Reasons For Decision

Schedule “1”

Settlement Agreement
File No. 201765

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: David Graham Lillie

I. INTRODUCTION

1. Staff of the Mutual Fund Dealers Association of Canada (“Staff”) and the Respondent, David Grahame Lillie (“Respondent”), consent and agree to settlement of this matter by way of this agreement (“Settlement Agreement”).

2. Staff conducted an investigation of the Respondent’s activities which disclosed activity for which the Respondent could be penalized on the exercise of the discretion of the Hearing Panel pursuant to s. 24.1 of By-law No. 1.

II. JOINT SETTLEMENT RECOMMENDATION

3. Staff and the Respondent jointly recommend that the Hearing Panel accept the Settlement Agreement.

4. The Respondent admits to the following violations of the By-laws, Rules or Policies of the MFDA:
   1. on or about November 5, 2014, the Respondent arranged for 3 clients to complete 5 new account application forms in order to facilitate the transfer of the client accounts to a new Member, prior to being registered with the new Member, thereby engaging in registerable activity and securities related business on behalf of a Member that the Respondent was not registered with, contrary to MFDA Rules 1.1.1, 1.1.2 and 2.1.1;
   2. between November 5, 2014 and February 2016, the Respondent, obtained, possessed, and in some instances, used to process transactions, 26 pre-signed account forms in respect of 18 clients, contrary to MFDA Rule 2.1.1; and
   3. on December 5, 2014 and February 10, 2015, the Respondent falsified 2 account forms and used them to process a transaction, by altering information on the account forms without having the clients initial the alterations, contrary to MFDA Rule 2.1.1.

5. Staff and the Respondent agree and consent to the following terms of settlement:
   1. the Respondent shall pay a fine in the amount of $30,000 pursuant to s. 24.1.1.(b) of MFDA By-law No. 1;
   2. the Respondent shall pay costs in the amount of $2,500 pursuant to s. 24.2 of MFDA By-law No. 1;
   3. the Respondent shall successfully complete the Conduct and Practices Handbook course offered by the Canadian Securities Institute within 6 months of the date of the acceptance of the Settlement Agreement by the Hearing Panel, pursuant to s. 24.1.1(f) of MFDA By-law No. 1;
   4. the Respondent shall in the future comply with MFDA Rule 2.1.1; and
   5. the Respondent will attend in person, on the date set for the Settlement Hearing.

6. Staff and the Respondent agree to the settlement on the basis of the facts set out in Part III herein and consent to the making of an Order in the form attached as Schedule “A”.

III. AGREED FACTS

Registration History

7. Since 2007, the Respondent has been registered as a mutual fund salesperson.

8. On December 4, 2014, the Respondent transferred his registration in Ontario, Alberta and British Columbia from HollisWealth Advisory Services Inc. (“HollisWealth”) to IPC Investment Corp. (“IPC”), both Members of the MFDA. The Respondent is currently registered with IPC.

9. At all material times, the Respondent conducted business in the Sault Saint Marie, Ontario area.

Respondent’s Misconduct

10. At all material times, IPC permitted Approved Persons who were in the process of transferring registration from another MFDA Member to IPC to access IPC dealer representation change forms and to arrange for potential clients to sign these forms prior to becoming registered with IPC. Prior to the transfer of registration, IPC did not permit Approved Persons to arrange for potential clients to complete new account application forms (“NAAFs”).

11. At all material times, IPC’s policies and procedures prohibited its Approved Persons, including the Respondent, from using pre-signed account forms.

12. On or about November 5, 2014, the Respondent arranged for clients DR, JR and AR to sign 5 IPC NAAFs in order to facilitate the transfer of their client accounts from HollisWealth to IPC once the Respondent had transferred his registration (the “November 5 Client Meeting”).

13. At the November 5 Client Meeting, the Respondent also obtained from the clients, 7 pre-signed IPC dealer representation change forms. The 5 IPC NAAFS were also signed by the clients when they were partially complete.

