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Reasons For Decision

Re:

Reasons For Decision

Reasons for Decision
File No. 201030




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: Conrad Arthur Nunweiler


Heard: March 8, 2012 in Vancouver, British Columbia
Reasons for Decision: May 28, 2012

REASONS FOR DECISION

Hearing Panel of the Pacific Regional Council:

Stephen D. Gill
Chair

Sharon Moskalyk
Industry Representative

Cecilia Wong
Industry Representative

Appearances:

David
Halasz
) Counsel, For the Mutual Fund Dealers

) Association of Canada

Conrad Arthur Nunweiler
)
No in attendance or represented by counsel

)

)

Page 1 of 26

Background

1.
By a Notice of Hearing dated October 5, 2010 the Mutual Fund Dealers Association of
Canada (“MFDA” or the “Association”) commenced disciplinary proceedings against Conrad
Arthur Nunweiler (“Nunweiler” or the “Respondent”). A first appearance took place by
teleconference before the Hearing Panel on November 9, 2010; the Respondent appeared by his
agent, Gilbert Wong. There were a number of further proceedings, and directions from the
Panel, which are set forth in the Decision and Reasons in this matter of July 4, 2011.

2.
Pursuant to directions from the Panel, the Respondent filed an Amended Reply dated
March 20, 2011. In that Reply, the Respondent made a number of admissions in respect of
matters alleged in the Notice of Hearing.

3.
On July 4, 2011 the Panel directed the Respondent to provide full particulars to MFDA
staff in respect of his Reply, such particulars to be delivered no later than July 29, 2011. The
Respondent did not comply with that Order and did not provide any particulars.

4.
Following the decision of the Panel dismissing the two motions brought by the
Respondent, this matter was set for a hearing on the merits on March 7th and 8th, 2012. The
Respondent was duly served with notice of the Hearing on the merits, but did not appear either
personally or through counsel.

March 7, 2012 Hearing

5.
As scheduled, the hearing on the merits convened in Vancouver on March 7, 2012. The
Respondent did not appear personally or through counsel. Rule 7.3 of the MFDA Rules of
Procedure states:
7.3
Failure to Attend Hearing
(1)
Where a Respondent fails to attend the hearing on the date
and at the time and location specified in the Notice of
Hearing, the Hearing Panel may:
(a)
proceed with the hearing without further notice to
and in the absence of the Respondent; and
Page 2 of 26

(b)
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.”

6.
Pursuant to Rule 7.3, the Panel proceeded with the hearing, and accepted the facts alleged
and conclusions drawn by the MFDA in the Notice of Hearing as proven. After hearing further
evidence, and detailed submissions from counsel for the MFDA, including a written brief, the
Panel imposed the penalties and costs which were published by the MFDA on March 8, 2012,
and will be set forth later in this decision.

7.
It is appropriate at this point to set out the allegations in the Notice of Hearing, and the
Particulars.

Allegation #1: Between May 2006 and December 12, 2008, the Respondent borrowed
monies from at least two clients totaling approximately $56,300, thereby giving rise to an
actual or potential conflict of interest which the Respondent failed to address by the
exercise of responsible business judgment influenced only by the best interests of the
clients, contrary to MFDA Rules 2.1.4 and 2.1.1.

Allegation #2: Between May 2006 and December 12, 2008, the Respondent failed to
comply with the policies and procedures of the Member in respect of conflicts of interest
and borrowing from clients by borrowing monies from at least two clients and personally
guaranteeing at least one of the loans, contrary to MFDA Rules 1.1.2 and 2.5.1, and
MFDA Rule 2.1.1.

Allegation #3: On October 21, 2008, the Respondent misled the Member by
representing to the Member that he had not borrowed from clients, when he knew that to
be an incorrect statement at the time and in the circumstances when he made it, thereby
interfering with the ability of the Member to conduct a reasonable supervisory
investigation of the Respondent’s activities and failing to observe high standards of ethics
and conduct in the transaction of business, contrary to MFDA Rules 1.1.2 and 2.5.1, and
MFDA Rule 2.1.1.

Allegation #4: Commencing March 19, 2009, the Respondent has failed or refused to
provide documents, information, and a written statement to the MFDA and to attend an
interview requested by the MFDA during the course of an investigation, contrary to
s.22.1 of MFDA By-law No. 1.

8.
The Particulars in the Notice of Hearing state the following:

Page 3 of 26

Registration History

1.
The Respondent was registered in British Columbia as a mutual fund salesperson
with the IPC Investment Corporation (“IPC”) from July 2, 2001 to December 12, 2008,
when he resigned.

2.
The Respondent was previously registered in British Columbia as a mutual fund
salesperson with Assante Financial Management Ltd. from January 23, 2001 to June 30,
2001, and, prior to that, with three other dealers since 1987.

3.
IPC became a member of the MFDA on March 8, 2002.

Allegation #1 – Personal Financial Dealings

4.
On December 12, 2008, the Respondent resigned from IPC. Clients whose
accounts were previously serviced by the Respondent while at IPC were assigned to
another Approved Person, who contacted the clients, and, in doing so, determined that the
Respondent had entered into personal financial dealings with at least five clients. In
particular, the five clients reported having loaned monies to the Respondent either
directly or indirectly through a company that he operated, as described below.

5.
Due to the Respondent’s failure or refusal to cooperate with the MFDA’s
investigation, it is unknown, in the case of three of the five clients from whom the
Respondent borrowed monies, whether he borrowed the monies from the clients, or
continued to be indebted to them, following March 8, 2002, the date on which the
Respondent became subject to the jurisdiction of the MFDA.1

Client #1

6.
The Respondent was the sole officer and director of 577760 BC Ltd. (the
“Numbered Company”). In or about May 2006, Client #1 loaned $50,000 to the
Numbered Company, which was evidenced by a promissory note from the Numbered
Company to Client #1 dated May 18, 2006 (the “Promissory Note”).

