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Reasons For Decision

Re:

Reasons For Decision

Reasons for Decision
File No. 201021



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 Vilfort


Heard: December 3, 2010 in Toronto, Ontario
Reasons for Decision: December 15, 2010

REASONS FOR DECISION

Hearing Panel of the Central Regional Council:

The Hon. Fred Kaufman, C.M., Q.C.
Chair

T. Hugh McNabney
Industry Representative

Selwyn Kossuth
Industry Representative

Appearances:

Francis
Roy

)
For the Mutual Fund Dealers Association of

)
Canada

James Vilfort
)
Did Not Appear

)

Page 1 of 10

Background

1.
By Notice of Hearing dated September 10, 2010, the Respondent, James Vilfort, was
notified that a disciplinary proceeding had been commenced against him and that the first
appearance would take place by telephone conference before a hearing panel (the “hearing
panel” or the “panel”) of the Central Regional Council of the Mutual Fund Dealers Association
of Canada (“MFDA” or the “Association”) at 10:00 a.m. (Eastern) on October 27, 2010.
Attempts were made by the Association to serve this notice on the Respondent at his last known
address as noted in the National Registration Database, 1405 Maxime Street in Ottawa, Ontario,
but the process server was informed by the person responding “that Mr. Vilfort had not lived at
that address for approximately four or five years.”

2.
On September 21, 2010, an administrative assistant in the enforcement department of the
MFDA sent a copy of the Notice of Hearing, with a covering letter and copies of the MFDA’s
Rules of Procedure and Guide to the Disciplinary Process, to the Respondent at his last known
address. Delivery was confirmed by Canada Post and a receipt was signed by someone other
than the Respondent. Further inquiries proved fruitless, and Mr. Vilfort did not appear, either
personally or by counsel, at the first appearance or at the hearing itself. Nor did he file a Reply
as required by Rule 8.1 of the Rules of Procedure.

3.
The panel, after appropriate inquiries from staff, declared itself satisfied that all
reasonable attempts had been made to locate the Respondent, but to no avail, and the hearing
therefore proceeded in the Respondent’s absence, as authorized by Rule 8.4(1)(a).

4.
Although Rule 8.4(1)(b) provides that a hearing panel may “accept the facts alleged and
conclusions drawn by the Corporation in the Notice of Hearing as proven and impose any of the
penalties and costs described in sections 24.1 and 24.2 respectively of MFDA By-law No. 1,” the
panel considered the evidence contained in Stephen Glanville’s detailed affidavit (filed as
Exhibit 4), which traced the Respondent’s conduct relevant to the two allegations brought against
him.

Page 2 of 10

5.
Since some of the facts contained in the evidence disclosed “intimate financial or
personal matters” of the Respondent’s clients, the panel ordered, as permitted by Rule 1.8(2),
that that part of the evidence shall not be disclosed to the public.

Allegations

6.
Allegation #1: Between January and July 2008, the Respondent misappropriated a total
of $11,719.37 from three clients, thereby failing to deal fairly, honestly and in good faith with
the clients, contrary to MFDA Rule 2.1.1.

7.
Allegation #2: After resigning from the Member on July 14, 2008, the Respondent failed
to remit, return and deliver to the Member client information and files in his possession,
including supervisory records, contrary to the terms of an agreement with the Member, thereby:

(a) failing to comply with MFDA Rules 1.1.2 and 1.1.5(f), and MFDA Rule 2.1.1;
(b) failing to comply with the Member’s policies and procedures, contrary to MFDA
Rules 1.1.2 and 2.5.1, and MFDA Rule 2.1.1; and
(c) interfering with the Member’s ability to comply with the requirements of MFDA Rule
5.1 to keep such books, records and other documents as are necessary for the proper
recording of its business transactions, financial affairs and the transactions its
executes on behalf of others, contrary to MFDA Rules 1.1.2 and 2.5.1, and MFDA
Rule 2.1.1.

The Facts

8.
The facts, as set out in the Notice of Hearing, are as follows:

Registration History

9.
From September 18, 2007 to July 14, 2008, the Respondent was registered in Ontario as a
mutual fund salesperson with Investors Group Financial Services Inc. (“Investors Group” or the
“Member”).

Page 3 of 10

10.
Investors Group became a Member of the MFDA on February 8, 2002.

11.
On July 14, 2008, the Respondent resigned from the Member. Thereafter, as a result of
the events described herein, Investors Group later deemed the Respondent as having been
terminated. The Respondent is not currently registered in the securities industry in any capacity.

