MFDA Notice of Hearing

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202158

IN THE MATTER OF A DISCIPLINARY HEARING PURSUANT TO SECTIONS 20 AND 24 OF BY-LAW NO. 1 OF THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA

Anthony Peter Chiaravalloti

NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a hearing panel of the Central Regional Council (the “Hearing Panel”) of the Mutual Fund Dealers Association of Canada (the “MFDA”) on November 19, 2021 at 10:30 a.m. (Eastern) or as soon thereafter as the hearing can be held, concerning a disciplinary proceeding commenced by the MFDA against Anthony Peter Chiaravalloti (the “Respondent”). Members of the public who would like to listen to the teleconference should contact hearings@mfda.ca to obtain particulars.

DATED: Sep 22, 2021

"Michelle Pong"

Michelle Pong

Director, Regional Councils

Mutual Fund Dealers Association of Canada
121 King St. West, Suite 1000
Toronto, ON M5H 3T9
Telephone: 416-945-5134
E-mail: corporatesecretary@mfda.ca



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

Allegation #1: Between September 2015 and October 2015, the Respondent engaged in securities related business that was not carried on for the account of the Member or processed through its facilities by recommending, selling, or facilitating the sale of syndicated mortgage investments, contrary to the Member’s policies and procedures and MFDA Rules 1.1.1, 2.1.1, 2.5.1, and 1.1.2.

Allegation #2: Between September 2015 and October 2015, the Respondent made a referral in respect of syndicated mortgage investments and received compensation for doing so, thereby participating in a referral arrangement to which the Member was not a party and which did not otherwise comply with sections 13.7 to 13.10 of National Instrument 31-103, the Member’s policies and procedures, and MFDA Rules 2.1.1 and 2.4.2.

Allegation #3: Between September 2015 and June 2019, the Respondent engaged in unapproved outside business activities, by:

  1. engaging in activities in relation to syndicated mortgage investments;
  2. establishing or operating two companies for which he was also a director; or
  3. engaging in activities with respect to a mediation business;

contrary to the Member’s policies and procedures, and MFDA Rules 1.2.1(c) (now MFDA Rule 1.3)[1], 2.1.1, 2.5.1, and 1.1.2.

Allegation #4: Between March 2015 and March 2019, the Respondent provided false or misleading statements to the Member on annual compliance questionnaires, contrary to MFDA Rule 2.1.1.

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 March 2013, the Respondent was registered in the securities industry.
  2. Between March 27, 2014 and June 26, 2019, the Respondent was registered in Ontario as a dealing representative with Investors Group Financial Services Inc. (the “Member”), a Member of the MFDA.
  3. On June 26, 2019, the Member terminated the Respondent, and he is not currently registered in the securities industry in any capacity.
  4. At all material times, the Respondent carried on business in the Vaughan, Ontario area.

Allegation #1 - Securities Related Business

  1. At all material times, the Member’s policies and procedures required that its Approved Persons only offer investment products to its clients that it had approved for sale, and required all products be sold through the Member.
  2. Fortress Real Developments Inc. (“Fortress”) was a real estate development company that offered investments in syndicated mortgages. Its projects included Kipling Court in Vaughan, Ontario and Sky City in Winnipeg, Manitoba.
  3. FFM Capital Inc. (“FFM”) and Centro Mortgage Inc. (“Centro”) were mortgage brokerage companies that marketed and sold syndicated mortgage investments in Fortress’ real estate projects.
  4. Between September 2015 and October 2015, the Respondent recommended, sold, or facilitated the sale of syndicated mortgage investments in Fortress’ real estate projects totaling approximately $200,000 (collectively the “Syndicated Mortgage Investments”) to client VL a client of the Member, in the amounts set out in the table below:

Date

Amount of Investment

Investment

September 2015

$100,000

Kipling Court

September 2015

$100,000

Sky City

Total

$200,000

 
  1. The Respondent engaged in one or more of the following activities in relation to the purchase by client VL of Syndicated Mortgage Investments:
    1. introduced client VL to the opportunity to invest in the Syndicated Mortgage Investments;
    2. discussed the terms and features of investing in the Syndicated Mortgage Investments;
    3. made recommendations to client VL in respect of investing in the Syndicated Mortgage Investments;
    4. provided assurances to client VL about the investment; or
    5. attended meetings between client VL and representatives of FFM and/or Centro to complete paperwork to invest in the Syndicated Mortgage Investments.
  2. In order to invest in the Syndicated Mortgage Investments, client VL redeemed investments from a joint account held with client VL’s spouse at the Member. The Respondent submitted the redemptions for processing by the Member.
  3. The Respondent entered into a written agreement with Centro dated October 2, 2015, which provided that the Respondent would receive a referral fee in the amount of 6% of the amount invested in syndicated mortgage investments offered by Fortress by client VL.
  4. In or about November 2015, the Respondent received a total of approximately $12,000 in compensation for his role in facilitating client VL’s purchase of the Syndicated Mortgage Investments described above.
  5. The Member did not approve the sale of the Syndicated Mortgage Investments described above to clients by its Approved Persons, including the Respondent.
  6. Client VL’s purchases of the Syndicated Mortgage Investments described above were not carried on for the account of the Member or processed through its facilities.
  7. The principal portion of client VL’s investment in the Kipling Court project was returned after two years. Client VL stopped receiving distributions from his investment in the Sky City project prior to its completion and his principal investment of $100,000 has not been repaid.
  8. As described above, the Respondent engaged in securities related business that was not carried on for the account of the Member or processed through its facilities by recommending, selling, or facilitating the sale of the Syndicated Mortgage Investments to client VL, contrary to the Member’s policies and procedures, MFDA Rules 1.1.1, 2.1.1, 2.5.1 and 1.1.2.

