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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: My Phuong “Vicky” Luong Dao

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 January 14, 2020 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 My Phuong “Vicky” Luong Dao (“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: Commencing in March 2010, the Respondent has been engaged in an outside business activity that was not disclosed to or approved by the Member, contrary to the policies and procedures of the Member and MFDA Rule 1.2.1(d)[1] (now Rule 1.3.2) and MFDA Rules 2.10, 2.5.1 and 1.1.2.

Allegation #2: Commencing in March 2010, the Respondent engaged in personal financial dealings with client MH by:

  1. purchasing two condominium units (the “Condominium Units”) with client MH and accepting payments from client MH to finance the costs of purchasing and maintaining the Condominium Units;
  2. opening and maintaining a joint bank account with client MH to facilitate:
    1. the receipt of deposits including payments from client MH towards the costs of the Condominium Units;
    2. the deposit and accounting for rental income generated by the Condominium Units; and
    3. the payment of expenses (including mortgage payments) associated with the purchase and maintenance of the Condominium Units; and
  3. accepting three cheques from client MH totaling $95,000 which were deposited into the Respondent’s personal bank account,

all of which gave rise to conflicts or potential conflicts of interest that the Respondent failed to disclose to her Member, disclose in writing to the client, or otherwise 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 2.1.4, 2.1.1, 1.1.2, 2.10, and 2.5.1.

Allegation #3: Between November 2012 and November 2016, the Respondent submitted five Annual Representative Compliance Certification questionnaires to the Member that contained false or misleading responses, thereby interfering with the ability of the Member to supervise the Respondent’s activities, failing to observe high standards and conduct in the transaction of business, and engaging in conduct that is unbecoming and detrimental to the public interest, contrary to MFDA Rules 2.1.1, 1.1.2 and 2.5.1.

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 August 4, 2005 until December 5, 2018, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative)[2] with WFG Securities Inc. (the “Member”), a Member of the MFDA.
  2. The Member terminated the Respondent on December 5, 2018 after discovering the conduct described in this Notice of Hearing. The Respondent has not been registered in the securities industry in any capacity since her termination.
  3. At all material times, the Respondent conducted business in Richmond Hill, Ontario.

The Member’s Policies and Procedures

  1. At all material times, the Member’s Policies and Procedures Manual:
    1. required Approved Persons to obtain the prior written approval of their Branch Manager and the Member’s Registrations Department before entering into an Outside Business Activity;
    2. prohibited Approved Persons from engaging in personal financial dealings with clients; and
    3. required Approved Persons to immediately disclose conflicts and potential conflicts of interests to the Member’s compliance department and to potentially impacted clients in writing and together with the Member to ensure that conflicts are addressed by the exercise of responsible business judgment influenced only by the best interests of the client.

Client MH

  1. In or about 2006, the Respondent met client MH.
  2. On May 20, 2007, client MH became a client of the Member. At all material times, the Respondent was the Approved Person responsible for servicing client MH’s accounts at the Member.

The Western Battery Property

  1. On March 6, 2010, the Respondent and client MH signed an Agreement of Purchase and Sale to purchase a condominium unit in a property which was to be built on Western Battery Road in Toronto, Ontario (the “Western Battery Property”). The Respondent and client MH purchased the Western Battery Property directly from the condominium developer for the purchase price of $278,900.
  2. The purchase price and related costs for the Western Battery Property were to be split evenly between the Respondent and client MH.
  3. On February 20, 2014, the purchase of the Western Battery Property closed. In advance of the closing date, the Respondent and client MH paid a deposit of $41,835. The Respondent and client MH made a further payment of $27,890 upon closing. The Respondent and client MH each contributed 50% of the deposit and the payment upon closing.
  4. In order to finance the purchase of the Western Battery Property, the Respondent and client MH jointly obtained a mortgage in the amount of $223,119 which was secured against the property. The mortgage listed the Respondent and client MH as the borrowers. The mortgage terms required the Respondent and client MH to make monthly payments of $1,046.54.
  5. On or about July 2, 2013, the Respondent and client MH opened a joint bank account (the “Joint Bank Account”) to facilitate the payments of expenses associated with the purchase and maintenance of the Western Battery Property including the monthly mortgage payments.
  6. Commencing in March 2014, the Western Battery Property was rented to a tenant. Rental income paid by the tenant was deposited each month into the Joint Bank Account upon receipt by the Respondent. The rental income on the property was $1,480 per month.
  7. The rental income generated by the Western Battery Property covered the mortgage payment and some expenses payable for the maintenance of the Western Battery Property. The Respondent asked client MH to make additional deposits into the Joint Bank Account to cover additional expenses such as the property taxes and insurance for the property.
  8. The amounts and frequency of contributions that the Respondent asked client MH to deposit into the Joint Bank Account to cover expenses associated with maintaining the Western Battery Property varied over time.
  9. The Respondent did not provide receipts or any formal accounting to client MH for expenses that were incurred and paid from money deposited into the Joint Bank Account including rent and monetary contributions from client MH in respect of the maintenance of the Western Battery Property.

