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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: Rakeshkumar Patel

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 16, 2019 at 10:00 a.m. (Eastern), or as soon thereafter as the hearing can be held, concerning a disciplinary proceeding commenced by the MFDA against Rakeshkumar Patel (“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: On February 27, 2015, the Respondent, without client VB’s authorization, changed client VB’s address on the Member’s back office system from client VB’s residential address to the branch address at which the Respondent conducted business, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.1, 2.10 and 1.1.2.

Allegation #2: On April 14, 2015, the Respondent, in response to a supervisory query from the Member’s compliance staff regarding the suitability of a trade, changed client VB’s investment objectives on a Know-Your-Client (“KYC”) update form without client VB’s knowledge or authorization, and falsified client VB’s signature on the KYC update form, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #3: On January 13, 2016, the Respondent misled the Member during the course of its supervisory investigation into his conduct, contrary to MFDA Rule 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. From January 10, 2008 to January 27, 2016, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with BMO Investments Inc. (the “Member”), a Member of the MFDA.
  2. On January 27, 2016, the Member terminated the Respondent, in part, as a result of the events described below.
  3. The Respondent is not currently registered in the securities industry in any capacity.
  4. At all material times the Respondent carried on business at a branch office of the Member located in Brampton, Ontario (the “Brampton Branch”).

The Member’s Policies and Procedures

  1. At all material times, the Member’s policies and procedures provided that:
    1. changes to a client’s primary or alternative address requires client authorization, and
    2. clients cannot use the Member’s branch address to receive mail, unless:
      1. the request is made in writing;
      2. it is not intended to be a permanent arrangement; and
      3. a “hold mail” arrangement has been approved by the branch manager and compliance department.

Client VB’s New Account Application Form

  1. On February 27, 2015, the Respondent met with client VB at the Brampton Branch. Client VB was 74 years old at the time.
  2. The Respondent completed a new account application form (the “NAAF”) with client VB. The NAAF accurately recorded client VB’s residential address and provided for the delivery of paper statements to client VB’s residential address.
  3. The NAAF stated that client VB had a net worth of between $50,000 and $100,000, an annual income between $20,000 and $50,000, and a “low” risk tolerance. The NAAF also stated that client VB had the following investment objectives:
    1. Security of Capital – High
    2. Income – Low
    3. Balanced – Low
    4. Growth – Low

The Investment Purchased In Client VB’s Account

  1. Client VB had attended at the Brampton Branch with the intention of purchasing a guaranteed investment that provided 100% principal protection.
  2. Instead, the Respondent recommended that client VB invest $39,000 in the BMO SelectTrust Fixed Income Portfolio (the “Fixed Income Fund”).
  3. The Respondent was eligible to earn greater compensation if client VB invested his savings in a mutual fund product like the Fixed Income Fund rather than a Guaranteed Investment Certificate (“GIC”) or similar products that offered 100% principal protection.

Client VB’s Address Changed From Residential Address to Branch Office Address

  1. On the same day that client VB indicated on the NAAF that he completed that he wanted to receive delivery of paper statements to his residential address, the Respondent changed the address of client VB on record in the Member’s back office system from the Respondent’s residential address to the address of the Brampton Branch.
  2. The address change that the Respondent recorded for client VB’s account was made without the knowledge or authorization of client VB and without the approval of a branch manager or compliance officer responsible for the supervision of the Respondent.
  3. As a consequence of the address change, client VB did not receive quarterly account statements or confirmation notices associated with transactions processed in his investment accounts with the Member.
  4. By changing client VB’s address on the Member’s back office system to the branch address at which the Respondent conducted business, the Respondent engaged in conduct contrary to the Member’s policies and procedures, and MFDA Rules 2.1.1, 2.10 and 1.1.2.

The Respondent Falsifies a KYC Update Form

  1. On March 2, 2015, the Respondent’s Branch Compliance Officer (“BCO”) contacted the Respondent and queried client VB’s purchase of the Fixed Income Fund because the BCO was concerned that the Fixed Income Fund might not be a product that was suitable having regard to client VB’s investment objectives.
  2. In response to additional follow-up by the BCO, on April 14, 2015, the Respondent prepared a KYC update form in client VB’s name which indicated that the client had changed his investment objectives as follows:
    1. Security of Capital – Low
    2. Income – High
    3. Balanced – Low
    4. Growth – Low
  3. The Respondent falsified client VB’s signature on the KYC update form.
  4. On April 16, 2015, the Respondent submitted the KYC update form to the Member.
  5. The Respondent made the changes to client VB’s KYC information without the client’s knowledge or authorization. Furthermore, the Respondent had not obtained any new information about client VB that justified the changes that he made to client VB’s KYC information.
  6. The Respondent changed client VB’s investment objectives in the KYC update form in order to address the BCO’s concern that the February 27, 2015 trade in client VB’s account may not have been suitable.
  7. By engaging in the conduct described above, the Respondent, in response to a supervisory query from the Member’s compliance staff regarding the suitability of a trade, changed client VB’s investment objectives on a KYC update form without client VB’s knowledge or authorization, and falsified client VB’s signature on the KYC update form, contrary to MFDA Rules 2.2.1 and 2.1.1.

The Value of Client VB’s Mutual Fund Investment Declined

  1. Client VB did not receive any statements or transaction confirmation documentation because the Respondent had changed client VB’s address to the Brampton Branch address.
  2. When client VB made inquiries with the Member about the content of his investment account, he was informed that the value of the investments in his account had declined during the period since the account was opened.
  3. On November 13, 2015, client VB met with the Respondent’s Branch Manager and made a complaint about the decline in the value of his investment account. By that time, the value of the mutual fund that had been purchased in client VB’s investment account had declined by $1,005.20. Client VB also complained that he had not received any statements concerning the activity and performance in his investment account. Furthermore, client VB told the Branch Manager that in February 2015, he had informed the Respondent that he wanted an investment with 100% principal protection.
  4. The Branch Manager presented client VB with the KYC update form dated April 14, 2015 that the Respondent had submitted on behalf of client VB which purported to change client VB’s investment objectives. Client VB told the Branch Manager that the signature on the KYC update form was not his signature. Client VB also told the Branch Manager that he had not met with the Respondent to discuss the changes on the form and had not been informed about or authorized the changes to his investment objectives at any time.
  5. On December 2, 2015, in response to client VB’s complaint, the Member reversed the mutual fund purchase transaction that had been processed in client VB’s account on February 27, 2015 and reimbursed client VB for his loss.

The Respondent Misled the Member during its Investigation

  1. The Member conducted a supervisory investigation following client VB’s complaint. On January 13, 2016, the Respondent was interviewed by compliance staff of the Member.  During that interview, the Respondent falsely claimed that client VB signed the KYC update form dated April 14, 2015.
  2. It was only when staff of the Member showed the Respondent that surveillance footage for the branch revealed no record of client VB attending at the branch on April 14, 2015, that the Respondent admitted that he had personally completed the KYC update form without communicating or meeting with client VB concerning the changes that he recorded on the KYC update form and had falsified client VB’s signature on the form.
  3. By engaging in the conduct described above, the Respondent misled the Member during the course of its investigation into his conduct, contrary to MFDA Rule 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: David Barbaree
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.

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