Hearing Panel of the Central Regional Council:
- Frederick H. Webber, Chair
- Edward V. Jackson, Industry Representative
Lyla Simon, Counsel for the Mutual Fund Dealers Association of Canada
Ronald Morrell Schwartz, Respondent, not in attendance or represented by counsel
- This matter was commenced by a Notice of Hearing dated June 6, 2017 (the “NOH”). The matter was originally scheduled for a hearing on the merits on May 29-31, 2018. On March 13, 2018, Chris Kostopoulos, counsel for the Respondent, advised MFDA staff by email that the Respondent would not be responding to the MFDA allegations and that the Respondent no longer wished to be an Approved Person. Later that same day, MFDA counsel replied to Respondent counsel’s email, requesting that she be notified if anything were to change. Subsequently, the time originally scheduled for the hearing was reduced to one day, and the hearing on misconduct took place on May 29, 2018.
- The Respondent did not file a Reply to the NOH and did not appear at the hearing either in person or through counsel.
- The NOH contained the following allegations against the Respondent:
- Allegation #1: Between January 2009 and June 2015, the Respondent processed a series of unauthorized redemptions and misappropriated at least $69,035 from six clients, contrary to MFDA Rules 2.1.1 and 2.3.1;
- Allegation #2: Between January 2009 and June 2015, the Respondent created and distributed fictitious account statements, and misled clients and his Members in response to inquiries regarding his trading activities in order to conceal that he had processed unauthorized redemptions in client accounts and misappropriated client monies, contrary to MFDA Rules 2.8.2 and 2..1.1; and
- Allegation #3: Commencing on June 1, 2015, the Respondent failed to cooperate with an investigation by MFDA Staff into his conduct, contrary to section 22.1 of MFDA By-law No. 1.
- At the commencement of the hearing, MFDA counsel advised the panel that the end dates referred to in allegations 1 and 2, should be amended to October 24, 2014. This was agreed by the panel and the hearing proceeded accordingly.
- The facts relied on by the MFDA are set out in the NOH, and are summarized as follows:
- The Respondent was an experienced Approved Person (“AP”) registered in Ontario from January 2002 until his registration was terminated by his Member effective October 24, 2014.
- Starting in January 2009, and over a period of more than six years, the Respondent processed a series of unauthorized redemptions and misappropriated at least $69,035 from six clients.
- The Respondent has failed to repay or otherwise account for any of the monies he misappropriated from clients.
- At all material times, the Members’s Policies and Procedures prohibited its APs, including the Respondent, from engaging in such activities.
- As required by the Member, the Respondent completed and signed an acknowledgment confirming that he had received and read the Member’s Compliance Manual and agreed to conduct his affairs in accordance with the Member’s policies and procedures.
- Between January 2009 and October 24, 2014, the Respondent created and distributed fictitious account statements, and misled clients and his Members in response to inquiries regarding his trading activities, in order to conceal that he had processed unauthorized redemptions in client accounts and misappropriated client monies, specifically in relation to clients CH, RL, PS and CS, and Member HUB Capital.
- The Respondent failed to cooperate with an MFDA investigation into his conduct.
Failure to Reply and Attend Hearing
- Rule 7.3 of the MFDA Rules of Procedure provides that, where a Respondent fails to attend a hearing, and Rule 8.4 of the MFDA Rules of Procedure states that where a Respondent fails to serve and file a Reply as required by Rules 8.1 and 8.2, the hearing panel may:
- proceed with the hearing without further notice to and in the absence of the Respondent; and
- 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 of the MFDA By-law.
- In this case, the Respondent did not file a Reply to the NOH, did not attend the hearing and his counsel made it clear in his email of March 13, 2018, that the Respondent would not respond to the MFDA allegations and no longer wished to be an AP.
- Accordingly, this panel proceeded with the hearing on May 29, 2018 in the absence of the Respondent and the panel accepted the facts alleged and conclusions drawn by the MFDA in the NOH as amended.
MFDA Submissions and Precedents
- In her written and oral submissions, MFDA counsel presented the panel with arguments and case law precedents in support of the MFDA position that the allegations in the NOH have been proven. The panel agrees with the MFDA’s position as supported by the case law precedents.
- Accordingly, it is the panel’s decision that the MFDA has established the Respondent’s misconduct as alleged in the NOH as amended. This decision was delivered orally at the hearing on May 29, 2018.
- After delivering its decision on misconduct, the panel and MFDA counsel discussed dates for a penalty hearing. It was decided that the penalty hearing in this matter would proceed on June 22, 2018 at 10:00 a.m., and an order to that effect was subsequently signed by the panel.
Frederick H. WebberFrederick H. WebberChair
Edward V. JacksonEdward V. JacksonIndustry Representative