Notice of Hearing

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

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. Commencing in January 2010, the Respondent has been registered in the securities industry.
2. From July 2013 to July 2018, the Respondent was registered as a dealing representative[1] (previously referred to as a mutual fund salesperson) in Alberta with BMO Investments Inc., a Member of the MFDA (the “Member”).
3. Commencing on August 15, 2018, the Respondent has been registered as a dealing representative with Investors Group Financial Services Inc.
4. At all material times, the Respondent carried on business in the Medicine Hat, Alberta area.

Allegation #1 – The Respondent Engaged in Conflicts of Interest

5. At all material times, the Member’s policies and procedures required its dealing representatives to not become involved in any situation or activity in which a dealing representative’s personal interests may conflict with those of the Member or its clients.
6. From November 2016 to October 2017, the Respondent processed 18 transactions in respect of 18 clients as redemptions and purchases, rather than as switches.
7. In particular, the Respondent processed the redemptions of clients’ existing mutual funds or deposit products and subsequently purchased new mutual funds using the redemption proceeds, when the transactions could have been conducted as switches.
8. To process the switches, the Respondent had the clients sign redemption and purchase forms on the same day, with the purchases to be processed after the redemptions had been completed.
9. By processing the transactions in the manner described above, the Respondent exposed the clients to the risk of a change in the value of the mutual funds as the clients’ assets were not invested while the trades settled. Had the Respondent completed the transactions as switches, rather than redemptions and purchases, the transactions would not have exposed the clients to this risk as the assets would have remained invested.
10. The processing of transactions as redemptions of the existing mutual funds and deposit products and subsequently purchasing new mutual funds resulted in losses in 9 of the affected client accounts due to the changes in price between the dates that the redemptions and purchases were completed and the dates a switch could have been completed, as follows:

11. The Respondent processed the transactions as described above in order to, among other things, increase his compensation. At the material time, transactions carried out as redemptions and purchases contributed more towards meeting the Member’s annual sales targets than conducting transactions as switches. Had the transactions been conducted as switches, the amount of sales revenue that would have counted towards the Member’s sales targets would have been approximately $2,700. By processing the transactions as described above as redemptions and purchases, the amount of sales revenue that counted towards the Member’s sales targets was approximately $111,000.
12. The Respondent did not disclose to or obtain approval from the Member to process the transactions described above in paragraphs 6-11 as redemptions and purchases, rather than as switches.
13. The Respondent’s conduct gave rise to a conflict or potential conflict of interest that the Respondent failed to disclose to the Member or the clients in writing, or failed to address by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to the Member’s policies and procedures and MFDA Rules 1.1.2, 2.1.1, 2.1.4, and 2.5.1.

Allegation #2 – Pre-Signed Account Forms

14. At all material times, the Member’s policies and procedures prohibited its Approved Persons from obtaining, holding, or using pre-signed account forms.
15. Between November 2016 and May 2017, the Respondent obtained, possessed, and used to process transactions, 10 pre-signed account forms in respect of 10 clients.
16. The pre-signed account forms all consisted of purchase order forms where the purchase order amount was left blank at the time the clients signed the form.
17. The Respondent obtained and used the pre-signed account forms described above in order to complete redemption and purchase transactions to meet the Member’s sales targets, as described in paragraphs 6-11, above.
18. By obtaining, possessing, and using pre-signed account forms, the Respondent failed to observe high standards of ethics and conduct in the transaction of business and engaged in conduct unbecoming an Approved Person, 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
Prairie Regional Office
Suite 850, 800 – 6th Ave SW
Calgary, AB T2P 3G3
Attention: Justin Dunphy
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] In September 2009, the registration category mutual fund salesperson was changed to “dealing representative” when National Instrument 31-103 came into force.