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. From on or about March 7, 2008 to February 10, 2021, the Respondent was registered in Alberta as a dealing representative with Quadrus Investment Services Ltd. (the “Member”), a Member of the MFDA.
2. On February 10, 2021, the Member terminated the Respondent as a result of the events described herein, and he is not currently registered in the securities industry in any capacity.
3. At all material times, the Respondent carried on business in the Calgary, Alberta area.

Background

4. At all material times, Company A was a company that was registered in Alberta. In or around 2017, the Respondent entered into an arrangement with XX, who was a director of Company A, pursuant to which the Respondent would refer potential investors to Company A. At all material times, Company A assisted companies in raising capital for investment in the companies, including Company B, Company C, and other related companies.
5. Company B described itself as a company that provided human resources and employee staffing services and raised capital by way of issuing exempt market securities. Company B issued convertible notes (the “Convertible Notes”) that were convertible into common shares after 12 months, or earlier depending on certain specified conditions set out in the terms of a subscription agreement.
6. Company C described itself as a company that developed hearing aid technology, and was seeking startup capital. Company C was associated with another entity, Company D.
7. As described below, between April 2017 and November 2017, the Respondent recommended, sold, or facilitated the sale of investments in Company B to KH, and referred client LW[3], RV, and KH to Company A, Company B, Company C or Company D, to purchase investments. In total, client LW, RV and KH purchased investments in these companies totaling at least $525,000.
8. On or about October 3, 2017, as a result of the Respondent’s activities, the Respondent received compensation totaling at least $7,000 in connection with the investment in Company B by client LW and KH and RV, and between June and August 2017, received payments totaling $9,000 from Company D for activities in connection with the investment by investors in Company D or Company C.

Allegation #1 – Securities Related Business Outside the Member

9. At all material times, the Member’s policies and procedures prohibited its Approved Persons from engaging in securities related business outside the Member.
10. Between September 2017 and November 2017, the Respondent recommended, sold, or facilitated the sale of Convertible Notes issued by Company B to KH, as set out below:

11. The Respondent engaged in one or more of the following activities in relation to the purchase by KH of the Convertible Notes:
    1. he informed KH about the opportunity to invest in the Convertible Notes, and facilitated a subsequent purchase by KH;
    2. he provided KH with assurances about the investments, including the individuals involved, investment risk, tax implications, and specified rate of return.
    3. he provided details of the investment to KH;
    4. he assisted KH to complete the steps necessary to purchase the investment, by, among other things, emailing documents, providing encouragement to submit the documents and discussing ways to send the investment monies; and
    5. he ensured that KH paid the purchase price of the investment.
12. Based on the Respondent’s recommendation, KH purchased a total of $175,000 of the Convertible Notes issued by Company B.
13. As described above, as a result of the Respondent’s activities, the Respondent received compensation in connection with the investment by KH in Company B.
14. The investments in Company B were not approved for sale by the Member, nor were they carried on for the account of the Member or conducted through its facilities.
15. By virtue of the foregoing, the Respondent engaged in securities related business that was not carried on for the account of the Member or through its facilities, contrary to the Member’s policies and procedures, and MFDA Rules 1.1.1, 2.1.1, and 1.1.2 (as it relates to MFDA Rule 2.5.1.).

Allegation #2 – Unapproved Referral Arrangement

16. At all material times, the Member’s policies and procedures prohibited Approved Persons from entering into referral arrangements with third parties, and only permitted the Member to enter directly into a referral arrangement.
17. As described above, the Respondent entered into an arrangement with XX or Company A, pursuant to which the Respondent would refer investors to invest in various companies.
18. Further to the Respondent’s arrangement with XX or Company A, the Respondent referred client LW, RV and KH to Company A, Company B, Company C or Company D, in order to purchase investments, without the Member’s knowledge or approval.
19. In addition to the investments purchased by KH described in paragraph 10 above, client LW and RV purchased investments, as set out below:

20. As described above, as a result of the Respondent’s activities, the Respondent received compensation totaling at least $7,000 in connection with the investments by client LW and by KH and RV in Company B, and also received compensation in the amount of $9,000 for activities in connection with the investment by investors in Company D or Company C.
21. The Member was not a party to any referral arrangements in respect of any investments with Company A, Company B, Company C or Company D.
22. None of the compensation received by the Respondent was recorded in the Member’s books and records.
23. By virtue of the forgoing, the Respondent participated in a referral arrangement to which the Member was not a party, contrary to the Member’s policies and procedures and MFDA Rules 2.4.2, 2.1.1, and 1.1.2 (as it relates to Rule 2.5.1).

Allegation #3 – Unapproved Outside Activities

24. 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 activities.
25. As described above, the Respondent recommended, sold, or facilitated the sale of investments in Company B to KH; and referred client LW, RV and KH to Company A, Company B, Company C or Company D, to purchase investments. In total, client LW, RV and KH purchased investments in these companies totaling at least $525,000.
26. As described above, as a result of the Respondent’s activities, the Respondent received compensation.
27. The Respondent did not disclose to or obtain approval from the Member to engage in any of the activities described above.
28. To the extent that the Respondent’s activities described above do not amount to securities related business outside the Member, or an unapproved referral arrangement, then the Respondent’s conduct was an outside activity that was not approved by the Member, contrary to the Member’s policies and procedures and MFDA Rules 1.3, 2.1.1, and 1.1.2 (as it relates to Rule 2.5.1).

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
800 – 6th Avenue SW, Suite 850
Calgary, AB T2P 3G3
Attention: Jennifer Galarneau
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.