14. Between December 5, 2014 and July 24, 2015, the Respondent obtained, possessed, and in some instances, used to process transactions, 3 pre-signed IPC account forms and falsified 2 IPC new account application forms and used them to process transactions by altering information on the account forms without having the clients initial the alterations.

15. In January 2015, IPC’s compliance department became aware of the Respondent’s conduct in respect of the use of IPC NAAFs at the November 5 Meeting after a complaint was received from clients DR, AR and JR.

16. On July 24, 2015, IPC issued a warning letter to the Respondent in respect of the use of pre-signed account forms (the “Warning Letter”).

17. After receiving the Warning Letter and before October 8, 2015, the Respondent obtained, possessed, and in some instances, used to process transactions, 3 more pre-signed IPC account forms.

18. On October 8, 2015, IPC distributed to the Respondent a copy of the MFDA Bulletin #0066-E on signature falsification (the “Bulletin”). On December 2, 2015, the Respondent attested to IPC that he had reviewed the Bulletin.

19. On January 28, 2016 and on February 17, 2016, the Respondent obtained and possessed 6 more pre-signed IPC account forms. Between November 2014 and February 2016, he obtained and possessed 2 further pre-signed IPC account forms, which are undated.

20. The pre-signed and falsified account forms included know-your-client forms, order forms and NAAFs.

IPC’s Investigation in 2016

21. In February 2016, IPC’s compliance department identified the pre-signed account forms and falsified account forms that the Respondent obtained after the November 5 Client Meeting are the subject of this Settlement Agreement

22. As part of its investigation, IPC reviewed a selection of client files serviced by the Respondent.

23. On April 15, 2016, IPC sent letters to all clients serviced by the Respondent in order to determine whether the Respondent had engaged in unauthorized trading. No clients raised any concerns.

Additional Factors

24. There is no evidence that the Respondent received any financial benefit from engaging in the misconduct described above other than the commissions or fees that he would ordinarily be entitled to had the transactions been completed in the proper manner.

25. There is no evidence of client loss.

26. The Respondent has not previously been the subject of MFDA disciplinary proceedings.

27. By entering into this Settlement Agreement, the Respondent has saved the MFDA the time, resources, and expenses associated with conducting a full hearing on the allegations.

IV. ADDITIONAL TERMS OF SETTLEMENT

28. This settlement is agreed upon in accordance with section 24.4 of MFDA By-law No. 1 and Rules 14 and 15 of the MFDA Rules of Procedure.

29. The Settlement Agreement is subject to acceptance by the Hearing Panel which shall be sought at a hearing (the “Settlement Hearing”). At, or following the conclusion of, the Settlement Hearing, the Hearing Panel may either accept or reject the Settlement Agreement. MFDA Settlement Hearings are typically held in the absence of the public pursuant to section 20.5 of MFDA By-law No. 1 and Rule 15.2(2) of the MFDA Rules of Procedure. If the Hearing Panel accepts the Settlement Agreement, then the proceeding will become open to the public and a copy of the decision of the Hearing Panel and the Settlement Agreement will be made available at mfda.ca.

30. The Settlement Agreement shall become effective and binding upon the Respondent and Staff as of the date of its acceptance by the Hearing Panel. Unless otherwise stated, any monetary penalties and costs imposed upon the Respondent are payable immediately, and any suspensions, revocations, prohibitions, conditions or other terms of the Settlement Agreement shall commence, upon the effective date of the Settlement Agreement.