The Dan Leckie Property

  1. On March 24, 2013, the Respondent signed an Agreement of Purchase and Sale to purchase a condominium unit in a building located on Dan Leckie Way in Toronto, Ontario (the “Dan Leckie Property”) for the purchase price of $610,200. The Respondent agreed to purchase the Dan Leckie Property directly from the condominium developer. The Respondent received a discount of $91,530 on the purchase price that was to be deducted from the balance owing upon closing.
  2. On April 15, 2013, the Respondent paid $30,510 as a deposit for the Dan Leckie Property.
  3. In May 2013, client MH agreed to become a joint purchaser of the Dan Leckie Property and to participate in the management and rental of the condominium unit to tenants to earn rental income.
  4. The purchase of the Dan Leckie Property closed on June 24, 2013 and the Respondent and client MH took possession of the property.
  5. The Respondent did not inform client MH about the $91,530 discount that she was promised by the vendor of the Dan Leckie Property.
  6. In order to finance the purchase of the Dan Leckie Property, the Respondent and client MH obtained a mortgage in the amount of $396,500 that was secured against the property. The mortgage listed the Respondent and client MH as the borrowers. The terms of the mortgage required the Respondent and client MH to make bi-weekly mortgage payments on the Dan Leckie Property in the amount of $781.
  7. Upon obtaining the mortgage, the Respondent and client MH obtained a line of credit also secured against the Dan Leckie Property (the “Line of Credit”). Both the Respondent and client MH are listed as borrowers on the Line of Credit and thereafter were permitted to draw upon the Line of Credit to cover expenses associated with the maintenance and management of the property.
  8. The Respondent solicited or obtained $117,900 from client MH as a contribution towards what the Respondent told client MH was 50% of the down payment payable by the Respondent and MH as joint purchasers of the Dan Leckie Property. Client MH financed her contribution towards the down payment by drawing on a home equity line of credit secured against her home.
  9. The Respondent treated the $30,510 deposit that she paid at the time of purchase and the $91,530 discount that she had obtained from the vendor without the knowledge of client MH as her contribution to the down payment. The Respondent did not inform client MH that the total amount of money that the Respondent contributed towards the down payment on the Dan Leckie Property was the $30,510 initial deposit.
  10. Commencing in July 2013, the Dan Leckie Property was rented to a tenant who agreed to pay rent in the amount of $2,250 per month.
  11. Mortgage payments for the Dan Leckie Property were made from the Joint Bank Account and the monthly rental income generated from the Dan Leckie Property was deposited into the Joint Bank Account.
  12. The rental income received from the Dan Leckie Property tenant was sufficient to cover the monthly mortgage payments and some additional expenses that were payable to maintain the property. The Respondent asked client MH to make additional monthly contributions into the Joint Bank Account to cover additional expenses associated with the maintenance of the property including property taxes and insurance.
  13. The amounts and frequency of contributions that the Respondent asked client MH to deposit into the Joint Bank Account to cover expenses associated with maintaining the Dan Leckie Property varied over time.
  14. The Respondent did not provide receipts or any formal accounting to client MH for expenses that were incurred in respect of the maintenance of the Dan Leckie Property.

