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Bulletin #0200-E

Enforcement
MFDA imposes lifetime ban and $150,000 fine on Stephan Headley

Mutual Fund Dealers Association of Canada
Association canadienne des courtiers de fonds mutuels
121 King Street West, Suite 1000, Toronto, Ontario, M5H 3T9
TEL: 416-361-6332 FAX: 416-943-1218 WEBSITE: www.mfda.ca

Contact: Hugh Corbett
BULLETIN #0200 – E
Director of Litigation
June 23, 2006
Phone: 416-943-4685
Email: hcorbett@mfda.ca

MFDA Bulletin

Enforcement

For Distribution to Relevant Parties Within your Firm

MFDA imposes lifetime ban and $150,000 fine on Stephan Headley

Nature of
A Hearing Panel of the Ontario Regional Council of the Mutual Fund
Proceeding
Dealers Association of Canada (“MFDA”) has imposed disciplinary
penalties on Stephan Headley, a former Approved Person of the
MFDA.

By-Laws,
Following a hearing on December 14, 2005, the Hearing Panel found
Rules, Policies that Headley:
Violated

1. Misappropriated approximately $155,000 from two
clients and failed to return or truthfully account for these
monies, contrary to MFDA Rule 2.1.1; and
2. Failed to provide documents and information requested
by the MFDA during the course of an investigation,
contrary to s. 22.1 of MFDA By-law No. 1.
MFDA Rule 2.1.1 states:
Standard of Conduct. Each Member and each Approved
Person of a Member shall:
(a) deal fairly, honestly and in good faith with its clients;
(b) observe high standards of ethics and conduct in the
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transaction of business;
(c) not engage in any business conduct or practice which is
unbecoming or detrimental to the public interest; and
(d) be of such character and business repute and have such
experience and training as is consistent with the
standards described in this Rule 2.1.1 or as may be
prescribed by the Corporation.
Sections 22.1(b) and (c) of MFDA By-law No. 1 state that:

For the purpose of any examination or investigation pursuant to
this By-law, a Member, Approved Person of a Member or other
person under the jurisdiction of the Corporation pursuant to the
By-laws or the Rules may be required by the Corporation:
. . . .

(b) to produce for inspection and provide copies of the books,
records and accounts of such person relevant to the matters
being investigated; and

(c) to attend and give information respecting any such matters;
. . . .
and the Member or person shall be obliged to submit such
report, to permit such inspection, provide such copies and to
attend, accordingly…
Penalty
The Hearing Panel imposed the following penalties on Headley:
1. A permanent prohibition of the authority of Headley to conduct
securities related business in any capacity;
2. A fine in the amount of $100,000 with respect to Headley’s
misappropriation of client funds;
3. A fine in the amount of $50,000 with respect to Headley’s failure
to cooperate with the MFDA; and
4. Costs in the amount of $7,500.
Summary of
Between July 9, 1997 and February 25, 2004, Headley was registered
Facts
in Ontario as a mutual fund salesperson. From September 16, 2002 to
February 25, 2004, Headley was a mutual fund salesperson for
Worldsource Financial Management Inc. (“Worldsource”).
Between April 2003 and February 2004, two separate clients, NL and
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IB, provided Headley with approximately $155,000 in total to invest on
their behalf. On several occasions, Headley led each client to believe
that he had used the funds to purchase investments for them when in
fact he had misappropriated the funds by depositing them in bank
accounts that he controlled.
In the fall of 2003, NL expressed concerns to Headley because she had
not received any statements or trade confirmations concerning the
funds that she had given to him to invest. In early 2004, NL told
Headley that she was going to file a formal complaint against him and
commence legal proceedings to recover her missing funds. Shortly
thereafter, Headley provided NL with three cheques in a total amount
equal to her missing funds, plus 6% interest.
Headley had led IB to believe that her money had been invested in a
guaranteed investment certificate. In February 2004, IB complained to
both Headley and Worldsource after Headley had failed to respond to
repeated requests for information concerning the status of her funds.
After receipt of IB’s complaint, Headley made full restitution to her,
with interest. Worldsource investigated IB’s complaint and terminated
Headley.
After receiving her money, NL filed a complaint with the MFDA and
an investigation was commenced. Between November 2004 and
January 2005, the MFDA made numerous requests that Headley
provide documents and information relevant to the matters under
investigation but he failed to do so.
In reaching its decision on penalty, the Hearing Panel took into account
the fact that Headley’s misconduct was planned and deliberate and
involved multiple misappropriations over an extended period. The
Hearing Panel acknowledged that restitution is a significant mitigating
factor in misappropriation cases but noted that its impact was lessened
in this case by its timing. Headley returned the funds to the clients only
when faced with the possibility of a complaint or an actual complaint.
The Hearing Panel noted that Headley did not apologize to the clients
or demonstrate any remorse and that the restitution appeared to have
been motivated by self-preservation, not by a sense of guilt.
The Hearing Panel did not accept Headley’s claim that the funds had
been deposited in his personal bank account in error and noted that
Headley has never accounted for the missing funds while they were
under his control. The Hearing Panel stated that Headley misled NL
and IB as to the whereabouts of their funds and attempted to mislead
the MFDA and the Ontario Securities Commission during the course of
their respective investigations.
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In determining the appropriate penalty to impose on Headley, the
Hearing Panel noted that it was important to communicate to Headley,
to the public and to the mutual fund industry as a whole that serious
consequences will befall those who engage in activities of this nature.
For greater detail, see the Decision and Reasons posted on the MFDA’s
website under “Enforcement”.


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