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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: Robert Stephen Mitchell

NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a hearing panel of the Central Regional Council (the “Hearing Panel”) of the Mutual Fund Dealers Association of Canada (the “MFDA”) in the hearing room at the MFDA offices, located at 121 King Street West, Suite 1000, Toronto, Ontario on January 12, 2017 at 10:30 a.m. (Eastern), or as soon thereafter as the hearing can be held, concerning a disciplinary proceeding commenced by the MFDA against Robert Stephen Mitchell (the “Respondent”).

  • Sarah Rickard
    Sarah Rickard
    Director of Regional Councils

    Mutual Fund Dealers Association of Canada
    121 King St. West, Suite 1000
    Toronto, ON M5H 3T9
    Telephone: 416-945-5143
    Fax: 416-361-9781
    E-mail: [email protected]

NOTICE is further given that the MFDA alleges the following violations of the By-laws, Rules or Policies of the MFDA:

Allegation #1: Between September 2014 and March 2015, the Respondent processed approximately 28 trades in respect of 10 clients where he determined the specific elements of the trades, including the mutual fund that was traded, the amount of the trade and/or the timing of the trade, thereby engaging in discretionary trading, contrary to MFDA Rules 2.3.1 and 2.1.1. 

Allegation #2: Between March 2005 and January 2015, the Respondent directly reimbursed 4 clients for deferred sales charge fees and short term trading fees incurred by the clients, thereby engaging in personal financial dealings with the clients which gave rise to a conflict or potential conflict of interest that the Respondent failed to address by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to MFDA Rules 2.1.4 and 2.1.1. 

Allegation #3: Between about March 2010 and August 2014, the Respondent obtained, possessed and, in some instances, used to process transactions, 25 pre-signed account forms in respect of 12 clients, contrary to MFDA Rule 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. The Respondent has been registered as a mutual fund salesperson (now known as a dealing representative) with Quadrus Investment Services Ltd. (“Quadrus”), a Member of the MFDA, in Ontario since September 1997, Alberta since November 2001, and British Columbia since July 2008.
  2. At all material times, the Respondent conducted business in the Thunder Bay, Ontario area.

Background

  1. In March 2009, Quadrus compliance staff conducted a review of the Respondent’s branch office (the “2009 Branch Review”). During this review, Quadrus compliance staff detected that the Respondent had, or may have, among other things, engaged in discretionary trading with clients and personal financial dealings with a client by reimbursing or offering to reimburse a deferred sales charge (“DSC”) fee incurred by a client.
  2. Following the conclusion of the 2009 Branch Review, the Respondent confirmed, in writing, that he would rectify the deficiencies identified in the 2009 Branch Review.
  3. In September 2010, Quadrus compliance staff conducted a review of the Respondent’s branch office (the “2010 Branch Review”). During this review, Quadrus compliance staff detected that the Respondent had, or may have, among other things, engaged in discretionary trading with clients, engaged in personal financial dealings with clients by reimbursing or offering to reimburse DSC and short term trading (“STT”) fees incurred by clients, and used pre-signed account forms.
  4. In April 2011, the Respondent signed an “Action Plan” confirming that he would rectify the deficiencies identified in the 2010 Branch Review.
  5. In September 2014, Quadrus compliance staff conducted a review of the Respondent’s branch office (the “2014 Branch Review”). During this review, Quadrus compliance staff detected that the Respondent had obtained, possessed or used to process transactions, 12 pre-signed account forms.
  6. In November 2014, Quadrus issued a disciplinary letter to the Respondent advising the Respondent that he was prohibited from possessing or using pre-signed account forms (the “Disciplinary Letter”).
  7. In March 2015, as a result of the conduct detected during the branch reviews, Quadrus compliance staff reviewed all of the client files maintained by the Respondent (the “File Review”).
  8. The misconduct described in this Notice of Hearing was detected during the 2009 Branch Review, 2010 Branch Review and 2014 Branch Review, and File Review described above.