7.
The Promissory Note stated, among other things, that:

(a)
the Numbered Company borrowed $50,000 from Client #1 for a term of
12 months at a ten percent annual rate of interest;
(b)
the principal was to be repaid on May 15, 2007;
(c)
the Promissory Note was “secured” by another promissory note and a
letter of guarantee provided by the shareholders of “Scicorp Systems Inc.”
to the Respondent and the Numbered Company; and
(d)
the Respondent personally guaranteed the Promissory Note.

8.
By September 15, 2007, four months after May 15, 2007, the date when the loan
was to be repaid in full, $48,345.41 remained owing. Client #1 informed IPC during the
course of its review of the Respondent’s activities that the Respondent intended to repay

1 Allegations #1 and #2 have been confined to the two clients from whom the Respondent is known to have
borrowed monies while subject to the jurisdiction of the MFDA.
Page 4 of 26

the remaining balance owing on the loan when he sold a property in which he or his
company had an interest.2

Client #2

9.
On or about May 31, 2007, the Respondent borrowed $6,300 from Client #2 at a
12% interest rate, which the Respondent repaid on or about August 3, 2009. The loan
was evidenced by a promissory note.


Additional Clients from Whom the Respondent Borrowed Monies

10.
During the course of IPC’s review of the Respondent’s activities, three additional
clients acknowledged that the Respondent had borrowed monies from them, as described
below:

11.
Clients #3, #4 and #5 were unwilling to provide further details to IPC concerning
the circumstances of their personal financial dealings with the Respondent. As a result,
the dates of the loans and the period for which the Respondent remained indebted to
Clients #3, #4 and #5 are unknown.

12.
The Respondent did not disclose to IPC that he had borrowed monies from any of
the clients described above, including in particular Clients #1 and #2.

13.
By borrowing monies from Clients #1 and #2, the Respondent placed his own
interests above those of the clients, thereby giving rise to an actual or potential conflict of
interest which the Respondent failed to address by the exercise of responsible business
judgment influenced only by the best interests of the clients, contrary to MFDA Rules
2.1.4 and 2.1.1.

Allegation #2 – Failure to Follow the Member’s Policies and Procedures

14.
IPC’s policies and procedures dated February 2006 stated:

Conflicts of Interest and Personal Financial
Dealings with Clients Conflicts of Interest

[IPC], its employees and its representatives are required to deal fairly, honestly,
and in good faith with clients and to observe the IPC Code of Ethics in the
transaction of business.

It is [IPC] policy that no agent or employee shall permit private interests
to conflict with the proper discharge of official duties, or use the position held or
the knowledge gained therein in such manner as to give the appearance of such
conflict. All business conducted with the investing public is to be made solely on
the basis of a desire to promote the best interests of the public.

2 IPC and the MFDA are unaware whether Client #1, who ceased to be a client of IPC on June 4, 2007, was repaid
by the Respondent prior to his resignation from IPC on December 12, 2008.
Page 5 of 26

Any agent or employee of IPCI shall immediately disclose to IPCI full and
complete details if they are in or they could reasonably be perceived to be in a
conflict of interest position. After a review, IPC’s compliance department will
assist the representative in determining what disclosure if any is required to the
clients and the regulators. Any disclosure to clients of a conflict or potential
conflict must be made in writing prior to proceeding with a proposed transaction
giving rise to the conflict or proposed conflict.

No agent or employee of IPCI shall profit or gain, or shall be perceived to profit
or gain, other an through business processed through IPC, or through business
specifically disclosed to clients and IPCI in writing as not through IPC. Any
business activities outside of IPCI and the related written disclosures must be
approved by IPCI prior to conducting such activity. Referral arrangements for
securities related business can only be through the dealer, as described in the
section on referrals.

***

Personal Financial Dealings with Clients

In addition to the general conflict of interest requirements described above, the
following provides further clarification regarding specific situations involving
personal financial dealings with IPCI clients.

Borrowing from Clients

IPCI does not permit representatives to borrow from clients as this activity would
create a significant and direct conflict that is virtually impossible to resolve in an
acceptable manner.
(Emphasis Added).

15.
The Respondent’s activities as alleged in Allegation #1 constituted a breach of
IPC’s policies and procedures in respect of conflicts of interests and borrowing from
clients, in so far as he borrowed monies from at least Clients #1 and #2 while he was
registered with IPC.

16.
By failing to comply with IPC’s policies and procedures, the Respondent engaged
in conduct contrary to MFDA Rules 1.1.2 and 2.5.1, and MFDA Rule 2.1.1.

Allegation #3 – Misleading the Member

17.
The Respondent completed IPC’s Approved Persons Questionnaire on October
21, 2008, and responded in the negative to the following two questions:

1)
“Have you ever borrowed money or lent money to a client for any
purpose?”
and

2)
“Do you ever borrow money/securities from or lend money/securities to
clients.”

Page 6 of 26

18.
The Respondent resigned from IPC effective December 12, 2008. Thereafter IPC
determined, through conversations directly with clients, that the Respondent had
borrowed monies from at least Clients #1 to #5, as described above.

19.
The Respondent misled IPC by representing that he had not borrowed money
from clients when he knew that to be an incorrect response at the time and in the
circumstances when he made it in respect of at least Clients #1 and #2. In so doing, the
Respondent interfered with IPC’s ability to conduct a reasonable supervisory
investigation of the Respondent’s activities and failed to observe high standards of ethics
and conduct in the transaction of business, contrary to MFDA Rules 1.1.2 and 2.5.1, and
MFDA Rule 2.1.1.

