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. Beginning February 22, 2005, the Respondent was registered in the securities industry.
2. From February 24, 2010 to January 4, 2019, the Respondent was registered in Ontario as a dealing representative with Sterling Mutuals Inc. (“Sterling Mutuals”), a Member of the MFDA.
3. On February 24, 2010, Sterling Mutuals designated the Respondent as a branch manager.
4. From March 25, 2014 to January 4, 2019, the Respondent was registered in Alberta as a dealing representative with Sterling Mutuals.
5. On January 9, 2019, the Respondent resigned from Sterling Mutuals, and is not currently registered in the securities industry in any capacity.
6. At all material times, the Respondent conducted business in the Mississauga, Ontario area.

The Member’s Policies and Procedures

7. At all material times, Sterling Mutuals’ policies and procedures provided that prior to recommending a leveraged investment strategy, Approved Persons must learn the essential facts relative to each client. The policies and procedures further set out the following criteria to determine suitability:
   1. clients should have a medium risk tolerance or higher;
   2. clients must have at a minimum “good” investment knowledge and experience;
   3. the total of all monthly debt payments, including any investment loans, should not exceed 35% of a client’s gross income before tax; and
   4. the leveraged amount should not exceed 50% of the client’s liquid net worth and 30% of the client’s net worth.
8. Sterling Mutuals’ policies and procedures also required that Approved Persons only recommend leveraged investing based on a balanced presentation of the potential risks and rewards to the client.
9. Finally, at all material times, Sterling Mutuals’ policies and procedures:
   1. required that its Approved Persons be aware of the possibility of conflicts of interest with clients, and that where such conflicts or potential conflicts of interest arise, the Approved Person disclose it to Sterling Mutuals so that it can be addressed with the exercise of responsible business judgment influenced only by the best interests of the client; and
   2. prohibited its Approved Persons from engaging in the sale of any investments that would be considered securities under the applicable legislation, or selling or advising on such investments through any entity other than Sterling Mutuals.

The Leveraged Investment Strategy

10. At all material times, clients MSK, KH, AK, FT, RS, KM, NK, SDD, PR, and NJ were clients of Sterling Mutuals whose accounts were serviced by the Respondent.
11. Between March 2011 and June 2015, in the accounts of those 10 clients, the Respondent recommended and/or implemented a leveraged investment strategy involving the borrowing of money to invest in return of capital mutual funds (“ROC Funds”) (collectively, the “Leveraged Investment Strategy”),[1] which he failed to ensure was suitable for the clients having regard to their personal and financial circumstances. Specifically, each of the clients followed the Leveraged Investment Strategy and applied for and obtained investment loans, the proceeds from which were invested in ROC Funds, as follows:

Inaccurate KYC Information

12. The Respondent failed to use due diligence to learn the essential facts relative to each of the 10 clients for whom he recommended and/or implemented the Leveraged Investment Strategy.  The Respondent did not ask the clients any questions about their investment knowledge and experience or their risk tolerance.
13. To facilitate the Leveraged Investment Strategy, the Respondent failed to use due diligence to learn or accurately record or intentionally misrepresented the clients’ Know-Your-Client (“KYC”) information on their account opening documents, net worth statements, and loan applications (collectively, the “Leveraged Account Documents”). Instead, the Respondent recorded the KYC information in a manner that made it appear as though his recommendations were suitable for the clients.  The Respondent recorded the clients’ investment knowledge as good, when their investment knowledge was limited or none, recorded the clients’ risk tolerance as predominantly high, when their risk tolerance was substantially lower, and significantly overstated their annual income and net worth.[2]
14. The Respondent did not review the KYC information with the clients when having them execute the Leveraged Account Documents, rather the Respondent provided the documents to the clients and indicated where they needed to sign.[3]
15. By inaccurately recording the 10 clients’ KYC information in the Leveraged Account Documents,[4] the Respondent increased the likelihood that the lending institutions would approve the clients’ investment loans or that Sterling Mutuals would approve the implementation of the Leveraged Investment Strategy in the clients’ accounts.
16. In addition to the Leveraged Account Documents, from February 2014 to October 2016, the Respondent also had all 10 clients complete additional account opening documents in connection with non-leveraged accounts and KYC update forms. In each case, the Respondent continued to inaccurately record or misrepresent the clients’ investment knowledge, risk tolerance, annual income, and net worth on these additional documents.

