Notice of Hearing

NOTICE is further given that the MFDA alleges the following violations of the By-laws, Rules or Policies of the MFDA:

Allegation #1: Between about January and April 2015, the Respondent entered into a referral arrangement with a third party, referred at least 11 clients to the third party and received compensation from the third party, all of which occurred outside the facilities of the Member, thereby engaging in conduct contrary to the Member’s policies and procedures, MFDA Rules 1.1.2, 2.5.1, 2.4.2, and 2.1.1, and sections 13.7 and 13.8 of National Instrument 31-103.

Allegation #2: Between about June 2015 and January 2016, the Respondent provided false or misleading statements to:

1. a Member during the course of its investigation into his conduct, thereby interfering with the Member’s ability to supervise and investigate the Respondent’s conduct, contrary to MFDA Rule 2.1.1; and
2. MFDA Staff (“Staff”) during the course of its investigation into his conduct, thereby interfering with Staff’s ability to conduct its investigation, contrary to MFDA Rule 2.1.1 and section 22.1 of MFDA By-law No. 1.

Allegation #3: In August 2015, the Respondent provided false and misleading responses to a questionnaire from the Member with whom he seeking to become registered, when he stated that, among other things:

1. his mutual fund registration with his previous Member had been terminated in good standing, when it had not; and
2. he had not ever been terminated based on being accused of violating industry rules or standards of business conduct, when he had;

thereby misleading the Member, and interfering with its ability to conduct due diligence on the proficiency and suitability of an individual seeking to become registered with the Member, contrary to MFDA Rule 2.1.1.

Allegation #4: Between about September 2010 and October 2015, the Respondent obtained and maintained 22 blank or partially completed pre-signed account forms in respect of seven clients, contrary to the Member’s policies and procedures and MFDA Rules 1.1.2, 2.5.1 and 2.1.1.

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 April 2004.

2. From September 23, 2010 to August 6, 2015, the Respondent was registered in New Brunswick as a mutual fund salesperson with BMO Investments Inc. (“BMO Investments”), a Member of the MFDA.

3. Since February 5, 2016, the Respondent has been registered in New Brunswick as a mutual fund salesperson with Quadrus Investment Services Ltd. (“Quadrus”), a Member of the MFDA.

4. The Respondent is also licensed to sell insurance.

5. At all material times, the Respondent carried on business from a branch location in Dieppe, New Brunswick.

 Allegation #1 – The Respondent Entered into a Referral Arrangement Outside the Facilities of the Member 

BMO Investments Policies and Procedures

6. At all materials times, BMO Investments had a program which permitted its Approved Persons to enter into referral arrangements with various partners within the BMO group of companies (“BMO Group”), including registered representatives of BMO Investment’s IIROC affiliate, BMO Nesbitt Burns. These referral arrangements (known as “cross selling”) permitted Approved Persons to refer clients to the BMO Group partner and receive compensation for the referrals.

7. At all material times, BMO Investments maintained policies and procedures requiring that Approved Persons, including the Respondent, fulfill specific conditions when entering into referral fee arrangements which included the payment of monies from BMO Group partners. In order to engage in referral fee arrangements, the BMO Investments’ policies and procedures required that the following conditions be met:
   • “Cross-selling” was permitted so long as such activities were conducted without undue pressure and were in the client’s best interest;
   • a BMO Investments Approved Person was required to notify their branch compliance officer (“BCO”) of the proposed referral fee arrangement;
   • the BCO was then required to fax a written draft of the proposed referral fee arrangement to BMO Investments Compliance for review and approval;
   • if approved, BMO Investments Compliance would forward the conditions relating to the referral fee arrangement to the appropriate BCO;
   • a referral fee (a fee paid for directing a client or potential client to a partner, such as a registered representative at BMO Nesbitt Burns) was permitted to be paid provided that the amount paid was not directly tied to the amount of the sales generated by the referral;
   • each referral arrangement was required to be the subject of a written agreement, and was required to be under the name of BMO Investments; and
   • a referral fee agreement was required to be reviewed and approved by the Chief Compliance Officer, and any remuneration from referral arrangements was required to be made payable to BMO Investments and not directly to the Approved Person.

