MFDA Notice of Hearing

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201965

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

Steven Jules Rethy

NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a hearing panel of the Atlantic Regional Council (“Hearing Panel”) of the Mutual Fund Dealers Association of Canada (“MFDA”) on June 16, 2020 at 10:00 a.m. (Atlantic), or as soon thereafter as the appearance can be held, concerning a disciplinary proceeding commenced by the MFDA against Steven Jules Rethy (“Respondent”). Members of the public who would like to listen to the teleconference should contact hearings@mfda.ca to obtain particulars. The Hearing on the Merits will take place in Halifax, Nova Scotia.

DATED: Apr 15, 2020

"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: corporatesecretary@mfda.ca



NOTICE is further given that the MFDA alleges the following violations of the By-laws, Rules or Policies of the MFDA:

Allegation #1: In or about June 2010, the Respondent concealed from the Member that he had recommended that two clients borrow monies to invest, thereby failing to abide by the terms and conditions regarding leveraging imposed on his registration and misleading the Member in response to its supervisory inquiries, 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. Since January 20, 2004, the Respondent has been registered in Alberta, New Brunswick, Newfoundland and Labrador, Ontario, and Prince Edward Island as a mutual fund salesperson (now known as a dealing representative) with Keybase Financial Group Inc. (the “Member”), a Member of the MFDA.
  2. At all material times, the Respondent carried on business from a location in Dartmouth, Nova Scotia.
  3. Previously, the Respondent was registered in the securities industry since 1990, as follows:
    • October 2001 to January 16, 2004 – Cartier Partners Financial Services Inc.
    • December 8, 1995 to October 2001 – Heritage Financial Services Ltd.
    • May 17, 1990 to December 5, 1995 – Investors Group Financial Services Inc.

Allegation #1 – Concealing Information from the Member

  1. In or about the late 1990s, the Respondent started servicing the mutual fund accounts of clients CM and DM.
  2. In the ensuing years, the Respondent recommended to clients CM and DM that they borrow monies to invest in mutual funds, which the clients engaged in on three occasions, namely, in 2004, 2005, and 2007.
  3. In January 2009, the Member issued revised leveraging guidelines, including requirements regarding a client’s loan to net worth ratio and total debt servicing ratio.
  4. Effective November 30, 2009, the Nova Scotia Securities Commission (the “Commission”) imposed terms and conditions on the Respondent’s registration such that the Respondent could only recommend leverage to a client only where:
    • the recommended leverage would not cause the client’s leverage-to-liquid-net-worth ratio to exceed 30%;
    • the accuracy of the client’s income and net worth was verified by the client in writing;
    • the assessment of the client’s income net worth was made on the basis of true and accurate information received by the client and approved in writing by the client; and
    • the Know-Your-Client information or New Account Application form indicates that the client has:
      • risk tolerance of medium-high or high;
      • liquidity or time horizon of 11 years or more;
      • an age of 60 years or younger;
      • annual income of at least $50,000; and
      • investment knowledge of good or sophisticated.
  5. On or about June 3, 2010, the Respondent met with clients CM and DM and recommended that they borrow more monies to invest. Specifically, the Respondent recommended that clients CM and DM increase their BMO Homeowner Line of Credit to the maximum amount available and use those funds to invest $100,000 in mutual funds for their joint non-registered account.
  6. At the time of this recommendation, client CM was 65 years old and client DM was 53 years old.
  7. On or about June 10, 2010, BMO issued a draft in the amount of $100,000 to clients CM and DM. The clients then provided the monies to the Respondent to invest in mutual funds for their account.
  8. Also on June 10, 2010, the Respondent sought ‘pre-approval’ from the Member for the mutual fund purchase by clients CM and DM, in order to ensure that there would not be any delays in processing the transaction. At this time, the Member’s head office compliance personnel questioned the Respondent regarding the proposed transaction for clients CM and DM, including whether the source of the funds was leveraged monies. The Respondent advised the Member that the source of the funds was not leveraged monies, thus misleading the Member.
  9. The Respondent knew that the Member would not otherwise have authorized the transaction for clients CM and DM.
  10. On or about June 11, 2010, clients CM and DM signed the necessary documents in order to complete the transaction, and the Respondent submitted the purchases to the Member for processing. The transaction was subsequently completed for the account of clients CM and DM.
  11. By concealing from the Member the source of the funds (the leveraged nature of the investment) for the two clients’ investment, the Respondent failed to abide by the terms and conditions imposed on his registration and misled the Member in response to its supervisory inquiries, thereby engaging in conduct unbecoming an Approved Person and failing to observe high standards of ethics and practice in the conduct of business, 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: Lyla Simon
Email: lsimon@mfda.ca

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 CorporateSecretary@mfda.ca.

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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