Submission of False Supporting Documents to Support Leverage Loans

17. In addition to failing to accurately record or misrepresenting the clients’ KYC information as described above, the Respondent also submitted supporting financial documents in respect of 4 clients, NK, SDD, PR, and NJ, which the Respondent knew or ought to have known contained false, incorrect, or misleading information. These documents included T4 and other pay statements, property tax statements, investment statements, and bank statements.  These documents either overstated the value of the clients’ assets or purported to show assets the clients did not actually own.
18. By providing the false supporting financial documents, the Respondent increased the likelihood that the lending institutions would approve the clients’ investment loans or that Sterling Mutuals would approve the implementation of the Leveraged Investment Strategy in the clients’ accounts.

Failed to Use Due Diligence to Ensure Suitability of Recommendations

19. The Respondent failed to ensure that the Leveraged Investment Strategy that he recommended and implemented in the accounts of 10 clients was suitable for the clients having regard to the clients’ KYC information and, in particular, the following:
    1. the ability of the clients to afford the costs associated with the investment loans regardless of the performance of the investments and without relying on anticipated income or gains from the investments;
    2. the ability of the clients to withstand investment losses without jeopardizing their financial security if the Leverage Investment Strategy did not perform as represented; and
    3. the clients’ essential relevant facts, including:
       1. low tolerance for risk;
       2. limited or no investment knowledge;
       3. annual income; and
       4. net worth.
20. While the annual income and net worth that the Respondent recorded for the clients made it appear that they had sufficient resources to engage in leveraged investing, the clients’ actual annual incomes and net worth resulted in total debt service ratios (“TDSR”) and loan to net worth ratios (“LNWR”) that exceeded the thresholds of 35% and 30%, respectively, set out in Sterling Mutuals’ policies and procedures as follows:

21. The Respondent knew or ought to have known that the investment loans were excessive having regard to the resulting debt servicing obligations that would be imposed on the clients and the potential for the clients’ obligations to repay the investment loans to erode a substantial portion, or potentially all, of the clients’ net worth in the event the strategy did not perform as the Respondent represented that it would.
22. All 10 clients who implemented the Leveraged Investment Strategy relied entirely upon the distributions generated by the ROC Funds to pay all of the costs of servicing their investment loans. Many, if not all, of the clients did not have the means to cover the costs of servicing the investment loans in the event the Leveraged Investment Strategy did not perform as the Respondent represented that it would.
23. Most of the clients had limited or no investment knowledge, such that they did not understand or appreciate the potential risks of the Leveraged Investment Strategy before agreeing to implement it in their accounts. In addition, most of the clients had low investment risk tolerances, such that the leveraged investment strategy generally exceeded the level of risk that the clients were willing to assume.
24. In addition, the Respondent led the clients to believe, through his representations and omissions (set out at paragraphs 26 and 28 below), that the Leveraged Investment Strategy was a safe and secure manner of investing.

Misrepresented or Failed to Adequately Explain the Features and Risks of Recommendations

