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MFDA Notice of Hearing

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HomeCurrent Hearings202015 - Brian Walter Wilkinson › NOH202015

202015

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

Brian Walter Wilkinson

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 April 14, 2020 at 11:00 a.m. (Eastern), or as soon thereafter as the hearing can be held, concerning a disciplinary proceeding commenced by the MFDA against Brian Walter Wilkinson (“Respondent”).

DATED: Feb 10, 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: Between about June 2006 and October 2017, the Respondent failed to inform clients about the risks of holding investments concentrated in precious metal sector funds, contrary to MFDA Rules 2.2.1 or 2.1.1.

Allegation #2: Between September 2010 and April 2015, the Respondent sent written communications to clients which contained misleading or incomplete information, made unwarranted or exaggerated claims or conclusions or failed to identify material assumptions made in arriving at the conclusions, or were detrimental to the interests of the clients or the Member, contrary to MFDA Rules 2.8 or 2.1.1.

Allegation #3: Between March 2017 and July 2017, the Respondent issued an advertisement which had not been reviewed and approved by the Member, contrary to the Member’s policies and procedures, and MFDA Rules 2.7.3, 2.1.1, 1.1.2, or 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. The Respondent has been registered in the securities industry since April 1991.
  2. From approximately March 1999 to December 2011, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative)[1] with FundEX Investments Inc. (“FundEX”), a Member of the MFDA. From January 2011 to December 2011, the Respondent was registered in British Columbia as a mutual fund salesperson with FundEX.
  3. From approximately January 2012 to June 2018, the Respondent was registered as a dealing representative in Ontario with Sterling Mutuals Inc. (“Sterling Mutuals”), a Member of the MFDA.
  4. On June 29, 2018, Sterling Mutuals terminated the Respondent. The Respondent has not been registered in the securities industry in any capacity since that time.
  5. At all material times, the Respondent conducted business from a branch office located in the Kitchener, Ontario area.

Concentration in Precious Metal Bullion Mutual Funds

  1. Beginning in 2006, the Respondent recommended that clients concentrate their investments in precious metal bullion mutual funds. By October 2017, the Respondent serviced approximately 130 clients with assets under administration totaling approximately $11 Million. Approximately 79 clients serviced by the Respondent held investment portfolios which were 100% concentrated in precious metal bullion mutual funds. In addition, approximately 87% of the assets under administration serviced by the Respondent were invested in precious metal bullion mutual funds.

Allegation #1 – Failing to Explain Concentration Risk to Clients

  1. From about June 2006 to October 2017, the Respondent serviced the investment accounts of clients DD and BD. Clients DD and BD are spouses.
  2. From about June 2006 to March 2012, clients DD and BD were clients of FundEX. During the period when the Respondent was registered at FundEX, he was the advisor who serviced the accounts of clients DD and BD.
  3. Between 2006 and 2011, the Respondent recommended that clients DD and BD hold investments which were concentrated in precious metal bullion mutual funds.
  4. Based upon the Respondent’s recommendations, clients DD and BD increased the concentration of their investments in precious metal bullion mutual funds over time. By about December 2011:
    1. client DD’s investment account, which held approximately $38,686.10 in precious metal bullion mutual funds, was 100% concentrated in precious metal bullion mutual funds;
    2. client BD’s investment account, which held approximately $22,595.35 in precious metal bullion mutual funds, was 60% concentrated in precious metal bullion mutual funds; and
    3. client DD’s and BD’s joint investment account, which held approximately $65,198.22 in precious metal bullion mutual funds, was 70% concentrated in precious metal bullion mutual funds.
  5. At all material times, clients DD and BD held minimal investments outside of their holdings at FundEX.
  6. Between about February and March 2012, clients DD and BD transferred their investment accounts from FundEX to Sterling Mutuals. During the period when the Respondent was registered at Sterling Mutuals, he was the advisor who serviced the accounts of clients DD and BD.
  7. When opening accounts at Sterling Mutuals for clients DD and BD, the Respondent completed Sterling Mutuals’ Mutual Fund Account Application Forms (“MCAAFs”). According to the MCAAFs, clients DD and BD held less than $10,000 in liquid assets outside of their investments at Sterling Mutuals.
  8. During the period which clients DD and BD maintained investment accounts with Sterling Mutuals, the Respondent recommended that clients DD and BD either substantially maintain or increase their holdings of precious metal bullion mutual funds. By about the end of 2017:
    1. client DD’s investment account, which held approximately $68,605.74 in precious metal bullion mutual funds, was 92% concentrated in precious metal bullion mutual funds;
    2. client BD’s investment account, which held approximately $18,508.67 in precious metal bullion mutual funds, was 100% concentrated in precious metal bullion mutual funds; and
    3. client DD’s and BD’s joint investment account, which held approximately $16,453.47 in precious metal bullion mutual funds, was 67% concentrated in precious metal bullion mutual funds.
  9. At all material times, clients DD and BD held minimal investments outside of their holdings at Sterling Mutuals.
  10. The Respondent failed to adequately inform clients DD and BD about the risks of holding investments concentrated in precious metal sector funds, in accordance with his suitability obligations.
  11. Clients DD and BD experienced declining values in their investments in their portfolios and the clients suffered investment losses.
  12. In October 2017, clients DD and BD submitted a complaint to Sterling Mutuals with respect to the Respondent’s investment advice and his failure to explain the risks of holding investments concentrated in precious metal bullion mutual funds.
  13. In January 2018, clients DD and BD transferred their investments from Sterling Mutuals to other financial institutions.
  14. By failing to inform clients about the risks of holding investments concentrated in precious metal sector funds, the Respondent engaged in conduct contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #2 – Misleading Client Communications

