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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: James Russell Taylor

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 (“Hearing Panel”) of the Mutual Fund Dealers Association of Canada (“MFDA”) in the hearing room at the MFDA offices, located at 121 King Street West, Suite 1000, Toronto, Ontario on March 12, 2019, at 9:00 a.m. (Eastern), or as soon thereafter as the hearing can be held, concerning a disciplinary proceeding commenced by the MFDA against James Russell Taylor (“Respondent”).

  • Michelle Pong
    Michelle Pong
    Director of Regional Councils

    Mutual Fund Dealers Association of Canada
    121 King St. West, Suite 1000
    Toronto, ON M5H 3T9
    Telephone: 416-945-5134
    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 June 2004 and January 2016, the Respondent recommended and solicited the purchase of off-book investments totaling approximately $97,500 USD and $25,000 CAD, thereby engaging in securities related business that was not carried on for the account of the Member or processed through the facilities of the Member, contrary to MFDA Rules 1.1.1 and 2.1.1.

Allegation #2: Between October 2004 and June 2010, the Respondent arranged for client SV to co-invest in a private business, held and controlled off-book investments on behalf of client SV, or received payments from client SV that were deposited into the Respondent’s personal accounts or accounts he controlled, thereby engaging in personal financial dealings with client SV which gave rise to a conflict of interest which the Respondent failed to disclose to the Member or 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: Commencing in 2011, the Respondent acted as executor and trustee and was named as a beneficiary for deceased client BT’s estate, and acted as a trustee for deceased client TJ’s estate, contrary to the Member’s policies and procedures, and MFDA Rules 2.3.1, 2.1.4 and 2.1.1.

Allegation #4: Commencing in February 2015, the Respondent failed to cooperate with an investigation conducted by Staff of the MFDA, contrary to section 22.1 of MFDA
By-law No. 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 a mutual fund salesperson since 1990.
  2. Between April 12, 2002 and January 9, 2016, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative[1]) with FundEX Investments Inc. (“FundEX”), a Member of the MFDA.
  3. At all material times, the Respondent conducted business in Etobicoke, Ontario.
  4. The Respondent has not been registered in the securities industry in any capacity since January 9, 2016.
  5. At all material times, the Respondent provided financial planning services using the corporate trade name, Financial Health Management Group Inc. (“FHMG”). FHMG describes itself as a wealth management firm that “provides financial and business consulting through our FinancialHealthCare™ program which follows the traditional model for health care needs and accommodates life’s dynamic processes by adapting to changing circumstances.”
  6. At all material times, the Respondent was also licensed to sell insurance products. The Respondent conducted his insurance business through a managing general agency, Homevest Insurance Services Inc. (“Homevest”). The Respondent owns and controls Homevest.