Allegation #1 – Vilfort Misappropriated Funds Totaling $11,719.37 from Clients

12.
Between January and July 2008, the Respondent misappropriated a total of $11,719.37
from three clients. The clients had provided the monies to the Respondent so that he could
purchase investments for their accounts. The Respondent fraudulently deposited these funds in a
bank account under his control and for his benefit, as described in greater detail below. The
Respondent was not authorized or directed by the clients to deposit the monies in his bank
account. Details of the amounts misappropriated by the Respondent are provided in the chart
below:

Amount Misappropriated
Date Client
Name
by the Respondent
January 30, 2008
AJ
$4,092.78
May 30, 2008
RAK
$2,250.64
May 30, 2008
RAK
$3,375.95
June 25, 2008
LL
$2,000.00

Total
$11,719.37

13.
With respect to clients AJ and RAK, the Respondent misappropriated their monies by
taking the following steps:

(a) The Respondent accepted cheques or bank drafts made out to Investors Group,
endorsed them to himself by forging the clients’ signatures and deposited them in his
personal bank account, thereby misappropriating the monies;
(b) The Respondent did not submit the client cheques or bank drafts to Investors Group
to be deposited in the clients’ accounts, contrary to written instructions from the
clients to do so; and
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(c) In response to communications received from the clients, the Respondent provided
false confirmations that their monies had been invested or were about to be invested.

14.
With respect to LL, the Respondent misappropriated his monies by taking the following
steps:

(a) When LL approached the Respondent in June 2008 to open a new account at
Investors Group, the Respondent advised LL to complete an Investors Group new
account application form;
(b) The Respondent did not submit LL’s new account application form to Investors
Group for processing. As a result, no account was set-up for LL;
(c) When LL inquired about making investments, the Respondent requested that LL send
him a cheque payable to him rather than to Investors Group; and
(d) On the Respondent’s advice, LL sent him a cheque in the amount of $2,000, which
the Respondent deposited in his bank account, thereby misappropriating the monies.

15.
None of the clients authorized the Respondent to deposit their monies in his bank
account.

16.
By misappropriating the clients’ monies, the Respondent failed to deal fairly, honestly
and in good faith with the clients, contrary to MFDA Rule 2.1.1.

Allegation #2: Failure to Comply With the Member’s Policies and Procedures

17.
When the Respondent became registered with Investors Group, he signed an Investors
Group’s Consultant Agreement pursuant to which he agreed to comply with the following
requirements, among others:

2.
[Approved Person’s] Responsibilities
(i)
The [Approved Person] agrees to … comply with all rules,
regulations and policies that [Investors Group] may prescribe from
time to time regarding the conduct of the [Approved Person]…

Page 5 of 10

7.
Confidential Information
The [Approved Person] acknowledges that during the term of this
Agreement, the [Approved Person] will have access to certain confidential
information relating to the business of [Investors Group] and the business
of [Investors Group’s] clients. The [Approved Person] further
acknowledges that such information is proprietary to and a trade secret of
[Investors Group] and its clients. […]

“Confidential Information” is information disclosed to or acquired by the
[Approved Person] relating to the business of [Investors Group] or its
clients as a consequence of the [Approved Person] performing his/her
obligations under this Agreement, including information developed or
gathered by the [Approved Person]. Such confidential information
includes, but is not limited to, information regarding investments, client
lists, personal financial reviews, portfolios, receipts, data files, financial
information and summaries of client transactions…

8.
Return of [Investors Group’s] Property and Confidential Data
Upon termination of this Agreement, the [Approved Person] shall return to
[Investors Group] all confidential information … and shall erase all
excerpts from and copies of confidential information stored in electronic
or machine readable format on the [Approved Person’s] personal
computer system. The [Approved Person] shall provide [Investors Group]
with a certificate that he/she has complied with this provision within three
(3) days following the termination of this Agreement.

18.
The Investors Group Consultant’s Agreement is designed and intended to, in part, permit
Investors Group to comply with its regulatory obligations, including its obligations under MFDA
Rules 1.1.5(f) and 5.1 to ensure that it keeps such books, records and other documents as are
necessary for the proper recording of its business transactions, financial affairs and the
transactions its executes on behalf of others.

19.
When the Respondent resigned from Investors Group on July 14, 2008, he failed to remit,
return and deliver to Investors Group client files and client information in his possession,
including records relevant to the supervision of the Respondent, contrary to the terms of the
Consultant Agreement. He further failed to provide Investors Group with a certificate that he had
complied with the terms set out in section 8 of the Investors Group’s Consultant Agreement.

20.
On July 23, 2008 and September 5, 2008, Investors Group sent letters to the Respondent
requesting, among other things, that he return to it all client information and files in his
Page 6 of 10

possession. Investors Group’s request was reiterated on September 16, 2008 in a letter sent to the
Respondent by its solicitors.

21.
To date, Investors Group has not received a response to any of the letters sent to the
Respondent. The Respondent has also not returned the client files and information in his
possession, nor has he provided Investors Group with a certificate in accordance with section 8
of the Investors Group’s Consultant Agreement.