Allegation #2 – Unapproved Referral Arrangement

  1. At all material times, the Member’s policies and procedures required, among other things, that its Approved Persons only participate in referral arrangements:
    1. where the Member has approved the referral arrangement and is a party to a written referral arrangement; and
    2. where all fees or commissions flow through the books and records of the Member.
  2. As described above, the Respondent entered into a written agreement with Centro dated October 2, 2015, which provided that the Respondent would receive a referral fee in the amount of 6% of the amount invested by client VL.
  3. The Respondent failed to disclose to or obtain approval from the Member to have any referral arrangement with Centro.
  4. The Member was not a party to any referral arrangements with Centro for the sale of the Syndicated Mortgage Investments.
  5. None of the compensation received by the Respondent in relation to the Syndicated Mortgage Investments as described above was recorded in the Member’s books and records.
  6. As described above, the Respondent participated in a referral arrangement in respect of the sale of syndicated mortgage investment to which the Member was not a party and which did not otherwise comply with sections 13.7 to 13.10 of National Instrument 31-103, the Member’s policies and procedures, and MFDA Rules 2.1.1 and 2.4.2.

Allegation #3 – Unapproved Outside Business Activities

  1. At all material times, the Member’s policies and procedures required its Approved Persons to disclose to, and obtain approval from, the Member prior to engaging in any outside business activities.
  2. As described below, the Respondent engaged in outside business activities that were not disclosed to or approved by the Member.
Fortress Syndicated Mortgage Investments
  1. The Respondent did not disclose to or obtain the approval from the Member to engage in an outside business activity in relation to syndicated mortgage investments, as described above.
  2. As described above, the Respondent received a total of approximately $12,000 in compensation for his role in facilitating client VL’s purchase of the Syndicated Mortgage Investments.
Cornucopia
  1. In or about August 2017, the Respondent and other individuals established Cornucopia Labs Incorporated (“Cornucopia”), a financial technology company that described its business as providing “education, coaching, and financial services to help Canadians realize their goals”.
  2. On August 8, 2017, Cornucopia was registered as an Ontario corporation and the Respondent was identified as a director of the company. The registered office address for Cornucopia was the Respondent’s home address.
  3. While registered with the Member, the Respondent was listed on the Cornucopia website as the chief executive officer, using the name “Anthony Chev”.
  4. The Respondent personally invested approximately $20,000 in Cornucopia.
  5. Through Cornucopia (sometime referred to as Cornukopia), the Respondent, engaged in, among other things, the following activities:
    1. organizing and delivering presentations to local businesses about investment and tax planning;
    2. establishing an Instagram account, using the title “The Wise Investor”, where he published, among other things, advice on investing and managing personal finances; and
    3. producing and hosting a podcast, using the title “The Wise Investor”, which provided information and advice related to finance and real estate investing.
  6. The Respondent did not disclose to the Member or obtain its approval to operate Cornucopia, as described above.
King Street Media
  1. On October 27, 2017, King Street Media Inc. (“King Street”) was incorporated as an Ontario corporation, and the Respondent was identified as the sole director of the company. The registered office address for King Street was the Respondent’s home address.
  2. King Street was a company that ran certain social media platforms for clients of King Street.
  3. Commencing in or about October 2017, the Respondent engaged in activities associated with the operation of King Street, including starting up the business and opening bank accounts for the company.
  4. The Respondent was listed on King Street’s website as Creative Director under the name “Anthony Chev”.
  5. The Respondent had access to and control of King Street’s bank accounts. The Respondent obtained payments or loans totaling $10,100 from King Street. The Respondent also used King Street’s offices to record podcasts for The Wise Investor, as described above.
  6. The Respondent did not disclose to the Member or obtain its approval to engage in outside business activities on behalf of King Street.
Mediation Company
  1. Commencing in or about 2019, while registered with the Member, the Respondent engaged in an outside business activity with a mediation business. The Respondent was listed on the company website as a financial expert and planner whose role included, among other things, assisting in complex financial mediations.
  2. The Respondent did not disclose to the Member or obtain its approval to engage in outside business activities with the mediation company.
  3. By virtue of the forgoing, the Respondent engaged in unapproved outside business activities, contrary to the Member’s policies and procedures, and MFDA Rules 1.2.1(c) (now MFDA Rule 1.3), 2.1.1, 2.5.1, or 1.1.2.

Allegation #4 – False and Misleading Statements to the Member

  1. Between March 2015 and March 2019, the Respondent completed five annual compliance certificates and submitted them to the Member in respect of his activities in 2014, 2015, 2016, 2017, and 2018 (the “Annual Compliance Certificates”). On the completed Annual Compliance Certificates, the Respondent indicated to the Member that:
    1. he had not been paid referral fees or received referral fees (including indirect compensation) from any third party other than through the Member;
    2. he was not, and had not been, involved in any undisclosed and unapproved outside activity; and
    3. he had not established a website, web-blog, social media profile or similar forum, (other than corporately approved websites) for the purpose of promoting his business or marketing products and services that have not been approved by the Member.
  2. The Respondent’s statements to the Member in the Annual Compliance Certificates were false or misleading, because, as described above:
    1. in 2015, he received compensation from a third party other than through the Member; and
    2. commencing in 2015, he was involved in unapproved outside activities, as described above.
  3. By virtue of the foregoing, the Respondent made false or misleading statements to the Member, 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
121 King Street West
Suite 1000
Toronto, ON M5H 3T9
Attention: Audrey Smith
Email: asmith@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] Effective March 17, 2016, MFDA Rule 1.2.1(c) was amended and renumbered as MFDA Rule 1.3.2.

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