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

1. The Respondent was registered as a mutual fund salesperson^[1] (now known as a dealing representative) in British Columbia from June 8, 2005 to November 17, 2015, and in Ontario from July 5, 2005 to November 17, 2015, with Investia Financial Services Inc. (“Investia”), a Member of the MFDA.

2. The Respondent was registered as a mutual fund salesperson in British Columbia from October 1, 2001 to May 17, 2005, and in Ontario from February 27, 2003 to May 17, 2005, with Cartier Partners Financial Services Inc. (“Cartier Partners”), a former Member of the MFDA or its successor, Dundee Private Investors Inc., a former Member of the MFDA^[2]. Cartier Partners became a Member of the MFDA on May 15, 2002.

3. On November 17, 2015, the Respondent was terminated by Investia as a result of the events described below.

4. At all material times, the Respondent carried on business in the Victoria, British Columbia area.

5. The Respondent is not currently registered in the securities industry in any capacity.

My Financial Backer Corporation

6. On July 2, 1998, the Respondent incorporated a company in British Columbia known as My Financial Backer Corporation (“MFB”).

7. At all material times, the Respondent was the sole owner, director and president of MFB.

8. On or about March 1, 1999, the Respondent created a prospectus for a family of fictitious mutual funds purportedly offered by MFB (the “Fictitious MFB Prospectus”). The Fictitious MFB Prospectus described the following four mutual funds which did not exist:
   1. Financial Backer Short-Term Money Fund;
   2. Financial Backer Balanced Fund;
   3. Financial Backer Growth Fund; and
   4. Financial Backer International Growth Fund

   (collectively, the “MFB Mutual Funds”).

9. The Fictitious MFB Prospectus described the funds as providing “an investment opportunity to people who wish to combine their money with others in a diversified investment portfolio under the direction of My Financial Backer Corporation.”

10. The Fictitious MFB Prospectus was never filed with any securities regulator or exchange.

11. The Respondent used the Fictitious MFB Prospectus to solicit money from clients and other individuals for investment in the non-existent MFB Mutual Funds.

12. Between May 15, 2002 and November 17, 2015, the Respondent solicited approximately $1,230,712 from at least 6 clients and 2 individuals to invest in the non-existent MFB Mutual Funds.

13. The Respondent falsely represented to clients and other investors that he had established the MFB Mutual Funds and that he made the investment decisions for the funds.

14. The Respondent falsely reported to clients about the financial performance of their non- existent investments in the MFB Mutual Funds.

15. Prior to November 2015, the Members with which the Respondent was registered were not informed about, and had no knowledge of, the Respondent’s promotion of the non-existent MFB Mutual Funds or his solicitation of money for investment in those fictitious securities.

16. To date, the Respondent has failed to repay or otherwise account for a significant amount of the money that he solicited from clients for investment in the non-existent MFB Mutual Funds.

17. By participating in the conduct described above, the Respondent failed to deal fairly, honestly and in good faith with clients by soliciting money from them for investment in fictitious securities and failed to repay or otherwise account for the money, contrary to MFDA Rule 2.1.1.

The Respondent’s Disappearance and Letter to Investors

18. On November 3, 2015, the Respondent was reported missing to the Victoria Police Department after he failed to return home from a bike ride.

19. In November 2015, shortly after the Respondent’s disappearance, a number of investors including 10 clients of Investia received a letter from the Respondent dated October 2015 (the “Backer Letter”). In the Backer Letter, the Respondent referred to his promotion of the non- existent MFB Mutual Funds as a “pyramid investment”. He described his conduct as “unconscionable” and acknowledged that the money that he had solicited for investment in the MFB Mutual Funds was a “personal debt” that he recognized that he would be unable to repay.

20. The Respondent asserted in the Backer Letter that the money that he had solicited for investment in the MFB mutual funds declined 25% to 45% in the ‘dot-com’ market crash in 1999 and never recovered. The Respondent also claimed in the Backer Letter that he lost the remainder of the monies invested with MFB as a result of other poor investment decisions that he made with the monies that he had solicited for investment in the non-existent MFB Mutual Funds.

21. In or about April 2017, the Respondent reportedly turned himself in to the Victoria Police Department. He was charged with two counts of fraud over $5,000 contrary to section 380(1)(a) of the Criminal Code, R.S.C., 1985, c. C-46.

The Respondent Failed to Repay or Otherwise Account for Investor Monies

Clients EK and BK

22. Clients EK and BK were friends with the Respondent since 1981.

23. On October 7, 1995, clients EK and BK engaged the Respondent as their financial advisor. The Respondent later solicited money from clients EK and BK for investment in the non-existent MFB Mutual Funds.