The Lawsuit Commenced by Client MH

  1. In or about September 2017, client MH expressed concerns to the Respondent about the costs of maintaining the Western Battery Property and the Dan Leckie Property and informed the Respondent that she was having difficulty dealing with the financial stress of their real estate investments. Client MH asked the Respondent to sell the Western Battery Property or the Dan Leckie Property in order to reduce the financial stresses incurred by financing and operating the two properties. The Respondent refused client MH’s request to sell the Western Battery Property or the Dan Leckie Property.
  2. On December 22, 2017, as a consequence of the Respondent’s refusal to sell either the Western Battery Property or the Dan Leckie Property, client MH commenced a civil proceeding against the Respondent.
  3. By soliciting money from client MH to purchase the Western Battery Property and the Dan Leckie Property, the Respondent engaged in personal financial dealings with client MH that gave rise to a conflict of interest.
  4. The Respondent did not disclose to the Member at any time that she had solicited money from client MH to jointly purchase the Western Battery Property and the Dan Leckie Property.
  5. As a result of the Respondent’s failure to inform the Member about the fact that she had solicited money from client MH to finance the purchase of two rental properties, the Respondent contravened the policies and procedures of the Member and undermined the Member’s ability to address the conflicts of interest that arose as a result of these personal financial dealings by the exercise of responsible business influenced only by the best interests of client MH.

The Joint Bank Account

  1. As stated above, on or about July 2, 2013, the Respondent and client MH opened the Joint Bank Account in order to facilitate receipt of the rental income generated by the Western Battery Property and the Dan Leckie Property and the payment of expenses for the properties including the monthly mortgage payments on each property. The Respondent also asked client MH to make additional contributions into the Joint Bank Account to cover miscellaneous expenses associated with the maintenance of the properties that exceeded the rental income generated by the properties including property tax and insurance.
  2. By opening and maintaining the Joint Bank Account with client MH which enabled the Respondent to comingle money obtained from client MH with the Respondent’s money and which enabled the Respondent to access money contributed by or owed to client MH, the Respondent engaged in personal financial dealings with client MH that gave rise to a conflict of interest or potential conflict of interest.
  3. The Respondent did not disclose to the Member that she had opened the Joint Bank Account with client MH at any time. Consequently, the Member was unable to take steps to ensure that the resulting conflict or potential conflict of interest was disclosed to the client and that steps were taken to address the conflict of interest by the exercise of responsible business judgment influenced only by the best interest of client MH.

Personal Cheques from Client MH to the Respondent

  1. On April 3, 2012, the Respondent accepted a cheque from client MH in the amount of $50,000 that was payable to the Respondent and was deposited into a personal bank account that was owned and controlled by the Respondent.
  2. On April 25, 2013, the Respondent accepted another cheque from client MH in the amount of $20,000 that was payable to the Respondent and was deposited into a personal bank account that was owned and controlled by the Respondent.
  3. On June 9, 2013, the Respondent accepted a third cheque from client MH in the amount of $25,000 that was payable to the Respondent and was deposited into a separate personal bank account that was owned and controlled by the Respondent.
  4. On January 8, 2014, the Respondent withdrew the $25,000 from her separate personal bank account. No written records were maintained to explain the reason for the $25,000 withdrawal from the Respondent’s personal bank account.
  5. The Respondent did not document in writing any reasons why the cheques totaling $95,000 were provided by client MH to the Respondent or the terms pursuant to which these amounts would be held or used by the Respondent or any terms of repayment.
  6. In June 2019, after the investigation of the Respondent’s conduct was completed by the MFDA, the Respondent repaid the $70,000 total that was obtained from client MH on April 3, 2012 and April 25, 2013.
  7. The Respondent did not disclose to the Member that she had accepted $95,000 from client MH and had deposited it into her personal bank account at any time. Consequently, the Member was unable to take any steps to ensure that the conflict was addressed by the exercise of responsible business judgment influenced only by the best interests of client MH.

Allegation #1 – Outside Business Activities

  1. As described above, in or about late 2009 or early 2010, the Respondent proposed to client MH that the Respondent and client MH purchase real estate together to generate rental income for their mutual financial benefit.
  2. In March 2010, the Respondent began purchasing real estate with the intention of earning rental income. She continues to co-own two condominium units with client MH that are rented out to tenants to generate rental income.
  3. The Respondent did not disclose to the Member that she intended to engage in real estate investing or real estate management with client MH and she did not receive approval from the Member to do so.
  4. By engaging in the conduct described above, the Respondent engaged in an outside business activity that was not disclosed to or approved by the Member, contrary to the policies and procedures of the Member and MFDA Rule 1.2.1(d)[3] (now Rule 1.3.2) and MFDA Rules 2.10, 2.5.1 and 1.1.2.