Allegation #4 – Failure to Cooperate

20.
In February, 2009, the MFDA commenced an investigation of the Respondent’s
activities.

21.
By letter dated February 27, 2009, sent by registered and regular mail, MFDA
Staff requested that the Respondent provide certain documents, information, and a
written statement related to the investigation that MFDA Staff was conducting with
respect to complaints received by IPC concerning the Respondent’s personal financial
dealings with clients. MFDA Staff requested that the Respondent provide a response to
its request by March 19, 2009.

22.
MFDA Staff did not receive a response to its February 27, 2009 letter, and left
voicemail messages for the Respondent on March 24 and 27, and on April 28, 2009,
seeking a further response from the Respondent.

23.
MFDA Staff received no response from the Respondent, and by letter dated May
6, 2009 sent by registered and regular mail, MFDA Staff made a further request of the
Respondent to deliver the documents and information by May 20, 2009, failing which the
matter would be referred for possible commencement of MFDA disciplinary proceedings
against the Respondent for failing to cooperate.

24.
MFDA Staff received no response from the Respondent, and by letter dated June
8, 2009 sent by registered and regular mail, MFDA Staff wrote the Respondent advising
him that this matter had been escalated to MFDA Investigations.

25.
By letter dated August 6, 2009, sent by registered mail, MFDA Staff wrote to the
Respondent again and advised him of his obligation to respond to the MFDA, and
requested that he provide documents to assist in the investigation no later than August 24,
2009. MFDA Staff also requested that the Respondent contact Staff to arrange for an
interview, and that if he failed to satisfy the request for documents or attend for an
examination, that authorization would be sought to commence enforcement proceedings
against him due to his failure to cooperate.

26.
By letter dated September 16, 2009, sent by registered and regular mail, MFDA
Staff again wrote the Respondent and advised him of his obligation to respond to the
MFDA and requested that he provide documents to assist in the investigation no later
than September 30, 2009. MFDA Staff also requested that the Respondent contact Staff
Page 7 of 26

to arrange an interview, and again advised him that, should he fail to provide the
requested documents or fail to attend for an examination, that authorization would be
sought to commence enforcement proceedings against him due to his failure to cooperate.

27.
By letter dated September 29, 2009, MFDA Staff wrote to the Respondent again
and advised him of his obligation to respond to the MFDA and requested that he
immediately provide the documents to assist in the investigation. MFDA Staff also
requested that the Respondent contact Staff to arrange for an interview and again advised
him that, should he fail to provide the requested documents or fail to attend for an
examination, that authorization would be sought to commence enforcement proceedings
against him due to his failure to cooperate. The letter was personally served on the
Respondent on October 5, 2009.

28.
The Respondent has failed or refused to deliver any documents, information, and
a written statement, and has not contacted MFDA Staff to attend an interview.

29.
As a result of the Respondent’s conduct, MFDA Staff have been unable to
determine the full nature and extent of the Respondent’s activities as described
Allegations #1, #2, and #3 above.

30.
By virtue of the foregoing conduct, the Respondent has failed to cooperate with
an MFDA investigation, contrary to s.22.1 of MFDA By-Law No. 1.

9.
Notwithstanding that the Panel accepted as proven the facts and violations alleged by the
MFDA in the Notice of Hearing, counsel adduced evidence, both through witnesses and
affidavits, to prove the violations alleged in the Notice of Hearing. The Panel received the
evidence of Mr. Ian R. Smith (who was present), a senior investigator in the Enforcement
Department of the MFDA. Mr. Smith has extensive experience, and conducted the investigation
into the business conduct of the Respondent arising from allegations that the Respondent
borrowed monies from clients of IPC Investment Corporation (“IPC”). Mr. Smith’s affidavit
(Exhibit 7) was 38 paragraphs and 21 documentary exhibits.

10.
Counsel also submitted the affidavit of Susan Lynn Schulze, currently the Vice-President,
Regulatory Affairs, Chief Anti-Money Laundering Officer and Chief Privacy Officer of IPC, a
member of the MFDA. Ms. Schulze was also the Branch Manager for the Respondent from
September, 2006 until his resignation from IPC in December, 2008. Ms. Schulze’s affidavit was
46 paragraphs, and contained 15 documentary exhibits.

11.
Counsel also submitted the affidavit of service of Bailiff Trina Powers (Exhibit 8)
confirming service of the letter of September 29, 2009 from the MFDA.

Page 8 of 26

12.
The Panel having considered the evidence adduced, found that the Association had
proven the facts and violations alleged in the Notice of Hearing.

13.
In the course of his investigation, Mr. Smith was provided information with respect to the
Respondent’s bankruptcy. According to the evidence, on or about September 23, 2011, the
Respondent gave Notice of Intention to make a Proposal, which proposal was Exhibit 20 to Mr.
Smith’s affidavit. In March, 2012, Mr. Smith conducted an electronic search of the records of the
office of the Superintendent of Bankruptcy, and that search disclosed that the Respondent is
bankrupt; the Respondent’s total declared liabilities are $1.9 million dollars, and declared assets
are approximately $500,000; an Estate Trustee has been appointed.

14.
The Panel having concluded that the facts and violations alleged in the Notice of Hearing
had been proved, not only pursuant to Rule 7, but by the evidence adduced, the Panel proceeded
to hear submissions as to penalty. The Panel then made an order with respect to penalty, with
reasons to follow. These are the Reasons.

