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. Between February 6, 1991 and May 23, 2018, the Respondent was registered as a dealing representative in British Columbia with Investors Group Financial Services Inc. (the “Member”), a Member of the MFDA.
2. The Respondent was also registered in other provinces and territories with the Member as follows:
   1. between June 1, 2004 and May 23, 2018 in Nunavut;
   2. between October 10, 2006 and May 23, 2018 in New Brunswick;
   3. between September 10, 2007 and May 23, 2018 in Ontario; and
   4. between April 12, 2010 and May 23, 2018 in Alberta.
3. On May 23, 2018, the Member terminated the Respondent’s registration as a result of the conduct that is the subject of this proceeding.
4. Since January 2, 2019, the Respondent has been registered in British Columbia, Alberta, New Brunswick, Nunavut, Ontario, Saskatchewan, and Yukon as a Registered Representative with Echelon Wealth Partners Inc., a Member of the Investment Industry Regulatory Organization of Canada.
5. At all material times, the Respondent conducted business in the Victoria, British Columbia area.

Member’s Policies and Procedures

6. At all material times, the Member’s policies and procedures required its Approved Persons to have reasonable grounds for believing that a recommendation for the purchase, sale, or exchange of any product or service is suitable for the client on the basis of the information regarding the client’s financial situation, objectives, and risk tolerance.
7. At all material times, the Member’s policies and procedures:
   1. required its Approved Persons to report any conflict or potential conflict of interest to their branch manager;
   2. required that its Approved Persons not permit a client to name them as a beneficiary of the client’s estate; and
   3. prohibited its Approved Persons from receiving a gift (other than a non-monetary gift of token value) from a client.
8. At all material times, the Member’s policies and procedures prohibited its Approved Persons from obtaining and/or possessing pre-signed account forms.

Allegation #1 – Failed to Use Due Diligence to Ensure Suitability of Recommendation and Conflict of Interest

9. From 1994 to January 25, 2016, when she passed away at age 97, client FD was a client of the Member. At all material times, client FD’s investment account with the Member was serviced by the Respondent.
10. At all material times, client FD was a vulnerable client by virtue of her age, employment status (retired), and her limited investment knowledge.
11. On or about January 7, 2014, the Respondent met with client FD at her home. During this meeting, client FD advised the Respondent that she wished to sell her home and move into a retirement residence.  The Respondent also recorded notes of the meeting, which among other things, included the following:
    1. Main concern for client is if she has enough money.  Assured her that with the proceeds of her home there should be more than enough funds to cover housing and care expenses for the remainder of her life.
12. In April 2014, client FD moved into a retirement residence.
13. On May 15, 2014, client FD sold her home for approximately $483,866 (the “House Sale Proceeds”). At the time of sale, the House Sale Proceeds represented a significant portion of client FD’s net worth.[2]
14. On May 20, 2014, Client FD deposited the House Sale Proceeds into her non-registered account. On the same day, client FD used the entirety of the House Sale Proceeds to purchase the Investor Dividend Fund B (no load) mutual fund.
15. In or about July 2014, the Respondent recommended that client FD switch her investment in the Investor Dividend Fund B (no load) to the deferred sales charge (“DSC”) series of the same fund, Investor Dividend Fund A (DSC).
16. Switching from a no load to a DSC mutual fund would generate a commission that the Respondent would not otherwise be entitled to receive.
17. The Respondent did not inform the Member of his recommendation to client FD to switch her holdings into a DSC version of the mutual fund that she had already purchased using the House Sale Proceeds.
18. On July 14, 2014, the Respondent facilitated the processing of a switch of approximately $498,511 in client FD’s non-registered account held in Investors Dividend Fund B (no load) to Investors Dividend Fund A (DSC) that was subject to a 7 year DSC schedule (the “Switch”).
19. Client FD was 95 years old at the time of the Switch.
20. The Respondent failed to ensure that the Switch was suitable for client FD having regard to the essential facts relative to client FD, including client FD’s age (95 at the time) and her time horizon. In particular, the Respondent’s recommendation exposed client FD during her lifetime, and her estate afterwards, to potential DSCs if they decided to redeem the investments prior to the expiry of the DSC schedule.
21. The Respondent earned approximately $18,943 in commission from the Switch, which he would not otherwise have received if the House Sale Proceeds had remained invested in the no load mutual fund.
22. In addition to contravening his suitability obligations, the Respondent’s conduct gave rise to a conflict or potential conflict of interest by advancing a financial benefit to the Respondent and imposing a DSC schedule on the client.
23. On January 25, 2016, client FD passed away (approximately 18 months after the purchase of the mutual fund subject to a 7-year DSC schedule).
24. On or about April 6, 2017, client FD’s estate redeemed all of the investments held in the investment account at the Member, which resulted in DSCs of approximately $24,380. Client FD’s estate was reimbursed by the Member for the DSCs incurred.
25. By virtue of the foregoing, the Respondent engaged in conduct that was contrary to MFDA Rules 2.1, 2.5.1, 1.1.2, 2.1.1, or 2.1.4.

Allegation #2 – Failed to Disclose a Conflict of Interest

26. On or about March 7, 2016, the Respondent completed an annual attestation on which he declared that he had not been named a beneficiary of a client’s estate.
27. On March 9, 2016, after the death of client FD, the Respondent received a copy of client FD’s will.
28. Upon review of client FD’s will, the Respondent learned that he had been named a beneficiary in her will and had been bequeathed a share of her estate. The share that the Respondent was bequeathed had a value of approximately $185,000.
29. After receiving and reviewing client FD’s will, the Respondent continued to act as the Approved Person responsible for servicing the accounts of client FD’s estate at the Member.
30. Following the Respondent’s receipt of client FD’s will, he forwarded a copy to the Member’s Estate Department. The Respondent did not identify or advise the Estate Department or anyone else at the Member that he had been named a beneficiary of the deceased client’s estate.
31. In November 2016, during an internal audit, the Respondent was asked whether he had been named a beneficiary in a client’s will. In response, the Respondent disclosed that he had been named a beneficiary in client FD’s will.
32. At the direction of the Member, the Respondent disclaimed the benefit that he stood to receive under client FD’s will.
33. By virtue of the foregoing, the Respondent failed to disclose a conflict or potential conflict of interest to the Member, contrary to the Member’s policies and procedures and MFDA Rules 2.1.4, 2.1.1, 1.1.2, and 2.5.1.

Allegation #3 – Pre-Signed and Altered Account Forms

34. Between 2010 and 2018, the Respondent obtained and possessed 24 pre-signed account forms in respect of 12 clients.
35. The pre-signed account forms consisted of investor profile questionnaires, Tax Free Savings Account client application forms, non-registered client application forms, transfer authorizations, pre-authorized contribution agreements, and RSP client application forms.
36. On or around December 4, 2015, the Respondent altered 1 account form in respect of 1 client by altering information on the account form without having the client initial the alterations.
37. The altered form was a non-registered client application form.
38. By virtue of the foregoing, the Respondent failed to observe a high standard of ethics and conduct in the transaction of business and engaged in conduct unbecoming an Approved Person, contrary to the Member’s policies and procedures and 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: Alan Melamud
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] On June 30, 2021, MFDA Rule 2.1.4 was amended to conform with client focused reform amendments to National Instrument 31-103 that came into effect on the same day.  As the conduct addressed in this Notice of Hearing pre-dated the amendment to this Rule, all allegations set out in this Notice of Hearing that make reference to that Rule concern the version of the Rule that was in effect between February 27, 2006 and June 30, 2021.
[2] Client FD held additional investments totaling approximately $250,000.