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Notice of Hearing

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:

  • Mutual Fund Dealers Association of Canada

    121 King St. West, Suite 1000
    Toronto, ON M5H 3T9
    Telephone: 416-943-7431
    Fax: 416-361-9781
    E-mail: [email protected]


Notice of Hearing
File No. 201431


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: Russell Chang



NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a
hearing panel of the Pacific Regional Council (“Hearing Panel”) of the Mutual Fund Dealers
Association of Canada (“MFDA”) in the hearing room located at the MFDA office at 650 West
Georgia Street, Suite 1220, Vancouver, British Columbia on November 25, 2014, at 10:00 a.m.
(Pacific), concerning a disciplinary proceeding commenced by the MFDA against Russell Chang
(the “Respondent”). The Hearing on the Merits will take place in Vancouver, British Columbia at
a time and venue to be announced.

DATED this 14th day of October, 2014.

“Paige L. Ward”

Paige L. Ward

Corporate Secretary

Mutual Fund Dealers Association of Canada
121 King Street West, Suite 1000
Toronto, Ontario
M5H 3T9
Telephone: 416-943-5838
Facsimile: 416-361-9781
Email: [email protected]
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NOTICE is further given that the MFDA alleges the following violations of the By-laws, Rules
or Policies of the MFDA:

Allegation #1: Between May 29, 2012 and June 12, 2012, the Respondent engaged in securities
related business that was not carried on for the account and through the facilities of the Member
by selling, recommending, referring or facilitating the sale outside the Member of $550,000 of
investment products to two clients and one other individual, contrary to MFDA Rules 1.1.1(a),
2.4.2 and 2.1.1.

Allegation #2: Between May 29, 2012 to August 1, 2012, the Respondent had and continued in
another gainful occupation that was not approved by the Member by being employed by an
investment company and by selling, recommending, referring or facilitating the sale of $550,000
of investment products to three investors on behalf of the investment company, contrary to
MFDA Rules 1.2.1(c) and 2.1.1.

PARTICULARS

NOTICE is further given that the following is a summary of the facts alleged and intended to be
relied upon by the MFDA at the hearing:

Registration History

1.
From June 30, 2008 to August 1, 2012, the Respondent was registered in British
Columbia and Alberta1 as a mutual fund salesperson (now called a “dealing representative”) with
Investia Financial Services Inc. (“Investia”), a Member of the MFDA. The Respondent resigned
from Investia on August 1, 2012. The Respondent worked in an Investia branch office in
Richmond, British Columbia.

2.
The Respondent is not currently registered in the securities industry in any capacity.

1The Respondent commenced his registration in Alberta on February 16, 2009.

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Allegation #1: Securities related business outside the Member

3.
Providence Preferred Financial Corp. (“Providence Preferred”) is a company
incorporated in British Columbia that is associated with the Providence Companies. On their
website, the Providence Companies purport to be “a group of Diversified Holdings, strategically
placed across a select group of industry verticals, with an emphasis on financial services.”
(Providence Preferred and the Providence Companies will hereinafter be referred to singly and
collectively as “Providence”).

4.
Beginning in January 2012, the Respondent was recruited by Providence to establish an
office for Providence in Vancouver, British Columbia. In or around April 2012, the Respondent
visited the Providence offices in Asia. Providence paid the Respondent's expenses for this trip.

5.
Near the end of May 2012, the Respondent accepted an offer of employment from
Providence to commence on June 1, 2012. According to the Respondent, his responsibilities
included establishing an office and infrastructure for Providence in Vancouver, hiring local staff,
furnishing the office and hiring a copywriter to work on marketing materials.

6.
On May 31, 2012, the day before his employment with Providence commenced, the
Respondent contacted his Branch Manager at Investia to inquire about the process for obtaining
Investia’s approval to engage in an outside business activity. The Respondent did not disclose his
involvement with Providence to the Branch Manager and, in particular, did not disclose the fact
that he had already accepted an offer of employment from Providence. The Branch Manager
instructed the Respondent to complete and submit an Investia Outside Business
Activity/Volunteer Activity Approval Form (“Form”).

7.
On June 1, 2012, the Respondent began his employment with Providence at an annual
salary of $72,000. The Respondent states that he held the position of Vice-President, Corporate
Relations for Providence and was responsible for establishing and running the local office for
Providence.

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8.
According to the Respondent, he was close friends with JL, AC and TL (collectively the
“Investors”). JL and AC were clients of Investia and the Respondent was the dealing
representative responsible for servicing their accounts. The Respondent met the Investors once a
week for coffee. During some of these meetings between January and May 2012, they discussed
the Respondent's potential job opportunity with Providence.