Analysis

Re: Allegation #1 – Conflict of Interest

15.
From the evidence adduced, and the Respondent’s admissions, it is clear that the
Respondent borrowed money from at least two clients, (and probably more). The Respondent
therefore acted contrary to MFDA Rules 2.1.4 and 2.1.1. They state:

MFDA Rule 2.1.4

“2.1.4 Conflicts of Interest

(a)
Each Member and Approved Person shall be aware of the possibility of
conflicts of interest arising between the interests of the Member or
Approved Person and the interests of the client. Where an Approved
Person becomes aware of any conflict or potential conflict of interest, the
Approved Person shall immediately disclose such conflict or potential
conflict of interest to the Member.

(b)
In the event that such a conflict or potential conflict of interest arises, the
Member and the Approved Person shall ensure that it is addressed by the
Page 9 of 26

exercise of responsible business judgment influenced only by the best
interests of the client and in compliance with Rules 2.1.4(c) and (d).

(c)
Any conflict or potential conflict of interest that arises as referred to in
Rule 2.1.4(a) shall be immediately disclosed in writing to the client by the
Member, or by the Approved Person as the Member directs, prior to the
Member or Approved Person proceeding with the proposed transaction
giving rise to the conflict or potential conflict of interest.”

MFDA Rule 2.1.1

“2.1.1 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 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.”

16.
As can be seen, the conflict of interest rule requires an Approved Person, like the
Respondent, to be alert to the creation of potential or actual conflicts of interest arising in
connection with their business, and if such a potential or actual conflict of interest arises, it must
immediately be disclosed in writing to the client in advance of the transaction. The Approved
Person is required to have the potential or actual conflict of interest addressed by the exercise of
reasonable judgment influenced only by the best interests of the client.

17.
Where an Approved Person borrows money from a client, or arranges investments by
clients in companies in which the Approved Person has a personal interest, such conduct
immediately raises a significant actual conflict of interest, a conflict that in most if not all cases
will be impossible to resolve in favour of the client. It is patently obvious that facilitating
investments by a client in your company, or borrowing money from a client is not the exercise of
responsible business judgment in the best interests of the client.

Page 10 of 26

18.
Staff referred the Panel to Member Regulation Notice MR-0047, released October 3,
2005, which provides guidance on the topic of personal financial dealing with clients. In respect
of borrowing from clients it provides:

“a) Borrowing from Clients

Borrowing from a client by either the Member or Approved Person raises a significant and
direct conflict that in almost all cases will be impossible to resolve in favour of the client.
While such activity is not explicitly prohibited under MFDA Rules, MFDA staff are unaware
of any circumstances where Members or Approved Persons proposing to enter into any such
arrangements would be able to demonstrate that the conflict has been properly dealt with.”

In this case, the Respondent had been an Approved Person since July 2, 2001. We are satisfied
that the Respondent well knew that borrowing money from a client, or facilitating investments
by a client in his company was an actual, significant conflict of interest. In our view the
Respondent choose to ignore that conflict of interest in pursuing his own personal business
interests.

19.
MFDA Counsel referred us to 7 cases where Hearing Panels have found that where an
Approved Person borrows monies from Member clients, that such conduct amounts to personal
financial dealings and a conflict of interest, contrary to MFDA Rules 2.1.4 and 2.1.1. The cases
cited are:

In the Matter of Gideon Stephen Mills Wiseman, [2011] Hearing Panel of the Pacific
Regional Council, MFDA File No. 201104, Hearing Panel Decision dated October
17, 2011;
In the Matter of Raymond Brown-John, [2005] Hearing Panel of the Pacific Regional
Council, MFDA File No. 200502, Hearing Panel Decision dated June 27, 2005;
In the Matter of Glenn Murray Greyeyes, [2006] Hearing Panel of the Prairie
Regional Council, MFDA File No. 200510, Hearing Panel Decision dated June 5,
2006;
In the Matter of Christopher Philip Jones, [2011] Hearing Panel of the Central
Regional Council, MFDA File No. 201008, Hearing Panel Decision dated February 7,
2011;
Page 11 of 26

In the Matter of Ronald Freynet, [2007] Hearing Panel of the Prairie Regional
Council, MFDA File No. 200704, Hearing Panel Decision dated August 14, 2007;
In the Matter of Arnold Tonnies, [2005] Hearing Panel of the Prairie Regional
Council, MFDA File No. 200503, Hearing Panel Decision dated June 27, 2005;
In the Matter of Marlene Legare, [2010] Hearing Panel of the Pacific Regional
Council, MFDA File No. 200813, Hearing Panel Decision dated October 29, 2010
(Misconduct); and Hearing Panel Decision dated June 10, 2011 (Penalty).

20.
In the present case it is clear that the Respondent borrowed $50,000 from IPC Client #1
through his numbered company. The loan was evidenced by a Promissory Note, and the
Promissory Note states that the Respondent personally guaranteed the loan. The evidence
establishes the Respondent has not paid back a majority of the monies to Client #1, and there is
no reasonable prospect of the Respondent repaying Client #1.

21.
The Respondent also borrowed $6,300 from IPC Client #2 through his company and
there was a Promissory Note and a repayment schedule. The loan was “secured” by personal
guarantees. Client #2 has reported that the Respondent has repaid the amounts owing pursuant to
the loan.

22.
Clients 3, 4, and 5 reported that the Respondent borrowed monies from them; however,
the clients did not provide details of the loans. We note that Allegation #1 in the Notice of
Hearing is confined to Clients #1 and 2.

