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 October 1995, the Respondent has been registered in British Columbia as a dealing representative with PFSL Investments Canada Ltd. (the “Member”), a Member of the MFDA.^[1]
2. From January 1997 to April 2020, the Member designated the Respondent as a branch manager.
3. At all material times, the Respondent conducted business in the Prince George, British Columbia area.

Precious Metals Sector Funds

4. Commencing in or around 2016, the Respondent recommended an investment strategy to 25 clients, including client JG, as set out in further detail below, whereby the clients would purchase an investment portfolio, a significant proportion of which was invested in precious metals sector mutual funds.
5. In the course of making this recommendation to clients, the Respondent presented these clients with several different mutual fund options based on the investment objective selected on their KYC forms, one of which included precious metals sector mutual funds.
6. Based on the Respondent’s recommendations, approximately 25 clients purchased precious metals sector funds in an amount exceeding 25% of their account holdings at the Member. Most of the 25 clients were invested in a single fund, namely, the AGF Precious Metals Fund. According to the Fund Facts for the AGF Precious Metals Fund, it had a high risk rating and was only suitable for investors with a long time horizon.
7. Approximately 5 of the 25 clients who purchased the precious metals sector funds based on the clients’ recommendations were seniors. By virtue of their ages, these were vulnerable clients.

Allegation #1 – The Respondent Recommended that Clients Concentrate Account Holdings in Precious Metals Sector Funds in Excess of Concentration Limits Permitted by the Member

8. Commencing in December 2009, the Member’s policies and procedures:
   1. prohibited its Approved Persons from recommending that clients invest in sector mutual funds at all unless the client’s documented KYC information reflected that the client had an investment objective of growth or aggressive growth, a long term time horizon, and a risk tolerance that was consistent with the risk rating classification specified in the fund’s prospectus;
   2. prohibited Approved Persons from recommending the investment of more than 25% of a client’s account holdings in sector mutual funds in all circumstances; and
   3. characterized an investment of more than 25% of a client’s account holdings in sector mutual funds as a speculative investment strategy.
9. After December 2009, the Member’s policy and procedure stated expressly that:
   1. Sector funds hold equity investments (stocks) in a single sector of the economy. . . Due to their concentration in one area, a portfolio of sector funds takes on a high risk profile, to the extent that it becomes speculative.^[2] In our view speculative investing should be used only in exceptional circumstances, where specifically requested by a client, and should not be a recommended investing strategy for our clients. [emphasis in original]
10. Commencing in 2016, the Respondent recommended to 25 clients that they invest more than 25% of their account holdings in precious metals sector mutual funds, contrary to the Member’s policies and procedures.
11. By recommending that the clients concentrate their accounts holdings in precious metals sector funds to an extent that exceeded the limits set out in the Member’s policies and procedures, the Respondent failed to ensure that the recommendations were suitable for the clients.
12. As set out in further detail below, the Respondent was able to facilitate the purchase by the clients of precious metals sector mutual funds at a level that exceeded the 25% limit prescribed by the Member by having clients sign a document entitled “Speculative Investment Acknowledgement Form” prior to processing such purchases. This document inaccurately indicated that the clients were making unsolicited trades and had been told that their account holdings were unsuitable when, in fact, the Respondent had recommended that the clients invest more than 25% of the value of their accounts in precious metals sector mutual funds.
13. By virtue of the foregoing, the Respondent engaged in conduct contrary to the Member’s policies and procedures and MFDA Rules 2.1.1, 2.2.1, 2.5.1 and 1.1.2.

Allegation #2 – The Respondent Inaccurately Recorded Clients’ Purchases of Precious Metals Sector Funds as Unsolicited

14. Commencing in 2009, the Member’s policies and procedures stated that if an “Aggressive Growth” client insists on investing in excess of the 25% cap on investing in sector mutual funds, completion of a Speculative Investment Acknowledgement Form is required. The “Speculative Investment Acknowledgment Form”, stated as follows:
    1. This transaction was unsolicited. I understand that [the Member] does not recommend that I (we) invest in a speculative account.
    2. I (we) understand the risks involved, including the possibility of significant and sustained losses in the account.
    3. My (our) representative has performed a suitability review, and I (we) have been advised that this transactions and/or my (our) account holdings are not suitable or appropriate for my (our) needs, however, I (we) have made the decision to proceed with an investment in a speculative account despite advisement.
15. The Member’s policies and procedures further directed that the use of the Speculative Investment Acknowledgement Form was restricted to unique situations in which a client specifically directs the Approved Person to invest in a speculative strategy.
16. In the course of recommending to 25 clients that they invest more than 25% of their account holdings in precious metals sector mutual funds, the Respondent had each of the clients sign a Speculative Investment Acknowledgement Form.
17. Contrary to the representations on the Speculative Investment Acknowledgement Form, the purchases in precious metals sector mutual funds were not unsolicited, but in fact were based on recommendations of the Respondent.
18. The Respondent relied on the Speculative Investment Acknowledgement Form to inaccurately represent to the Member that the purchases were unsolicited, and thereby failed to ensure that the investments were suitable for each client account.
19. By virtue of the foregoing, the Respondent engaged in conduct contrary to the Member’s policies and procedures and MFDA Rules 2.1.1, 2.2.1, 2.5.1 and 1.1.2.