31. Staff and the Respondent agree that if this Settlement Agreement is accepted by the Hearing Panel:
    1. the Settlement Agreement will constitute the entirety of the evidence to be submitted respecting the Respondent in this matter;
    2. the Respondent waives any rights to a full hearing, a review hearing before the Board of Directors of the MFDA or any securities commission with jurisdiction in the matter under its enabling legislation, or a judicial review or appeal of the matter before any court of competent jurisdiction;
    3. Staff will not initiate any proceeding under the By-laws of the MFDA against the Respondent in respect of the contraventions described in this Settlement Agreement. Nothing in this Settlement Agreement precludes Staff from investigating or initiating proceedings in respect of any contraventions that are not set out in this Settlement Agreement.  Furthermore, nothing in this Settlement Agreement shall relieve the Respondent from fulfilling any continuing regulatory obligations;
    4. the Respondent shall be deemed to have been penalized by the Hearing Panel pursuant to s. 24.1.2 of By-law No. 1 for the purpose of giving notice to the public thereof in accordance with s. 24.5 of By-law No. 1; and
    5. neither Staff nor the Respondent will make any public statement inconsistent with this Settlement Agreement. Nothing in this section is intended to restrict the Respondent from making full answer and defence to any civil or other proceedings against the Respondent.

32. If, for any reason, this Settlement Agreement is not accepted by the Hearing Panel, each of Staff and the Respondent will be entitled to any available proceedings, remedies and challenges, including proceeding to a disciplinary hearing pursuant to sections 20 and 24 of By-law No. 1, unaffected by the Settlement Agreement or the settlement negotiations.

33. Staff and the Respondent agree that the terms of the Settlement Agreement, including the attached Schedule “A”, will be released to the public only if and when the Settlement Agreement is accepted by the Hearing Panel.

34. The Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement. A facsimile copy of any signature shall be effective as an original signature.

DATED this 22nd day of August, 2017.

Schedule “A”

Order
File No. 201765

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: David Grahame Lillie

WHEREAS on [date], the Mutual Fund Dealers Association of Canada (“MFDA”) issued a Notice of Settlement Hearing pursuant to section 24.4 of By-law No. 1 in respect of David Graham Lillie (“Respondent”);

AND WHEREAS the Respondent entered into a settlement agreement with Staff of the MFDA, dated [date] (“Settlement Agreement”), in which the Respondent agreed to a proposed settlement of matters for which the Respondent could be disciplined pursuant to ss. 20 and 24.1 of By-law No. 1;

AND WHEREAS the Hearing Panel is of the opinion that:

1. on or about November 5, 2014, the Respondent arranged for 3 clients to complete 5 new account application forms in order to facilitate the transfer of the client accounts to a new Member, prior to being registered with the new Member, thereby engaging in registerable activity and securities related business on behalf of a Member that the Respondent was not registered with, contrary to MFDA Rules 1.1.1, 1.1.2 and 2.1.1;
2. between November 5, 2014 and February 2016, the Respondent, obtained, possessed, and in some instances, used to process transactions, 26 pre-signed account forms in respect of 18 clients, contrary to MFDA Rule 2.1.1; and
3. on December 5, 2014 and February 10, 2015, the Respondent falsified 2 account forms and used them to process a transaction, by altering information on the account forms without having the clients initial the alterations, contrary to MFDA Rule 2.1.1.

IT IS HEREBY ORDERED THAT the Settlement Agreement is accepted, as a consequence of which:

1. the Respondent shall pay a fine in the amount of $30,000 pursuant to s. 24.1.1.(b) of MFDA By-law No. 1;

2. the Respondent shall pay costs in the amount of $2,500 pursuant to s. 24.2 of MFDA By-law No. 1;

3. the Respondent shall successfully complete the Conduct and Practices Handbook course offered by the Canadian Securities Institute within 6 months of the date of the acceptance of the Settlement Agreement by the Hearing Panel, pursuant to s. 24.1.1(f) of MFDA By-law No .1;

4. the Respondent shall in the future comply with MFDA Rule 2.1.1; and

5. if at any time a non-party to this proceeding, with the exception of the bodies set out in section 23 of MFDA By-law No. 1, requests production of or access to exhibits in this proceeding that contain personal information as defined by the MFDA Privacy Policy, then the MFDA Corporate Secretary shall not provide copies of or access to the requested exhibits to the non-party without first redacting from them any and all personal information, pursuant to Rules 1.8(2) and (5) of the MFDA Rules of Procedure.

DATED this [day] day of [month], 20[  ].