23.
It is clear on the evidence that the Respondent did not disclose to, or seek approval from
IPC to borrow monies from IPC clients. Further, IPC was not aware that the Respondent was
borrowing monies from IPC clients. The full nature and extent of the Respondent’s personal
financial dealings with IPC clients is not known because the Respondent failed to cooperate with
the investigations of both IPC and MFDA Staff.

Re: Allegation #2 – Policies and Procedures

24.
It is fundamental to this industry that each Approved Person who conducts or participates
in any securities related business in respect of a Member must comply with the By-laws and
Page 12 of 26

Rules as they relate to the Approved Person. This requirement ensures the effectiveness of the
compliance and supervision process. Failure to comply with the policies and procedures of the
Member constitutes a breach of the standard of conduct, and is inconsistent with the high
standards of ethics and conduct in the transaction of business that is expected of Approved
Persons.

25.
In this case, IPC policies and procedures pertaining to conflicts of interest and, in
particular, the prohibition against borrowing from clients, were set out in various forms including
IPC written policies and procedures, compliance bulletins, and representative questionnaires.
IPC policies and procedures require IPC’s Approved Persons, including the Respondent:

(i)
Not to permit their private interest to conflict with the proper discharge of their
duties;
(ii) To immediately disclose to IPC full and complete details if they are in, or could
reasonably be perceived to be in a conflict of interest position;
(iii) After a review by IPC Compliance Department, the Department will assist the
Approved Person in determining any appropriate disclosure to the client and the
regulators;
(iv) That any disclosure to clients must be made in writing prior to proceeding with the
proposed transaction;
(v) That Approved Persons shall not be perceived to profit or gain from business
activities not processed through IPC, or through business activities not disclosed to
clients and IPC in writing;
(vi) That any business activity outside of IPC must be approved by IPC prior to
conducting such activity; and
(vii) That IPC does not permit representatives to borrow from clients as this activity
would create a significant and direct conflict of interest that is virtually impossible
to resolve in an acceptable manner.

26.
In our view given the Respondent’s experience in the securities industry, he would know
that borrowing from clients was contrary to IPC’s policies and procedures. Notwithstanding this
he borrowed monies from at least two clients.

Page 13 of 26

Re: Allegation #3 – Misleading the Member

27.
The policies and procedures established by Members are based upon the assumed honesty
and candour of the Approved Persons employed by the Member. Most if not all Member firms
have procedures in place whereby Approved Persons are required to confirm, in writing,
compliance with various rules and procedures.

28.
On October 21, 2008 the Respondent completed IPC’s Representative Questionnaire, and
denied that he had ever borrowed money or lent money to a client, denied that he had ever
borrowed monies/securities from or lent monies/securities to a client. Clearly the Respondent
mislead IPC by representing that he had not borrowed money from clients when he knew that to
be a deceitful and incorrect response at the time and in the circumstances.

29.
These answers misled IPC, and as a result, IPC was not alerted, and was not able to
conduct a supervisory investigation of the Respondents activities.

30.
We find that the Respondent’s conduct violated the required standard of conduct
corresponding to factors that constitute MFDA Rule 2.1.1:

• unfair, dishonest, and not in good faith;
• unethical;
• unbecoming; and
• detrimental to the public interest.

31.
An Approved Person misleading his or her Member is very serious misconduct. MFDA
Hearing Panels have consistently stated that the Rule encompasses “the most fundamental
obligations of all registrants in the securities industry” see:

(1) Rule 2.1.1 of the MFDA Rules;
(2) In the Matter of Kenneth Roy Breckenridge, [2007] Hearing Panel of the Ontario
Regional Council, MFDA File No. 200718, Hearing Panel Decision dated November
14, 2007 at pages 19 – 20;
(3) Wiseman, supra., at page 3;
Page 14 of 26

(4) In the Matter of David MacIver Potter, [2011] Hearing Panel of the Central Regional
Council, MFDA File No. 201038, Hearing Panel Decision dated January 24, 2012 at
pages 5 and 10.

32.
In Breckenridge, the Panel stated:

“MFDA Rule 2.1.1 sets out the standard of conduct expected of Approved
Persons. The Rule is designed to protect the public interest by requiring
Approved Persons to adhere to a high standard of ethical conduct. The Rule
articulates the most fundamental obligations of all registrants in the securities
industry.

It is clear that, by actively concealing from FundEX the business activity he was
engaging in outside the accounts and facilities of FundEX, the Respondent failed
to observe high standards of ethics and conduct in the transaction of business and
also failed to refrain from engaging in business conduct or practice which was
unbecoming or detrimental to the public interest….”.

(page 20).

33.
The conduct of the Respondent in this case is exactly as described by the Panel in
Breckenridge.

Re: Allegation #4 – Failure to Cooperate with MFDA Staff

34.
MFDA Staff has a duty to conduct examinations and investigations of a Member,
Approved Person, and any other person under its jurisdiction, as it considers necessary or
desirable, in connection with any matter related to that Member’s or person’s compliance with,
among other things, the By-laws, Rules and Policies of the MFDA (Section 21 of MFDA By-
Law No. 1). In carrying out this duty, the MFDA is authorized to require the persons under its
jurisdiction, including an Approved Person, to:

• submit a report in writing with regard to any matter involved in any such
investigation;
• produce for inspection and provide copies of the books, records and accounts of such
person relevant to the matters being investigated; and
attend to give information respecting any such matters.
(Section 22.1 of the MFDA By-Law No. 1).
Page 15 of 26


35.
MFDA Hearing Panels have consistently found that a failure by an Approved Person to
cooperate with an MFDA investigation by failing to provide information, documents, a written
report, or attended an interview when requested to do so, is serious misconduct, and constitutes
a failure to cooperate contrary to Section 22.1 of MFDA By-Law No. 1, see:

(1)
In the Matter of Kevin Desbois, [2010] Hearing Panel of the Central Regional
Council, MFDA File No. 200822, Hearing Panel Decision dated March 16, 2010;
(2)
In the Matter of Robert Brick, [2007] Hearing Panel of the Ontario Regional
Council, MFDA File No. 200705, Hearing Panel Decision dated October 29,
2007;
(3)
In the Matter of Arnold Tonnies, [2005] Hearing Panel of the Prairie Regional
Council, MFDA File No. 200503, Hearing Panel Decision dated June 27, 2005;
(4)
Wiseman, supra. at pages 3-4.