25. From March 2011 to June 2015, the Respondent misrepresented, failed to fully and adequately explain, or omitted to explain the risks, benefits, material assumptions, features, and costs of the Leveraged Investment Strategy that he recommended and implemented in the accounts of the 10 clients described above.
26. When recommending the Leveraged Investment Strategy, the Respondent told the clients that:
    1. the strategy was low risk or “risk-free”;
    2. he would limit the risk to some limited pre-determined amount; or
    3. the distributions from the mutual fund investment would cover the loan payments while providing additional income.
27. The Respondent also showed some of the clients charts illustrating positive outcomes that the Respondent purportedly achieved using the same strategy.
28. The Respondent misrepresented, failed to fully and adequately explain, or omitted to explain the following to some or all of the clients:
    1. the nature of the distributions that the ROC Funds paid to investors, specifically that a substantial portion of the distributions paid could consist of a return of capital;
    2. that the ROC Funds were subject to deferred sales charges (“DSC”), such that the clients could face penalties if they needed to redeem the mutual funds prior to the expiration of the 7-year DSC schedule;
    3. the risk that if the ROC Funds declined in value, the sale of the ROC Funds could be insufficient to pay back the entirety of their investment loans or cover investment losses;
    4. the risk that the ROC Funds might reduce, suspend or cancel altogether the distributions paid to investors due to declining market conditions, poor investment performance or other factors, such that the clients would be forced to incur out-of-pocket expenses to make the payments on their investment loans; and
    5. the risk that if the investments performed poorly, the clients would still be responsible for repaying the investment loans, potentially putting any assets that they owned in jeopardy.
29. To the extent the Respondent disclosed to the clients that the value of the investments and/or distributions could decline, he assured them that they would have surplus distributions to cover any short fall with respect to the loan payments and that he would manage the investments to address any deficiencies such that the clients would not face any financial difficulties.

Clients Suffer Losses as a Result of Implementing the Leveraged Investment Strategy

30. Initially, when the 10 clients implemented the Leveraged Investment Strategy, the clients received sufficient distributions from the ROC Funds to make the investment loan payments and retain a surplus. At the Respondent’s recommendation, 6 of the 10 clients, RS, KM, NK, SDD, PR, and NJ, opened non-leveraged accounts, in which they implemented pre-authorized contributions to purchase mutual funds using the surplus.
31. Beginning mid-2016, the value of the ROC Funds recommended by the Respondent declined in value to the point that all 10 clients were required to invest in different ROC Funds that provided a smaller distribution. As a result of the reduction in the distribution, each of the clients experienced a shortfall with respect to the required loan payments, which the clients paid by: (a) using surplus amounts saved from the ROC Fund distributions; (b) redeeming the investments made in the non-leveraged accounts described in the preceding paragraph; and (c) using other sources of income savings, or taking on additional debt from another source.
32. Between 2018 and 2020, after determining that they could no longer afford the loan payments, 8 of the 10 clients redeemed their mutual funds (both ROC Funds and amounts retained in the non-leveraged accounts described at paragraph 30)[5] and directed the proceeds to pay down the balance of their loans. In all cases the proceeds were insufficient to repay the loans, resulting in each of the clients having to pay the remaining balance out of pocket or face legal action from the lending institution.
33. As at October 26, 2020, the remaining 2 clients, clients MSK and FT, continued to hold their leverage loans and the underlying investments, with the value of the underlying investments being less than the balance outstanding on the loans.

Client IR

34. From September 24, 2009 to July 23, 2012, AA was registered as a dealing representative with Sterling Mutuals.
35. Client IR became a client of Sterling Mutuals in 2010. Prior to becoming a client of Sterling Mutuals, client IR had purchased mutual funds by borrowing $200,000 to invest (i.e., a leveraged investment) via two investment loans, which client IR had implemented in his accounts with a former dealing representative at the previous Member.  Client IR transferred these mutual funds to Sterling Mutuals in kind in 2010.
36. From January 13, 2010 to February 7, 2012, the account opening documents and trade forms executed by client IR provided that AA, who was an Approved Person at Sterling Mutuals, was the Approved Person responsible for servicing client IR’s accounts.  However, client IR only ever dealt with and received investment advice and signed account forms provided by the Respondent.  During this period (2010 to 2012), the Respondent was registered as an Approved Person with Sterling Mutuals.
37. At the time client IR became a client of Sterling Mutuals, the KYC information recorded for client IR overstated his investment knowledge (as sophisticated), risk tolerance (as high), annual income, and net worth in a manner that made it appear that borrowing to invest was suitable for client IR.
38. Beginning May 17, 2012, the Respondent became the Approved Person responsible for servicing client IR’s accounts at the Member. After becoming the responsible Approved Person, the Respondent did not use due diligence to learn client IR’s KYC information.  In April and July 2014 and November 2015, the Respondent had client IR sign KYC update forms that inaccurately recorded KYC information in a manner similar to that described in the preceding paragraph.
39. In or around June 2014, the Respondent recommended that client IR redeem all of his existing leveraged investments and invest the proceeds in a ROC Fund. Client IR followed the Respondent’s recommendation.
40. Similar to the conduct that the Respondent engaged in with the 10 clients described above, the Respondent misrepresented, failed to fully and adequately explain, or omitted to explain to client IR the risks, benefits, material assumptions, costs, and features of ROC Funds.
41. In November 2015, the Respondent had client IR open a non-leveraged account with Sterling Mutuals, in which the Respondent had client IR set up a pre-authorized contribution using the surplus earned from his leveraged investment.
42. In October 2016, due to a decline in the value of the ROC Fund that he held, client IR was required to switch to a different ROC Fund with a lower distribution. Consequently, client IR was required to begin paying his investment loans out of pocket by relying on other sources of income and savings and by redeeming the other mutual fund investments that he held in his non-leveraged account.
43. In August 2018, client IR redeemed his leveraged accounts and non-leveraged account in their entirety and directed the proceeds towards the balance of the investment loans. As the proceeds were insufficient to pay off the loan in full, client IR has been unable to repay the loan and consequently, the lending institution has commenced a civil proceeding against client IR.

