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Reasons For Decision

Re:

Reasons For Decision

Reasons for Decision
File No. 201324



IN THE MATTER OF A SETTLEMENT HEARING
PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA


Re: Don Everett Andrews


Heard: April 8, 2014, in Toronto, Ontario
Reasons for Decision: May 6, 2014

REASONS FOR DECISION

Hearing Panel of the Central Regional Council:

Mark J. Sandler
Chair

Cheryl Hamilton
Industry Representative

Brian Nowak
Industry Representative

Appearances:

Francis Roy
)
Enforcement Counsel, Mutual Fund Dealers

)
Association of Canada
)

Don Everett Andrews
)
In Person
)

)

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Introduction

1.
Further to the Notice of Hearing issued on June 11, 2013, on April 4, 2014, the Mutual
Fund Dealers Association of Canada (the “MFDA”) issued a news release providing notice of a
settlement hearing in respect of Don Everett Andrews (the “Respondent”). In the circumstances,
and with the agreement of the parties, the Hearing Panel accepted that the requirements of
section 24.4.3 of MFDA By-law No. 1 and Rule 15.2 of the MFDA Rules of Procedure with
respect to notice of the settlement hearing had been met.

2.
The Respondent entered into a Settlement Agreement with MFDA Staff (“Staff”), dated
April 4, 2014, in which the Respondent agreed to a proposed settlement of matters for which he
could be disciplined pursuant to ss. 20 and 24.1 of By-law No. 1.

3.
On April 8, 2014, after hearing submissions from MFDA Staff and the Respondent, who
was self-represented, we approved the Settlement Agreement, and signed an Order to that effect.
These are our written reasons for doing so.

Agreed Facts

Registration History

4.
From June 2006 to December 31, 2009, the Respondent was registered in Ontario as a
mutual fund salesperson with Sun Life Financial Investment Services (Canada) Inc. (“Sun Life”),
a member of the MFDA. He is not currently registered in the securities industry in any capacity.

Universal Settlements International Inc.

5.
At all material times while registered with Sun Life, the Respondent worked closely with
Jeffrey Hanford Harold Young (“Young”), who was acting as the Respondent’s branch manager
and mentor. Young and the Respondent often shared joint advisor codes and responsibilities for
servicing client accounts.

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6.
Young became involved with an Ontario corporation known as Universal Settlements
International Inc. (“USI Corp.”). USI Corp.’s business involved finding individuals to invest in
viatical settlements and American viators interested in selling their existing life insurance
policies for an agreed upon lump sum. A viatical settlement is the sale of a life insurance policy
by the policy owner to a third party for an amount greater than the current cash surrender value
of the policy but less than its net death benefit. The policy owner receives a lump sum cash
settlement at the time of sale. The third party becomes the new owner of the policy, pays the
annual premiums and is entitled to receive the net death benefit when the insured dies. In
September 2006, the Ontario Securities Commission (the “OSC”) determined that viatical
products offered by USI Corp. were investment contracts under s. 1(1) of the Ontario Securities
Act and, therefore, securities.

7.
In order to find interested investors, USI Corp. contracted with at least 1,200 independent
contractors who agreed to sell, recommend, refer or facilitate the sale of its viatical settlements to
individuals in return for a sales commission, referral fee or other form of compensation.

8.
Young became an independent contractor of USI Corp. prior to the Respondent’s
involvement.

9.
The Respondent became an independent contractor of USI Corp. in 2007 after being
introduced to the company by Young. Commencing in 2007, the Respondent worked with
Young to sell, recommend, refer or facilitate the sale of USI Corp. viatical settlements to Sun
Life clients and other individuals.

10.
The viatical settlements offered by USI Corp. were not investment products approved by
Sun Life for sale by its Approved Persons, including Young and the Respondent. The sales of
the USI Corp. viatical settlements to Sun Life clients and other individuals were not carried on
for the account or through the facilities of Sun Life.

11.
Young and the Respondent sold, recommended, referred or facilitated the sale of USI
Corp. viatical settlements to at least eight Sun Life clients and 10 other individuals.
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12.
The Respondent admits that he participated in the sale of USI Corp. viatical settlements
in the following manner:

a) Young completed contracts or subscription agreements for the purchase of USI Corp.
viatical settlements with the affected clients or individuals following which, either
Young or the clients or individuals would send the completed documents, along with
a cheque payable to USI Corp., to the Respondent;
b) The Respondent would sign the completed contracts or subscription agreements given
to him;
c) The Respondent forwarded the completed and fully executed contracts or subscription
agreements, along with client funds, to USI Corp.;
d) The Respondent then received fees or commissions from USI Corp. which he
deposited into the bank account of a company he owned and controlled known as
High Velocity Performance and Sports Ltd. (“HVPS”) (the “Commission Cheques”);
e) These commissions or fees were split equally between the Respondent and Young as
follows:
i.
50% of the commission or fee remained in HVPS’s bank account; and
ii.
50% was sent to Young, but by way of cheques made payable to Young’s
wife or daughter.

