Skip to Main Content

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: Duke Mongare Ongechi

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 January 8, 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 Duke Mongare Ongechi (“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: Between about 2014 and 2015, the Respondent referred or assisted at least five clients to invest in or loan monies to a retail clothing business, thereby engaging in:

  1. an undisclosed and unapproved outside activity, contrary to MFDA Rules 1.2.1(c) (now Rule 1.3) and 2.1.1; and/or
  2. a referral arrangement which was not permitted, contrary to MFDA Rules 2.4.2 and 2.1.1, and sections 13.7 and 13.8 of National Instrument 31-103.

Allegation #2: In or about September 2015, the Respondent signed a promissory note in which he agreed to pay $19,755 to a client pertaining to the client’s investment in or loan to a retail clothing company, and provided personal cheques to the client to pay the amounts owed pursuant to the terms of the promissory note, thereby:

  1. engaging in personal financial dealings with a client which created a conflict or potential conflict of interest that the Respondent failed to address by the exercise of responsible business judgment influenced only by the best interests of the client, contrary to MFDA Rules 2.1.4 and 2.1.1; and/or
  2. entering into a settlement agreement with a client without the Member’s knowledge or prior written consent, contrary to MFDA Rules 2.1.4 and 2.1.1, and MFDA Policy No. 3.

Allegation #3: Between December 2015 and March 2016, the Respondent failed to report to the Member, within two business days or at all, that the Respondent had been named as a defendant in two civil claims commenced by clients, and that there was a garnishment order rendered against the Respondent pursuant to a civil claim commenced by a client, contrary to MFDA Rules 1.4(b) and 2.1.1, and section 4 of MFDA Policy No. 6.

Allegation #4: Commencing in October 2016, the Respondent provided false or misleading statements to:

  1. the Member during the course of its investigation into his conduct, thereby interfering with the Member’s ability to supervise and investigate the Respondent’s conduct, contrary to MFDA Rule 2.1.1; and
  2. MFDA Staff during the course of its investigation into the Respondent’s conduct, thereby interfering with MFDA Staff’s ability to conduct its investigation, contrary to MFDA Rule 2.1.1 and section 22.1 of MFDA By-law No. 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 4, 2010 to May 2, 2016, when he was terminated in relation to the events described herein, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with Investors Group Financial Services Inc. (“Investors Group” or the “Member”), a Member of the MFDA.
  1. At all material times, the Respondent was also licensed to sell insurance.
  1. At all material times, the Respondent carried on business from a branch location in Pickering, Ontario.

Allegation #1 – Respondent Referred Clients to Invest in Ambrosia

  1. Between about 2014 and 2015, the Respondent referred or assisted at least five clients to invest in or loan monies to a retail clothing business known as “Ambrosia”.
  1. The Respondent represented to the clients that Ambrosia was a successful company looking for prospective investors to provide ‘seed funding’ for merchandise purchases. The Respondent described the Ambrosia investment as an alternative to mutual funds.
  1. The clients invested or loaned at least $75,000 in Ambrosia, as follows:

Client

Date of Investment

Amount Invested

DP

December 2014

$10,000

MA

December 14, 2014

$20,000

SA

April 2015

$15,000

GN

Unknown

$15,000

AS Inc.

April 19, 2015

$15,000

 

Total Amount Invested

$75,000

  1. The investments in or loans to Ambrosia were generally to be held for a period of six months, with principal and interest payments to be paid to investors bi-weekly.
  1. At least one client was to be paid interest of approximately 10% per month or 120% per year.
  1. The clients did not receive the interest payments promised by Ambrosia.
  1. The clients did not receive the return of the principal of their investments, except for client MA who received a partial return of the principal in the amount of $5,000.
  1. The Respondent did not disclose his activities relating to Ambrosia to the Member and the Member did not approve these activities.
  1. In addition, the Member did not have a referral arrangement with Ambrosia and no referral activity relating to Ambrosia was conducted through the Member.
  1. By referring or assisting at least five clients to invest in or loan monies to Ambrosia, the Respondent engaged in:
    1. an undisclosed and unapproved outside activity, contrary to MFDA Rules 1.2.1(c) (now Rule 1.3) and 2.1.1; and/or
    2. a referral arrangement which was not permitted, contrary to MFDA Rules 2.4.2 and 2.1.1, and sections 13.7 and 13.8 of National Instrument 31-103.