Allegation #1 – Securities Related Business Outside the Member

  1. Global Diagnostics Inc. (“GDI”) is a private Canadian company operating in the medical information field incorporated in the province of Ontario with its head office located in Toronto, Ontario. GDI purportedly develops health care technology.
  2. Beginning in or about 2004, the Respondent became a member of GDI’s “advisory board”. At the time he assumed his role on GDI’s advisory board, the Respondent did not disclose to FundEX, or obtain FundEX’s approval regarding, his role with GDI.
  3. At all material times, client SV was a client of FundEX and the Respondent was the mutual fund salesperson responsible for serving client SV’s accounts.
  4. As described in greater detail below, between October 2004 and July 2010, the Respondent solicited or arranged for client SV to invest $97,500 US and $25,000 CDN in GDI.
  5. On or about October 6, 2004, the Respondent solicited or arranged for client SV to invest in GDI. Client SV provided a bank draft payable to the Respondent in the amount of $20,000 USD for an investment in GDI.
  6. On or about October 26, 2004, the Respondent and client SV entered into a “Financing Term Sheet Sub-Term Agreement” in respect of client SV’s $20,000 USD investment. The Agreement stated, among other things:
    • A total investment of between $95,000 and $132,500 will be raised in the form of a common share issuance, for the funding of GDI’s operations
    • The Respondent shall subscribe for 200,000 of a total of 475,000 GDI Units at $0.20 per Unit
    • A total investment of between $20,000 and $30,000 will be raised through client SV in common share issuance, for the funding of GDI operations
    • The Respondent shall hold and control on behalf of client SV 100,000 GDI Units at $0.20 per unit
    • Each GDI Unit will consist of one GDI common share and one-half warrant, which give the holder the right to purchase one GD share at $0.20 per share
  7. On or about September 5, 2005, the Respondent solicited or arranged for client SV to make an additional investment in GDI by exercising warrants. Client SV provided a personal cheque in the amount of $10,000 USD payable to Homevest (the holding company through which the Respondent conducts his insurance business). Client SV executed a Notice to Exercise Warrants in respect of the investment which stated:
    1. As per our agreement titled “Financing Term Sheet – Sub Term Agreement” dated October 26, 2004, I herby (sic) inform you that I wish to purchase 50,000 common shares of Global Diagnostics Inc.  As per our agreement I will buy these shares at a cost of $0.20/share.  I will make payment in the amount of US$10,000.
  8. In or about June 2006, the Respondent informed FundEX that he was engaged in a business management role with GDI providing, among other things, advisory services and attending meetings. On the basis of this information, FundEX approved the Respondent’s activities relating to GDI.
  9. On or about June 27, 2006, the Respondent solicited or arranged for client SV to invest additional monies in GDI. Client SV provided a bank draft payable to the Respondent in the amount of $50,000 USD for an investment in GDI. The Respondent and client SV entered into a “Financing Term Sheet Sub-Term Agreement” in respect of the investment which stated, among other things:
    • A total investment of between $500,000 USD will be raised in the form of a common share issuance, for the funding of GDI operations
    • The Respondent shall subscribe for 130,000 of a total of 650,000 GDI Units at $0.77 per share
    • A total investment of $50,000 will be raised through client SV in common share issuance, for the funding of GDI’s operations
    • The Respondent shall hold and control on behalf of client SV 65,000 GD Units at $0.77 per share
  10. On or about March 8, 2008, the Respondent solicited or arranged for client SV to invest additional monies in GDI. Client SV provided a cheque dated April 8, 2008 payable to the Respondent in the amount of $25,000 CDN for the purchase of two GDI preferred shares. The Respondent and client SV entered into a “Financing Term Sheet Sub-Term Agreement” in respect of the investment which stated:
    • An investment of up to $250,000 (minimum) is to be raised in the form of preferred shares convertible into common shares on or before December 31, 2008 at $1.00 per common share
    • The Respondent shall subscribe for 4 preferred shares of a maximum of 20 preferred shares to be issued at $12,500 per share
    • A total investment of $25,000 will be raised through client SV for the funding of GDI’s operations
    • The Respondent shall hold and control on behalf of client SV 2 preferred shares at $12,500 convertible into common shares
  11. On or about July 20, 2010, the Respondent solicited or arranged for client SV to invest an additional $17,500 in GDI. Client SV paid these monies to the Respondent. The Respondent and client SV entered into a “Sub-Loan Agreement” in respect of the investment which stated:
    • A total credit facility of US $105,000 has been completed to assist in funding GDI’s operations
    • The Respondent shall loan $35,000 to GDI
    • A sub-loan of $17,500 will be raised through client SV for funding GDI’s operations
    • The Respondent shall hold and control on behalf of client SV the sub-loan arrangement
  12. None of the investments in GDI described above were processed through the facilities of FundEX.
  13. On December 7, 2016, client SV submitted a complaint to FundEX alleging that his investment in GDI may have been fictitious and that the Respondent has failed to account for the money that client SV invested in GDI.
  14. By virtue of the forgoing, the Respondent recommended and solicited the purchase of off-book investments totaling approximately $97,500 USD and $25,000 CAD, thereby engaging in securities related business that was not carried on for the account of the Member or processed through the facilities of the Member, contrary to MFDA Rules 1.1.1 and 2.1.1.

Allegation #2 – Personal Financial Dealings with Client SV

  1. As described above, beginning in or around October 2004, the Respondent solicited or arranged for client SV to invest in GDI.
  2. The Respondent was a co-investor in GDI. He also served as a member of GDI’s advisory board and provided advisory services to it.
  3. The Respondent held and controlled client SV’s investments in GDI on behalf of client SV.
  4. The Respondent received payments from client SV that were deposited into the Respondent’s personal accounts or accounts he controlled, as listed below:

Date

Amount

Method of Payment

Payee

October 6, 2004

$20,000 USD

Bank Draft

Respondent

September 5, 2005

$10,000 USD

Personal Cheque

Homevest

June 27, 2006

$50,000 USD

Bank Draft

Respondent

April 8, 2008

$25,000 CAD

Personal Cheque

Respondent

June 2010

$17,500 USD

Bank Draft

Respondent

  1. The Respondent’s conduct gave rise to a conflict of interest which the Respondent failed to disclose to FundEX, or address by the exercise of responsible business judgment influenced only by the best interests of the clients.
  2. By virtue of the foregoing, the Respondent engaged in conduct contrary to MFDA Rules 2.1.4 and 2.1.1.

