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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: Peter Anthony Varteresian

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 May 13, 2019 at 10:00 a.m. (Atlantic) concerning a disciplinary proceeding commenced by the MFDA against Peter Anthony Varteresian (“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, 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: Between May 2016 and October 2016, the Respondent implemented a strategy for 13 clients to fund the purchase of new insurance policies for the clients from the proceeds of redemptions from the registered retirement savings accounts of the clients without obtaining authorization to process the redemptions or adequately explaining the costs associated with the redemptions, contrary to MFDA Rules 2.2.1, 2.4.4 and 2.1.1.

Allegation #2: In or about June 2015, the Respondent made an unsuitable investment recommendation to his 65 year old client, DS, when he recommended that she purchase mutual funds subject to deferred sales charges (“DSCs”) when he knew or ought to have known that she would require access to some of the invested money prior to the expiry of the DSC schedule and he failed to adequately disclose to client DS that she might be required to pay DSCs upon the subsequent sale of those investments, contrary to MFDA Rules 2.2.1, 2.4.4 and 2.1.1.

Allegation #3: In or about July 2015, the Respondent failed to use due diligence to learn or update material changes to client GR’s Know-Your-Client information, contrary to MFDA Rules 2.2.1, 2.2.4(b) 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 December 21, 2000.
  2. The Respondent was registered as a mutual fund salesperson in Nova Scotia from January 6, 2014 to January 12, 2017, and in British Columbia from May 23, 2014 to December 31, 2015, with Sun Life Financial Investment Services Canada Inc. (the “Member”), a Member of the MFDA.
  3. The Respondent voluntarily resigned from the Member effective January 12, 2017.
  4. The Respondent was licensed to sell insurance products until about June 30, 2018, when his insurance license expired.
  5. At all material times, the Respondent carried on business from a branch located in Halifax, Nova Scotia.

Allegation #1 – The Respondent failed to obtain authorization to process redemptions and failed to disclose the costs associated with the redemptions

  1. Between May 2016 and October 2016, the Respondent implemented a strategy for 13 clients to fund the payment of premiums on new insurance policies from redemptions of mutual funds held in the clients’ registered retirement savings accounts at the Member.
  2. In the course of implementing the strategy, the Respondent:
    • did not obtain the clients’ authorization to process redemptions in their mutual fund accounts to implement the strategy; or
    • failed to adequately advise clients that redemptions from their registered retirement savings accounts at the Member could result in taxes and/or DSCs and, consequently, the clients were unaware of and did not agree to the costs of the redemptions to implement the strategy.
  3. At least two of the 13 clients were retired, did not have an employer funded pension and were relying in part on their registered retirement savings to fund their retirement.
  4. The annual premiums for the 13 clients’ insurance policies, which were to be funded using redemptions from their registered retirement savings accounts, ranged from approximately $2,091 to $9,171. However, some of the clients had to pay taxes on the proceeds of the redemptions and some clients also incurred DSCs as a result of the redemptions. Accordingly, the actual cost to the clients for the annual premiums for the insurance policies ranged from $2,123 to $11,464. The Respondent failed to disclose the actual costs of the strategy to the clients and the clients were unaware of and did not agree to the costs of the redemptions to implement the strategy
  5. For at least five of the 13 clients, the balances in their registered investment accounts were not sufficient to fund the premiums on the new insurance policies for more than three years and, consequently, the clients would be required to finance the payment of the subsequent premiums from other sources of income or savings. The clients were not aware that this would occur.
  6. Commencing in or about October 2016, the Member received complaints from the 13 clients regarding the strategy that the Respondent had implemented.
  7. Following an investigation into the subject matter of the complaints, the Member arranged for the insurance policies to be cancelled, restored any pre-existing insurance policies (where applicable) impacted by the implementation of the strategy, and reversed the redemption transactions that had been processed in the clients’ registered retirement savings accounts to fund the purchase of the new insurance policies.
  8. By engaging in the conduct described above, the Respondent implemented a strategy for 13 clients to fund the purchase of new insurance policies for the clients from the proceeds of redemptions from the registered retirement savings accounts of the clients without obtaining authorization to process the redemptions or adequately explaining the costs associated with the redemptions, contrary to MFDA Rules 2.2.1, 2.4.4 and 2.1.1.

