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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: Paulita Bihis

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 13, 2018 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 Paulita Bihis (“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: 416-943-5143
    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: From July 30, 2015 to October 22, 2015, the Respondent, in her capacity as Branch Manager, failed to identify regulatory concerns and take adequate supervisory action in response to information which indicated that an Approved Person for whom she had supervisory oversight, had engaged in unauthorized discretionary trading in the accounts of a client, contrary to MFDA Rules 1.1.2, 2.5.1, 2.5.5(f), and 2.1.1 and section 3 of MFDA Policy No. 3.

594331

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 November 2001 to present, the Respondent has been registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with TD Investment Services Inc. (“TDIS”), a Member of the MFDA.
  1. From September 22, 2010 to February 29, 2016 when TDIS terminated her Branch Manager registration as a result of the events described herein, the Respondent also acted as a Branch Manager.
  1. At all material times, the Respondent carried on business from a branch located in Etobicoke, Ontario (the “Branch”). 

An Approved Person Under the Respondent’s Supervision Processed Two Discretionary / Unauthorized Trades

  1. At all material times, the Respondent was responsible for conducting supervisory activities within the Branch, including monitoring all information that the Member received regarding potential breaches of applicable requirements on the part of the Member and its Approved Persons that might raise the possibility of risk to the Member’s clients or other investors. This included daily tier-one reviews of all trading activity within the Branch.
  1. At all material times, TDIS employed an arrangement whereby trades were submitted electronically by an Approved Person, and original hard copy trade forms remained at the Branch in a centralized file for review.
  1. In August 2010, JD became registered as an Approved Person (the “AP”) at the Branch. The Respondent was the Branch Manager responsible for supervising the AP.
  1. In or about January to February 2015, the AP started servicing the accounts of client MC and his spouse.
  1. On July 29, 2015, the Respondent submitted two purchases totaling approximately $468,423 in client MC’s RRSP account ($104,206) and locked-in RRSP account ($364,217) without the signature of client MC, and without the knowledge or authorization of client MC (the “Unauthorized Purchases”).
  1. The AP completed the following four trade forms regarding the Unauthorized Purchases:
    1. TD Mutual Funds Retirement Savings Plan Account Application form (for the Locked-In RSP)
    2. Addendum to Retirement Savings Plan Declaration of Trust for Locked-In Pension Transfers to a Locked-In Registered Retirement Savings Plan;
    3. Transaction and Account Maintenance Form (for the $364,217 purchase into the TD Comfort Growth Portfolio); and
    4. Transaction and Account Maintenance Form (for the $104,206 purchase into the TD Comfort Growth Portfolio).

The Respondent’s Review of the Unauthorized Purchases

  1. On July 30, 2015, the Respondent conducted her tier-one review of the previous day’s trades using the daily Branch Manager Supervisory Report (the “Report”). The Respondent viewed the Unauthorized Purchases on the Report, but upon attending at the centralized file, could not locate the originals of the relevant trade forms for the Unauthorized Purchases.
  1. On July 30, 2015, the Respondent questioned the AP regarding the missing trade forms that were required for the Unauthorized Purchases. The AP advised the Respondent that client MC had not signed the trade forms, and that the AP would be obtaining the signed trade forms from client MC “soon”.
  1. In or about August 2015, the Respondent again questioned the AP regarding the missing trade forms for the Unauthorized Purchases. The AP advised the Respondent that the AP would be getting the signed trade forms from client MC “soon”.
  1. The Respondent knew or ought to have known that the Unauthorized Purchases were discretionary trades not authorized by client MC, but she failed to take any reasonable supervisory actions to address the issue, including:
    1. making inquiries of the AP regarding whether he had discussed the trades with client MC and received authorization for the trades from client MC;
    2. contacting client MC directly to discuss the client’s knowledge of and authorization for the trades; or
    3. advising TDIS that the AP had processed Unauthorized Purchases, and seeking to have the trades stopped or reversed.
  1. At all material times, TDIS policies and procedures required Branch Managers to immediately report to TDIS head office compliance any “reportable events”, whether suspected or confirmed, including unauthorized transactions in client accounts.
  1. In September 2015, the AP still had not provided the required signed trade forms for the Unauthorized Purchases to the Respondent.
  1. On September 11, 2015, client MC sent an email to the AP, advising that the Unauthorized Purchases had been conducted without client MC’s input or authorization. In his email, client MC requested that the AP rectify the situation, including that the trades be reversed and the accounts (which had declined in value) be returned to their full value.
  1. On or about September 11, 2015, the AP advised the Respondent that he had received an email from client MC. When discussing the matter with the Respondent, the AP was visibly upset and advised the Respondent that client MC was asking about the trades. At this time, the Respondent still had not received the required signed trade forms for the Unauthorized Purchases.
  1. The Respondent did not make inquiries of the AP regarding the contents of the email from client MC, did not review the email, and did not notify TDIS of the Unauthorized Purchases or the fact that client MC had sent an email to the AP complaining about the trades.
  1. On October 22, 2015, client MC telephoned the manager of the Branch directly and advised him of the Unauthorized Purchases. On October 23, 2015, the manager of the Branch met with client MC and arranged to have the Unauthorized Purchases reversed and the accounts restored to their original pre-trade values.
  1. By engaging in the conduct described above, the Respondent, in her capacity as Branch Manager, failed to identify regulatory concerns and take adequate supervisory action in response to information which indicated that an Approved Person for whom she had supervisory oversight, had engaged in unauthorized discretionary trading in the accounts of a client, contrary to MFDA Rules 1.1.2, 2.5.1, 2.5.5(f), and 2.1.1 and section 3 of MFDA Policy No. 3.

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: Lyla Simon
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:
    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) 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 Director of Regional Councils 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.