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Bulletin #0205-E

Enforcement
MFDA imposes lifetime ban and $35,000 fine on Ernest Lo

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 # 0205 – E
Director of Litigation
July 5, 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 $35,000 fine on Ernest Lo

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

By-Laws,
Following a hearing on March 3, 2006, the Hearing Panel found that:
Rules, Policies
Violated
1. Lo engaged in securities related business outside the facilities of the

Member, contrary to MFDA Rule 1.1.1;

2. Lo failed to observe high standards of ethics and conduct in the
transaction of business, contrary to MFDA Rule 2.1.1(b); and

3. Lo failed to provide a written report requested by the MFDA during
the course of an investigation, contrary to s. 22.1 of MFDA By-law
No. 1.

MFDA Rule 1.1.1(a) states that:

Members. No Member or Approved Person (as defined in By-law 1.1) in
respect of a Member shall, directly or indirectly, engage in any securities
related business (as defined in By-law 1.1) except in accordance with the
following:
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(a) all such securities related business is carried on for the account of the
Member, through the facilities of the Member (except as expressly
provided in the Rules) and in accordance with the By-laws and Rules,
other than:
i.
such business as relates solely to trading in deposit instruments
conducted by any Approved Person not on account of the
Member; and
ii. such business conducted by an Approved Person as an
employee of a bank and in accordance with the Bank Act
(Canada)
and the regulations thereunder and applicable
securities legislation.

MFDA Rule 2.1.1(b) states that:

Each Member and each Approved Person of a Member shall:
(b) observe high standards of ethics and conduct in the transaction of
business

Section 22.1(b) of MFDA By-law No. 1 states:

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:
(a) to submit a report in writing with regard to any matter involved in
any such investigation.

Penalty
The Hearing Panel imposed the following penalties on Lo:

1. A permanent prohibition of the authority of Lo to conduct securities
related business in any capacity;

2. A fine in the amount of $35,000; and

3. Costs in the amount of $2,000.

Summary of
From November 1996 until December 2004, Lo was registered in Ontario as
Facts
mutual fund salesperson with PFSL Investments Canada Ltd. (“PFSL”), a
Member of the MFDA.

In December 2003, Lo met David Braganza (“Braganza”). Braganza held a
Level II life insurance license with the Financial Services Commission of
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Ontario (“FSCO”). Braganza told Lo that he was in the business of receiving
funds for investment in “bridge financing deals that involved funding for
margin calls, primarily in Europe”. The investments would be for a short
term and would yield a substantial rate of interest. Braganza was not
registered or otherwise qualified to sell securities in Ontario. The investments
were not known to or approved for sale by PFSL.

Lo initially invested $40,000 of his own money with Braganza. During the
months of February and March 2004, Lo received “interest” payments from
Braganza. Lo invested an additional $15,000-$20,000 of his own money with
Braganza.

In March 2004, Lo brought three mutual fund clients to a pre-arranged
meeting with Braganza at a restaurant. Braganza explained the investment
program and answered questions from the prospective investors.

One of these clients was LC. Lo recommended the Braganza investment to
LC and facilitated her investment by acting as an intermediary between
Braganza and LC. Lo received $10,000 from LC and delivered the funds to
Braganza. Braganza provided Lo with a receipt, which Lo delivered to LC.
LC’s initial investment of $10,000 was supposed to mature in May 2004.
Braganza defaulted. Braganza provided an additional note to “extend” the
investment to August 2004. Braganza defaulted in August 2004. In October
2004, LC sued Braganza, Lo and PFSL in Small Claims Court for recovery of
her $10,000 investment plus interest and costs.

Upon receipt of the Small Claims Court proceedings in November 2004,
PFSL suspended Lo and commenced an investigation. During this time, Lo
obtained $12,000 from Braganza and gave it to LC in satisfaction of her
claim. PFSL terminated Lo for cause in early December 2004. Lo has not
been paid back any of the amounts that he invested with Braganza.

In August 2005, the MFDA requested that Lo provide a written report
concerning his activities. The request was made pursuant to the investigative
powers of the MFDA as set out in s. 22.1 of MFDA By-law No. 1. Lo failed
to respond to the request. In September 2005, the MFDA reminded Lo of his
obligation to respond to the request and cooperate with the investigation.
Again, Lo did not respond. In his Reply to the Notice of Hearing, Lo
acknowledged receipt of the MFDA’s requests and admitted that he had failed
to respond. However, Lo stated that had responded to inquiries from FSCO
and thought that by responding to FSCO he was also responding to the
MFDA.

The Hearing Panel stated that Lo had breached MFDA Rule 1.1.1(a) by
facilitating LC’s participation in the Braganza investment, which was not
approved for sale by PFSL and was sold outside the accounts and facilities of
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PFSL. The Hearing Panel stated that it had “no difficulty” finding that Lo
had committed a serious breach of the acceptable standard of conduct
expected of a mutual fund salesperson by facilitating LC’s participation in the
Braganza investment, contrary to MFDA Rule 2.1.1(b).

In determining that Lo failed to cooperate with an MFDA investigation, the
Hearing Panel did not accept Lo’s explanation that he thought his response to
FSCO was sufficient. The Hearing Panel stated “in our view, as an Approved
Person or former Approved Person, there should have been no confusion”.
However, the Hearing Panel stated that Lo’s apparent mistaken belief
concerning his response to FSCO, together with his cooperation with the
MFDA after the Notice of Hearing was issued, were mitigating factors to be
considered when determining the appropriate penalty to impose on him.

In determining the appropriate penalty to impose on Lo, the Hearing Panel
stated that it wanted to communicate to Lo, the mutual fund industry and the
investing public that serious consequences will befall those who facilitate
investments by mutual fund clients in investments that are not approved for
sale by a Member and are sold outside the Member.

For more information, see the Decision and Reasons posted on the MFDA’s
website under “Enforcement”.

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