36.
It is trite law, cited by a number of MFDA Hearing Panels, that every professional has an
obligation to cooperate with his self-governing body. (Tonnies, supra. at pages 19-20).

37.
It is clear on the evidence before this Panel that despite repeated requests from Staff, the
Respondent failed and refused to attend for an interview to provide information relevant to
Staff’s investigation into his misconduct, or to deliver requested documents, or a written
statement. The obvious result of such refusal is a subversion of the ability of Staff to perform its
regulatory function by fully investigating a matter, and determining all of the relevant facts, and
the full extent and implications of the underlying events. Thus the failure to attend for an
interview, or provide information requested in an investigation undermines the integrity of the
self-regulatory system and the effectiveness of its operation.

38.
In this case the Respondent’s failure or refusal to comply with Staff’s requests meant
Staff were unable to determine the full nature and extent of the Respondent’s involvement in the
activities described in Allegations #1, #2 and #3 in the Notice of Hearing. The extent of the
Respondent’s borrowings, or financing activities with his clients, has not been disclosed.

Summary
Page 16 of 26


39.
This Panel finds that the Respondent engaged in the misconduct, and violated the MFDA
Rules and By-laws as set out in Allegations #1 to #4 in the Notice of Hearing.

Penalty

40.
Following the conclusion of the submissions with respect to the evidence regarding
Allegations #1 to #4, MFDA counsel made submissions on penalty. The proposed sanctions
against the Respondent were:

• a permanent prohibition from conducting securities related business in any capacity
while in the employ of or associated with any MFDA Members;
• a total fine in the range of $150,000; and
• costs of $15,000.

41.
MFDA Panels have held that when determining the appropriate sanctions to impose,
Hearing Panels should consider:

• the protection of the investing public;
• the integrity of the securities market;
• specific and general deterrents;
• the protection of the governing body’s membership; and
• the protection and integrity of the governing body’s enforcement processes.
(see for example: Tonnies, supra. at page 22).

42.
MFDA counsel submitted, and we agree, the factors that Hearing Panels frequently
consider when determining whether a penalty is appropriate include the following:

• The seriousness of the allegations proved against the Respondent;
• The Respondent’s past conduct, including prior sanctions;
• The Respondent’s experience and level of activity in the capital markets;
• Whether the Respondent recognizes the seriousness of the improper activity;
• The harm suffered by investors as a result of the Respondent’s activities;
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• The benefits received by the Respondent as a result of the improper activity;
• The risk to investors and the capital markets in the jurisdiction, were the Respondent
to continue to operate in capital markets in the jurisdiction;
• The damage caused to the integrity of the capital markets in the jurisdiction by the
Respondent’s improper activities;
• The need to deter not only those involved in the case being considered, but also any
others who participate in the capital markets, from engaging in similar improper
activity;
• The need to alert others to the consequences of inappropriate activities to those who
are permitted to participate in the capital markets; and
• Previous decisions made in similar circumstances.

43.
We were also referred to the MFDA Penalty Guidelines, which are intended to assist
Hearing Panels and others in considering the appropriate penalties in MFDA disciplinary
proceedings. It is clear that the range provided is a guideline only and is not binding on a
Hearing Panel.

44.
The MFDA Penalty Guidelines recommend the following penalties for the misconduct
alleged in this matter:

• Personal financial dealings: minimum fine of $10,000, write or rewrite an
appropriate industry course; period of increased supervision for 12 to 24 months;
suspension; permanent prohibition in egregious cases;
• Policies and procedures: minimum fine of $10,000; write or rewrite an appropriate
industry course; period of increased supervision; suspension; and permanent
prohibition;
• Standard of conduct: minimum fine of $5,000; write or rewrite an appropriate
industry course; period of increased supervision; suspension; permanent prohibition;
and
• Failure to cooperate: a minimum fine of $50,000; and the termination of the Member
or a permanent prohibition of an Approved Person.

Page 18 of 26

45.
Staff submitted, and we agree, the Respondent’s actions as reflected in this matter are a
very serious case of Approved Person misconduct. The misconduct was not isolated; monies are
outstanding; and given the Respondent’s bankruptcy, it is unlikely that any monies owed will be
repaid.

46.
In our view the Respondent’s misconduct is egregious in that the Respondent misled IPC
as to his borrowing monies from clients, and he then refused to cooperate with IPC’s and Staff’s
investigations. The Respondent’s failure to cooperate demonstrates his unwillingness to comply
with not only the Member’s policies and procedures, but the regulation of his industry by the
Association; all of which he agreed to uphold and comply with when he joined.

47.
It is also clear on the evidence that there has been harm to clients in that at least $50,000
of client monies remains outstanding, and likely will not be repaid. However, due to the
Respondent’s failure to cooperate, Staff were unable to determine details of other clients’
financings or losses.