Allegation #3 – The Respondent was Named as an Executor/Trustee and Beneficiary For Clients

Client BT
  1. Client BT and client EE were common-law partners. At all material times, client BT and EE were mutual fund clients of FundEX and the Respondent was the mutual fund salesperson who serviced their accounts at FundEX.
  2. On or about October 9, 2002, the Respondent and client BT were named in client EE’s Last Will and Testament as co-executor and co-trustees of client EE’s estate. On May 5, 2008, client EE passed away. The Respondent subsequently accepted an appointment as co-executor and co-trustee of client EE’s estate.[2]
  3. In or about 2010, client BT named the Respondent in her Last Will and Testament as the sole executor and trustee of client BT’s estate. Client BT also named the Respondent in her will as the beneficiary of certain air miles reward points.
  4. FundEX was not aware that the Respondent had been named or appointed as client EE’s executor/trustee in her will, and had been named as executor/trustee and as a non-monetary beneficiary in client BT’s will.
  5. In 2011, FundEX revised its policies and procedures to prohibit its Approved Persons from acting as executors or trustees for clients.
  6. On February 24, 2011, FundEX conducted an Annual Associate Compliance Audit (“FundEX Audit”) on the Respondent’s activities. The findings of the Audit were provided to the Respondent in a report dated July 4, 2011 (the “FundEX Audit Report”), which identified compliance deficiencies that the Respondent was expected to rectify.
  7. Among other things, the FundEX Audit Report identified that the Respondent was acting as an executor/trustee for clients, and instructed the Respondent to resign his role as executor/trustee for the clients or transfer the client accounts out of FundEX.
  8. In or about December 2011, the Respondent transferred investment accounts of client EE’s estate out of FundEX in accordance with the directive contained in the FundEX Audit Report.
  9. The Respondent did not transfer client BT’s accounts out of FundEX.
  10. On November 7, 2014, client BT passed away.
  11. The Respondent subsequently accepted an appointment as executor/trustee of client BT’s estate and administered all aspects of client BT’s estate, including distributing the proceeds of client BT’s investment accounts at FundEX and her other assets.
  12. Client BT’s will also provided for the residue of client BT’s estate to be held in trust for a charitable foundation. Client BT’s will appointed the Respondent as the sole trustee of the charitable foundation.
Client TJ
  1. At all material times, client TJ was a client of FundEX and the Respondent was the mutual fund salesperson responsible for serving client TJ’s accounts at FundEX.
  2. Client TJ named the Respondent as a co-trustee in her will.
  3. In or about October 2006, client TJ passed away.
  4. The Respondent was subsequently appointed as a co-trustee of client TJ’s estate.
  5. As stated above, in 2011, FundEX revised its policies and procedures to prohibit its Approved Persons from acting as executors or trustees for clients.
  6. After his appointment as co-trustee for the estate of client TJ, the Respondent continued to service investment accounts of the estate of client TJ until about October 2015.
  7. As described above, the Respondent acted as executor and trustee and was named as a beneficiary for deceased client BT’s estate, and acted as a trustee for the deceased client TJ’s estate, contrary to FundEX’s policies and procedures, and MFDA Rules 2.3.1, 2.1.4 and 2.1.1.