Allegation #2 – The Respondent made an unsuitable recommendation to client DS

  1. In June 2015, the Respondent became the Approved Person responsible for servicing the mutual fund accounts of client DS[1].
  2. At the time, client DS was 65 years old. She had a mortgage of approximately $160,000 on her home and still worked part-time as a care worker. Client DS had no material savings aside from the equity in her home. She had recently inherited the proceeds of her deceased spouse’s pension, which totalled approximately $229,195.
  3. On June 5, 2015, the Respondent advised client DS to deposit the pension proceeds that she had received from her spouse in a Restricted Life Income Fund (“RLIF”) account and in a Registered Retirement Income Fund (“RRIF”) account, and invest $224,195 (98% of the monies) in a portfolio of income generating mutual funds, all of which were subject to a 7 year DSC schedule. The Respondent advised client DS to invest the remaining $5,000 in a money market fund.
  4. The Respondent failed to adequately explain to client DS that if she needed any of the money that was invested in the mutual fund portfolio, she might incur DSCs on redemptions made prior to the expiry of the DSC schedule.
  5. In or about Fall 2017, client DS retired from her part-time work.
  6. Effective September 1, 2015, the Respondent set up automatic monthly withdrawals from the RRIF that he had opened for client DS to enable her to pay her monthly expenses.  Client DS started drawing a net income of $1,200 per month but in order to cover the costs of taxes and DSCs on those withdrawals, gross monthly redemptions of $1,500 per month were required from her RRIF account.
  7. Between September 2015 and May 2016, client DS made additional periodic withdrawals from her RRIF account, and incurred DSCs on the redemptions that were required to fund those withdrawals.
  8. From the inception of her accounts in or about July 2015 to October 31, 2016, client DS paid over $2,100 in DSCs.
  9. The Respondent knew or ought to have known that, in light of client DS’s age and limited financial resources, the Respondent’s investment recommendation to client DS in June 2015 was unsuitable.
  10. The Respondent also failed to adequately explain to client DS that she would incur DSCs on the redemptions processed from her RRIF.
  11. In or about October 2016, client DS made a complaint to the Member regarding the DSCs she had incurred, as well as concerns regarding an insurance policy the Respondent had implemented for her (as set out in Allegation #1). The Member investigated the complaint, and at the conclusion of the investigation, reimbursed client DS for the DSCs that she had paid, and with her consent, moved her remaining investments into non-DSC mutual funds.
  12. By engaging in the conduct described above, the Respondent made an unsuitable investment recommendation to his client DS when he recommended that she purchase mutual funds subject to DSCs when he knew or ought to have known that she would require access to some of the invested money prior to the expiry of the DSC schedule and he failed to adequately disclose to client DS that she might be required to pay DSCs upon the subsequent sale of those investments, contrary to MFDA Rules 2.2.1, 2.4.4 and 2.1.1.

Allegation #3 – The Respondent failed to update a client’s KYC information

  1. On or about July 7, 2015, the Respondent became the Approved Person responsible for servicing the investment accounts of client GR.
  2. On or about July 7, 2015, the Respondent completed a New Account Application Form (“NAAF”) for client GR’s Locked In Retirement account (“LIRA”), which included the following information:
    1. Income:                               $50,000 to $100,000
    2. Net Worth:                          $70,000
    3. Investment Knowledge:    Little to none
  3. On August 5, 2015, client GR met with the Respondent and advised him that he wished to apply for a Financial Hardship withdrawal from his LIRA based on the fact that client GR expected his income for next 12 months to be less than $20,000, which was one of the criteria for early unlocking of registered retirement funds under Nova Scotia legislation.
  4. On August 5, 2015, the Respondent assisted client GR to complete a Financial Hardship application in order to withdraw $5,000 from client GR’s LIRA and the Respondent signed the Financial Hardship application as witness.
  5. On September 2, 2015, client GR’s withdrawal request was approved and client GR received the funds in due course.
  6. Although the Respondent knew by no later than August 5, 2015 (when he served as witness to client GR’s Financial Hardship application) that client GR’s annual income was materially less than $50,000 to $100,000 per year, he failed to update the KYC information on file for client GR.
  7. By engaging in the conduct described above, the Respondent failed to use due diligence to learn or update material changes to client GR’s KYC information, contrary to MFDA Rules 2.2.1, 2.2.4(b) 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: Lyla Simon
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.

[1] Client DS is also an affected client in Allegation #1 herein.

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