Allegation #2 – Respondent Engaged in Personal Financial Dealings With Clients

  1. At all material times, the Member’s policies and procedures prohibited its Approved Persons, including the Respondent, from entering into a private settlement with a client, and required that all settlements be approved and issued by the Member. Additionally, the Member’s policies and procedures prohibited its Approved Persons, including the Respondent, from writing personal cheques to a client.
  1. On or about September 7, 2015, client AS Inc. advised the Respondent in writing that it considered the Respondent responsible for the principal plus interest totaling $19,755 owed to client AS Inc. by Ambrosia for client AS Inc.’s investment in Ambrosia.
  1. On or about September 18, 2015, the Respondent and client AS Inc. signed a promissory note in which the Respondent agreed to pay client AS Inc. the sum of $19,755 representing the amount owed to the client by Ambrosia (“Promissory Note”).
  1. The Promissory Note further set out that the Respondent would pay $19,755 to client AS Inc. by providing six personal cheques post-dated from October 31, 2015 to March 31, 2016 (“Cheques”). At or about the same time that the Respondent and client AS Inc. signed the Promissory Note, the Respondent provided the Cheques to client AS Inc.
  1. At or about the same time that the Respondent and client AS Inc. signed the Promissory Note, the Respondent entered into an agreement with client AS Inc. whereby the Respondent assumed the rights and obligations of client AS Inc. regarding recovery of the amounts owed by Ambrosia to client AS Inc. (“Assignment”).
  1. On or about October 30, 2015 (i.e., one day before the first of the Cheques could be cashed by client AS Inc.), the Respondent wrote to client AS Inc. requesting that client AS Inc. hold off for one week on cashing the first of the Cheques.
  1. Client AS Inc. subsequently deposited the Cheques but they were returned to client AS Inc. uncashed due to non-sufficient funds in the Respondent’s account.
  1. The Respondent did not disclose to the Member, and the Member was not otherwise aware of, the Promissory Note, the Assignment or the Cheques.
  1. By entering into the Promissory Note and the Assignment, and providing the Cheques to client AS Inc., the Respondent:
    1. engaged in personal financial dealings with a client which created a conflict or potential conflict of interest that the Respondent failed to address by the exercise of responsible business judgment influenced only by the best interests of the client, contrary to MFDA Rules 2.1.4 and 2.1.1; and/or
    2. entered into a settlement agreement with a client without the Member’s knowledge or prior written consent, contrary to MFDA Rules 2.1.4 and 2.1.1, and MFDA Policy No. 3.

Allegation #3 – Respondent Failed to Report Legal Proceedings and a Garnishment Order to the Member

Legal Proceeding Commenced by Client SA
  1. In or about December 2015, client SA commenced a small claims court proceeding in the Ontario Superior Court of Justice against the Respondent seeking damages in the amount of $19,755 relating to client SA’s investment in Ambrosia.
  1. On or about December 27, 2015, client SA served the Respondent with the Plaintiff’s Claim.
  1. On or about January 20, 2016, client SA was granted default judgment as against the Respondent.
  1. On or about February 10, 2016, a Notice of Garnishment was issued by the Superior Court of Justice regarding client SA’s legal proceeding against the Respondent. In or about March 2016, the Respondent’s bank account started being garnished.
  1. The Respondent did not report to the Member at any time that a legal proceeding had been commenced by client SA against him, and that his (the Respondent’s) bank account was being garnished.
Legal Proceeding Commenced by Client AS Inc.
  1. On or about January 21, 2016, client AS Inc. commenced a small claims court proceeding in the Ontario Superior Court of Justice against the Respondent seeking damages in the amount of $19,755 relating to client AS Inc.’s investment in Ambrosia.
  1. On or about January 23, 2016, client AS Inc. served the Respondent with the Plaintiff’s Claim.
  1. On or about February 29, 2016, client AS Inc. was granted default judgment as against the Respondent.
  1. On or about February 29, 2016, a Notice of Garnishment was issued by the Superior Court of Justice regarding client AS Inc.’s legal proceeding against the Respondent.
  1. The Respondent did not report to the Member at any time that a legal proceeding had been commenced by client AS Inc. against him.

Notices of Garnishment Delivered to the Member

  1. In March 2016, the Member became aware that the Respondent had been named as a defendant in the two small claims court proceedings described above when it (the Member) received the related Notices of Garnishment.
  1. By failing to report to the Member, within two business days or at all, that he (the Respondent) had been named as a defendant in two civil claims commenced by clients, and that there was a garnishment order rendered against him pursuant to a civil claim commenced by a client, the Respondent engaged in conduct contrary to MFDA Rules 1.4(b) and 2.1.1, and section 4 of MFDA Policy No. 6.

