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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: Ronald Morrell Schwartz

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 August 22, 2017 at 10:00 a.m. (Eastern), or as soon thereafter as the hearing can be held, concerning a disciplinary proceeding commenced by the MFDA against Ronald Morrell Schwartz (“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 January 2009 and June 2015, the Respondent processed a series of unauthorized redemptions and misappropriated at least $69,035 from six clients, contrary to MFDA Rules 2.1.1 and 2.3.1.

Allegation #2: Between January 2009 and June 2015, the Respondent created and distributed fictitious account statements, and misled clients and his Members in response to inquiries regarding his trading activities, in order to conceal that he had processed unauthorized redemptions in client accounts and misappropriated client monies, contrary to MFDA Rules 2.8.2 and 2.1.1.

Allegation #3: Commencing on June 1, 2015, the Respondent failed to cooperate with an investigation by MFDA Staff into his conduct, contrary to section 22.1 of MFDA By-law No. 1.

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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) since January 2002.
  1. From September 1, 2006 to January 30, 2009, the Respondent was registered in Ontario as a mutual fund salesperson with FundEX Investments Inc. (“FundEX”), a Member of the MFDA.
  1. From February 2, 2009 to October 24, 2014, the Respondent was registered in Ontario as a mutual fund salesperson with HUB Capital Inc. (“HUB Capital”), a Member of the MFDA.
  1. From March 2002 to April 14, 2015, the Respondent was also a licensed insurance salesperson in the province of Ontario.
  1. At all material times, the Respondent conducted business in the Kitchener-Waterloo area from a sub-branch located in his home, and operated using the trade name, Assure Financial.

Allegation #1: Misappropriation of Client Monies

Client CH
  1. At all material times, client CH was a client of HUB Capital and the Respondent was the mutual fund salesperson responsible for servicing the client CH’s accounts at HUB Capital.
  1. Between December 6, 2012 and December 10, 2012, the Respondent processed the five unauthorized redemptions from client CH’s Registered Retirement Savings Account (“RRSP”) with HUB Capital, as described below:

Date of Redemption

Net Redemption Amount

December 6, 2012

$450.00

December 6, 2012

$450.00

December 7, 2012

$1,800.00

December 7, 2012

$2,700.00

December 10, 2012

$4,373.57

Total Net Redemption Amount

$9,773.57

  1. The Respondent processed the redemptions outside the facilities of HUB Capital by making the redemption request directly to the fund company. The Respondent requested that the redemption cheques issued by the fund company be made payable to client CH and delivered to his sub-branch office.
  1. The Respondent deposited the redemption cheques into a business account held in the name of Assure Financial and misappropriated client CH’s monies.
  1. On November 7, 2013, client CH received a “Notice of Reassessment” from the Canada Revenue Agency (“CRA”) stating that he owed $3,608.21 in taxes plus $92.80 in interest penalties as a result of the unauthorized withdrawals from his RRSP.
  1. On November 7 and 25, 2013, client CH contacted the Respondent about the unauthorized withdrawals from his RRSP account.
  1. On November 26, 2013, the Respondent advised client CH that he was working on a resolution and that he would have more information for client CH by the end of the week.
  1. Later on November 26, 2013, client CH sent an email to the Respondent expressing his concerns about the unauthorized redemptions and advising the Respondent that he had been notified by the CRA that, as a result of his increased income from the withdrawals from his RRSP, the child tax credit he received in the amount of $474.20 was being clawed back.
  1. On November 27, 2013, the Respondent personally reimbursed client CH for the loss of the child tax credit by sending client CH an email money transfer in the amount of $474.20.
  1. On December 6, 2013, the Respondent sent an email to client CH stating that the unauthorized redemptions from his RRSP were caused by a back office system error by HUB Capital. The Respondent’s statement to client CH was false and concealed that he had misappropriated client CH’s monies.
  1. The Respondent promised to reimburse client CH for the unauthorized withdrawals, tax arrears and interest penalties through the Respondent’s or HUB Capital’s errors and omissions insurance.
  1. On January 24, 2014, the Respondent deposited $4,000 into client CH’s bank account to reimburse client CH for the $3,608.21 in taxes and $92.80 in interest penalties owed to the CRA.
  1. The Respondent advised client CH that he was repaying the amount of the unauthorized RRSP redemptions, and recommended that client CH deposit the monies in a Tax Free Savings Account (“TFSA”) rather than return the monies to the RRSP account. Client CH agreed to deposit the monies into a TFSA.
  1. The Respondent failed to set up a TFSA for client CH and did not repay him $14,859.
  1. Rather, the Respondent provided client CH with fictitious TFSA account statements that he had created in order mislead client CH that his monies had been repaid into the TFSA account and conceal that he had misappropriated the monies.
  1. On April 28, 2014, client CH emailed the Respondent to request a $10,000 withdrawal from his TFSA.
  1. On April 29, 2014, the Respondent emailed client CH to dissuade him from making a withdrawal from his TFSA. The Respondent attached a fictitious TFSA account statement to his email.
  1. Client CH informed the Respondent to proceed with the $10,000 withdrawal from his TFSA.
  1. The Respondent subsequently deposited four bank drafts into client CH’s bank account which made it appear as though the deposits were the proceeds of client CH’s redemption from the TFSA, as described below:

Date of Deposit

Deposit Amount

May 20, 2014

$5,000

May 21, 2014

$5,000

July 3, 2014

$1,077

July 7, 2014

$5,000

Total Amount Deposited

$16,077

Clients PS and CS
  1. Clients PS and CS are spouses. At all material times, clients PS and CS were clients of FundEX and the Respondent was the mutual fund salesperson responsible for servicing their accounts at FundEX.
  1. On or about January 13, 2009, the Respondent processed an unauthorized redemption of approximately $2,440.42 from client PS’s RRSP account.
  1. On or about January 15, 2009, the Respondent processed an unauthorized redemption of approximately $2,538.19 from client CS’s RRSP account.
  1. The Respondent processed the redemptions outside the facilities of FundEX by making the redemption request directly to the fund companies. The Respondent requested that the redemption cheques issued by the fund companies be made payable to clients PS and CS, and delivered to his sub-branch office.
  1. The Respondent deposited the redemption cheques into a business account held in the name of Assure Financial and misappropriated the clients’ monies.
  1. In 2010, clients PS and CS each received a T4 RRSP receipt from the CRA for withdrawals from their respective RRSP accounts. After receiving the T4 RRSP slips, clients PS and CS contacted the Respondent.
  1. The Respondent advised clients PS and CS that the redemptions in their respective RRSPs were made in error when the Respondent was processing switches in their accounts. The Respondent’s statement to clients PS and CS was false and concealed that he had misappropriated their monies.
  1. The Respondent further advised client PS and CS that he would redeposit the funds into the clients RRSPs.
  1. The Respondent failed to repay the monies to clients PS and CS.
Client RL
  1. At all material times, client RL was a client of FundEX and later HUB Capital, and the Respondent was the mutual fund salesperson responsible for servicing client RL’s accounts.
  1. Between January 19, 2009 and January 23, 2009, the Respondent processed eight unauthorized redemptions from client RL’s RRSP account at FundEX:

Date of Redemption

Net Redemption Amount

January 19, 2009

$2,155.28

January 19, 2009

$2,149.42

January 20, 2009

$2,149.96

January 20, 2009

$2,150.62

January 22, 2009

$1,720.03

January 22, 2009

$2,579.37

January 23, 2009

$2,148.94

January 23, 2009

$2,152.72

Total Net Redemption Amount

$17,206.34

  1. The Respondent processed the redemptions outside the facilities of FundEX by making the redemption request directly to the fund company. The Respondent requested that the redemption cheques issued by the fund company be made payable to client RL and delivered to his sub-branch office.
  1. The Respondent deposited the redemption cheques into a business account held in the name of Assure Financial and misappropriated client RL’s monies.
  1. On February 2, 2009, the Respondent transferred his registration to HUB Capital. Client RL subsequently transferred his accounts from FundEX to HUB Capital.
  1. Between November 2, 2010 and March 23, 2012, the Respondent processed ten unauthorized redemptions in client RL’s RRSP account at HUB Capital, as described below:

Date of Redemption

Net Redemption Amount

November 2, 2010

$4,359.52

March 23, 2012

$185.06

March 23, 2012

$853.51

March 23, 2012

$301.27

March 23, 2012

$146.02

March 23, 2012

$152.47

March 23, 2012

$336.84

March 23, 2012

$323.98

March 23, 2012

$86.62

March 23, 2012

$193.29

Total Net Redemption Amount

$6,938.58

  1. The Respondent processed the redemptions outside the facilities of HUB Capital by making the redemption request directly to the fund company. The Respondent requested that the redemption cheques issued by the fund company be made payable to client RL and delivered to his sub-branch office.
  1. The Respondent deposited the redemption cheques into a business account held in the name of Assure Financial and misappropriated client RL’s monies.
  1. In 2013, client RL received a “Notice of Re-Assessment” from CRA related to withdrawals made from his RRSP account stating that he owed $619.95 in taxes. Client RL contacted the Respondent to inquire about the unauthorized redemption.
  1. On September 19, 2013, HUB Capital emailed the Respondent to request a current address for client RL.
  1. On September 24, 2013, the Respondent replied to HUB Capital by email and advised that client RL had closed his account in March 2012 and had since moved overseas. The Respondent’s statement to HUB Capital was false and concealed that he had misappropriated monies from client RL.
  1. On about October 7, 2013, the Respondent personally reimbursed client RL in the amount of $619.95 for the taxes owed as a result of the “Notice of Reassessment”.
  1. The Respondent did not reimburse client RL the monies that he misappropriated from client RL’s RRSP account.
  1. On March 10, 2015, client RL died.
  1. After the death of client RL, the Respondent contacted client RL’s spouse, BB, to request that she complete a number of documents to transfer the remaining assets in the accounts of client RL into her name.
  1. The Respondent subsequently misappropriated all of the remaining monies in client RL’s accounts.
Client CG
  1. At all material times, client CG was a client of HUB Capital and the Respondent was the mutual fund salesperson responsible for servicing client CG’s accounts at HUB Capital.
  1. On January 12, 2010, the Respondent processed three unauthorized redemptions in client CG’s RRSP account at HUB Capital, as described below:

Date of Redemption

Net Redemption Amount

January 12, 2010

$850.50

January 12, 2010

$850.50

January 12, 2010

$2572.16

Total Net Redemption Amount

$4,273.16

  1. The Respondent processed the redemptions outside the facilities of HUB Capital by making the redemption request directly to the fund company. The Respondent requested that the redemption cheques issued by the fund company be made payable to client RL and delivered to his sub-branch office.
  1. The Respondent deposited the redemption cheques into a business account held in the name of Assure Financial and misappropriated client CG’s monies.
Client CW
  1. At all material times, client CW was a client of HUB Capital and the Respondent was the mutual fund salesperson responsible for servicing client CW’s accounts.
  1. Between October 10 and November 19, 2012, the Respondent processed ten unauthorized redemptions in client CW’s RRSP account at HUB Capital, as described below:

Date of Redemption

Net Redemption Amount

October 11, 2012

$1,499.40

October 11, 2012

$1,499.40

October 11, 2012

$1,499.40

October 12, 2012

$4,500.00

October 15, 2012

$4,500.00

October 16, 2012

$4,366.40

October 17, 2012

$1,302.72

October 17, 2012

$2,345.19

November 12, 2012

$1,800.00

November 12, 2012

$2,552.24

Total Net Redemption Amount

$25,864.75

  1. The Respondent processed the redemptions outside the facilities of HUB Capital by making the redemption request directly to the fund company. The Respondent requested that the redemption cheques issued by the fund company be made payable to client CW and delivered to his sub-branch office.
  1. The Respondent deposited the redemption cheques into a business account held in the name of Assure Financial and misappropriated client CW’s monies.
  1. By engaging the conduct described above, the Respondent processed a series of unauthorized trades and misappropriated at least $69,035 from six clients, contrary to MFDA Rules 2.1.1 and 2.3.1.

Allegation #2 – Misleading Clients and Members

  1. As described in paragraphs 15, 20 and 22 above, the Respondent created and distributed fictitious account statements to client CH, misled client CH in response to inquiries regarding the unauthorized redemptions that he had processed in his accounts, and misled client CH when he claimed that he had opened and deposited monies into a TFSA on behalf of the client.
  1. As described in paragraph 31 above, the Respondent misled clients PS and CS when he advised that the redemptions in their respective RRSPs were made in error when the Respondent was processing switches in their accounts.
  1. As described in paragraphs 44 above, the Respondent misled HUB Capital when he advised it that client RL had closed his account and had moved overseas.
  1. The Respondent created and distributed fictitious account statements, and misled clients and a Member, to conceal that he had misappropriated monies from clients.
  1. By engaging the conduct described above, the Respondent acted contrary to MFDA Rules 8.2 and 2.1.1.

Allegation #3 – Failure to Cooperate

  1. On April 20, 2015, MFDA Case Assessment Staff wrote to the Respondent, by registered and regular mail, requesting his responses to questions regarding the events described above.
  1. On June 1, 2015, Staff received a reply, by email, from the Respondent’s counsel advising that the Respondent would not be responding to the questions posed by Staff.
  1. On August 10, 2015, Case Assessment Staff escalated this matter to the MFDA Investigations department.
  1. On October 13, 2015, MFDA Investigations Staff wrote to the Respondent’s counsel, by registered and by email, to request that the Respondent attend at an interview with Staff for the purpose of providing a statement regarding the allegations being brought against him.
  1. On October 16, 2015, Staff received a letter from the Respondent’s counsel advising that the Respondent would not be attending the interview with Staff.
  1. By engaging the conduct described above, the Respondent has failed to respond to Staff’s request for a statement and attend at an interview with Staff, and thereby failed to cooperate with Staff’s investigation into his activities as a mutual fund salesperson, 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;
  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 Respondents 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: Maria L. Abate
Fax: (416) 361-9073
Email: [email protected]

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 [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.