13.
The total amount of the USI Corp. viatical settlements sold by the Respondent and Young
is not known to Staff. The Respondent believes that he and Young sold, recommended, referred
or facilitated the sale of at least $880,000 USI Corp. viatical settlements between 2007 and 2008.
The Respondent states he no longer has possession of or access to the records relating to their
sales activity given that he never kept copies of the relevant documents, but delivered them to
Young and/or USI Corp. Staff has been unable to obtain records of their sales activity through
other means.

14.
The Respondent admits that between 2007 and 2008, he and Young received referral fees
or commissions from USI Corp. totaling at least $26,400, which they shared equally.
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15.
The Respondent had previously sought and obtained approval from Sun Life to operate
HVPS, although not for the purposes described above. The Respondent had incorporated HVPS
to provide personal training and coaching services.

16.
On December 2, 2008, USI Corp. made an application to the Ontario Superior Court of
Justice to commence proceedings pursuant to the Ontario Companies’ Creditors Arrangement
Act (the “CCAA Application”). As a result of the CCAA Application, the Court made an order
granting USI Corp. protection from its creditors while it restructured its affairs. USI Corp.’s
subsequent restructuring resulted in the nominal value of the USI Corp.’s viatical settlements,
without any return on investment, being repaid in full to investors.

17.
At no time did Young and the Respondent seek or obtain approval from Sun Life to
commence or continue their involvement in USI Corp. or to sell, recommend, refer or facilitate
the sale of the USI Corp. viatical settlements to clients of Sun Life or other individuals.

18.
Sun Life did not have a referral arrangement with USI Corp. with respect to the sale or
referral of its viatical settlements.

Aslan Holding Corporation

19.
On August 13, 2008, Young’s wife, VY, and another individual, CT, incorporated Aslan
Holding Corporation (“AHC Corp.”) in Ontario. VY and CT became shareholders and directors
of AHC Corp. CT’s husband, JT, became AHC Corp.’s President and C.E.O.

20.
As of September 2008, the Respondent, Young and JT participated in AHC Corp.’s
operations as follows: they corresponded with AHC Corp.’s legal counsel and met and
corresponded with third parties with whom AHC Corp. conducted, or intended to conduct,
business; they met with potential investors (including Sun Life clients for whom Young and/or
the Respondent were the servicing mutual fund salespersons) and regularly held, attended and
participated at management meetings or other meetings where decisions about AHC Corp.’s
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affairs were discussed and made. In addition, the Respondent, Young and JT regularly discussed
AHC Corp.’s operations and exchanged emails, or otherwise held meetings, about the company.

21.
The Respondent was not a director or an officer of AHC Corp. Rather, he assisted AHC
Corp. as financial advisor or consultant, when requested by Young, JT, VY (Young’s wife) or
CT.

22.
AHC Corp. was formed with the intention to borrow monies from investors at a fixed rate
of return for the purposes of making investments in speculative ventures. In particular, AHC
Corp. intended to offer to investors principal protected notes offering a guaranteed return of
2.5% per month (the “AHC Investment”).

23.
The speculative venture investments that AHC Corp. participated in included: (1) the
purchase or viatical products offered by USI Corp. Settlements; (2) the purchase of shares in
Capital Interest LLC, a Nevada limited liability corporation; and (3) the purchase of securities
offered by a Nevada-based corporation known as Axcess Automation, LLC (“Axcess”). On May
9, 2009, the United States Securities and Exchange Commission obtained a court order halting
the operations of Axcess, alleging that commencing in February 2006, the company operated a
Ponzi scheme pursuant to which it raised $14.1 million from investors by promising weekly
returns of up to 5% from trading in futures.

24.
In or about September 2008, the Respondent became involved in AHC Corp.’s operations
including, among other matters: (1) negotiations held between AHC Corp. and other companies
in which AHC Corp. sought to invest; and (2) the sale, referral or recommendation of the AHC
Investment to Sun Life clients and other individuals.

25.
Between September 2008 and December 2008, Young and the Respondent sold,
recommended, referred or facilitated the sale of the AHC Investment totaling at least $700,000 to
at least five clients of Sun Life.