Allegation #1 – Discretionary Trading

  1. At all material times, Quadrus’ policies and procedures prohibited its Approved Persons from engaging in discretionary trading.
  2. Between September 2014 and March 2015, the Respondent processed approximately 28 trades (the “Trades”) in respect of 10 clients where he determined the specific elements of the Trades, including the mutual fund that was traded, the amount of the trade and/or the timing of the trade.
  3. The clients provided the Respondent or his assistant with a general authorization to process the Trades without specifying the specific elements of the Trades, or the Respondent contacted the clients after he processed the Trades and informed the clients that he had “rebalanced” their accounts.
  4. The Respondent engaged in the conduct described above after:
    1. the Respondent confirmed, in response to the 2009 Branch Review, that he would not engage in discretionary trading; and
    2. the Respondent signed the Action Plan following the 2010 Branch Review which required him to, among other things, “always contact his client by phone or email before rebalancing any accounts”.
  5. By virtue of the foregoing, the Respondent engaged in discretionary trading, contrary to MFDA Rules 2.3.1 and 2.1.1.

Allegation #2 – Personal Financial Dealings

  1. At all material times, Quadrus’ policies and procedures prohibited its Approved Persons from directly reimbursing commission payments to clients.
  2. Since at least April 2008, Quadrus’ policies and procedures prohibited its Approved Persons from engaging in personal financial dealings with clients “which might affect or appear to affect decisions or actions taken with regard to Quadrus”, or from making “contributions to a client’s account or paying for adjustments to a client’s investments without Quadrus’ knowledge and approval”.
  3. Between March 2005 and January 2015, the Respondent directly reimbursed 4 clients for DSC fees and STT fees incurred by the clients. The reimbursements are summarized in the table below:

Client

Date of Reimbursement

Type of Reimbursement

Amount Reimbursed

WB

March 29, 2005

DSC

$881.73

### Inc.

April 30, 2008

DSC

$225.93

MH Ltd.

May 14, 2009

STT

$500.00

HC

January 20, 2015

DSC

$49.36

 

  1. The Respondent directly reimbursed client HC for a DSC fee after:
    1. the Respondent confirmed, in response to the 2009 Branch Review, that he would not engage in personal financial dealings with clients; and
    2. the Respondent signed the Action Plan following the 2010 Branch Review which required him to cease this activity.
  2. By virtue of the foregoing, the Respondent engaged in personal financial dealings with clients, which gave rise to a conflict or potential conflict of interest between the Respondent and the clients that the Respondent failed to address by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to MFDA Rules 2.1.4 and 2.1.1. 

Allegation #3 – Pre-Signed Account Forms

  1. At all material times, Quadrus’ policies and procedures prohibited its Approved Persons from using pre-signed account forms.
  2. Between about March 2010 and August 2014, the Respondent obtained, possessed and, in some instances, used to process transactions, 25 pre-signed account forms in respect of 12 clients.
  3. The pre-signed account forms included Switch Forms, Redemption Forms, Subsequent Investment Forms, an RESP Education Assistance Payment Form, and a Transfer Form.
  4. The Respondent obtained, possessed or used to process transactions, 12 of the 25 pre-signed account forms described above after the Respondent signed the Action Plan in April 2011 which required him to cease using pre-signed account forms.
  5. The Respondent obtained, possessed or used to process transactions, 8 of the 25 pre-signed account forms described above after Quadrus had issued the Disciplinary Letter to him prohibiting him from possessing or using pre-signed account forms.
  6. By virtue of the foregoing, the Respondent obtained, possessed and, in some instances, used to process transactions, 25 pre-signed account forms in respect of 12 clients, contrary to MFDA Rule 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 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:

  1. a reprimand;
  2. a fine not exceeding the greater of:
    1. $5,000,000.00 per offence; and
    2. an amount equal to three times the profit obtained or loss avoided by such person as a result of committing the violation;
  3. 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;
  4. revocation of the authority of such person to conduct securities related business;
  5. prohibition of the authority of the person to conduct securities related business in any capacity for any period of time;
  6. 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 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, ON M5H 3T9

Attention: Paul Blasiak

Fax: 416-361-9073

Email: [email protected]

a Reply shall be filed by:

  1. providing four (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, ON M5H 3T9

    Attention: Office of the Corporate Secretary; or

  2. transmitting one (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
  3. transmitting one (1) electronic copy of the Reply to the Office of the Corporate Secretary by e-mail at [email protected].

A Reply may either:

  1. 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
  2. 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.

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:

  1. to serve and file a Reply; or
  2. 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.

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