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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: James Edward Drysdale

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 December 11, 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 James Edward Drysdale (“Respondent”).

  • Paige Ward
    Paige Ward
    Corporate Secretary

    Mutual Fund Dealers Association of Canada
    121 King St. West, Suite 1000
    Toronto, ON M5H 3T9
    Telephone: 416-943-5838
    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: In February 2015 and November 2015, the Respondent submitted for processing at least 17 transactions in the accounts of 6 clients, without the clients’ knowledge or authorization, thereby engaging in discretionary trading, contrary to MFDA Rules 2.3.1, 2.1.4 and 2.1.1.

Allegation #2: In February 2015 and November 2015, the Respondent submitting for processing at least 17 transactions in the accounts of 6 clients, without maintaining adequate notes of instructions received from the clients, contrary to MFDA Rules 1.1.2, 2.5 and 2.1.1.

Allegation #3: On or about June 17, 2015, the Respondent completed and submitted to the Member two Know-Your-Client forms for client JB on which he falsified the client’s signature, thereby failing to observe high standards of ethics and conduct in the transaction of business or engaging in conduct unbecoming an Approved Person, contrary to MFDA Rule 2.1.1.

Allegation #4: Between March 10, 2006 and May 19, 2016, the Respondent maintained at least 79 blank pre-signed and/or altered account forms in respect of 53 clients, thereby failing to observe high standards of ethics and conduct in the transaction of business or engaging in conduct unbecoming an Approved Person, contrary to MFDA Rule 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. From March 10, 2006 to May 19, 2016, the Respondent was an Approved Person registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with Sun Life Financial Services (Canada) Inc. (the “Member”), a Member of the MFDA.
  1. At all material times, the Respondent conducted business in Windsor, Ontario.
  1. The Respondent is not currently registered in the securities industry in any capacity.

Allegation #1 – Discretionary Trading

  1. At all material times, Sun Life’s policies and procedures, consistent with MFDA Rules, prohibited its Approved Persons from engaging in discretionary trading.
  1. Sun Life’s policies and procedures permitted its Approved Persons to submit trades for processing using limited trading authorizations (“LTAs”) instead of obtaining trade order forms signed by clients, but only where Approved Persons “document[ed] and retain[ed] all details of the trade instructions [received from the clients], since an LTA does not give [Approved Persons] the ability to perform discretionary trading.”
  1. In February 2015 and November 2015, the Respondent used LTAs to submit for processing the following trades in the accounts of clients NM, LM, KS, JB, MB and KS:

Client

Date of Unauthorized Trades

Mutual Fund Investments Originally Held by Clients As At the Date of the Unauthorized Trades

Mutual Funds Invested-In By Clients As a Result of the Unauthorized Trades

 

NM

November 3, 2015

  • $13,373.82 in the CI Money Market Fund
  • $4,012.15 in the CI Signature Global Inc. & Growth Fund
  • $4,012.15 in the CI Cambridge Asset Allocation Corp. Class Fund
  • $5,349.52 in the CI Signature Select Canadian Fund

LM

November 3, 2015

  • $12,309.25 in the CI Money Market Fund
  • $6,154.63 in the CI Signature Diversified Yield II Class Fund
  • $6,154.62 in the CI Cambridge Asset Allocation Corp. Class Fund

JB

February 5, 2015

  • $700.04 in the CI Black Creek Global Balanced Fund DSC
  • $473.61 in the CI Cambridge High Income Fund DSC
  • $1,205.95 in the CI Cambridge Asset Allocation Cls DSC
  • $700.04 in the CI Black Creek Global Balanced Fund (FEL)
  • $473.61 in the CI Cambridge High Income Fund (FEL)
  • $1,205.95 in the CI Cambridge Asset Allocation Cls (FEL)

MB

February 5, 2015

  • $476.20 in the CI Signature Diversified Yield II Class Fund DSC
  • $1,212.68 in the CI Signature Select Canadian Fund DSC
  • $742.01 in the CI Global Inc. & Grown Fund DSC
  • 476.20 in the CI Signature Diversified Yield II Class Fund (FEL)
  • $1,212.68 in the CI Signature Select Canadian Fund (FEL)
  • $742.01 in the CI Global Inc. & Grown Fund (FEL)

KS

February 20, 2015

  • $6,082.20 in the CI Harbour Fund Class A Fund DSC
  • $2,027.41 in the CI Signature Global Income & Growth Fund DSC
  • $2,027.41 in the CI Signature Global Income & Growth Fund DSC
  • $6,082.20 in the CI Harbour Fund Class A Fund (FEL)
  • $2,027.41 in the CI Signature Global Income & Growth Fund (FEL)
  • $2,027.41 in the CI Signature Global Income & Growth Fund (FEL)

DS

February 24, 2015

  • $55.66 in the CI Harbour Growth & Income Fund DSC
  • $3,316.93 in the CI Canadian Investment Fund DSC
  • $3,182.21 in the CI Harbour Growth & Income Fund DSC
  • $55.66 in the CI Harbour Growth & Income Fund (FEL)
  • $3,316.93 in the CI Canadian Investment Fund (FEL)
  • $3,182.21 in the CI Harbour Growth & Income Fund (FEL)
  1. With respect to all trades described in paragraph 6 above, the Respondent used his own discretion to determine the securities to be traded and the timing of the trades, without the clients’ knowledge or authorization.
  1. The trades described in paragraph 6 above increased the amount of compensation payable to the Respondent. The Respondent’s conduct therefore gave rise to a conflict of interest or potential conflict of interest which the Respondent failed to disclose to the Member or address by the exercise of responsible business judgment influenced only by the best interests of the clients.
  1. By virtue of the foregoing, the Respondent submitted for processing 17 transactions in the accounts of 6 clients, without the clients’ knowledge or authorization, thereby engaging in discretionary trading, contrary to MFDA Rules 2.3.1, 2.1.4 and 2.1.1.

Allegation #2 – Failure to Maintain Evidence of Client Trade Instructions

  1. As stated above in paragraph 5, Sun Life required its Approved Persons that submitted trades for processing using LTAs to document and retain all details of client trade instructions.
  1. In the event that the Respondent obtained client authorization with respect to the trades described in paragraph 6 above, the Respondent failed to maintain adequate notes of instructions received from the clients, contrary to MFDA Rules 1.1.2, 2.5 and 2.1.1.

Allegation #3 – Falsification of a Client Signature

  1. At all material times, the Respondent was the Approved Person at the Member responsible for servicing the accounts of client JB.
  1. On or about June 17, 2015, the Respondent or his assistant for whom he was responsible completed and submitted to the Member for processing, two Know-Your-Client forms for client JB which contained a photocopy of the client’s signature from another account form client JB had previously executed.
  1. By virtue of the foregoing, the Respondent failed to observe high standards of ethics and conduct in the transaction of business or engaged in conduct unbecoming an Approved Person, contrary to MFDA Rule 2.1.1.

Allegation #4 – Pre-Signed and Altered Account Forms

  1. Between March 10, 2006 and May 19, 2016, the Respondent obtained or maintained at least 79 blank pre-signed and/or altered account forms in respect of 53 clients.
  1. The account forms included trade order forms, limited trading authorizations, know-your-client and new account application forms.
  1. By virtue of the foregoing, the Respondent failed to observe high standards of ethics and conduct in the transaction of business or engaged in conduct unbecoming an Approved Person, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.1, 1.1.2 and 2.5.

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; and
  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: Francis Roy
Email: [email protected]

A Reply shall be filed by:

  1. providing four 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 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.

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