Allegation #2 – Personal Financial Dealings

  1. As described above, commencing in March 2010, the Respondent engaged in personal financial dealings with client MH by:
    1. purchasing and maintaining real estate investments with client MH;
    2. opening and operating a joint bank account with client MH and co-mingling money obtained from client MH with the Respondent’s money; and
    3. accepting cheques from client MH which were deposited into the Respondent’s personal bank account.
  2. The Respondent’s conduct gave rise to conflicts of interest that she failed to disclose to the Member and failed to 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 2.1.4, 2.5.1, 2.10, 1.1.2, and 2.1.1.

Allegation #3 – Misleading the Member

  1. Between November 2012 and November 2016, while she was registered with the Member, the Respondent was required to complete Annual Representative Compliance Certificates (“ARCCs”) in respect of her business practices. The Respondent completed and submitted ARCCs on November 1, 2012, October 2, 2013, October 1, 2014, November 18, 2015 and November 30, 2016.
  2. In each of the ARCCs which the Respondent filed with the Member, she certified that she had fully disclosed all information relating to Outside Business Activities to the Member.
  3. The following answers provided by the Respondent in the ARCCs that she submitted to the Member were false or misleading:

ARCC DATE

QUESTION

RESPONSDENT’S ANSWER

2012

Have you ever encountered or are you aware of any real or potential conflicts of interest while dealing with clients or prospective clients?

NO

2012

Have you ever co-mingled any client money with your own and/or have you ever received cash from any clients or policy holders?

NO

2013

Within the last 12 months, have you encountered or are you aware, of any real or potential conflicts of interest while dealing with clients and/or prospects?

NO

2013

Within the last 12 months have you co-mingled any client money with your own and/or have you received any cash from any clients, policy holders or directly from a product company or referral?

NO

2014

Within the last 12 months, have you encountered or are you aware, of any real or potential conflicts of interest while dealing with clients and/or prospects?

NO

2014

Within the last 12 months have you co-mingled any client money with your own and/or have you received any cash from any clients, policy holders or directly from a product company or referral?

NO

2015

Within the last 12 months, have you encountered, or are you aware of, any real or potential conflicts of interest while dealing with clients and/or prospects?

NO

2015

Within the last 12 months have you co-mingled any client money with your own and/or have you received any cash from any clients, policy holders or directly from a product company or referral?

NO

2016

Within the last 12 months have you encountered or are you aware of, any real or potential conflicts of interest while dealing with clients and/or prospects?

NO

  1. By providing the answers listed above to the Member and by certifying that she had fully disclosed all information relating to Outside Business Activities to the Member, the Respondent:
    1. interfered with the Member’s ability to supervise the Respondent and ensure her compliance with the policies and procedures of the Member and regulatory requirements;
    2. failed to observe high standards and conduct in the transaction of business, and
    3. engaged in conduct that is unbecoming and detrimental to the public interest,

    contrary to MFDA Rules 2.1.1, 2.5.1 and 1.1.2.

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.

[1] Effective December 3, 2010, Rule 1.2.1(d) concerning dual occupations was renumbered as 1.2.1(c). Effective March 17, 2016, Rule 1.2.1(c) was amended and renumbered as MFDA Rule 1.3. Approved Persons have always been required to ensure that the Member is aware of and approves of any Approved Person’s engagement in outside business activities.
[2] In September 2009, the registration category mutual fund salesperson was changed to “dealing representative” when National Instrument 31-103 came into force.
[3] Effective December 3, 2010, Rule 1.2.1(d) concerning dual occupations was renumbered as 1.2.1(c). Effective March 17, 2016, Rule 1.2.1(c) was amended and renumbered as MFDA Rule 1.3. Approved Persons have always been required to ensure that the Member is aware of and approves of any Approved Person’s engagement in outside business activities.

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