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. Between November 1, 2002 and December 2016, the Respondent was registered in Ontario as a mutual fund salesperson / dealing representative.^[1]
2. From May 2009 to February 2014, the Respondent was an Approved Person of Peak Investment Services Inc. (“Peak” or the “Member”), a Member of the MFDA.
3. Since December 30, 2016, the Respondent has not been registered in the securities industry in any capacity.
4. At all material times, the Respondent carried on business from a sub-branch located in Mississauga, Ontario.

Peak’s Policies and Procedures

5. At all material times, the policies and procedures of Peak stated:
   1. Peak has offered to its registered representatives the option of using a Trading Authorization as long as the following guidelines are used:
   2. The LTA does not permit the sales representative to act without specific instructions from the investor.  A record of clear client instructions for all transactions must be kept on file for audit purposes. Client notes regarding instructions must be kept on file for audit purposes.
   3. . . .
   4. Discretionary trading is the act of executing a transaction in an account where the client has not initiated the transaction.  Discretionary trading is prohibited.

Allegation #1 – Submitting Trades Without Evidence Of Client Instructions

Trades In The Account of SL and DL

6. On or about April 16, 2012, the Respondent submitted a trade ticket to process two trades in the account of clients “SL and DL in trust for AL and IL”. Together with the trade ticket, the Respondent submitted a Limited Trading Authorization – Client Contact Form (an “LTA Contact Form”) which required the Respondent to indicate how client instructions had been obtained in order to authorize the processing of the trade.
7. The LTA Contact Form required the Respondent to indicate whether it was the advisor or the client who had initiated the trade and whether instructions had been received by “Phone”,
   “E-mail”, “In Person” or “Other” means.
8. The Respondent indicated on the LTA Contact Form that he had obtained instructions from clients SL and DL by “other” means and he wrote “LTA”. The Respondent failed to produce evidence of any specific client authorization to process these trades.
9. The use of a limited trading authorization form (“LTA”) does not relieve an Approved Person of the obligation to obtain specific client instructions prior to processing trades in a client account. By submitting the trade ticket to process the trade without obtaining specific prior instructions from clients SL and DL, the Respondent contravened the policies and procedures of the Member and MFDA Rules 2.1.1, 2.3.1(a), 2.3.2,[2]10 and 1.1.2.
10. The trade was subsequently rejected by the branch manager and was not processed because Peak’s Approved Persons were prohibited from relying on an LTA to process trades in an account held in trust for a third party. Consequently, on April 18, 2012, the Respondent
    re-submitted the trade ticket with signatures of clients SL and DL dated April 17, 2012.

Trades In The Accounts of Clients DD and GD Without an LTA On File

11. On August 10, 2012, the Respondent submitted a trade ticket to process two redemptions from the investment account of client DD. The trade ticket was submitted without a client signature showing evidence of client authorization of the trades.  The Respondent purported to rely on authority to process the trades pursuant to an LTA and attached an LTA Contact Form and an e-mail from client DD requesting the liquidation of his investment account.  However, there was no LTA on file with Peak.  Accordingly, the Respondent had no authority to accept trade instructions without a client signature and therefore, the branch manager rejected the trades until the trade ticket was re-submitted with a client signature dated August 11, 2012.
12. On November 29, 2012, the Respondent submitted a trade ticket to process five switches in the account of client GD. The trade ticket was submitted without a client signature showing evidence of client authorization of the trades.  The Respondent purported to rely on authority to process the trades pursuant to an LTA and attached an LTA Contact Form indicating that he had obtained client instructions for the trades by e-mail.  However, there was no LTA on file with Peak.  Accordingly, the Respondent had no authority to accept trade instructions without a client signature and therefore, the branch manager rejected the trades until a trade ticket was
    re-submitted with a client signature dated December 3, 2012.

Trades In The Accounts Of MD And PD2 That Were Not Authorized By The Clients

13. On October 22, 2013, the Respondent submitted a letter of direction directly to a fund company in order to process a trade in the account of client MD. The Respondent had obtained trade instructions and money to fund the purchase in client MD’s account from the client’s father PD1. However, PD1 did not have authority to provide trading instructions in respect of client MD’s account.  The Respondent purported to rely on an LTA that he had obtained from client MD dated February 10, 2012, however, the Respondent failed to obtain instructions or maintain evidence of client instructions from client MD concerning the trade.
14. On November 27, 2013, the Respondent submitted a trade ticket to process a trade in the account of client PD2. The trade ticket was not signed by client PD2 but the Respondent submitted an LTA Contact Form with the trade ticket that indicated that the Respondent had obtained instructions from client PD2 by “other” means.  The Respondent failed to produce evidence of client authorization to process the trade.
15. When the branch manager questioned the Respondent concerning how he had obtained authorization from client PD2 to process the November 27, 2013 trade, the Respondent informed the branch manager that he was relying on “implicit instructions given by client (sic) when the LTA was signed to proceed with rebalances as deemed necessary”.
16. By relying on “implicit instructions…to proceed with rebalances as deemed necessary”, the Respondent was engaging in discretionary trading, contrary to MFDA Rule 2.3.1(a) and the policies and procedures of the Member. By purporting to accept trading instructions for the accounts of client DD and GD without client signatures on trade tickets when no LTAs were on file with the Member and from SL and DL for accounts that were not eligible for acceptance of an LTA, the Respondent failed to obtain sufficient evidence of client authorization from the clients, contrary to MFDA Rules 2.1.1, 2.3.1(a), 2.3.2, 2.10 and 1.1.2.