24. In August 2005, clients EK and BK opened investment accounts at Investia. At all material times, the Respondent was the Approved Person responsible for servicing their accounts at Investia.

25. Between 1995 and 2015, the Respondent solicited and obtained approximately $632,000 from clients EK and BK under false pretenses for investment in the non-existent MFB Mutual Funds. The Respondent subsequently failed to repay or otherwise account for $266,953.78 of the monies that he obtained from clients EK and BK.

26. On October 7, 2015, the Respondent sent clients EK and BK a fictitious MFB quarterly account statement that falsely represented to the clients that their investment account had a balance of $822,175.50 invested in various non-existent MFB Mutual Funds and other equity securities that the clients did not actually own.

27. The Respondent falsely represented to clients EK and BK that the money that they had invested in the non-existent MFB Mutual Funds was generating an annualized rate of return of 6.89%.

28. Clients EK and BK have not recovered the remaining balance invested in the non-existent MFB Mutual Funds.

29. In October 2015, clients EK and BK requested a redemption in the amount of $100,000 from their non-existent MFB Mutual Funds holdings. The money that they asked to redeem was never received. Shortly after the redemption request was made by the clients, the Respondent was reported as missing.

30. On November 5, 2015, clients EK and BK received the Backer Letter.

31. On November 30, 2015, clients EK and BK filed a complaint against the Respondent with the MFDA.

Client TM

32. Client TM is the daughter of clients EK and BK.

33. In August 2005, client TM opened an investment account at Investia. At all material times, the Respondent was the Approved Person responsible for servicing her account at Investia.

34. Commencing prior to August 2005 and continuing until October 2015, the Respondent solicited and obtained approximately $500 per month from client TM under false pretenses for investment in the non-existent MFB Mutual Funds. The Respondent subsequently failed to repay or otherwise account for the monies that he obtained from client TM.

35. On October 7, 2015, the Respondent sent client TM a fictitious MFB quarterly account statement that falsely represented to her that the value of her fictitious MFB Mutual Fund holdings was $23,058.41.

36. The Respondent also falsely represented to client TM that the money that she had invested in the non-existent MFB Mutual Funds was generating an annualized rate of return of 6.8%.

37. In October 2015, client TM submitted a request to redeem some of her investment holdings to provide a down payment for a condominium. The Respondent went missing prior to client TM receiving her money.

38. Client TM has not recovered any of the monies that the Respondent solicited from her for investment in the non-existent MFB Mutual Funds.

39. On January 14, 2016, client TM submitted a complaint against the Respondent to the MFDA.

SV and IV

40. SV and IV were not clients of Investia. SV and the Respondent were close friends.

41. On June 19, 2007, the Respondent solicited $680,000 from SV and IV for investment in the non-existent MFB Mutual Funds.

42. Between June 19, 2007 and October 2015, the Respondent solicited and obtained approximately $680,000 from SV and IV under false pretenses for investment in the non-existent MFB Mutual Funds. The Respondent subsequently failed to repay or otherwise account for the monies that he obtained from SV and IV.

43. On October 7, 2015, the Respondent sent SV and IV a fictitious MFB quarterly account statement that falsely represented to SV and IV that they held investments in MFB Mutual Funds that had a value of $586,097.15.

44. The Respondent also falsely represented to SV and IV that the money that they had invested in the non-existent MFB Mutual Funds was generating an annualized rate of return of 6.97%.

45. Since November 2015, the Respondent has failed to repay or otherwise account to SV and IV for approximately $457,000 that the Respondent solicited from them for investment in  the non-existent MFB Mutual Funds.

46. On February 9, 2015, SV and IV submitted a complaint against the Respondent to the British Columbia Securities Commission.

Client DG

47. Client DG met the Respondent in 1991 and they were close friends.

48. Since approximately 2001, client DG has been a client of Investia and the Respondent has been the Approved Person responsible for servicing his account.

49. Between 2008 and November 2015, the Respondent solicited money from client DG for investment in the non-existent MFB Mutual Funds. As of November 2015, the Respondent had falsely represented to client DG that he held a balance of approximately $8,800 in the MFB Mutual Funds. The Respondent has failed to repay or otherwise account to client DG for the money and client DG has not recovered any of the monies that the Respondent solicited from him for investment in the non-existent MFB Mutual Funds.

Clients NP and FP

50. Client NP met the Respondent in the 1980s when he was the Respondent’s teacher. In the 1990s, the Respondent joined the teaching staff of the school and became a colleague of client NP.

