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 May 2002 to October 2007, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative^[1]) with Axa Financial Services Inc., a Member of the MFDA.
2. From October 18, 2007 until December 20, 2012, the Respondent was registered in Ontario as a mutual fund salesperson with Peak Investment Services Inc. (“Peak”), a Member of the MFDA. Peak terminated the Respondent for cause on December 20, 2012 as a consequence of events and conduct described herein.

The Respondent Altered Trading Forms Without Evidence Of Client Consent

3. In 2012, the Respondent was the mutual fund salesperson responsible for servicing the accounts of clients ZSL and XZW, a married couple.
4. On October 20, 2012, the Respondent submitted two trade forms to switch units eligible for fee-free switching from the deferred sales charge (“DSC”) version of the mutual funds to the front end load (“FE”) version of the mutual funds in accounts of clients ZSL and XZW.^[2] The trade forms identified the relevant fund codes, the number of units and the total value of the units that were being switched.  The Respondent submitted the trade forms to the branch and the trades were processed on October 23, 2012.
5. On October 30, 2012, without the knowledge or approval of Peak, the Respondent altered the trade forms that had been previously submitted to the branch to process the switches in the accounts of clients ZSL and XZW by increasing the number of units that were being switched from the DSC version of the funds to the FE version of the funds. The increased number of units included units that were no longer subject to DSC fees because the DSC schedule applicable to the units had expired.  The altered trading forms were faxed directly to the fund company and Peak was not provided with a copy of the altered trade forms.
6. There was no evidence of authorization from client ZSL or client XZW of the changes to the trade instructions recorded on the trade forms that were submitted to the fund company by the Respondent.
7. The Respondent benefitted from increasing the number of units to be switched to FE units because the FE units paid a higher trailer fee.
8. On November 1, 2012, the branch manager observed the trades had been processed in the accounts of clients ZSL and XZW and, on November 5, 2012, she requested that the Respondent produce copies of the trade forms to the branch so that she could complete her trade review.
9. On November 12, 2012, the branch manager still had not received a response to her request from the Respondent. She submitted a request to the fund company for copies of the trade forms that had triggered the trades in the accounts of clients ZSL and XZW.
10. When the branch manager received the trade documentation from the fund company, she observed that the Respondent had altered the previously processed trade forms and re-submitted them directly to the fund company.
11. By altering trade forms without evidence of client consent to the changes, the Respondent engaged in conduct contrary to the policies and procedures of Peak and MFDA Rules 2.1.1, 2.10 and 1.1.2.

The Respondent Failed To Process Trades Through The Facilities Of The Member

12. At all material times, Peak’s policies and procedures stated, among other things:
    1. Trades are considered to be ‘Off Book’ if they are manually sent to mutual fund companies and third party service providers by PEAK back office staff, registered representatives or their assistants.
    2. All client orders must be entered into the applicable PEAK order entry system.
13. By manually submitting the altered trade forms for clients ZSL and XZW directly to the fund company without the knowledge and approval of Peak, as described above, the Respondent contravened Peak’s policies and procedures.
14. In addition, on December 10, 2012, the Respondent submitted letters of direction to process switches of units eligible for fee-free switching from the DSC versions of certain mutual funds to the FE versions of the same mutual funds in the accounts of 3 different clients, namely clients YZ, TW and WH. In total, the Respondent processed 4 switches in the account of client YZ with a total value of $1,244.04, 6 switches in the account of client TW with a total value of $2,009.07 and 4 trades in the account of client WH with a total value of $2,048.63. The Respondent processed these trades off-book without the knowledge or approval of Peak. 
15. By submitting these trade orders to be processed off the books and records of Peak, the Respondent contravened the policies and procedures of the Member and MFDA Rules 1.1.1(a), 2.1.1, 2.10 and 1.1.2.
16. On December 20, 2012, when Peak discovered that these trades had been processed ‘off-book’, it terminated the Respondent for cause.

Failure To Cooperate With The MFDA Investigation

17. On May 14, 2015, the MFDA received a report from the Member concerning the fact that the Respondent had been terminated for cause in December 2012. Shortly after receiving this report, Staff of the MFDA (“Staff”) commenced an investigation into the reasons for the Respondent’s termination.
18. By letter dated September 1, 2015, the Respondent provided answers stating her position on a number of facts concerning matters under investigation. Thereafter, Staff continued to communicate with the Respondent concerning the matters under investigation at the e-mail address and residential mailing address to which Staff had sent initial correspondence to which the Respondent had submitted responses.
19. By letter dated April 15, 2016, Staff sent a letter to the Respondent informing her that Staff was requesting her attendance at an interview to provide information known to her about matters under investigation. The letter was delivered to her by e-mail, regular mail and registered mail.  The letter indicated that the deadline for a response was April 28, 2016.  The Respondent did not submit a response to the letter and did not attend an interview with Staff.
20. By letter dated May 10, 2016, Staff sent a follow up request to the Respondent informing her that she was required to schedule an interview with Staff to provide information known to her concerning matters under investigation. The May 10, 2016 letter was also delivered by e-mail, regular mail and registered mail. Staff informed the Respondent that the deadline for a response to the May 10, 2016 letter was May 25, 2016.  The Respondent did not submit a response to the letter and did not attend an interview with Staff.
21. By letter dated June 28, 2016, Staff sent a third letter to the Respondent again requesting that the Respondent contact Staff to schedule and arrange to attend an interview with Staff concerning her knowledge of matters under investigation. The Respondent was informed in the June 28, 2016 letter that if she failed to respond by July 13, 2016 or attend an interview with Staff on July 22, 2016, Staff would consider commencing a disciplinary proceeding against her for failing to co-operate with Staff’s investigation.  The June 28, 2016 letter was delivered to the Respondent by e-mail, regular mail and registered mail and a process server attended at her building and was told by a security guard that he had delivered a copy of the letter to her unit.
22. To date, the Respondent has failed to respond to Staff’s requests for her attendance at an interview and has failed to attend an interview to give information concerning her knowledge of matters that were under investigation, thereby failing to co-operate with Staff’s regulatory investigation, 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 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: Shelly Feld, Manager, Litigation
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.

[1]On September 28, 2009, the mutual fund salesperson registration category was changed to “dealing representative – mutual fund dealer.
[2] This is a process commonly known as “10% free” whereby the fund company permits the investor each year to sell, or switch to a non-DSC version of the fund, up to 10% of the units held by the investor in a DSC fund without incurring a sales charge.