Allegation #3 – The Respondent Recommended Unsuitable Investments to Client JG

20. At all material times, client JG was a client of the Member and the Respondent was the Approved Person responsible for servicing client JG’s investment accounts at the Member. Client JG held two Registered Retirement Savings Plan accounts (“RRSPs”), one of which was held outside the Member.
21. Commencing in August 2016, when client JG was 70 years old, client JG opened a Registered Retirement Income Fund account (“RRIF”) and a Tax Free Savings Account (“TFSA”) with the Member for the purpose of transferring monthly RRIF payments into the TFSA.
22. On August 8, 2016, the Respondent recorded the following information on client JG’s New Client Application Forms for the RRIF and TFSA:
    1. Occupation: Retired
    2. Gross Annual Income: less than $25,000
    3. Net Worth: $50,000 – $100,000
    4. Monthly Disposable Income: $100
    5. Investment Knowledge: High
    6. Time Horizon: Long – Term – more than 7 years
    7. Investment Objectives: Aggressive Growth
    8. Risk Tolerance: High Risk
    9. Account Purpose: Legacy / Inheritance
23. At the time that client JG opened the RRIF and TFSA accounts, it should have been apparent to the Respondent that client JG could not tolerate a high risk portfolio as she:
    1. was 70 years old and retired;
    2. had little to no investment knowledge; and
    3. had limited income and net worth.
24. By virtue of the factors described above, client JG was a vulnerable investor.
25. In or around July 2016, the Respondent presented client JG with five mutual fund recommendations that he considered to be suitable holdings for client JG’s RRIF and TFSA accounts, including the AGF Precious Metals Fund. Based on the Respondent’s discussion with client JG about how the Respondent anticipated that these five mutual funds would perform, client JG invested in the AGF Precious Metals Fund. The Respondent had client JG sign a Speculative Investment Acknowledgement Form described above at paragraph 14 which stated that the recommendation was unsolicited, despite the fact that JG invested in the AGF Precious Metals Fund on the basis of the recommendation of the Respondent.
26. In August 2016, based on the Respondent’s recommendation, client JG signed two transfer authorization forms transferring her assets held in cash in the two RRSPs to the RRIF, and made two purchases of the AGF Precious Metals Fund in the RRIF in the amounts of approximately $9,400 and $29,500, respectively. Thereafter, between August 2016 and November 2018, client JG continued to make periodic investments in precious metals sector mutual funds.
27. The initial purchases of AGF Precious Metals Fund in client JG’s RRIF resulted in at least 39% of client JG’s net worth being concentrated in a precious metals sector mutual fund. As noted above, the Respondent advised client JG to make subsequent additional investments in the AGF Precious Metals Fund.
28. Between August 2016 and November 2018, client JG suffered a loss of approximately $18,806.
29. The Respondent failed to ensure that the investment recommendation that he made to client JG to invest in precious metals sector mutual funds was suitable having regard to the client’s relevant KYC factors including her age, investment knowledge, employment status, income, net worth, and her ability to afford significant losses in her investment account.
30. The Respondent did not adequately explain to client JG the risks associated with investing in a single precious metals sector mutual fund, and in particular, the concentration risk of investing more than 25% of her account assets in a single precious metals sector mutual fund.
31. In October 2018, client JG complained to the Member that the precious metals sector mutual funds that the Respondent recommended that she purchase were unsuitable for her and had caused her to sustain significant investment losses.
32. In November 2018, the servicing of client JG’s investment accounts was re-assigned to another Approved Person at the Member, and her account was rebalanced to hold a low-medium risk balanced mutual fund.
33. In or around March 2019, the Member compensated the complainant with respect to investment losses that she incurred in her accounts between August 2016 and November 2018.
34. By virtue of the foregoing, the Respondent engaged in conduct contrary to the policies and procedures of the Member and MFDA Rules 2.2.1, 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
Prairie Regional Office
Suite 850, 800 – 6th Ave SW
Calgary, AB T2P 3G3
Attention: Justin Dunphy
Email: jdunphy@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] PFSL Investments Canada Ltd. became a Member of the MFDA effective January 31, 2002.
[2]As noted above, the Member’s policy considered the investment of more than 25% of assets in an account in sector funds to be speculative.