26.
For his efforts in selling, recommending, referring or facilitating the sale of the AHC
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Investment to Sun Life clients, the Respondent received fees from AHC Corp. totaling $5,000.
The $5,000 fee was paid by AHC Corp. to his wife, KA, in her capacity as an employee of
HVPS. The Respondent states that a short time after the $5,000 fee was paid by AHC Corp. to
his wife, the Respondent repaid the full amount to AHC Corp. using a credit card cheque.

27.
In or about November 2008, the Respondent sought to purchase $25,000 of the AHC
Investment. Nevertheless, the Respondent states that rather than make a payment in the amount
of US$25,000, he or his wife tendered a payment of CAD$25,000. In any event, the payment
was not made within the timelines required by AHC Corp. The Respondent states that neither he
nor his wife ever purchased US$25,000 of the AHC Investment.

28.
In addition, in or about November 2008, the Respondent and his wife were presented
with the option for his wife to purchase one third of the total outstanding shares in AHC Corp.
from CT and VY. A share purchase agreement was prepared by counsel for AHC Corp., which,
at the Respondent’s request, was then sent to the Respondent’s legal counsel.

29.
In December 2008, the Respondent’s lawyer counseled the Respondent and his wife not
to purchase shares of AHC Corp. and further counseled the Respondent to cease any and all
involvement in this venture. As such, on December 22, 2008, the Respondent sent an email to
Young and JT informing them that, on the advice of his lawyer, his wife would not purchase
AHC Corp. shares. On December 23, 2008, the Respondent sent another email to Young and JT
stating as follows:

Please be advised that this is not a resignation. We will not be proceeding in any offering
[AHC Corp.] has put forward.

All monies received from [AHC Corp.] in kind, will be paid directly back in full by year
end. No offence intended.

30.
After the United States Securities and Exchange Commission halted Axcess’s operations,
all individuals who purchased the AHC Investment, including the five clients of Sun Life, lost
the totality of their investments.

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31.
The AHC Investment was not an investment product approved by Sun Life for sale by its
Approved Persons, including the Respondent. The sales of the AHC Investment to the Sun Life
clients were not carried on for the account or through the facilities of Sun Life.

32.
At no time did Young or the Respondent seek or obtain approval from Sun Life to
commence or continue their involvement in AHC Corp. or to sell, recommend or facilitate the
sale of the AHC Investment to clients of Sun Life or other individuals.

The Respondent’s Circumstances

33.
Prior to June 2006, the Respondent had never worked in the securities industry. When he
became registered with Sun Life, he states (and it is not disputed) that he came under the tutelage
and supervision of Young. The Respondent states that, as their professional relationship grew,
so too did their personal relationship; Young, who served as a minister at the church where the
Respondent and his family attended, baptized the Respondent’s son.

34.
The Respondent states that, being new to the mutual fund industry and only having ever
been supervised by Young, he fully trusted Young. The Respondent further states that his trust
in Young also placed him in a difficult position when approached by Young to participate in
AHC Corp.

35.
On December 30, 2008, the Respondent met with a Sun Life branch manager, at which
time he reported, for the first time, that he and Young had perhaps contravened Sun Life’s
policies and procedures as a result of their involvement in AHC Corp. and their sale of USI
Corp. viatical settlements. During that December 30, 2008 meeting, the Respondent informed
the same Sun Life branch manager that commissions earned by Young for the sale of USI Corp.
viatical settlements had been processed through HVPS.

36.
On January 12, 2009, the Respondent sent a letter to the same Sun Life branch manager
reiterating the concerns he had reported on December 30, 2008.

Page 8 of 12

37.
Between January 2009 and February 2010, during Sun Life’s and the MFDA’s
subsequent investigation into Young’s and the Respondent’s activities, the Respondent admitted
to having participated in the sale of USI Corp. viatical settlements. The Respondent further
informed Sun Life that Young had approached some clients for whom Young and the
Respondent shared joint advisor codes for the purpose of soliciting their purchase of the AHC
Investment. He also informed Sun Life and the MFDA that AHC Corp. had approached the
Respondent’s wife to purchase one third of AHC Corp.’s shares, but that such offer was declined
on the advice of the Respondent’s counsel. Finally, he provided documentary evidence to Sun
Life and the MFDA, including email correspondence, outlining his and Young’s role in AHC
Corp.

38.
On December 9, 2009, counsel for the Respondent sent a letter to the Ontario Securities
Commission and the Financial Services Commission of Ontario outlining the Respondent’s
conduct, as described above. The Respondent states that he then fully cooperated with Staff
during its investigation into this matter.

39.
On December 31, 2009, the Respondent resigned from Sun Life. He has not been
registered in the securities industry in any capacity since that time.