Allegation #4 – Respondent Made False or Misleading Statements to the Member and MFDA Staff

Overview of False or Misleading Statements
  1. As described in greater detail below, the Respondent provided false or misleading statements during the course of each of the Member’s investigation and MFDA Staff’s investigation into his conduct.
Circumstances of Client SA’s Investment in Ambrosia
  1. In or about early March 2016, the Member commenced an investigation into the matters herein.
  1. In a memo dated March 4, 2016, the Respondent advised his Branch Manager that during an annual review with client SA in February 2015:
    1. “…[client SA] mentioned during our conversation that while he liked the mutual funds, he was looking for more returns on his investments and wanted to know if there were other alternatives out there. I mentioned that there was a company looking for funding and that it would pay interest on the funds. He asked who this was and I informed him of the company, Ambrosia.”
  1. In a memo dated October 26, 2016 from the Respondent to MFDA Staff, the Respondent advised that he had introduced client SA to investing in Ambrosia during an annual community event on June 6, 2015 when the Respondent seated client SA at the same table with a principal of Ambrosia and introduced them.
  1. On July 26, 2017, during his MFDA investigative interview (“MFDA Interview”), the Respondent advised MFDA Staff that he made client SA aware of Ambrosia on December 29, 2014 when the Respondent introduced client SA to a principal of Ambrosia at a Christmas party.
Knowledge of Client DP’s investment in Ambrosia
  1. During his MFDA Interview, the Respondent advised MFDA Staff that he only became aware in June 2016 that client DP had invested in Ambrosia.
  1. However, in an email from client DP to the Respondent dated January 4, 2016, DP requested information regarding when the payments from Ambrosia to client DP would start. Accordingly, the Respondent had been aware of client DP’s investment in Ambrosia since at least January 4, 2016.
Knowledge of Other Clients the Respondent Referred to Invest in Ambrosia
  1. In response to a question from MFDA Staff requesting that the Respondent “confirm the total number of clients you referred to Ambrosia and provide the client names”, the Respondent stated, in a memo to MFDA Staff dated October 26, 2016, that client SA and client AS Inc. were the only clients he had referred to
  1. During his MFDA Interview, the Respondent stated that he was unaware of anyone else who had invested in Ambrosia other than client SA, client AS Inc. and client DP.
  1. However, in an email from the Respondent to MFDA Staff dated December 15, 2017, the Respondent advised that he had also referred client GN and other mutual fund clients to Ambrosia.
  1. Further, in an email dated January 8, 2016 from the Respondent to client MA, the Respondent informed client MA that the Respondent had begun to arrange personal financing in order to pay client MA his Ambrosia investment payments. Accordingly, the Respondent was aware that he had also referred client MA to invest in Ambrosia.
Knowledge of the Legal Proceedings Commenced by clients SA and AS Inc.
  1. In a memo from the Respondent to MFDA Staff dated October 26, 2016, the Respondent advised that he had become aware in January 2016 that client SA and client AS Inc. had commenced legal proceedings against him, but that it was not until March 2016 that he actually saw the court documents regarding the legal proceedings commenced against him.
  1. During his MFDA Interview, the Respondent again advised MFDA Staff that he had become aware in January 2016 that client SA and client AS Inc. had commenced legal proceedings against him, but that it was not until March 2016 that he actually saw the court documents regarding the legal proceedings commenced against him.
  1. However, in an affidavit of service sworn by client SA on December 30, 2015 as part of the legal proceedings commenced by client SA against the Respondent, client SA stated that the Respondent was served with the Plaintiff’s Claim on December 27, 2015.
  1. Additionally, on January 23, 2016, the Respondent wrote an email to client SA and client AS Inc. and stated, “This is to acknowledge receipt of your two notices of claims filed”. Accordingly, the Respondent had seen the court documents relating to both claims in at least January 2016.
  1. By engaging in the conduct described above, the Respondent provided false or misleading statements to:
    1. the Member during the course of its investigation into his conduct, thereby interfering with the Member’s ability to supervise and investigate the Respondent’s conduct, contrary to MFDA Rule 2.1.1; and
    2. MFDA Staff during the course of its investigation into the Respondent’s conduct, thereby interfering with MFDA Staff’s ability to conduct its investigation, contrary to MFDA Rule 2.1.1 and 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; 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.

643209