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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: Dorothy Jean Gabrysz

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 March 12, 2019 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 Dorothy Jean Gabrysz (“Respondent”).

  • 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: In November 2009, the Respondent prepared and submitted client account forms and a loan application for client SR which the Respondent knew or ought to have known contained false, incorrect or misleading information, thereby failing to observe high standards of ethics and conduct in the transaction of business and engaging in conduct unbecoming an Approved Person, contrary to MFDA Rule 2.1.1.

Allegation #2: In November 2009, the Respondent failed to perform the necessary due diligence to learn the essential facts relative to the client’s to ensure that the leveraged investment recommendations she made to client SR satisfied the Member’s leverage suitability requirements in its policies and procedures, contrary to MFDA Rules 2.2.1, 1.1.2, 2.5.1, and 2.1.1.

Allegation #3: Between December 7, 2015 and December 11, 2015, the Respondent failed to report a complaint by client SR to the Member, contrary to the Member’s policies and procedures, MFDA Policy No. 6, subsection 4.1(a), and MFDA Rules 1.1.2, 1.4(b), 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. Since about May 2, 2008, the Respondent has been registered in Ontario as a mutual fund salesperson (now known as a dealing representative[1]) with WFG Securities Inc. (“WFG”), a Member of the MFDA.
  2. At all material times, the Respondent conducted business in Richmond Hill, Ontario.

False, Incorrect or Misleading NAAFs and Loan Application

  1. At all material times, client SR was a client of WFG and the Respondent was the mutual fund salesperson responsible for servicing her accounts.
  2. The Respondent recommended and facilitated the implementation of a leveraged investment strategy, whereby client SR would borrow $100,000 to purchase mutual funds.
  3. On or around November 17, 2009, the Respondent prepared a WFG New Client Account Form (“NCAF”) and a B2B Trust loan application (“Loan Application”) for client SR.
  4. The Respondent submitted the NCAF and Loan Application to open a new account at WFG and obtain investment loans from B2B Trust for client SR.
  5. The NCAF stated that client SR held assets of $650,000, had liabilities of $132,000, and had a net worth of $518,000.
  6. The Loan Application contained the following breakdown of client SR’s assets and liabilities:

Assets

Liabilities

Monthly Payment

Home

$300,000

Mortgage/Rent

$115,000

$840

Stocks

$70,000

Car Loans/Lease

   

Registered Accounts

$129,000

Line of Credit

   

Cash/Liquid Inv.

 $12,000

Personal Loans

$15,000

$184

Other: GIC

$75,000

Credit Cards

$2,000

$70

Insurance

$14,000

Investment Loans

   

Bonds

$50,000

Other: specify

   

Total Assets 

$650,000

Total Liabilities

$132,000

$1,094

  1. Both the Loan Application and NCAF stated that client SR’s annual income was $60,000.
  2. The Respondent knew or ought to have known that the NCAF and Loan Application contained false, incorrect or misleading information. Among other things, the NCAF and Loan Application:
    1. inflated client SR’s assets;
    2. failed to disclose all of client SR’s liabilities; and/or
    3. inflated client SR’s income.
  3. At the time that the Respondent submitted the NCAF and Loan Application, client SR held assets of approximately $307,500 (not $650,000), had liabilities of approximately $153,000 (not $132,000) and earned an annual income of approximately $50,000 (not $60,000).
  4. On or about November 17, 2009, B2B Trust approved the loan.
  5. The proceeds of the loan from B2B Trust were used to purchase mutual funds.
  6. Approximately one week after the Respondent submitted the Loan Application to B2B Trust, client SR received a copy of the Loan Application from the Respondent, which was identical to the copy sent to B2B Trust with the exception of the assets section. As summarized below, the copy of the Loan Application provided to client SR stated that the client held assets totaling $302,000, while the copy of the Loan Application submitted to B2B Trust stated that the client held assets of $650,000:

Assets

(Submitted to B2B Trust)

Assets

(Submitted to Client SR)

Home

$300,000

Home

$300,000

Stocks

$70,000

Stocks

 

Registered Accounts

$129,000

Registered Accounts

 

Cash/Liquid Inv.

 $12,000

Cash/Liquid Inv.

$2,000

Other: GIC

$75,000

Other:

 

Insurance

$14,000

Insurance

 

Bonds

$50,000

Bonds

 

Total Assets 

$652,000

Total Assets 

$302,000

  1. The Respondent did not inform client SR and client SR was not aware that the copy of the Loan Application provided to B2B Trust was different from the copy provided to client SR.
  2. WFG and B2B Trust were not aware that the NCAF and Loan Application contained false, incorrect or misleading information with respect to client SR’s assets, liabilities or income.
  3. By engaging in the conduct described above, the Respondent failed to observe high standards of ethics and conduct in the transaction of business and engaged in conduct unbecoming an Approved Person, contrary to MFDA Rule 2.1.1.