Allegation #4 – Failure to Cooperate

  1. On October 13, 2015, the Ontario Securities Commission (the “OSC”) referred an anonymous complaint dated September 30, 2015 (the “OSC Complaint”) to Staff of the MFDA (“Staff”). The complaint alleged that the Respondent was serving as an executor/trustee and was a beneficiary of the estates of FundEX clients whose mutual fund accounts he serviced.
  2. On November 18, 2015, Staff sent a letter to the Respondent requesting information regarding the OSC Complaint (the “November 18, 2015 Letter”). Staff requested a response from the Respondent on or before December 2, 2015.
  3. The Respondent did not provide a response to the November 18, 2015 Letter.
  4. On December 2, 2015, FundEX informed Staff that the Respondent had retained counsel.
  5. On December 3, 2015, Staff requested that FundEX obtain a statement from the Respondent responding to the allegations set out in the OSC Complaint and asked FundEX to provide the requested statement to Staff by January 15, 2016.
  6. On December 16, 2015, FundEX informed Staff that the Respondent had resigned his position with FundEX on December 11, 2015.
  7. On December 16, 2015, Staff sent another letter to the Respondent (and sent a copy to his counsel) requesting information regarding the allegations set out in the OSC Complaint (the “December 16, 2015 Letter”). Staff requested a response to the December 16, 2016 Letter on or before January 15, 2016.
  8. Neither the Respondent nor his counsel responded to the December 16, 2015 Letter.
  9. On January 18, 2016, Staff sent a third letter to the Respondent (and sent a copy of the letter to his counsel) requesting information regarding the allegations set out in the OSC Complaint (the “January 18, 2016 Letter”). Staff requested a response to the January 18, 2016 Letter on or before February 2, 2016.
  10. On January 25, 2016, Staff sent a letter to the Respondent (and a copy to his counsel) requesting information concerning the financial planning services he provided (the “January 25, 2016 Letter”). Staff requested a response to the January 25, 2016 Letter on or before February 9, 2016.
  11. Staff did not receive a response to the January 25, 2016 Letter from the Respondent or his counsel.
  12. On May 4, 2016, Staff was informed by the Respondent’s counsel that he was no longer retained by the Respondent. Counsel agreed to provide the Respondent with a copy of the January 18, 2016 Letter.
  13. On May 11, 2016, the Respondent’s former counsel confirmed to Staff that he had delivered a copy of the January 18, 2016 Letter to the Respondent.
  14. By letter dated May 27, 2016 and delivered to the Respondent by a process server, Staff repeated its requests for information and documents that Staff had requested in the previous correspondence (the “May 27, 2016 Letter”). In the May 27, 2016 Letter, Staff informed the Respondent that if he failed to respond, Staff may seek authorization to commence a proceeding for failing to cooperate with Staff’s investigation. Staff asked the Respondent to provide a response to the May 27, 2016 Letter by June 6, 2016.
  15. Staff did not receive a response from the Respondent to Staff’s May 27, 2016 Letter.
  16. On or around July 27, 2016, FundEX received an anonymous letter alleging that the Respondent had loaned $100,000 from client EE’s estate to a corporation owned by a former client of the Respondent. The complainant alleged that the Respondent had used proceeds from a client’s estate for the purpose of enriching the Respondent’s family and friends. Staff intended to investigate this complaint during the interview of the Respondent.
  17. By letter dated October 4, 2016 and delivered to the Respondent by process server, Staff informed the Respondent that an interview between Staff and the Respondent was scheduled to take place on November 16, 2016. The Respondent was asked to confirm his attendance at the interview by November 1, 2016.
  18. Staff did not receive a response from the Respondent to Staff’s October 4, 2016 letter.
  19. The Respondent failed to attend the interview that was scheduled to take place on November 16, 2016 and failed to provide the outstanding documents and information that had been requested by Staff in letters dated November 18, 2015, December 16, 2015, January 18, 2016, January 25, 2016, and May 27, 2016.
  20. As described above, on December 7, 2016, client SV made a complaint to FundEX with respect to the Respondent’s conduct relating to GDI and the whereabouts of his monies invested in GDI. This complaint was forwarded to Staff of the MFDA.  Staff intended to investigate this complaint during the interview of the Respondent.
  21. As a result of the Respondent’s failure to cooperate, Staff has been unable to fully investigate the scope and extent of the Respondent’s conduct described above.
  22. By virtue of the foregoing, the Respondent failed to cooperate with an investigation conducted by Staff of the MFDA, contrary to section 22.1 of MFDA By-law No. 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; and
  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: H. C. Clement Wai
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:
    1. 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) 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.

[1]When National Instrument 33-102 came into effect on September 28, 2009, the registration category formerly known as ‘mutual fund salesperson’ was changed to ‘dealing representative’.
[2] Staff of the MFDA does not allege misconduct with respect to the Respondent’s activities relating to client EE.

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