Notice of Hearing

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 September 1996 to June 24, 2015, the Respondent was registered as a mutual fund salesperson (now known as a dealing representative) in the province of Prince Edward Island with Quadrus Investment Services Ltd. (“Quadrus” or the “Member”), a Member of the MFDA.
2. From at least January 13, 2006 to July 24, 2015, the Respondent was also an insurance agent with London Life Insurance Company (“London Life”).
3. Quadrus is affiliated with London Life and has been a Member of the MFDA since March 25, 2002.
4. At all material times, the Respondent conducted business in and around Charlottetown, Prince Edward Island.

Morton Dew Ltd.

5. The Respondent was dually registered as a dealing representative and insurance agent. In his capacity as an insurance agent, the Respondent sold insurance products offered by London Life through Morton Dew Ltd. (“Morton Dew”).
6. Since 2006, the Respondent has been the President of Morton Dew.
7. In June 2015, London Life received an e-mail from a third party company that had been engaged in business providing marketing support to insurance agents, including the Respondent, that the third party company had terminated its dealings with the Respondent as a result of concerns that the Respondent was engaged in irregular and potentially unethical business practices. On or about June 19, 2015, London Life shared the information it had received from the third party company with Quadrus.  Both London Life and Quadrus commenced investigations into the Respondent’s activities.
8. On June 24, 2015, London Life terminated the Respondent as an insurance agent which, in accordance with London Life’s internal procedures, also triggered the automatic termination of the Respondent’s mutual fund registration by Quadrus.

Allegation #1: Misappropriation

9. Beginning on July 2, 2015, as part of its own investigation into the Respondent’s activities, the Member issued audit letters and copies of portfolio statements to each client whose accounts were serviced by the Respondent. The Member requested that each client review their portfolio summary and advise the Member should any irregularities be identified.  The letter also requested that clients report any financial dealings with the Respondent that occurred outside of the Member’s business.
10. On July 24, 2015, the Member was contacted by clients CVK and LVK (the “clients”). Clients CVK and LVK, a married couple, reported that after reviewing their account statements, it appeared that there was no record of $37,000 that had been provided to the Respondent for the purchase of investments in their Tax Free Savings Accounts (“TFSAs”).
11. On July 27, 2015, the clients produced copies of two cheques to the Member which the clients had provided to the Respondent for the purchase of investments in their TFSAs.
12. The clients informed the Member that they had been instructed by the Respondent to make the cheques payable to “Morton Dew Ltd.” The chart below outlines the details of each cheque provided by the clients to the Respondent:

13. There was no record of deposits in the investment accounts of the clients that corresponded to the amounts that had been provided to the Respondent by means of the cheques dated January 16, 2012 and February 25, 2015 and the Respondent did not return the money to CVK or LVK or otherwise account for the money.
14. During the course of Staff’s investigation, Staff was able to determine that the cheques were deposited into bank accounts at branches where the Respondent and Morton Dew maintained accounts.
15. The Member concluded that the Respondent had misappropriated $37,000 provided to him by clients CVK and LVK for deposit into their TFSAs and compensated the clients for the entirety of their losses.
16. By misappropriating $37,000 received from two Member clients for investment in their TFSAs and failing to repay or otherwise account for the money, the Respondent failed to deal fairly, honestly and in good faith with clients and engaged in conduct that is unbecoming and detrimental to the public interest, contrary to MFDA Rule 2.1.1.

Allegation #2: Failure to Co-operate

17. In July 2015, when Staff of the MFDA (“Staff”) was informed that the Respondent’s registration had been terminated, an investigation was commenced into the Respondent’s activities as an Approved Person.
18. On September 10, 2015, Staff sent a letter to the Respondent by regular and registered mail to request a statement in response to allegations that, among other things, the Respondent had misappropriated client monies intended for deposit in investment accounts maintained by the clients with the Member.
19. On September 16, 2015, the Respondent accepted the registered letter from Staff.
20. On September 24, 2015, Staff received a letter from counsel for the Respondent informing Staff that the Respondent was not willing to respond to Staff’s letter inquiring about his conduct.
21. On March 30, 2016, Staff sent a letter to the Respondent’s counsel requesting a statement in response to the allegations against him and requesting that the Respondent schedule and attend at an interview with Staff. The letter further advised the Respondent of his regulatory obligation to co-operate with Staff’s investigation into his activities and that failure to co-operate with Staff’s investigation could constitute grounds to commence disciplinary hearing against him.
22. On April 4, 2016, the Respondent’s counsel contacted Staff by telephone to advise Staff that the Respondent was aware of the potential consequences of failing to co-operate with an MFDA investigation but confirmed that the Respondent was not willing to provide Staff with a statement and would not attend an interview with Staff.
23. To date, the Respondent has failed to provide Staff with a written statement responding to Staff’s requests for information concerning his activities as an Approved Person and has failed to attend an interview with Staff to give information concerning his knowledge of matters under investigation, thereby failing to co-operate with Staff’s regulatory investigation, contrary to section 22.1 of MFDA By-law No. 1 and 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 Director of Regional Councils 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: Maria L. Abate. Enforcement Counsel
Fax: (416) 361 – 9073
Email: mabate@mfda.ca

A Reply shall be filed by:

1. providing 4 copies of the Reply to the Director of Regional Councils 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 1 copy of the Reply to the Director of Regional Councils by fax to fax number 416-361-9781, provided that the Reply does not exceed 16 pages, inclusive of the covering page, unless the Director of Regional Councils permits otherwise; or
3. transmitting 1 electronic copy of the Reply to the Director of Regional Councils by e-mail at CorporateSecretary@mfda.ca.

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.