Conducting Securities Related Business at Another Member

44. From July 24, 2014 to January 16, 2019, AA, described above at paragraph 34, was registered as a dealing representative with Shah Financial Planning Inc. (“Shah Financial”), a Member of the MFDA.
45. From April 17, 2013 to July 31, 2015, BB was registered as a dealing representative with Shah Financial.
46. Between August 2014 and August 2018, AA and BB opened leveraged and non-leveraged accounts and submitted transactions for processing for clients KH, AK, RS, and KM (described above at paragraph 10) and individual SD (the spouse of client SDD described above at paragraph 10) at Shah Financial (collectively, the “Shah Clients”).[6] However, the Shah Clients only received investment advice from and signed account documents provided by the Respondent.  These Shah Clients either met AA or BB briefly or not at all.
47. All of the Shah Clients implemented the Leveraged Investment Strategy in their accounts at Shah Financial, as follows:

48. The KYC information for the Shah Clients, recorded in connection with the Leveraged Investment Strategy, was inaccurate as it overstated the Shah Clients’ investment knowledge (as moderate), risk tolerance (as medium to high), annual income, and net worth in a manner that made it appear the Leveraged Investment Strategy was suitable.
49. False supporting documents were submitted to Shah Financial in connection with the investment loans obtained by all 5 Shah Clients, which increased the likelihood that the lending institutions would approve the Shah Clients’ investment loans or that Shah Financial would approve the implementation of the Leveraged Investment Strategy in the Shah Clients’ accounts.
50. Shah Financial’s policies and procedures identified a TDSR above 35%, and a LNWR above 30% as “red flags”, indicating that borrowing to invest may be unsuitable. While the annual income and net worth recorded for the Shah Clients made it appear that they had sufficient resources to engage in leveraged investing, the Shah Clients’ actual annual incomes and net worth resulted in TDSRs and LNWRs as follows:

