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: Robert Eugene Palumbo

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, 121 King Street West, Suite 1000, Toronto, Ontario on May 7, 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 Robert Eugene Palumbo (“Respondent”).

  • 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 March 2016 and May 2017, the Respondent misappropriated approximately $195,626 from three clients, thereby failing to deal fairly, honestly and in good faith with clients, failing to observe high standards of ethics and conduct in the transaction of business and engaging in conduct which is unbecoming and detrimental to the public interest, contrary to MFDA Rule 2.1.1.

Allegation #2: Between approximately September 2015 and December 2016, the Respondent engaged in personal financial dealings with a client which gave rise to a 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 policies and procedures of the Member and MFDA Rules 2.1.4, 2.5.1, 2.10, 1.1.2 and 2.1.1.

Allegation #3: Between May 2014 and June 2017, the Respondent obtained, possessed, and in 6 instances used to process transactions, 13 pre-signed account forms in respect of 10 clients, contrary to MFDA Rule 2.1.1.

Allegation #4: Commencing in November 2017, the Respondent failed to co-operate with an investigation of his conduct by Staff of the MFDA (“Staff”), contrary to 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. The Respondent has been registered in the mutual fund industry in Canada since July 2010.
  2. The Respondent was registered as a dealing representative in Ontario from May 1, 2014 to June 20, 2017, and in Alberta from September 25, 2014 to June 20, 2017, with IPC Investment Corporation (the “Member”), a Member of the MFDA.
  3. On June 20, 2017, the Member terminated the Respondent. The Respondent is not currently registered in the securities industry in any capacity.
  4. At all material times, the Respondent conducted business from a branch office located in Sault Ste. Marie, Ontario.

Allegation #1 – Misappropriation of Client Monies

  1. Between March 2016 and May 2017, the Respondent misappropriated approximately $195,625.51 from three clients of the Member, as described below:
    1. $66,500.00 from client EC;
    2. $99,100.00 from client AK; and
    3. $30,025.51 from client WL.
  2. The amounts misappropriated from clients EC and AK were obtained directly from investment accounts held with the Member. The amount misappropriated from client WL was obtained from client WL’s segregated fund account. However, client WL also maintained investment accounts with the Member.
  3. In each instance, the Respondent misappropriated these funds by falsifying the clients’ signature on withdrawal forms. The Respondent prepared the withdrawal forms which contained instructions to make the withdrawn amounts payable to the clients by cheque sent to the Respondent’s office.
  4. Upon receipt of the cheques at his office, the Respondent falsified the clients’ signatures on the cheques in order to endorse the cheques to himself or his company, 1890742 Ontario Inc. and deposited the cheques into bank accounts that he controlled.
  5. The Member was informed about the Respondent’s conduct by the Respondent’s bank.
  6. The clients were unaware that the Respondent had processed redemptions and withdrawals from their accounts and they had not authorized the Respondent to process transactions within these accounts.
  7. By virtue of the foregoing, the Respondent misappropriated monies from clients and failed to deal fairly, honestly and in good faith with clients, failed to observe high standards of ethics and conduct in the transaction of business and engaged in conduct which is unbecoming and detrimental to the public interest, contrary to MFDA Rule 2.1.1.

Allegation #2 – Personal Financial Dealings

  1. At all material times, the Member’s policies and procedures stated that Approved Persons were prohibited from borrowing from clients or having clients provide a loan guarantee on behalf of an Approved Person.
  2. Between approximately September 2015 and December 2016, the Respondent solicited and accepted a loan from the Respondent’s cousin, MC. Client MC was a client of the Member and the Respondent was the Approved Person at the Member responsible for servicing client MC’s investment accounts.
  3. The terms of the loan agreement were not documented in writing. Client MC has stated that the loan amount was for approximately $10,000.
  4. The Respondent’s solicitation and acceptance of a loan from a client gave rise to a conflict of interest between the Respondent and the client.
  5. The Respondent did not disclose to his branch manager or to the Member’s head office that he had solicited and accepted a loan from client MC.
  6. At no time did the Respondent disclose in writing to client MC that the loan agreement gave rise to a conflict of interest or a potential conflict of interest.
  7. The Respondent failed to ensure that the conflict of interest arising from the loan agreement was addressed by the exercise of responsible business judgment influenced only by the best interests of the client.
  8. By virtue of the foregoing, the Respondent engaged in personal financial dealings with a client that gave rise to a conflict of interest which he failed to disclose to his 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 1.4, 2.5.1, 2.10, 1.1.2 and 2.1.1.

Allegation #3 – Pre-Signed Account Forms

  1. At all material times, the Member’s policies and procedures stated that pre-signed forms, including forms which were blank or only partially completed, were strictly prohibited.
  2. Between May 2014 and June 2017, the Respondent obtained, possessed, and in 6 instances, submitted to the Member for processing, 13 pre-signed account forms in respect of 10 clients.
  3. The pre-signed account forms included one Pre-Authorized Debit Agreement and 12 Order Entry Forms.
  4. By virtue of the foregoing, the Respondent engaged in conduct contrary to MFDA Rule 1.1.

Allegation #4 – Failure to Cooperate

  1. On August 10, 2017, Staff sent a letter by registered and regular mail to the Respondent notifying him that, according to the Member, the Respondent had misappropriated funds from three clients. Staff requested that the Respondent provide a written response to these allegations by August 31, 2017.
  2. The registered mail copy of the letter was received and signed for by the Respondent on August 15, 2017.
  3. The Respondent did not respond to Staff’s letter dated August 10, 2017.
  4. On September 29, 2017, Staff sent a letter to the Respondent and requested that he provide written responses to questions listed in the letter by October 12, 2017. On October 12, 2017, the Respondent sent an email to Staff that indicated that he was aware of Staff’s investigation and had received the letter from Staff dated September 29, 2017. However the Respondent did not provide answers to the questions that Staff had listed in the letter dated September 29, 2017.
  5. On November 10, 2017, Staff sent an email and registered letter to the Respondent requesting that the Respondent provide copies of certain bank statements that were relevant to Staff’s investigation and repeated Staff’s request for written responses to the questions that had been listed in the letter dated September 29, 2017. Staff requested a response from the Respondent by November 22, 2017.
  6. On November 28, 2017, the Respondent sent an email to Staff that included answers to the questions in the September 29, 2017 letter. However, the Respondent stated that he was unable to obtain the requested bank statements at that time.
  7. Between November 29, 2017 and April 18, 2018, Staff sent the Respondent several additional requests for the bank statements. The Respondent failed to produce the requested bank statements and did not provide an explanation for his failure to produce the requested documents.
  8. In Staff’s letter to the Respondent dated April 18, 2018, Staff also asked the Respondent to contact the MFDA within 10 business days to schedule an interview to give information concerning matters under investigation.
  9. The Respondent did not respond to Staff’s request to schedule an interview.
  10. The Respondent’s failure to provide bank statements and attend an interview has frustrated Staff’s ability to determine the full extent of the Respondent’s misconduct and how the Respondent used the money which he misappropriated from clients EC and AK.
  11. By virtue of the foregoing, the Respondent has failed to cooperate with Staff’s investigation into his conduct, contrary to 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: Brendan Forbes
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.