMax and may be in-person, in writing or by way of electronic hearing, as time or circumstances reasonably require and the Hearing Panel permits, pursuant to s. 24.3.3(a) and (b) of the By-law; and
  1. Such further and other relief as counsel may advise and the Hearing Panel permit.

The Grounds for the application are:

Antony Chau

  1. Chau is the majority owner of TeamMax and is its controlling mind. He oversees and directs all of TeamMax’s operations, including its financial affairs, and in many instances personally performs important regulatory functions;
  1. Since September 2009, when he became TeamMax’s majority and controlling shareholder, Chau has been registered in Ontario and British Columbia as a dealing representative, president, officer and director of the Member. Since January 2010, Chau has further been registered as TeamMax’s branch manager, and ultimate designated person (“UDP”).  From January 2010 to April 2014, Chau was also registered as TeamMax’s CCO;
  1. Chau is the only Approved Person of TeamMax with meaningful knowledge and an understanding of TeamMax’s financial affairs and compliance practices;
  1. In or around April 2014, TeamMax appointed a new CCO and retained an Independent Consultant to assist the Member in complying with the Duties and Responsibilities, including the resolution of the Deficiencies;

TeamMax Does Not Devote the Necessary Resources to Effectively Carry Out its Compliance, Supervisory and other Obligations

  1. Since or about 2009, when Chau became its majority shareholder, TeamMax’s operations have sustained rapid growth;
  1. Between Staff’s third round compliance examination conducted in March/April 2010 (the “Third Round Compliance Examination”) and Staff’s fourth round compliance examination conducted in March/April 2013 (the “Fourth Round Compliance Examination”), TeamMax doubled its number of registered Approved Persons from 43 to 86 and tripled its AUA from $69 million to $210 million;
  1. As of the date of this Application, TeamMax has 89 Approved Persons and approximately $282 million of AUA;
  1. Notwithstanding TeamMax’s rapid growth, in addition to Chau’s continued activity as a producing Approved Person (servicing client accounts holding approximately $10 million of AUA) and his role as the Member’s President, UDP and, until April 2014 when TeamMax appointed a new CCO and retained an Independent Consultant, Chau continued to be responsible for all of TeamMax’s compliance, supervisory and other obligations, including the following:
    1. Tier one leveraging supervision and trend analysis for all of TeamMax’s Approved Persons;
    2. Tier one trade supervision and new account and KYC update approval of the approximately 40 Approved Persons who report directly to the Member’s Head Office; [1]
    3. Tier two trade supervision of all Approved Persons registered with TeamMax’s branch located at 750-5900 No. 3 Road, Richmond, British Columbia (the “BC Branch”);
    4. Conducting all MFDA Policy No. 5 branch and sub-branch reviews;
    5. The maintenance and updating of TeamMax’s written policies and procedures;
    6. Compliance training of and communications to all TeamMax Approved Persons;
    7. All communications with MFDA Staff, including responses to all requests for documents, information and clarification by MFDA Compliance Staff; and
    8. Overseeing TeamMax’s day-to-day operations and strategic direction.
  1. Chau does not have the requisite skill and competence to effectively carry out and adequately fulfill his compliance, supervisory and other obligations, as prescribed by MFDA By-laws, Rules and Policies;
  1. Chau and TeamMax have historically failed to ensure that the Member maintain the compliance staff and resources necessary to enable TeamMax to adequately fulfill its compliance, supervisory and other obligations, as prescribed by MFDA By-laws, Rules and Policies;
  1. TeamMax and Chau have failed to, among others requirements:
    1. respond to numerous requests made by Staff for information relating to TeamMax’s activities;
    2. implement a supervisory structure compliant with the requirements set out in MFDA Policies No.’s 2 and 5 and effectively discharge the supervisory obligation prescribed by MFDA Rule 2.5;
    3. conduct a historical leveraging review requested by Staff during the Third Round Compliance Examination;
    4. consistently update TeamMax’s policies and procedures manual; and
    5. conduct a timely reasonable supervisory investigation of KW, one of TeamMax’s Approved Persons;
  1. TeamMax and Chau Failed to Respond to Staff’s Requests for Information

  1. Since or about March 2010, Chau and TeamMax have repeatedly failed to respond at all, or have provided untimely, incomplete or inadequate responses, to numerous requests by Staff for documents, information and clarification during the course of:
    1. Third and Fourth Round Compliance Examinations of TeamMax conducted by Staff; and
    2. Staff’s investigation of alleged violations of MFDA Rules by KW;[2]
  1. TeamMax and Chau Failed to Effectively Discharge Their Supervisory Obligations