51. In approximately 2001, client NP and his spouse FP opened investment accounts at Cartier Partners. The Respondent was the Approved Person responsible for servicing their accounts. When  the  Respondent  transferred  his  registration  to  Investia,  clients NP and FP transferred their investment accounts to Investia and the Respondent continued to service their accounts.

52. In 2009, client FP died.

53. Client NP is 80 years old and retired.

54. Between April  3,  2002  and  September  2012,  the  Respondent solicited approximately $620,400 from clients NP and FP for investment in the non-existent MFB Mutual Funds.

55. Between November 14, 2003 and November 14, 2013, clients NP and FP asked to redeem, and were repaid, approximately $145,500 from amounts that they had provided to the Respondent for investment in the non-existent MFB Mutual Funds.

56. The Respondent has failed to repay or otherwise account to clients NP and FP for the remaining $474,900 that he solicited from them for investment in the non-existent MFB Mutual Funds and client NP has not recovered any of the monies that the Respondent solicited from him and failed to repay.

BC Supreme Court Action Against The Respondent

57. Clients AC, MC, LC, BC and AP were all clients of Investia and the Respondent was the Approved Person responsible for servicing their accounts. On July 7, 2016, these clients commenced a civil action in the Supreme Court of British Columbia against the Respondent, MFB and Investia to recover monies that they claim that the Respondent solicited from them for investment in the non-existent MFB Mutual Funds and failed to repay.

Allegation #1 – The Respondent Failed to Repay or Otherwise Account for Investor Monies

58. As described above, the Respondent solicited at least $1,230,712 from at least 6 clients and 2 other individuals and has failed to repay or otherwise account for those monies, thereby failing to deal fairly, honestly and in good faith with clients, and engaging in conduct that is unbecoming and detrimental to the public interest, contrary to MFDA Rule 2.1.1.

Allegation #2 – The Respondent Fraudulently Induced 10 Clients and 5 Individuals to Invest in Fictitious Mutual Funds

59. As described above, the Respondent fraudulently induced at least 10 clients and 5 individuals to invest in non-existent mutual funds, thereby failing to deal fairly, honestly and in good faith with clients and engaging in conduct that is unbecoming and detrimental to the public interest, contrary to MFDA Rule 2.1.1.

Allegation #3 – Failure to Cooperate with Staff’s Investigation

60. On May 9, 2017, Staff sent a letter to the Respondent’s counsel requesting that the Respondent attend an interview with Staff to give information concerning his knowledge of matters under investigation.

61. On May 17, 2017, Staff received a fax from the Respondent’s counsel. The  Respondent’s counsel acknowledged receipt of the letter from Staff but informed Staff that he had not yet been retained to represent the Respondent in the MFDA matter.

62. On June 8, 2017, Staff sent a letter to the Respondent personally requesting his attendance at an interview with Staff to give information concerning his knowledge of matters under investigation. In the letter, Staff proposed potential interview dates. The letter was personally served on the Respondent by a process server. The letter requested a response by no later than June 22, 2017. To date, Staff has not received a response to that letter.

63. On June 28, 2017, Staff sent a third letter by registered and regular mail to the Respondent. Once again, Staff requested the Respondent’s attendance at an interview with Staff to give information relevant to Staff’s investigation. In addition, Staff informed the Respondent in the letter that if he failed to attend an interview with Staff to give information concerning matters under investigation, this conduct could give rise to enforcement action for failing to co- operate with Staff’s investigation in contravention of section 22.1 of MFDA By-law No. 1. To date, Staff has not received a response to that letter.

64. As a result of the Respondent’s failure to attend an interview, Staff has been unable to determine the full nature and extent of the Respondent’s misconduct.

65. By failing to attend an interview requested by Staff to give information concerning matters under investigation, the Respondent has failed to cooperate with an MFDA 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 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
650 West Georgia Street, Suite 1220
Vancouver, B.C. V6B 4N9
Attention: Christopher Corsetti
Fax: 604-683-6577
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.

[1] In September 2009, this registration category was changed to ‘dealing representative’.
[2] On June 1, 2004, Cartier Partners was acquired by Dundee Private Investors Inc. (“Dundee”), a former Member of the MFDA. On February 1, 2011, Dundee was acquired by Scotiabank and effective November 1, 2013, Dundee was renamed HollisWealth Advisory Services Inc. (“HollisWealth”). On August 4, 2017, HollisWealth amalgamated with Investia Financial Services Inc., a Member of the MFDA.