51. Similar to the circumstances described above with respect to the 10 clients, many, if not all, of the Shah Clients relied entirely upon the distributions generated by the ROC Funds to pay the costs of servicing their investment loans; did not have the means to service their investment loans from their own income and assets; had insufficient investment knowledge to appreciate the risks of the Leveraged Investment Strategy; and had a low risk tolerance, such that the Leveraged Investment Strategy exceeded the level of risk the clients were willing to assume.
52. In addition, the Respondent misrepresented, failed to fully and adequately explain, or omitted to explain the risk, benefits, material assumptions, costs, and features of the Leveraged Investments to the Shah Clients.
53. Between July 2015 and October 2016, Shah Clients KM, SD, KH, AK, and RS signed additional account opening documents in connection with non-leveraged accounts and KYC update forms, which also inaccurately recorded (and overstated) the clients’ investment knowledge, risk tolerance, annual income, and net worth.
54. Between July and September 2015, Shah Clients SD, KH, AK and RS opened non-leveraged accounts at Shah Financial, in which they implemented pre-authorized contributions to purchase mutual funds using the surplus earned from the leveraged investments purchased in their accounts at Shah Financial.
55. As described above at paragraphs 31 to 32 with respect to the 10 clients, beginning mid-2016, the distributions from the ROC Fund investments received by the Shah Clients became insufficient to pay the required loan payments, and between 2018 and 2020, the Shah Clients had to redeem investments to pay down the balance of their loans,[7] which, in all cases was insufficient to pay the loans down in full. Consequently, each of the Shah Clients had to pay the remaining balance owing on their investment loans out of pocket or face legal action from the lending institution.
56. Collectively, all of the clients at Sterling Mutuals and Shah Financial described above experienced losses of approximately $449,596. These investment losses have caused significant financial hardship for the clients.
57. The Respondent earned at least $71,000 in commissions form his recommendations to clients to engage in the Leveraged Investment Strategy at Sterling Mutuals.

Allegation #1 – Inaccurately Recorded or Misrepresented KYC Information

58. By engaging in the conduct described above at paragraphs 12 to 16 and 38 to 40, the Respondent failed to exercise due diligence to learn or accurately recorded or intentionally misrepresented the KYC information with respect to at least 11 clients, contrary to the Member’s policies and procedures and MFDA Rules 2.2.1, 2.1.1, 2.5.1, and 1.1.2.

Allegation #2 – Submission of False Client Documents to Support Leverage Loans

59. By engaging in the conduct described above at paragraphs 17 to 18, the Respondent submitted supporting documents to the Member in connection with loan applications of at least 4 clients, which the Respondent knew or ought to have known contained false, incorrect, or misleading information, contrary to MFDA Rule 2.1.1.

Allegation #3 – Failed to Use Due Diligence to Ensure Suitability of Recommendations

60. By engaging in the conduct described above at paragraphs 19 to 24, the Respondent recommended and implemented a leveraged investment strategy for the accounts of at least 10 clients, without ensuring that the leveraged investment strategy and the ROC Funds were suitable for the clients, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #4 – Misrepresented or Failed to Adequately Explain the Features and Risks of Recommendations

61. By engaging in the conduct described above at paragraphs 25 to 29 and 39 to 40, the Respondent misrepresented or failed to adequately explain risks, benefits, material assumptions, costs, and features of the leveraged investment strategy and the ROC Funds that he recommended and/or implemented for the accounts of at least 11 clients, contrary to the Member’s policies and procedures and MFDA Rules 2.2.1 and 2.1.1.

Allegation #5 – Conducting Securities Related Business Through Another Member

62. Based on the conduct described above at paragraphs 44 to 47, while registered as a dealing representative of a Member, the Respondent engaged in securities related business on behalf of another Member that the Respondent was not registered with, contrary to MFDA Rules 1.1.1 and 2.1.1.

Allegation #6 – Misappropriated Client Monies

63. Beginning in or about the latter part of 2016, the Respondent recommended to clients KM, NK, SDD, IR, AK, KH, RS, and Shah Client SD (collectively, the “Trading Business Clients”), that they invest in what he described to them as a “trading business” that he was developing.
64. At around this time, as described above at paragraphs 31, 42, and 55, the Trading Business Clients began to experience a short fall with respect to the distributions that they were receiving and were required to cover a portion of their loan payments from the sale of other investments or out of pocket. The Respondent recommended that the Trading Business Clients invest in the Respondent’s “trading business” as a means to generate a return to pay their investment loans.
65. Some or all of the Trading Business Clients redeemed their mutual funds held in non-leveraged accounts at Sterling Mutuals or at Shah Financial to fund their investment in the Respondent’s “trading business”. To invest in the “trading business”, the Trading Business Clients, at the Respondent’s direction, provided monies as follows:
    1. on or about September 23, 2016, Trading Business Client RS transferred $48,500 to the Respondent;
    2. on or about October 21, 2016, Trading Business Clients KM and NK provided a $40,000 bank draft to a third party, CC (who the Respondent described as his business partner), and on or about May 15, 2017, the clients provided a $15,500 cheque to the Respondent;
    3. on or about May 11, 2017, Trading Business Clients SD and SDD transferred $31,000USD to AA, who the Respondent described as his partner in the “trading business”;
    4. on or about July 23, 2017, Trading Business Clients AK and KH transferred $45,000USD to the Respondent; and
    5. on or about August 22, 2018, Trading Business Client IR transferred $24,426 to the Respondent.
66. In total, the Respondent received CDN$88,426 and US$45,000 from the Trading Business Clients, which he used to pay personal expenses. The Respondent directed that CDN$40,000 and US$31,000 be paid to CC and AA, respectively.  None of the monies were used in connection with any “trading business”.
67. None of the Trading Business Clients received any return on the monies they provided to the Respondent or to the third parties at the Respondent’s direction, as described above.
68. The Respondent has not repaid or accounted for the monies described above.
69. By virtue of the foregoing, the Respondent misappropriated or failed to account for at least CDN$128,426 and US$76,000 from at least 7 clients and 1 individual, contrary to MFDA Rule 2.1.1.