22.
By failing to remit, return and deliver the client files and information in his possession,
the Respondent has failed to comply with MFDA Rules 1.1.2 and 1.1.5(a). In addition, he has
failed to comply with Investors Group’s policies and procedures and thus interfered with
Investors Group’s ability to comply with the requirements of MFDA Rule 5.1, contrary to
MFDA Rules 1.1.2 and 2.5.1, and MFDA Rule 2.1.1.

Discussion

23.
As enforcement counsel rightly pointed out, the overwhelming and uncontradicted
evidence established that, over a six month period between January 2008 and June 2008, the
Respondent obtained monies from his clients which they thought were going to be invested in
legitimate investment products, when in fact he used those funds for his own benefit.
Furthermore, when clients made inquiries about their purported investments, the Respondent
provided false confirmations. We have no doubt that, by this conduct, he failed to “deal fairly,
honestly and in good faith with his clients,” contrary to MFDA Rule 2.1.1.(a). Allegation # 1 has
therefore been proven.

24.
As stated above, when the Respondent became registered with Investors Group, he signed
a Consultant Agreement which, inter alia, required him to “comply with all rules, regulations
and policies that [Investors Group] may prescribe from time to time …” He also agreed that,
upon termination of the agreement, he “shall return to [Investors Group] all confidential
information … [and] … shall provide [Investors Group] with a certificate that he/she has
complied with this provision within three (3) days following the termination of this Agreement.”.

Page 7 of 10

25.
When the Respondent resigned from Investors Group on July 14, 2008, he failed to return
client files and client information in his possession. On July 23, 2008, Investors Group wrote to
the Respondent requesting the return of this information. When he failed to do so, Investors
Group wrote to him again, first on September 5, 2008, and later, on September 16, 2008, but
there was no reply. Indeed, these files have never been recovered.

26.
These requirements contained in the Agreement are consistent with MFDA Rule 1.1.5(f),
which requires Approved Persons to prepare and maintain books, records and other documents
that are necessary for the proper recording of a Member’s business transactions and financial
affairs. The Rule also provides that these records are not the property of the Approved Person,
but of the Member, and must be made available when required.

27.
It is easy to see why this Rule exists, for without the proper books, records and other
documents the Member is in a difficult position to deal with the Approved Person’s clients
where, as in this case, there are claims and the Member does not possess sufficient information to
evaluate the situation.

28.
By failing to remit, return and deliver to the Member the required information, the
Respondent has violated not only his Agreement with the Member, but also the relevant Rules of
the Association. Allegation # 2 has therefore been proven.

The Penalties

29.
In considering the appropriate penalties, hearing panels look at a number of factors: the
gravity of the offence, the respondent’s past conduct, his or her experience and level of activity
in the capital markets, the harm suffered by investors, the benefits received by the respondent as
a result of his or her improper activity, the damage caused to the integrity of the capital markets,
the need to deter others from similar conduct, and previous decisions in similar circumstances.
Panels will also consider the MFDA Penalty Guidelines.

30.
This is the Respondent’s first appearance before a disciplinary panel. And even though
the amounts involved are relatively minor, the very nature of his conduct is egregious and of a
type which brings the capital markets into disrepute. This fact must be reflected in the penalty.
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31.
The Penalty Guidelines recommend a fine of $25,000 and a permanent prohibition where
client funds have been misappropriated. Considering all relevant factors, we think that this is the
appropriate penalty for Allegation # 1. Insofar as Allegation # 2 is concerned, the Guidelines are
silent, but in the Panel’s view a fine of $10,000 is appropriate. Past decisions made in similar
circumstances support this view: see, for instance, In re Robert Roy Parkinson, [2005] MFDA
Ontario Regional Council, No. 200501 (where the amounts involved was much larger, but so
was the fine), and In re Stephan Hedley, [2006] MFDA Ontario Regional Council, No. 200509.

32.
Finally, on the matter of costs, we were told that while the actual costs incurred exceed
$10,000, the enforcement department would be content with that sum, and that is, therefore, what
we will order.

33.
In the result, there will be a permanent prohibition on the Respondent’s authority to
conduct securities related business in any capacity while in the employ of or associated with any
MFDA Member, pursuant to section 24.1.(c) of MFDA By-law No. 1.

34.
In addition, the Respondent is ordered to pay a fine of $25,000 for violating Rule 2.1.1.,
as set out in Allegation # 1, and a fine of $10,000, for violating the Rules enumerated in
Allegation No. 2.

35.
Costs are assessed in the amount of $10,000.

36.
So ordered.

DATED this 15th day of December, 2010.

“Fred Kaufman”
The Hon. Fred Kaufman, C.M., Q.C.,

Chair

“Hugh McNabney”
T. Hugh McNabney,

Industry Representative
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“Selwyn Kossuth”
Selwyn Kossuth,

Industry Representative

Doc 236788
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