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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

Re: James Michael Lewis

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 (“Hearing Panel”) of the Mutual Fund Dealers Association of Canada (“MFDA”) on December 14, 2021 at 10:30 a.m. (Eastern), or as soon thereafter as the appearance can be held, concerning a disciplinary proceeding commenced by the MFDA against James Michael Lewis (“Respondent”). Members of the public who would like to listen to the teleconference should contact [email protected] to obtain particulars.

  • 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: [email protected]

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

Allegation #1: Between November 2017 and July 2018, the Respondent signed or submitted account documents to process transactions in clients’ accounts or update the clients’ Know-Your-Client information without using the necessary due diligence to learn the essential facts relative to the clients, ensuring that transactions processed in their accounts were suitable, or ensuring that the transactions were authorized, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #2: Between November 2017 and July 2018, the Respondent signed or submitted documentation obtained by an unregistered individual to conduct securities related business or update Know-Your-Client information for clients of the Member, thereby facilitating stealth advising by an unregistered individual, contrary to MFDA Rules 1.1.1(c) and 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. From March 28, 2012 to November 19, 2018 in Ontario, and from April 19, 2018 to November 19, 2018 in Alberta, the Respondent was registered as a dealing representative with Quadrus Investment Services Ltd. (the “Member”), a Member of the MFDA.
  2. On November 19, 2018, the Member terminated the Respondent in connection with the matters that are the subject of this proceeding and he is not currently registered in the securities industry in any capacity.
  3. At all material times, the Respondent conducted business in the Strathroy, Ontario area.

Background

  1. Former Approved Person Trevor Rosborough (“Rosborough”) was registered as a dealing representative with the Member until October 31, 2017, when the Member terminated Rosborough in connection with matters that are not the subject of this proceeding.
  2. On or about November 1, 2017, the Respondent entered into an agreement with Rosborough to purchase Rosborough’s book of business, which comprised both Rosborough’s insurance and mutual fund book of business (the “Purchase Agreement”).
  3. On or about November 20, 2017, the Member assigned to the Respondent responsibility for servicing the accounts of clients that had previously been serviced by Rosborough (the “Transferred Clients”). The Respondent did not schedule meetings with these clients or otherwise notify them that he had been assigned responsibility for servicing their accounts.
  4. Rosborough continued to have contact with Transferred Clients following the termination of his registration. Rosborough’s communications to clients included emails in which he minimized the significance of the fact that the Respondent was now the Approved Person of the Member responsible for servicing their accounts and informed them that he would continue to provide investment advice to them and accept trading instructions from them as he had prior to his termination.
  5. After entering into the Purchase Agreement, the Respondent began to regularly attend and conduct business from Rosborough’s office, where Rosborough had conducted business from prior to his termination. The Respondent also retained one of Rosborough’s long-standing unlicensed assistants, DA, to assist him to service the Transferred Clients.  He also obtained approval from the Member to permit DA to access the Member’s back office system and the Member’s account forms so that DA could provide the support that she was retained to provide to the Respondent.  Rosborough continued to pay DA’s salary.
  6. Between November 2017 and July 2018, Rosborough was not registered as a dealing representative and was not an Approved Person of the Member. However, throughout that period, Rosborough continued to conduct securities related business by providing advice to Transferred Clients and accepting instructions from Transferred Clients about specific mutual fund transactions.  Rosborough also obtained Know-Your-Client (“KYC”) information to update the Member’s records concerning the investment accounts of Transferred Clients.
  7. Rosborough, or one of Rosborough’s assistants, provided Transferred Clients with Member account forms that the clients were required to execute in order to process transactions in their accounts or update KYC information on file for their accounts. These account forms identified the Respondent as the Approved Person responsible for servicing the clients’ accounts and attributed all of the resulting transactions and KYC updates to the Respondent’s representative code.
  8. After account documents were signed by Transferred Clients, Rosborough or his unlicensed assistants collected the account forms and left them at Rosborough’s office where the Respondent would regularly attend, sign the account forms as the Approved Person of record, and submit the forms for processing or arrange for an unlicensed assistant to do so.
  9. The Respondent did not meet with or communicate with Transferred Clients about the content or purpose of the account forms before signing or submitting the account forms to facilitate the processing of transactions and KYC updates in their accounts.

Allegation #1 – Failed to Exercise Due Diligence

  1. The Respondent failed to fulfil his obligations to:
    1. learn the essential facts relative to each client and each order or account accepted;
    2. ensure that the acceptance of each order was within the bounds of good business practice;
    3. ensure that each order accepted or recommendation made for each account was suitable for the client and in keeping with the client’s investment objectives;
    4. explain to the individuals the features and risks of the mutual fund trades being processed in their accounts; or
    5. provide the advice necessary for the clients to make an informed decision about trades and receive the trading instructions from clients necessary to authorize transactions in their accounts.
  2. By virtue of the foregoing, the Respondent failed to use due diligence to learn the essential facts relative to the clients, to ensure that transactions processed in their accounts were suitable, or ensure that the transactions were authorized, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #2 – Facilitated Securities Related Business by an Unregistered Individual

  1. As noted above, Rosborough was terminated by the Member effective October 31, 2017 and accordingly, he was not in an employer-employee relationship, a principal-agent relationship, or an introducing dealer-carrying dealer relationship with the Member as required by MFDA Rule 1.1.1(c), and was therefore not permitted to engage in securities related business with clients of the Member following his termination.
  2. On April 29, 2020, Rosborough and the Ontario Securities Commission entered into a Settlement Agreement,[1] pursuant to which Rosborough admitted that between October 31, 2017 and July 29, 2018, during which time he was not registered, he participated in a stealth advising arrangement with the Respondent.
  3. The Respondent knew or ought to have known that an unregistered individual was conducting securities related business by providing investment advice to Transferred Clients, accepting instructions from Transferred Clients about specific mutual fund transactions, and updating KYC information for the investment accounts of Transferred Clients.
  4. The Member was not aware that the Respondent was facilitating the processing of transactions and KYC information updates on behalf of clients on the basis of instructions and information obtained from the clients by an unregistered individual.
  5. By virtue of the foregoing, the Respondent signed or submitted documentation obtained by an unregistered individual with respect to securities related business and KYC information updates for clients of the Member, thereby facilitating stealth advising by an unregistered individual, contrary to MFDA Rules 1.1.1(c) and 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 May 4, 2020, a Director of the Ontario Securities Commission approved the settlement agreement.

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