  1. Since or about April 2014, when TeamMax appointed a new CCO and retained an Independent Consultant, the Member has taken steps towards addressing and resolving the Deficiencies;
  1. The steps taken by the Member to address and resolve the Deficiencies have not yet been fully implemented or tested. Staff is still concerned with TeamMax’s supervisory structure not fully complying with the requirements set out in MFDA Policies No.’s 2 and 5.  Among other things, Staff is concerned that:
    1. there is or has only been one tier of trade supervision in relation to the approximately 40 Approved Persons reporting directly to the Member’s head office;
    2. there is or has only been one tier of trade supervision for all leveraged trades made by Approved Persons, notwithstanding TeamMax’s large proportion of leveraged assets under administration (“AUA”) to total AUA[3], the higher level of risk associated with leveraged trades, and the fact that MFDA Policy No. 2 requires all leveraged trades to be reviewed at both the branch office and head office level;
    3. the two designated Branch Managers (“BMs”) registered with the Member’s BC Branch do not have complete access to client portfolio information or access to client documents and information pre-dating September 2012 (the date the branch was established) when performing supervisory responsibilities, including trade supervision;
    4. LT, one of the two BMs in the BC Branch, does not have the requisite BM experience requirements prescribed by MFDA Rule 2.5.5(c);
    5. until at least November 2013, TeamMax’s monthly and quarterly trend analysis reporting and review was inadequate or non-existent, contrary to the requirements of section 6 of MFDA Policy No. 2;[4]
    6. TeamMax’s Branch Review Program is performed exclusively by Chau, who is TeamMax’s CCO and the designated BM for all of the sub-branches for which he conducts reviews, such that the sub-branch reviews are not conducted by an individual independent of the locations, as required by MFDA Policy No. 5;
    7. TeamMax’s supervisory staff failed to identify patterns in the Know-Your-Client information collected from clients by three Approved Persons: EYCQ, MF and HHYZ. Despite these clients varying widely in age and employment, the clients had very similar, or identical, investment knowledge, investment objectives, risk tolerance and investment time horizon;
    8. Until May 2014, TeamMax had multiple branch and sub-branch registration issues, including the following:
      1. 2 sub-branch locations are not registered on the National Registration Database (“NRD”);
      2. 3 sub-branch locations are incorrectly registered on NRD;
      3. 1 branch is registered on NRD as a sub-branch and there is not a designated on-site branch manager for this location; and
      4. The correct on-site branch manager was not designated for the BC Branch;
  1. TeamMax Failed to Conduct a Historical Leveraging Review to the Satisfaction of Staff

  1. TeamMax has yet to complete a historical leveraging review of leveraged client accounts identified by Staff during the Third Round Compliance Examination;
  1. Staff provided TeamMax two years to complete the historical leveraging review and by the deadline for completion agreed to by Chau, October 2013, TeamMax indicated that it had only reviewed 50% of the accounts, but did not provide evidence to Staff that it had done so;
  1. In or about November 2013, TeamMax and Chau indicated that they would complete the historical leveraging review by January 2014, but as of the date of this Application, the review remains incomplete and the Member has not taken any remedial measures to address the concerns, if any, with the accounts;
  1. TeamMax Does Not Update its Policies and Procedures Manual

  1. TeamMax does not regularly update its policies and procedures manual (“PPM”) and has failed to adequately update the PPM deficiencies identified by Staff during the Third and Fourth Round Compliance Examinations;
  1. TeamMax and Chau Failed to Conduct a Timely Reasonable Supervisory Investigation of Approved Person KW

  1. TeamMax and Chau, in his capacity as the Member’s President, UDP and CCO, failed to conduct a timely reasonable supervisory investigation of KW, one of TeamMax’s Approved Persons, following evidence obtained by TeamMax that KW may have entered into an undisclosed and unapproved referral arrangement pursuant to which she referred an exempt product to a number of clients, and failed to follow up or review in a timely manner potentially misleading statements made by KW in relation to that referral arrangement; and
  1. Such further and other grounds as Staff may submit and the Hearing Panel may permit.

The following evidence will be relied upon at the hearing of the application:

  1. The Affidavit of Brett Konyu sworn July 3, 2014;
  2. The Affidavit of Rob Lambshead sworn July 2, 2014; and
  3. Such further and other evidence as Staff may submit and the Hearing Panel may permit.

[1] Chau is not responsible for tier one trade supervision and new account and KYC update approval for the Member’s branch located at 750-5900 No. 3 Road, Richmond, British Columbia (the “BC Branch”).
[2] See also paragraph 19 below.
[3] As at the date of this Application, approximately 60% of TeamMax’s AUA consists of leveraged assets.
[4] The deficiencies in trend analysis were identified by Staff during the Third Round Compliance Examination, at which time TeamMax and Chau agreed to produce and review the necessary reports going forward.  At the time of the Fourth Round Compliance Examination, TeamMax and Chau were still not producing the necessary reports.

DATED: Jul 7, 2014

Francis Roy
Senior Enforcement Counsel
Direct Line: 416-945-5148
Fax: 416-361-9073
Email: froy@mfda.ca

Staff of the Mutual Fund Dealers Association of Canada
121 King Street West, Suite 1000 Toronto, Ontario M5H 3T9 Fax: 416-361-9073

TO: Rob Brush
Crawley MacKewn Brush LLP
Suite 800 - 179 John Street
Toronto, Ontario
M5T 1X4

Tel: 416-217-0822
Fax: 416-217-0220
Email: rbrush@cmblaw.ca

Counsel for TeamMax Investment Corporation and Antony Chau


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