Analysis

40.
The facts agreed upon, as set out in paras. 4 to 32, demonstrate that between 2007 and
2008, the Respondent engaged in the following misconduct:

a) By selling, referring or facilitating the sale of USI Corp. viatical settlements to at least
eight Sun Life clients and 10 other individuals in a total amount of $880,000, the
Respondent engaged in securities related business that was not carried on for the
account and through the facilities of Sun Life, contrary to MFDA Rules 1.1.1(a) and
2.1.1;
b) By selling, referring or facilitating the sale of USI Corp. viatical settlements to Sun
Life clients and other individuals, and by participating in the operation of AHC Corp.,
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the Respondent had, and continued in, another gainful occupation which was not
disclosed to and approved by Sun Life, contrary to MFDA Rules 1.2.1(d), as it then
existed, and 2.1.1; and
c) He entered into a referral arrangement with USI Corp. in respect of the sale of viatical
settlements pursuant to which, along with Young, he was paid or entitled to receive
referral fees or commissions totaling at least $13,200, contrary to MFDA Rules
2.4.2(b) and 2.1.1.

41.
The Settlement Agreement provided that the Respondent shall (a) pay a fine in the
amount of $5,000; (b) be prohibited from acting as a mutual fund salesperson for a period of
three years, commencing on the date of acceptance of the Settlement Agreement; (c) pay the
costs of this proceeding in the amount of $5,000; and (d) prior to becoming re-registered as a
mutual fund salesperson with a Member of the MFDA, complete an industry course acceptable
to Staff of the MFDA. As also agreed upon, the Respondent paid the fine and costs prior and
subject to acceptance of the Settlement Agreement.

42.
A hearing panel should not interfere lightly in a negotiated settlement. More specifically,
it should not reject a Settlement Agreement unless it views the proposed disposition as clearly
falling outside the range of reasonableness. We are satisfied that the Settlement Agreement here
advances the public interest, and is reasonable and proportionate having regard to all of the
circumstances.

43.
In so concluding, we have considering the following factors:

a) The contraventions are very serious. They exposed clients and others to significant
risk of loss, particularly given the nature of the investments and the absence of
Member due diligence and regulatory oversight of the investments. Because none of
the sales were processed for the account or through the facilities of Sun Life, they
were not subject to Sun Life’s supervision respecting the suitability of the
investments for the clients and whether the clients qualified as accredited investors
who were eligible to purchase these investments;
Page 10 of 12

b) It was only fortuitous that none of the clients and other individuals who purchased the
viatical investments offered by USI Corp. through the Respondent and Young lost
their investment. However, the clients and individuals who purchased the investment
offered by AHC Corp. substantially lost the totality of their invested funds. The
Respondent and Young sold, recommended, referred or facilitated at least $700,000
in such investments;
c) At the outset of the misconduct, the Respondent was new to the industry, and came
under the influence of Young;
d) In December 2008, the Respondent reported his and Young’s involvement in AHC
Corp. and their sale of viatical settlements to Sun Life. He also advised Sun Life that
commissions earned by Young respecting the viatical settlements had been processed
through his company, HVPS. He followed this up with a letter to Sun Life reiterating
the concerns he had earlier reported.
e) The Respondent cooperated fully with the subsequent investigations by Sun Life and
MFDA into Young’s activities and his own activities. His counsel also sent a letter to
the OSC and the Financial Services Commission of Ontario outlining the
Respondent’s conduct;
f) He has no prior disciplinary record;
g) He has not been registered in the securities industry in any capacity since December
31, 2009;
h) He has demonstrated remorse for his conduct and accepted full responsibility for his
actions;
i) He provided full payment of the agreed to fine and costs in advance of the Settlement
Hearing; and
j) He has paid a heavy financial and reputational price for his misconduct.

44.
We have considered the existing precedents on penalty, as well as the MFDA non-
binding Penalty Guidelines. We are satisfied that the proposed penalty is reasonable and
proportionate, addresses specific and general deterrence, and ultimately fosters public confidence
in the integrity of the Canadian capital markets, and the industry. It also appropriately recognizes
the important mitigating factors here, most particularly the Respondent’s role in bringing the
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misconduct to the attention of the authorities before any investigation or complaint had been
initiated against him or Young.

Order

45.
For these reasons, we have approved the Settlement Agreement and signed an Order to
that effect.

DATED this 6th day of May, 2014.

“Mark J. Sandler”

Mark J. Sandler
Chair

“Cheryl Hamilton”

Cheryl Hamilton
Industry Representative

“Brian Nowak”

Brian Nowak
Industry Representative

DM 377446 v2

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