Allegation #7 – Securities Related Business Outside the Member

70. In connection with the “trading business”, the Respondent told client SDD and Shah Client SD (who were spouses) to open a trading account with a Futures Commission Merchant in the U.S. Based on the Respondent’s direction, on or about September 23, 2016, SDD and SD opened such an account and deposited US$9,990.
71. From September 23, 2016 to March 25, 2019, the Respondent conducted or provided instructions in connection with currency trading in the account set up by SD and SDD. Over this period, the clients deposited a total of US$15,990 and withdrew a total of approximately US$14,068.
72. None of the currency trading conducted by the Respondent or for which he gave instructions was carried on for the account of Sterling Mutuals or through its facilities.
73. By recommending and conducting or providing instructions for currency trading in the account of SDD and SD, the Respondent engaged in securities related business outside the Member, contrary to the Member’s Policies and Procedures, MFDA Rules 1.1.1, 2.1.1, 2.5.1, and 1.1.2, and the terms of the Respondent’s registration as a dealing representative.

Allegation #8 – Personal Financial Dealings with a Client

74. As described above at paragraphs 31 and 54, beginning in or about October 2016, client SDD and Shah Client SD (spouses) began to experience a shortfall between the leveraged investment distributions and the loan payments. By the middle of 2018, SDD and SD had exhausted all surplus distributions saved from the leveraged investments and all proceeds from the redemption of the investments held in their non-leveraged accounts.
75. At this time, the Respondent offered to help SDD and SD pay their investment loan payments by making monthly transfers of $600 to a joint account held by SDD and SD. From August 2, 2018 to December 5, 2018, the Respondent made such monthly transfers (with one transfer being $699), totaling approximately $3,699.
76. The Respondent did not disclose to the Member that he was providing monies to client SDD towards the payment of her investment loan payments.
77. By virtue of the foregoing, the Respondent engaged in personal financial dealings with a client which gave rise to a conflict or potential conflict of interest, that the Respondent did not disclose to the Member or otherwise address by the exercise of responsible business judgment influenced only by the best interests of the client, contrary to the Member’s policies and procedures and MFDA Rules 2.1.4, 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
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] The Respondent made recommendations to 8 of the 10 clients.  With respect to clients MSK and FT, the recommendation was made by another individual, but the Respondent implemented the leveraged investment strategy in their accounts as the responsible Approved Person.
[2] With respect to clients MSK and FT, the Respondent signed account documents that similarly inaccurately recorded the two clients’ KYC information without meeting or speaking with the clients.
[3] See footnote 2.
[4] See footnote 2.
[5] As described below at paragraph 65, in some instances, clients redeemed their non-leveraged investments to fund their investment in the Respondent’s trading business.
[6] Clients KH, AK, RS, and KM also held accounts at Sterling Mutuals serviced by the Respondent, which are discussed above.
[7] As described below at paragraph 65, in some instances, clients redeemed their non-leveraged investments to fund their investment in the Respondent’s trading business.