Notice of Hearing

NOTICE is further given that CIRO alleges the following violations of the Mutual Fund Dealer Rules:

Allegation:  Between September 2019 and September 2021, the Respondent borrowed monies from clients, which gave rise to conflicts or potential conflicts of interest that the Respondent failed to disclose to the Dealer Member or otherwise ensure were addressed by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to the Dealer Member’s policies and procedures and Mutual Fund Dealer Rules 2.1.4, 1.1.2 (as it relates to Rule 2.5.1) (formerly MFDA Rules 2.1.4, 1.1.2 and 2.5.1).[1]

PARTICULARS

NOTICE is further given that the following is a summary of the facts alleged and intended to be relied upon by CIRO at the hearing:

1. Between August 17, 1997 and September 30, 2021, the Respondent was registered in Ontario as a dealing representative with Keybase Financial Group Inc. (the “Dealer Member”), a Dealer Member of CIRO (formerly a Member of the MFDA).[2]
2. On or about September 30, 2021, the Dealer Member terminated the Respondent as a result of the conduct described herein. The Respondent is not currently registered in the securities industry in any capacity.
3. At all material times, the Respondent carried on business in the Toronto, Ontario area.

Allegation – Borrowing from Clients

4. At all material times, the policies and procedures of the Dealer Member prohibited Approved Persons from borrowing monies from clients.
5. At all material times, clients BD, SA, EC, AH, BB, RB, HB, JH, and LJ were clients of the Dealer Member (the “Clients”) whose accounts were serviced by the Respondent. Clients BD, SA, EC, BB, RB, HB, JH and LJ ranged in age from 67 to 92 years old and were vulnerable investors on the basis of their age.
6. In May 2004, the Respondent invested approximately $30,000 USD for the purchase of shares in two vacation ownership resorts in Cancun, Mexico (the “Mexican Properties”).
7. Commencing in or about September 2019, the Respondent told the Clients that the Respondent required monies to provide to individuals in Mexico in order for the Respondent to receive the proceeds of the sale of the Mexican Properties.
8. Between September 2019 and September 2021, the Respondent solicited loans from each of the Clients totaling approximately $561,300 CAD and $93,000 USD as set out below.

9. As described in the chart above, client AH wire transferred a total of approximately $93,000 USD directly to parties in Mexico at the Respondent’s request. The Respondent provided client AH with the details to facilitate the wire transfers.
10. Except for the $93,000 USD that client AH directly wired to parties in Mexico, the Respondent deposited the monies borrowed from the Clients into their bank account, and subsequently transferred the monies to various parties in Mexico.
11. As described in the chart above, clients SA, EC and AH redeemed investments held in their accounts at the Dealer Member in order to loan the redemption proceeds to the Respondent. The Respondent indicated on the documentation that the Respondent submitted to the Dealer Member to process these redemptions that these clients required the proceeds to cover their personal expenses.
12. However, the Respondent’s statements to the Dealer Member were false or misleading, and concealed from the Dealer Member that the full proceeds of the redemptions from the accounts of clients SA and AH were to be loaned to the Respondent, in addition to most of the proceeds of the redemptions from the account of client EC.
13. As described in the chart above, the Respondent paid small amounts to some of the Clients totaling $11,000, the source of which included monies that the Respondent had borrowed from some of the other clients or other individuals.
14. The Respondent has failed to repay approximately $551,300 CAD and $93,000 USD of the monies that the Respondent borrowed from the Clients.
15. The Respondent filed for bankruptcy on May 31, 2022. It is unlikely that any of the Clients will recover the amounts that the Respondent borrowed from them.
16. On or about June 22, 2021, during a meeting to discuss the Respondent’s planned resignation from the Dealer Member, the Respondent disclosed to the Dealer Member for the first time that they had borrowed monies from clients in order to pay various parties in Mexico.
17. Borrowing monies from and making payments to the Clients as described above, gave rise to conflicts or potential conflicts of interest that the Respondent was required to immediately disclose to the Dealer Member.
18. By virtue of the foregoing, the Respondent engaged in conduct which gave rise to conflicts or potential conflicts of interest that the Respondent failed to disclose to the Dealer Member or otherwise ensure were addressed by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to the Dealer Member’s policies and procedures and Mutual Fund Dealer Rules 2.1.4, 1.1.2 and 2.5.1 (formerly MFDA Rules 2.1.4, 1.1.2 and 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 pursuant to Mutual Fund Dealer Rule 1A that any person subject to the jurisdiction of the Mutual Fund Dealers Association of Canada prior to January 1, 2023 remains subject to the jurisdiction of CIRO in respect of any action or matter that occurred while that person was subject to the jurisdiction of the Mutual Fund Dealers Association of Canada at the time of such action or matter.

NOTICE is further given that the Mutual Fund Dealer Rules provide that if, in the opinion of the Hearing Panel, the Respondent:

• has failed to carry out any agreement with CIRO;
• has failed to comply with or carry out the provisions of any federal or provincial statute relating to the business of the Dealer Member or of any regulation or policy made pursuant thereto;
• has failed to comply with the provisions of the Mutual Fund Dealer Rules of CIRO;
• has engaged in any business conduct or practice which such Hearing Panel 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;
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, Mutual Fund Dealer Division within twenty (20) days from the date of service of this Notice of Hearing.

A Reply shall be served upon Enforcement Counsel at:

Canadian Investment Regulatory Organization
121 King Street West, Suite 1000
Toronto, ON M5H 3T9
Attention: Maria Di Clemente
Email:  [email protected]

A Reply shall be filed by:

1. providing 4 copies of the Reply to the Office of the Corporate Secretary, Mutual Fund Dealer Division by personal delivery, mail or courier to:

Canadian Investment Regulatory Organization
121 King Street West, Suite 1000
Toronto, ON M5H 3T9
Attention: Office of the Corporate Secretary, Mutual Fund Dealer Division; or

2. transmitting 1 electronic copy of the Reply to the Office of the Corporate Secretary, Mutual Fund Dealer Division 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 CIRO in the Notice of Hearing; or
2. admit the facts alleged and conclusions drawn by CIRO 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 CIRO 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 CIRO in the Notice of Hearing as having been proven and may impose any of the penalties described in the Mutual Fund Dealer Rules.

End.