  1. From September 2010 to April 2015, the Respondent sent communications to clients DD and BD with respect to whether the clients should continue to hold, or make additional investments in, precious metal bullion mutual funds. These communications included the following statements:

Date

Content of Communication

September 24, 2010

“We could move any of your Mackenzie funds that are currently in Bonds into the Gold Bullion fund. Other than that I don’t have any new ideas for you. The prospects for another severe decline in stocks is very real so I’m not looking to enter that arena until we see a healthy correction. Likely by next spring we should have another buying opportunity.

In the mean time the precious metals are not only a safe haven but also have been generating the most growth. This trend is due to continue.” [Emphasis added.]

October 7, 2010

“…I think Gold will see persistent and relentless demand over the next few months.”

January 10, 2011

“…I expect the Bullion to continue to outperform any other asset class.”

January 11, 2011

“…Currently my Model Portfolio is at 100% Bullion so I don’t have any problem increasing you to these levels.

I still believe the Bullion will continue to outperform regardless of the market environment.”

December 13, 2012

“…In the larger view Gold should be substantially higher than it is, what I hear from those that study these things is that the price is being manipulated. Someday they will run out of ammunition for limiting its price and at that point we could see some spectacular price movements.” [Emphasis added.]

December 10, 2014

“You have bought Gold because it is a safe store of wealth, risk free because Gold has no counterparty risk.

This will turn out for the better for you and me. And you won’t have to wait an eternity for it to happen, it will happen sooner than you think.” [Emphasis added.]

April 9, 2015

“…I read that article and have seen other predictions on lower Gold prices as well. No one knows for sure how this all plays out day to day, month to month.

We know how it ends though and thats with significantly higher Gold prices.” [Emphasis added.]

  1. The client communications described above:
    1. were untrue or misleading;
    2. made unwarranted or exaggerated claims or conclusions or failed to identify the material assumptions made in arriving at these conclusions; or
    3. were detrimental to the interests of the clients or the Member.
  2. By virtue of the foregoing, from September 2010 to April 2015, the Respondent sent written communications to clients DD and BD which contained misleading or incomplete information, made unwarranted or exaggerated claims, failed to identify the material assumptions upon which conclusions were based, or were detrimental to the interests of the clients or the Member, contrary to MFDA Rules 2.8 or 2.1.1.

Allegation #3 – Use of an Unapproved Advertisement

  1. At all material times, the policies and procedures manual of Sterling Mutuals required all advertisements placed by Approved Persons to be reviewed and approved by the Sterling Mutuals compliance department prior to distribution.
  2. Beginning in March 2017, the Respondent placed advertisements on an internet search database which described his business as follows:

“Investment Management Seasoned Independent Advice – wilkinsonfinancial.ca” and “Portfolio Management Services Seasoned Independent Advice –wilkinsonfinancial.ca”

  1. These advertisements advertised that the Respondent provided “[f]ully customized discretionary asset management for discriminating investors.”
  2. The Respondent was not permitted to engage in discretionary trading activity.
  3. The Respondent did not disclose these advertisements to Sterling Mutuals at any time and the advertisements were not approved by Sterling Mutuals prior to being issued by the Respondent.
  4. In July 2017, the Respondent discontinued the advertisements.
  5. By issuing an advertisement that had not been reviewed and approved by the Member, the Respondent engaged in conduct contrary to MFDA Rules 2.7.3, 2.1.1, 1.1.2, or 2.5.1.

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:

  1. has failed to carry out any agreement with the MFDA;
  2. 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;
  3. has failed to comply with the provisions of any By-law, Rule or Policy of the MFDA;
  4. has engaged in any business conduct or practice which such Regional Council in its discretion considers unbecoming or not in the public interest; or
  5. 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: bforbes@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.

[1] In September 2009, when National Instrument 31-103 came into effect, the registration category ‘mutual fund salesperson’ was changed to ‘dealing representative – mutual fund dealer’.

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