Allegation #2 – The Respondent Disregarded The Suspension On His Use Of LTAs

17. After receiving the Respondent’s statement that he relied on LTAs and implicit instructions from clients to process trades in client accounts, on December 10, 2013, Peak suspended the Respondent’s authority to rely on LTAs to process trades for clients until further training could be scheduled to explain the limits and proper uses of an LTA by the Respondent.
18. On January 15, 2014 and on January 17, 2014, the Respondent submitted paperwork to process trades in the account of client AD without client signatures purporting to rely upon an LTA that was on file with the Member for client AD. By doing so, the Respondent disregarded the suspension that Peak had imposed on his authority to rely on LTAs to process trades in client accounts without client signatures, contrary to MFDA Rule 2.1.1(b) and (c).
19. Peak subsequently rejected the trades that the Respondent had submitted because of the suspension that it had placed on the Respondent. On January 23, 2014, the Respondent
    re-submitted trade tickets signed by client AD to process the previously submitted trades.

Allegation #3 – The Respondent Submitted Account Forms Containing Falsified Signatures

20. From time to time, the Respondent would meet in person with client PD1. During those meetings, the Respondent sometimes made investment recommendations or accepted investment instructions from client PD1 concerning accounts of client PD1, joint accounts of client PD1 and his spouse client PD2, accounts of client PD2 and accounts of their daughter MD.
21. On multiple occasions, the Respondent accepted and submitted account documentation that contained signatures and/or initials that purported to be those of clients PD1, PD2 or MD when he knew or ought to have known that the signatures or initials were not authentic signatures or initials of the clients.
22. In particular, the Respondent submitted the following documents to the Member:
    1. a Know-Your-Client (“KYC”) form dated December 12, 2009 for a joint account of clients PD1 and PD2 that contained a falsified signature of client PD2;
    2. a KYC form dated May 10, 2013 for a joint account of clients PD1 and PD2 that contained falsified signatures and initials of client PD2;
    3. a KYC form dated September 13, 2013 for an individual account of client PD1 that contained falsified initials of client PD1;
    4. a KYC form dated September 16, 2013 for an individual account of client PD2 that contained falsified signatures and initials of client PD2; and
    5. an undated B2B loan application form that contained a falsified signature of client PD2.
23. By submitting KYC forms and loan application forms containing falsified client signatures, the Respondent breached the standard of conduct and undermined the ability of the Member to ensure the suitability of investment and leveraging recommendations that were made to the clients on behalf of whom the documents were purportedly signed, contrary to MFDA Rules 2.1.1, 2.2.1, 2.5.1 and 1.1.2.

Allegation #4 – The Respondent Fabricated Notes of Client Discussions

24. On September 8, 2015, during the course of the investigation of his conduct by Staff of the MFDA, the Respondent purported to corroborate his claim that he had obtained instructions from client MD in respect of the trade described in paragraph 13 The Respondent replied by stating that he had obtained instructions from client MD during multiple phone conversations.  The Respondent purported to attach a copy of his notes of the alleged phone conversations with client MD.
25. The Respondent produced notes that were dated to September 2014 that purported to describe conversations with client MD about a trade that was processed in October 2013.
26. Client MD denies that she ever spoke with the Respondent about the impugned trade.
27. The Respondent fabricated the notes that he produced to Staff to corroborate his assertions that he obtained client instructions from client MD. By producing fabricated evidence in an attempt to mislead Staff about his conduct, the Respondent engaged in conduct that was unethical, unbecoming an Approved Person and detrimental to the public interest contrary to MFDA Rule 2.1.1 and also failed to cooperate with Staff’s investigation contrary to s. 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: sfeld@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.

[1]In September 2009, the registration category mutual fund salesperson was changed to “dealing representative” when National Instrument 31-103 came into force.
[2]Effective January 19, 2017, the MFDA Rules were amended and renumbered.  In this proceeding, Staff is applying the version of MFDA Rules 2.3.1(a) and 2.3.2 that was in effect when the Respondent engaged in the conduct.