9.
The Respondent introduced the Investors to a representative of Providence. According to
the Respondent, the representative explained an investment product offered by Providence
Preferred called Series I-A Notes (the “Notes”) to the Investors.

10.
The Respondent obtained copies of the subscription agreement for the Notes and
arranged meetings with the Investors to complete the subscription agreements. The Respondent
returned the completed subscription agreements to the representative of Providence. The
representative of Providence signed the subscription agreements as the authorized signatory of
Providence Preferred.

11.
From May 29, 2012 to June 12, 2012, the Respondent sold, recommended, referred or
facilitated the sale of $550,000 of Notes to the Investors. The Investors made the following
investments in the Notes:

No.
Investor
Type of securities
Total purchase
Exemption
Date of
purchased
price (CDN$)
Claimed
Investment
1.
TL
Series I-A Notes
$250,000
Accredited
May 29, 2012

(20% interest paid
Investor
at maturity – 1
NI 45-106 (j)
year term)
2.
Client JL
Series I-A Notes
$100,000
Accredited
June 1, 2012
(20% interest paid
Investor
at maturity – 1
NI 45-106 (j)
year term)
Series I-A Notes
$150,000
Accredited
June 1, 2012
(20% interest paid
Investor
at maturity – 1
NI 45-106 (j)
year term)
3.
Client AC
Series I-A Notes
$50,000
Accredited
June 12, 2012
(10.25% interest
Investor
paid at maturity –
NI 45-106 (k)
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1 year term)

Total: $550,000

12.
On June 6, 2012, to facilitate client AC's purchase of the Notes, the Respondent
processed a redemption of $4,195.38 of mutual funds from client AC's Tax Free Savings Account
and a redemption of $47,401.88 of mutual funds from client AC's open (i.e. unregistered)
account.

13.
The Notes were not an investment product known to or approved by Investia for sale by
its Approved Persons, including the Respondent. The Respondent’s sales or referrals of the Notes
were not processed through the facilities or for the account of Investia.

14.
At all material times, Investia's policies and procedures, consistent with MFDA Rule
1.1.1(a), prohibited its Approved Persons from engaging in the sale of any investments that
would be considered securities under applicable legislation through any entity other than
Investia.

15.
At all material times, Investia's policies and procedures, consistent with MFDA rule
1.2.1(c), required all Approved Persons to report in writing all outside business activities to
Investia and to obtain Investia's prior approval before commencing any outside business
activities.

16.
Investia did not have a referral arrangement with Providence and, in particular, did not
have a referral arrangement that satisfied the requirements of MFDA Rule 2.4.2. As a
consequence, the Respondent was not permitted to refer clients and other individuals to
Providence.

17.
On June 14, 2012, after the Investors had completed their purchases of the Notes, the
Respondent submitted a completed Form to Investia by email.2 The Respondent disclosed the
following details of his involvement with Providence:

2The Form is dated June 3, 2012, however, the Respondent did not submit it to Investia until June 14, 2012.
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Name of Employer/Business: Providence Preferred Financial Corp.
Start Date: June 1, 2012
Nature/Type of Business: Trade Finance
Your Title/Position: Canadian Director
No. of Hours per Week: 35
Is this Activity Held during Normal Business Hours: Yes
Annual Salary: $72,000.00
Categories: Other – International Trade Finance
Details of Activities Conducted: Helping Providence Preferred raise capital for
company’s own use to expand their business in Emerging Markets. Raising capital
in Hong Kong, Singapore and Suzhou, China; and
Is there any potential conflict of interest between your duties as Investia Mutual
Fund Representative and your OBA of to your clients? – No

18.
The Respondent did not disclose to Investia that he had already sold the Notes to the
Investors.

19.
Prior to the June 14, 2012 email, Investia was not aware of the Respondent's employment
with Providence. Investia did not approve of the Respondent's outside business activity with
respect to Providence.

20.
Between June 22, 2012 and July 3, 2012, the Respondent received the following wire
deposits from Providence totaling $15,420:

Date of Deposit
Financial
Amount
Reason for Deposit
Institution
June 22, 2012
TD Canada Trust
$6,490
Advance from Providence Preferred
for office expenses and office set up
June 27, 2012
TD Canada Trust
$5,390
Expense reimbursements from
Providence Preferred
July 3, 2012
TD Canada Trust
$3,540
Expense reimbursements from
Providence Preferred

Total
$15,420

21.
Effective August 1, 2012, the Respondent resigned from Investia.

22.
By engaging in the conduct described above, between May 29, 2012 and June 12, 2012,
the Respondent engaged in securities related business that was not carried on for the account and
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through the facilities of the Member by selling, recommending, referring or facilitating the sale
of $550,000 of Notes to TL, client JL and client AC outside Investia, contrary to MFDA Rules
1.1.1(a), 2.4.2 and 2.1.1.