The  Referral Arrangement

8. In early 2015, the Respondent entered into a verbal referral arrangement with RR, a registered representative of BMO Nesbitt Burns, whereby the Respondent agreed to refer some clients that he serviced at BMO Investments to RR. The Respondent and RR agreed that RR would make cash payments to the Respondent of $2,000 to $2,500 for every $1 million of client investment assets referred to RR.

9. Between February and March 2015, the Respondent, together with RR, met with the clients he intended to refer to RR under the referral arrangement and obtained instructions from the clients to transfer their accounts to RR at BMO Nesbitt Burns.

10. Between February and April 2015, the Respondent, acting under the terms of the referral arrangement with RR, referred the clients listed below to RR and the clients transferred their accounts from BMO Investments to RR at BMO Nesbitt Burns:

#	Client	Date Account Transferred
1	MB	March 24, 2015
2	DC	–
3	LC	March 30, 2015 April 13, 2015
4	MEC	April 9, 2015
5	MC	March 19, 2015 March 26, 2015
6	RC	March 19, 2015
7	MPG	April 7, 2015
8	RG	March 24, 2015
9	JL	–
10	ER	February 20, 2015
11	CT	March 27, 2015

 

11. On February 27, 2015, RR made a cash payment in the amount of $2,500 to the Respondent under the terms of the referral arrangement, which the Respondent deposited into his bank account.

12. On or about March 28, 2015, RR made a second cash payment in the amount of $2,500 to the Respondent under the terms of the referral arrangement, which the Respondent deposited into his bank account.

13. On April 16, 2015, the Respondent withdrew the $5,000 received from RR from the Respondent’s bank account and repaid the monies to RR.

14. Notwithstanding that the Respondent could have entered into a referral arrangement to refer clients to RR at BMO Nesbitt Burns through BMO Investments’ ‘cross selling’ program, the Respondent circumvented the program and contravened BMO Investments’ policies and procedures when he:
    • entered into a referral arrangement with RR without disclosure to and approval from the Member;
    • entered into a referral arrangement with RR that was verbal only, and not committed to writing;
    • entered into a referral arrangement with RR whereby the amount paid was tied to the amount of the sales generated by the referral; and
    • received remuneration from the referral arrangement directly from RR, rather than by remuneration through the Member, as required.

15. By engaging in the conduct described above, the Respondent entered into a referral arrangement with RR, referred at least 11 clients to RR and received compensation from RR, all of which occurred outside the facilities of the Member, thereby engaging in conduct contrary to the Member’s policies and procedures, MFDA Rules 1.1.2, 2.5.1, 2.4.2, and 2.1.1, and sections 13.7 and 13.8 of National Instrument 31-103.

Allegation #2 – Respondent Misled BMO Investments and MFDA Staff 

The Respondent Misled BMO Investments During its Investigation

16. At no time did the Respondent disclose his referral arrangement activities to BMO Investments.

17. On or about June 12, 2015, BMO Investments became aware of the Respondent’s referral arrangement activities and commenced an investigation.

18. During the investigation, BMO Investments became aware that the Respondent had deposited or withdrawn the following amounts from his bank account:
    • February 28, 2015 – $1,700 cash deposited
    • March 28, 2015 – $500 cash deposited
    • March 30, 2015 – $2,000 cash deposited
    • April 16, 2015 – $4,000 cash withdrawn
    • April 16, 2015 – $1,000 cash withdrawn

19. On June 24, 2015, as part of its investigation, BMO Investments interviewed the Respondent. The Respondent falsely denied that he had given monies to, or received monies from, RR.

20. On July 28, 2015, as part of its investigation, BMO Investments interviewed the Respondent a second time. The Respondent again falsely denied that he had given monies to, or received monies from, RR. The Respondent falsely represented to BMO Investments that the monies he had deposited into his accounts (as detailed at paragraph 18 above) were a loan from his father, and that the withdrawals were to repay his father.