Failure to Comply with the Member’s Suitability Requirements

  1. At all material times, WFG’s policies and procedures required its Approved Persons, including the Respondent, to assess and determine whether a leveraged investment recommendation was suitable for a client having regard to certain criteria. In particular, WFG’s policies and procedures stated:
    1. the total borrowed funds must not exceed 30% of the client’s verifiable net worth and 50% of the client’s verifiable liquid net worth; and
    2. the client’s total debt payments must not exceed 35% of the client’s Total Debt Service Ratio (“TDSR”).
  2. As stated above, the Respondent submitted the NCAF and Loan Application, which stated that client SR held assets of approximately $650,000, had liabilities of approximately $132,000 and earned an annual income of approximately $60,000. Based upon this false, incorrect or misleading information, client SR’s loan to net worth ratio appeared to be 19% and her TDSR appeared to be 33%, which satisfied WFG’s leverage suitability requirements in its policies and procedures.
  3. WFG approved the loan based upon the false, incorrect or misleading information provided by the Respondent in the NCAF and Loan Application.
  4. However, at the time that the Respondent submitted the NCAF and Loan Application, the Respondent actually held assets of approximately $307,500, had liabilities of approximately $153,000 and earned an annual income of approximately $50,000. Therefore, client SR’s actual loan to net worth ratio was 64% and her debt service ratio was 40%, which did not satisfy WFG’s leverage suitability requirements.
  5. By virtue of the foregoing, the Respondent failed to perform the necessary due diligence to learn the essential facts relative to the client’s to ensure that the leveraged investment recommendations he made to client SR satisfied the Member’s leverage suitability requirements in its policies and procedures, contrary to MFDA Rules 2.2.1, 1.1.2, 2.5.1, and 2.1.1.

Failing to Report a Client Complaint

  1. MFDA Policy No. 6, subsection 4.1(a) requires an Approved Person to report to his or her current Member, within 2 business days, whenever the Approved Person is the subject of a client complaint in writing.
  2. At all material times, WFG’s policies and procedures required its Approved Persons to report a complaint to the Member within 2 days.
  3. On December 7, 2015, client SR emailed the Respondent inquiring about the leveraged investment. Among other things, client SR questioned the Respondent about the decrease in the value of the investments, the benefits of the investment and the redemption fees.
  4. On December 8, 2015, the Respondent responded by email explaining that the account value was low as a result of the markets being down and that, “there are no redemption fees as you are not redeeming [the investments]”.
  5. On December 10, 2016, client SR emailed the Respondent stating that the Respondent did not make her aware of the deferred sales charge fees that applied to her investments and the leveraged strategy had “set [her] back financially”.
  6. On the same date, the Respondent responded by email stating:
    1. …first let me explain fees….currently you have what is called DSC (deferred sales charge) It runs for a 7 year depleting % amount. This was done so their (sic) were no cost to you when we purchased the funds. So yes if you were to sell now there would be a cost, after 7 years from time of purchase…no redemption fee.
    2. One of the reasons for your fund being down is the distribution you receive monthly. The fund was positioned to pay distribution but when markets are not doing well, it does start to deplete your values. As I said this changes constantly…This type of strategy was for the long term.
  7. On the same date, client SR sent an email to the Respondent stating, “I want to stop using the investment to pay down the loan, instead I want to pay it from my bank account”. Client SR further requested the redemption fees and taxes payable if she transferred the investments.
  8. On the same date, the Respondent responded to client SR:
    1. You are upset, first of all why would you take advice from your Accountant, it’s like asking a mechanic how to cut your hair? The investment is working just fine, called today and your balance of your loan is $80,336.57 with your mutual funds at $77,807.37. As I mentioned the markets are down, it will go up. …
    2. This investment has not cost you anything and you are upset???? [Emphasis added.]
  9. On December 11, 2016, client SR emailed the Respondent again requesting the amount of the redemption fee and the taxes payable if she transferred the investments.
  10. On the same date, the Respondent responded by email stating:
    1. Ok …you are not hearing me so the only information you want is the DSC (deferred sales charge) which is $1,978.50 these funds will fully mature on November 23, 2016 when there would be no charge to move to another company…
    2. At this point there seems to be no trust and I would recommend you looking for another advisor you can trust. [Emphasis added.]
  11. Client SR’s emails to the Respondent constituted a complaint subject to the requirements contained in MFDA Policy No. 6, subsection 4.1(a) and WFG’s policies and procedures.
  12. The Respondent did not advise WFG that he had received a complaint from client SR.
  13. By virtue of the conduct described above, the Respondent engaged in conduct contrary to MFDA Policy No. 6, subsection 4.1(a), MFDA Rule 1.1.2, 1.4(b), 2.1.1 and 2.5.1.

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: H. C. Clement Wai
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]When National Instrument 33-102 came into effect on September 28, 2009, the registration category formerly known as ‘mutual fund salesperson’ was changed to ‘dealing representative’.

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