Allegation #2: Dual Occupation

23.
In the event the Respondent’s activities in relation to the Investors’ purchase of the Notes
as described in Allegation #1 above did not constitute securities related business, then from May
29, 2012 to June 12, 2012, the Respondent had and continued in another gainful occupation that
was not disclosed to and approved by the Member by selling, recommending, referring or
facilitating the sale of the Notes to the Investors, contrary to MFDA Rules 1.2.1(c) and 2.1.1.

24.
Further, and in any event, from June 1, 2012 to August 1, 2012, while the Respondent
was employed by Providence, the Respondent had and continued in another gainful occupation
that was not approved by the Member, contrary to MFDA Rules 1.2.1(c) and 2.1.1.

NOTICE is further given that the Respondent shall be entitled to appear and be heard and be
represented by counsel or agent at the hearing and to make submissions, present evidence and
call, examine and cross-examine witnesses.

NOTICE is further given that MFDA By-laws provide that if, in the opinion of the Hearing
Panel, the Respondent:

 has failed to carry out any agreement with the MFDA;

 has failed to comply with or carry out the provisions of any federal or provincial statute
relating to the business of the Member or of any regulation or policy made pursuant
thereto;

 has failed to comply with the provisions of any By-law, Rule or Policy of the MFDA;

 has engaged in any business conduct or practice which such Regional Council in its
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discretion considers unbecoming or not in the public interest; or

 is otherwise not qualified whether by integrity, solvency, training or experience,

the Hearing Panel has the power to impose any one or more of the following penalties:

(a) a reprimand;

(b) a fine not exceeding the greater of:

(i)
$5,000,000.00 per offence; and
(ii)
an amount equal to three times the profit obtained or loss avoided by such person
as a result of committing the violation;

(c) suspension of the authority of the person to conduct securities related business for such
specified period and upon such terms as the Hearing Panel may determine;

(d) revocation of the authority of such person to conduct securities related business;

(e) prohibition of the authority of the person to conduct securities related business in any
capacity for any period of time;

(f) such conditions of authority to conduct securities related business as may be considered
appropriate by the Hearing Panel;

NOTICE is further given that the Hearing Panel may, in its discretion, require that the
Respondent pay the whole or any portion of the costs of the proceedings before the Hearing
Panel and any investigation relating thereto.

NOTICE is further given that the Respondent must serve a Reply on Enforcement Counsel and
file a Reply with the Office of the Corporate Secretary within twenty (20) days from the date of
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service of this Notice of Hearing.

A Reply shall be served upon Enforcement Counsel at:

Mutual Fund Dealers Association of Canada

121 King Street West, Suite 1000

Toronto, Ontario
M5H 3T9

Attention: Clement Wai

Fax: (416) 361-9073

Email: [email protected]

A Reply shall be filed by:
(a) providing 4 copies of the Reply to the Office of the Corporate Secretary by personal
delivery, mail or courier to:
The Mutual Fund Dealers Association of Canada
121 King Street West, Suite 1000
Toronto, Ontario
M5H 3T9
Attention: Office of the Corporate Secretary; or

(b) transmitting 1 copy of the Reply to the Office of the Corporate Secretary by fax to fax
number 416-361-9781, provided that the Reply does not exceed 16 pages, inclusive of the
covering page, unless the Office of the Corporate Secretary permits otherwise; or
(c) transmitting 1 electronic copy of the Reply to the Office of the Corporate Secretary by e-
mail at [email protected].

A Reply may either:

(i)
specifically deny (with a summary of the facts alleged and intended to be relied upon
by the Respondent, and the conclusions drawn by the Respondent based on the
alleged facts) any or all of the facts alleged or the conclusions drawn by the MFDA in
the Notice of Hearing; or

(ii)
admit the facts alleged and conclusions drawn by the MFDA in the Notice of Hearing
and plead circumstances in mitigation of any penalty to be assessed.

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NOTICE is further given that the Hearing Panel may accept as having been proven any facts
alleged or conclusions drawn by the MFDA in the Notice of Hearing that are not specifically
denied in the Reply.

NOTICE is further given that if the Respondent fails:

(a) to serve and file a Reply; or

(b) attend at the hearing specified in the Notice of Hearing, notwithstanding that a Reply
may have been served,

the Hearing Panel may proceed with the hearing of the matter on the date and the time and place
set out in the Notice of Hearing (or on any subsequent date, at any time and place), without any
further notice to and in the absence of the Respondent, and the Hearing Panel may accept the
facts alleged or the conclusions drawn by the MFDA in the Notice of Hearing as having been
proven and may impose any of the penalties described in the By-laws.
END.

DM 397895 v3

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