21. On or about July 28, 2015, BMO Investments suspended the Respondent.

22. On or about August 6, 2015, BMO Investments sent a letter to the Respondent confirming that it had terminated him for cause. Among other things, BMO Investments notified the Respondent that:
    1. it had been determined that the Respondent had accepted financial reimbursement in exchange for providing client referrals;
    2. BMO had lost trust and confidence in the Respondent; and
    3. The Respondent’s actions were in breach of the bank’s First Principles and the Code of Conduct & Business Ethics.

Respondent Misled MFDA Staff During its Investigation

23. On or about September 30, 2015, Staff wrote to the Respondent requesting a written response regarding the referral arrangement the Respondent had entered into with RR.

24. On or about November 2, 2015, the Respondent responded to Staff, and advised, among other things, that during the BMO Investments investigation, he had originally denied receiving monies from RR, but that he had “ultimately admitted it” when confronted by his branch manager. However, as stated at paragraphs 19 and 20 above, during both the June and July 2015 BMO Investments investigation interviews, the Respondent had falsely denied to BMO Investments that he had given monies to, or received monies from, RR.

25. On or about January 5, 2016, Staff wrote to the Respondent requesting a written response regarding additional issues under investigation, including an uncashed cheque dated July 15, 2015 written by a client that had been located in the Respondent’s office.

26. On or about January 7, 2016, the Respondent responded to Staff and advised, among other things, that he had left the Dieppe branch in mid-July 2015 and “never came back”. This statement was false and misleading as the Respondent attended at the Dieppe branch, met with clients, and conducted trading activities during the period mid-July to July 28, 2015 when he was suspended by BMO Investments.

27. By engaging in the conduct described above, the Respondent provided false or misleading statements to: (a) a Member during the course of its investigation into his conduct, thereby interfering with its ability to supervise and investigate the Respondent’s conduct, contrary to MFDA Rule 2.1.1; and (b) Staff during the course of its investigation into his conduct, thereby interfering with Staff’s ability to conduct its investigation, contrary to MFDA Rule 2.1.1 and section 22.1 of MFDA By-law No. 1.

Allegation #3 – The Respondent Misled Quadrus

28. In or about August 2015, the Respondent applied to become registered as a mutual fund salesperson with Quadrus.

29. On or about August 11, 2015, the Respondent completed a Quadrus General Profile The purpose of the questionnaire was, among other things, to gather information necessary for Quadrus to conduct an initial screening for suitability of prospective mutual fund registrants.

30. The Respondent recorded the following false or misleading answers in response to Quadrus’ questions on the General Profile questionnaire:

Question	Answer
Was your mutual fund registration terminated in good standing?	Yes
Was your securities registration terminated in good standing?	N/A
Have you ever been terminated ore resigned, or had any contracts canceled which you held with any financial services company because you were accused of violating insurance or investment related statutes, regulations, rules, or industry standards of business conduct?	No

 

31. Given the circumstances surrounding his termination for cause from BMO Investments, the Respondent knew or ought to have known that his responses on the General Profile questionnaire were false and misleading.

32. By engaging in the conduct described above, the Respondent provided false and misleading responses in a questionnaire from Quadrus, thereby misleading Quadrus and interfering with its ability to conduct due diligence on the proficiency and suitability of an individual seeking to become registered with the it, contrary to MFDA Rule 2.1.1.

Allegation #4 – The Respondent Obtained and Maintained Pre-Signed Account Forms

33. At all material times, BMO Investments’ policies and procedures prohibited its Approved Persons from obtaining or maintaining blank or partially completed pre-signed account forms for clients.

34. Between about September 2010 and October 2015, the Respondent obtained and maintained 22 blank or partially completed pre-signed account forms in respect of seven clients. The account forms included account application forms and account transfer forms.

36. BMO Investments detected the pre-signed account forms described above during the course of its investigation into the Respondent’s conduct, which included a review of the client files that he maintained at the Dieppe branch.
37. By engaging in the conduct described above, the Respondent obtained and maintained blank or partially completed pre-signed account forms, contrary to the Member’s policies and procedures and MFDA Rules 1.1.2, 2.5.1 and 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 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.