48.
The Respondent did not cooperate with Staff in its investigation, nor did the Respondent
attend the hearing on the merits. Thus we can only conclude that the Respondent has not
accepted any responsibility for his conduct, nor has he shown any remorse. Similarly, we do not
know the extent of any benefits received by the Respondent as a result of his misconduct.

49.
MFDA counsel submitted, and we agree, that although the Respondent has no past
disciplinary history with the MFDA, this should be given very little weight in light of the serious
nature of his misconduct as proven in this case.

50.
MFDA counsel referred us to 10 MFDA cases where Hearing Panels have imposed
similar sanctions to those sought in the present case in cases where there was similar
contraventions of MFDA Rules and By-laws. We are satisfied that the penalties sought were
within the guidelines, and within the range according to prior decisions.

51.
As we have already stated, the failure to cooperate is very serious misconduct, as is
borrowing from clients, and deceitfully misleading the Respondent’s Member firm. The penalty
guidelines, under failure to cooperate, suggest a minimum fine of $50,000. In Wiseman (supra.)
Page 19 of 26

the fine set by the Panel was $150,000. In Tonnies (supra.) three fines were assessed in respect
of the 3 allegations, the fines totalled $350,000.

52.
It is the view of this Panel that on the facts of this case, the Respondent has committed
very serious misconduct. It is conduct that was egregious, and reprehensible. It is our view that
a substantial fine is called for.

53.
As to costs, Staff requested an Order for Costs against the Respondent for the
investigation, the two significant preliminary motions brought by the Respondent in this matter,
and the Hearing on the merits. The awarding of costs on the motions was put over to this
Hearing on the merits. Staff requested costs in the amount of $15,000, which is far less than the
amount actually incurred in prosecuting this matter. In the view of this Panel an award of costs
is appropriate, and $15,000 is reasonable.

Decision as to Penalty

54.
Having found that the 4 allegations set out in the Notice of Hearing have been proved, we
order:

(1)
A permanent prohibition of the Respondent from conducting securities business in
any capacity while in the employ of or associated with any MFDA Member;
(2)
A fine in the amount of $50,000 with respect to Allegation #1;
(3)
A fine in the amount of $50,000 with respect to Allegation #2;
(4)
A fine in the amount of $50,000 in relation to Allegation #3;
(5)
A fine in the amount of $100,000 in relation to Allegation #4; and
(6)
Costs in the amount of $15,000.

Failure of the Respondent to Provide Full Particulars as Ordered

55.
By Order dated July 4, 2011 (the “July 4th Order”) the Panel not only dismissed two
complex motions brought by the Respondent, but also ordered the Respondent to provide full
particulars to MFDA Staff in respect of his Reply, such particulars to be delivered no later than
July 29, 2011. The Respondent did not provide the particulars as ordered, or at all. The
Page 20 of 26

Respondent provided no explanation to the Panel, or to Staff. Respondent’s counsel withdrew
from the record.

56.
As described earlier, this matter proceeded on the merits as scheduled on March 8, 2012
and the Respondent did not attend. The Panel requested submissions from MFDA counsel on the
issue of the Respondent’s failure to comply with the terms of the July 4th Order in respect of
delivery of particulars. We have now received written submissions from counsel.

57.
Staff points out that the July 4th Order ordering delivery of particulars of the
Respondent’s Reply was a preliminary order. The particulars order was in reference to the
Respondent’s Reply, and specifically the Respondent’s assertion that there had been disclosure
to IPC, and they were aware of his borrowing activity; and that he complied with IPC’s policies
and procedures. It was the Panel’s view that the Respondent’s Reply was not in compliance with
the Rules. The order required the Respondent to provide the particulars no later than July 29,
2011.

MFDA Rules of Procedure

58.
The MFDA’s Rules of Procedure (the “Rules”) do not contain a specific provision
addressing the situation where a party does not comply with the terms of a preliminary order.
This is something that in our view the Association should address.

59.
Pursuant to Rule 1.5, the Hearing Panel’s General Powers, a Panel can “…issue
directions or make interim orders concerning the practice or procedure to be followed during a
proceeding, on such terms as it considers appropriate.” (Rule 1.5(1)c. Further, Rule 1.3 sets
forth General Principles with respect to the Rules:

“(1)
These Rules shall be liberally construed to secure the most expeditious
and cost-effective determination of every proceeding on its merits consistent with
the requirements of fairness.

(2)
Where matters are not provided for in these Rules, the practice may be
determined by an analogy to them.”
Page 21 of 26


60.
In this case the Panel, having reviewed the Respondent’s (Amended) Reply, were of the
view that the Reply was non-compliant with the Rules, and that directions were appropriate, and
would likely expedite the issues, and the hearing, and thus be cost effective. No submissions
were received from the Respondent objecting to the order for directions. The Order is attached as
Appendix A to these Reasons.

61.
MFDA counsel submits, and we agree, that in view of the fact that the Respondent did
not comply with the order and deliver the particulars, Rule 8.4 provides a means for a Hearing
Panel to exercise its discretion where the Respondent fails to deliver a proper Reply. Rule 8.4
states:

8.4 Effect of Failure to Deliver a Proper Reply

(1) Where a Respondent fails to serve and file a Reply in accordance with the
requirements of Rules 8.1 and 8.2, the Hearing Panel may do any one or more of
the following:

(a) proceed with the hearing without further notice to and in the absence of the
Respondent;

(b) 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;

(c) order that the Respondent pay costs, at any stage of the proceedings,
regardless of the outcome of the proceeding and in addition to any other penalties
and costs imposed on the Respondent, in an amount which reflects the extent to
which, in the Hearing Panel’s discretion, the hearing will be or has been
unnecessarily prolonged or complicated by the failure of the Respondent to
deliver a proper Reply;
(d) prohibit, restrict, or place terms on the right of the Respondent to call
witnesses or present evidence at the hearing.

