Notice of Hearing

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 around September 2014, the Respondent recommended a trade in a mutual fund that unnecessarily subjected a client to a deferred sales charge schedule and generated undue commissions to himself, contrary to MFDA Rules 2.1.1, 2.1.4, and 2.2.1.

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. Commencing in September 2011, the Respondent was registered in the securities industry.
2. From September 2011 to May 2015, the Respondent was registered as a dealing representative in Alberta and Saskatchewan with Investors Group Financial Services Inc., a Member of the MFDA (the “Member”).
3. From May 2015 to December 2017, the Respondent was registered as a dealing representative with another mutual fund dealer.
4. The Respondent is not currently registered in the securities industry in any capacity.
5. The Respondent is currently licensed in the insurance industry.
6. At all material times, the Respondent carried on business in the Medicine Hat, Alberta area.

Allegation #1 – The Respondent recommended a trade in a mutual fund that unnecessarily subjected a client to a deferred sales charges schedule and generated undue commissions

7. At all material times, the Member’s policies and procedures required its dealing representatives to, among other things:
   1. ensure that the acceptance of any order for any account is within the bounds of good business practice; and
   2. not become involved in any situation that could give rise to a conflict of interest.
8. At all material times, client PD was a client of the Member whose accounts were serviced by the Respondent.
9. Commencing in July 2014, client PD opened three accounts at the Member consisting of a non-registered account, a Registered Retirement Savings Plan (“RRSP”) account, and a Tax Free Savings Plan (“TFSA”) account.
10. Client PD completed transfer authorization forms to transfer her investments held at another financial institution to the Member in-kind.
11. In August 2014, client PD redeemed her investments held with the Member into a cash position.
12. Client PD was eligible to access a pool of no-load mutual funds offered by the Member through its I-Profile program, as client PD had investable non-registered assets greater than $250,000. The mutual funds offered through I-Profile had lower management fees in comparison to the Member’s other mutual fund offerings.
13. In or around August 2014, the Respondent recommended that client PD purchase mutual funds offered through the I-Profile program for her non-registered account with the Member.
14. Rather than creating a non-registered I-Profile account in order to access the no-load mutual funds offered through that program as previously recommended, on or about September 5, 2014, the Respondent facilitated the purchase by client PD of a mutual fund in the amount of approximately $403,800 that was subject to a 7 year Deferred Sales Charge (“DSC”), which client PD held in her non-registered account.
15. As a result of this purchase by client PD, the Respondent received commissions of approximately $15,346.
16. On or about September 9, 2014, after the purchase of the DSC load mutual fund as described above, the Respondent facilitated the opening by client PD of a non-registered I-Profile account with the Memberand arranged for the switch of client PD’s recently purchased DSC load mutual fund to a portfolio of new mutual funds offered through the I-Profile program.
17. In accordance with the features of the I-Profile program, because client PD was switching into her I-Profile account a mutual fund that was already subject to an unexpired DSC fee schedule in her non-registered account, the new mutual funds held in the I-Profile account would remain subject to the unexpired portion of the DSC fee schedule that was applicable to the previously held mutual fund.
18. Commencing in October 2014, client PD redeemed some of the mutual funds from her non-registered I-Profile account, and incurred DSC fees of approximately $17,200. In some cases the proceeds from the sale of mutual funds subject to DSC were transferred to client PD’s RRSP account, and applied towards the purchase of additional DSC load mutual funds, which were subsequently redeemed by client PD and resulted in additional DSC fees.
19. In or around January 2015, client PD required monies for the purchase of a house, and she wished to redeem her non-registered mutual fund investments and apply the proceeds to the purchase of the house.
20. Because the mutual funds in client PD’s I-Profile account were subject to an unexpired DSC fee schedule as described above at paragraph 17, client PD would have incurred substantial DSC fees if she redeemed her recently purchased mutual fund investments.
21. Client PD decided not to redeem mutual funds from her non-registered investment account due to the DSC fees that she would have incurred, and instead borrowed monies from a line of credit in order to pay the down payment on her house purchase. As a result, client PD incurred interest charges of approximately $2,267 on the monies that she borrowed from her line of credit to finance the down payment for the purchase of her new home.
22. The Respondent knew that client PD was eligible to participate in the I-Profile program and purchase no-load mutual funds offered through the program prior to facilitating the purchase of the mutual fund subject to a DSC schedule on September 5, 2014, as described above at paragraph 14.
23. Rather than facilitating the purchase of no-load mutual funds in the I-Profile program, the Respondent opened a non-registered account and facilitated the purchase of mutual funds by the client that were subject to a DSC schedule that resulted in the Respondent earning commissions. Approximately 4 days later the Respondent facilitated the switch of client PD’s investments that were subject to a DSC schedule held in her non-registered account to the portfolio of mutual funds offered through the I-Profile program that the Respondent had initially recommended.
24. The Respondent’s facilitating of the mutual fund purchase on September 5, 2014 as described above had the effect of increasing his compensation. Had client PD opened an I-Profile non-registered account upon becoming a client of the Member, she would have been able to purchase no-load mutual funds with lower service fees compared to her DSC load mutual fund holdings, and would not have been subject to a DSC fee schedule after making the investment.
25. As a result of purchasing the DSC load mutual fund, the Respondent received commissions, which he would not have been entitled to receive had client PD’s monies had been invested in the I-Profile portfolio directly.
26. By virtue of the forgoing, the Respondent engaged in conduct that was contrary to MFDA Rules 2.1.1, 2.1.4, and 2.2.1.

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.