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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 Andrew Phillips

NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a hearing panel (“Hearing Panel”) of the Atlantic Regional Council of the Mutual Fund Dealers Association of Canada (“MFDA”) on January 29, 2019 at 10:15 a.m. (Atlantic) concerning a disciplinary proceeding commenced by the MFDA against James Andrew Phillips (“Respondent”). Members of the public who would like to listen to the teleconference should contact [email protected] to obtain particulars. The Hearing on the Merits will take place in Halifax, Nova Scotia.

  • Michelle Pong
    Michelle Pong
    Director of Regional Councils

    Mutual Fund Dealers Association of Canada
    121 King St. West, Suite 1000
    Toronto, ON M5H 3T9
    Telephone: 416-945-5134
    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: Commencing in January 2015, the Respondent engaged in personal financial dealings with client RB that gave rise to an actual or potential conflict of interest that the Respondent failed to disclose to the Member or otherwise address by the exercise of responsible business judgment influenced only by the best interests of the client, contrary to the Member’s policies and procedures and MFDA Rules 2.1.4, 2.5.1, 1.1.2, and 2.1.1.

Allegation #2: In the alternative, commencing in January 2015, the Respondent solicited or arranged for client RB to invest monies in a non-arm’s length corporation outside the Member, thereby engaging in securities related business that was not carried on for the account and through the facilities of the Member, contrary to MFDA Rules 1.1.1, 2.1.4 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 was registered in Manitoba from July 1, 1994 to January 3, 2008, in Nova Scotia from July 20, 2005 to March 4, 2014, and in Ontario from May 25, 2007 to January 3, 2008 as a mutual fund salesperson (now known as a dealing representative)[1] with Sun Life Financial Investment Services (Canada) Inc. (“Sun Life”). On January 11, 2002, the Respondent became an Approved Person of Sun Life when Sun Life became a Member of the MFDA.
  2. From May 30, 2014 to October 21, 2015, the Respondent was registered in Nova Scotia as a mutual fund salesperson with Investia Financial Services Inc. (“Investia”), a Member of the MFDA.
  3. At all material times, the Respondent conducted business from a branch office located in Windsor, Nova Scotia. The Respondent now resides in Winnipeg, Manitoba.

Investia’s Policies And Procedures

  1. At all material times, the policies and procedures of Investia:
    1. required its Approved Persons to
      1. disclose any conflict of interest to their designated Branch Manager and to Head Office, Compliance in order to enable Investia to ensure that the conflict is addressed in the best interests of the client(s); and
      2. provide written disclosure about the conflict of interest to all individuals (including clients) affected by the conflict; and
    2. prohibited its Approved Persons from borrowing money from clients.

Allegation #1 – The Respondent’s Personal Financial Dealings With Client RB

  1. In March 2014, the Respondent and a business partner, TH, incorporated Presidio Financial Planning Group Inc. (“Presidio”). The Respondent was the President and a Director of Presidio.  The Respondent informed Investia that Presidio had been incorporated and obtained approval to operate his insurance business through Presidio.
  2. Between March and May 2014 (before the Respondent became an Approved Person with Investia), the Respondent’s business partner referred client RB to the Respondent for investment advice. Client RB’s employment had recently been terminated and the client was seeking advice about how to deal with his existing savings, his pension entitlements from his former employer and any severance compensation that he received from his former employer. At the time, client RB was 59 years old.
  3. The Respondent introduced client RB to MC who was the branch manager of the Investia branch where the Respondent intended to work at when his application for registration was processed.
  4. On or about May 22, 2014, client RB met with MC and the Respondent, explained his financial circumstances and opened investment accounts at Investia into which client RB subsequently arranged to transfer his existing investments and his commuted pension.
  5. MC was identified as the Approved Person of record responsible for servicing client RB’s accounts. However, the Respondent expected that he would became the Approved Person of record responsible for servicing client RB’s account once he became registered with Investia.
  6. MC arranged to pay to the Respondent 50% of the commissions earned from trades processed in client RB’s new investment accounts at Investia.
  7. On May 30, 2014, the Respondent became registered as a mutual fund salesperson with Investia.
  8. After the Respondent became registered with Investia, the Respondent received payment from MC in respect of client RB’s investment accounts at Investia.
  9. In January 2015, the Respondent solicited and accepted a loan from client RB to finance the business operations of Presidio. In addition, the Respondent offered client RB employment with Presidio as a Logistics Manager.
  10. Client RB signed an employment contract with Presidio agreeing to work at the company for a period of 5 years. It was contemplated that client RB would be paid a salary of approximately $1,000 per month.
  11. On January 16, 2015, the Respondent provided client RB with a promissory note, which stated that Presidio had borrowed $50,000 from client RB, and agreed to pay client RB principal and 7% interest per year, through monthly instalments of $990.80, over a 5 year term. The Respondent signed the promissory note on behalf of Presidio.
  12. On January 19, 2015, client RB cashed-in an insurance policy that he held at Sun Life and delivered the proceeds to the Respondent by obtaining a bank draft in the amount of $47,935.78 payable to Presidio.
  13. Client RB was not repaid the loan, which was solicited and accepted by the Respondent to finance the business operations of Presidio, and was not paid the interest due in accordance with the terms of the promissory note.
  14. Client RB was not paid compensation in respect of the client’s employment with Presidio.
  15. On October 20, 2015, the Respondent resigned from Investia.
  16. On November 18, 2015, the Respondent made a voluntary assignment in bankruptcy. Client RB was listed as a creditor in the bankruptcy and the outstanding loan of $50,000 was listed as a liability in the bankruptcy proceeding.
  17. The events described above relating to client RB’s loan to Presidio and client RB’s employment with Presidio gave rise to a conflict or potential conflict of interest between the Respondent and client RB.
  18. The Respondent did not disclose to his branch manager or to Investia’s Head Office, Compliance that he had solicited and accepted a loan from client RB to fund the operations of Presidio. He also did not disclose to his branch manager or to Investia’s Head Office, Compliance that Presidio had entered into an employment contract with client RB.
  19. At no time did the Respondent disclose to client RB in writing that the loan agreement and the employment contract with Presidio gave rise to a conflict or potential conflict of interest.
  20. The Respondent failed to ensure that the conflict or potential conflict of interest was addressed by the exercise of responsible business judgment influenced only by the best interests of the client.
  21. By engaging in the conduct described above, the Respondent engaged in personal financial dealings with a client that gave rise to an actual or potential conflict of interest that he failed to disclose to the Member or address by the exercise of responsible business judgment influenced only by the best interests of the client, contrary to the Member’s policies and procedures and MFDA Rules 2.1.1, 2.1.4, 2.5.1 and 1.1.2.

Allegation #2 – Securities Related Business Outside the Member

  1. In the event that client RB’s $50,000 contribution to Presidio (described above) was not a loan but was rather the acquisition of ownership interest in Presidio, then the Respondent solicited or arranged for client RB to invest monies in Presidio, thereby engaging in securities related business.
  2. Any investment in Presidio was not an investment product approved for sale by Investia.
  3. Any investment in Presidio was not carried on for the account and through the facilities of Investia.
  4. By engaging in the conduct described above, the Respondent solicited or arranged for client RB to invest monies in a non-arm’s length corporation outside the Member, thereby engaging in securities related business that was not carried on for the account and through the facilities of the Member, contrary to MFDA Rules 1.1.1, 2.1.4 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; 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: Brendan Forbes
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) 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, the registration category mutual fund salesperson was changed to “dealing representative” when National Instrument 31-103 came into force.

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