(Emphasis Added).

62.
MFDA Staff submits that had the Respondent participated in the hearing on the merits,
and sought to lead evidence, Staff would have sought appropriate restrictions on the
Respondent’s ability to present evidence bearing on the matters for which the particulars were
ordered pursuant to Rule 8.4(d).

Page 22 of 26

63.
Counsel also points out that pursuant to Rule 8.4(b) the Panel could have accepted the
facts alleged and conclusions drawn in the Notice of Hearing as proven and imposed penalties
just as we did pursuant to Rule 7.3.

Analysis

64.
In our view, where a Hearing Panel makes an interim order issuing directions, and there
is no objection from the Respondent, but there is then complete non-compliance by the
Respondent, there should be a penalty. By analogy to the Rules of Court in various jurisdictions
in Canada, the failure to obey an order of the court may result, for example, in a defendant’s
defence being struck. The analogy here would be for MFDA Staff to make an application, on the
Respondent’s non-compliance, to have the Respondent’s Reply struck and proceed pursuant to
the Rules.

65.
Alternatively, had the Respondent appeared at the hearing on the merits, and not provided
substantial grounds for the non-compliance with the order for particulars, in our view it would be
appropriate to make an order prohibiting the Respondent from calling witnesses or presenting
evidence at the hearing.

66.
These Reasons may be signed in counterpart.

DATED this 28th day of May, 2012.

“Stephen Gill”
Stephen D. Gill,

Chair

“Sharon Moskalyk”
Sharon Moskalyk,

Industry Representative

“Cecilia Wong”
Cecilia Wong,

Industry Representative

Doc 300624
Page 23 of 26


Appendix ‘A’
Order

File No. 201030





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: Conrad Arthur Nunweiler



ORDER


WHEREAS on October 5, 2010, the Mutual Fund Dealers Association of Canada (the
“MFDA”) issued a Notice of Hearing pursuant to sections 20 and 24 of MFDA By-law No. 1 in
respect of a disciplinary proceeding commenced against Conrad Arthur Nunweiler (the
“Respondent”);

AND WHEREAS the Respondent brought two motions (the “Motions”) which were
heard by the Hearing Panel on May 25, 2011 in Vancouver, British Columbia as follows: (i) a
motion for a finding of a reasonable apprehension of bias on the part of the Hearing Panel; and
(ii) a motion to obtain an order pursuant to sections 20.6.2 and 20.6.3 of MFDA By-law No. 1
that certain persons attend before it at a proceeding to give information and produce for
inspection books, records, and accounts relevant to the matters being considered;

AND WHEREAS upon hearing the submissions of the agent of the Respondent and
counsel for MFDA Staff;


IT IS HEREBY ORDERED THAT:
Page 24 of 26


1. The Motions are dismissed;
2. Costs in relation to the Motions may be spoken to at the conclusion of the hearing of
this matter on the merits; and
3. The Respondent shall provide full particulars to MFDA Staff in respect of his Reply
(Exhibit 5) no later than July 29, 2011, as follows:

a) in respect of paragraph 2 of the Denials section of the Reply, the Respondent
shall provide full particulars of the basis for the assertion: “that IPC knew
about the $50,000 loan from Client #1 and the $6,300 loan from Client #2.”
Without restricting the generality of the foregoing, the particulars shall
include the facts in support of this paragraph, including matters such as the
date or dates of disclosure; whether the disclosure was verbal, in writing, by
email, etc.; the names of the persons to whom disclosure was made; and who
at IPC knew of the loans, and how they knew; etc.;
b) in respect of paragraph 3 of the Denials section of the Reply, the Respondent
shall provide full particulars of paragraph 3(b): the Respondent “has addressed
any actual or potential conflict of interest through his disclosure of loans to
IPC.” Without restricting the generality of the foregoing, the Respondent shall
provide the date or dates upon which disclosure was made; the manner in
which disclosure was made, whether the disclosure was verbal, in writing, by
email, etc.; the names of the persons to whom disclosure was made; by whom
the disclosure was made; and full particulars of what was disclosed; etc.;
c) in respect of paragraphs 4(b) and (c) of the Denials section of the Reply, the
Respondent shall provide full particulars of the statements: “made disclosures
to IPC in respect of the loans as required;” and “processed the business (i.e.
the loans) through IPC as required”. Without restricting the generality of the
foregoing, the Respondent shall provide the date or dates upon which
disclosure was made; the manner in which disclosure was made; the names of
the persons to whom disclosure was made; whether particulars of the clients
from whom the loans were obtained was given; etc. Further, the Respondent
shall provide the particulars of how the business was processed; who did the
processing; who received the processing; the dates or dates upon which the
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business was processed; the manner in which it was processed; etc. With
respect to the statement: “through IPC as required”, the Respondent shall
provide full particulars of the material facts demonstrating that the processing
was as required by IPC; and
d) in respect of paragraph 5 of the Denials section of the Reply, the Respondent
shall provide full particulars of how the Respondent: “complied with IPC’s
policies and procedures” in respect of Clients #1 and #2. Without restricting
the generality of the foregoing, the Respondent shall provide a description of
the specific policies and procedures that were complied with; how they were
complied with; who provided the compliance from the Respondent; and who
received the compliance at IPC; etc.

DATED this 4th day of July, 2011.

“Stephen Gill”
Stephen D. Gill,

Chair

“Sharon Moskalyk”
Sharon Moskalyk,

Industry Representative

“Cecilia Wong”
Cecilia Wong,
Industry Representative

Doc 283856
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