Reasons For Decision

I. INTRODUCTION (MISCONDUCT)

1. By Notice of Hearing dated October 16, 2018, the Mutual Fund Dealers Association of Canada (“MFDA”) commenced a disciplinary proceeding against Duke Mongare Ongechi (the “Respondent”).
2. The Notice of Hearing made the following allegations of violations of the By-laws, Rules or Policies of the MFDA (“Allegations”):
   1. Allegation #1: Between about 2014 and 2015 the Respondent referred or assisted at least five clients to invest in or loan monies to a retail clothing business, thereby engaging in:
      1. an undisclosed and unapproved outside activity, contrary to MFDA Rules 1.2.1(c) (now Rule 1.3) and 2.1.1; and/or
      2. a referral arrangement which was not permitted, contrary to MFDA Rules 2.4.2 and 2.1.1, and sections 13.7 and 13.8 of National Instrument 31-103.
   2. Allegation #2: In or about September 2015, the Respondent signed a promissory note in which he agreed to pay $19,755 to a client pertaining to the client’s investment in or loan to a retail clothing company, and provided personal cheques to the client to pay the amounts owed pursuant to the terms of the promissory note, thereby:
      1. engaging in personal financial dealings with a client which created a conflict or potential conflict of interest that the Respondent failed to address by the exercise of responsible business judgment influenced only by the best interests of the client, contrary to MFDA Rules 2.1.4 and 2.1.1; and/or
      2. entering into a settlement agreement with a client without the Member’s knowledge or prior written consent, contrary to MFDA Rules 2.1.4 and 2.1.1, and MFDA Policy No. 3.
   3. Allegation #3: Between December 2015 and March 2016, the Respondent failed to report to the Member, within two business days or at all, that the Respondent had been named as a defendant in two civil claims commenced by clients, and that there was a garnishment order rendered against the Respondent pursuant to a civil claim commenced by a client, contrary to MFDA Rules 1.4(b) and 2.1.1, and section 4 of MFDA Policy No. 6.
   4. Allegation #4: Commencing in October 2016, the Respondent provided false or misleading statements to:
      1. the Member during the course of its investigation into his conduct, thereby interfering with the Member’s ability to supervise and investigate the Respondent’s conduct, contrary to MFDA Rule 2.1.1; and
      2. MFDA Staff during the course of its investigation into the Respondent’s conduct, thereby interfering with MFDA Staff’s ability to conduct its investigation, contrary to MFDA Rule 2.1.1 and section 22.1 of MFDA By-law No. 1.
3. The Respondent filed a brief Reply to the Allegations as follows:
   1. ADMISSIONS
      DUKE ONGECHI (the “Respondent”) admits the facts alleged and conclusions drawn by Staff of the Mutual Fund Dealers Association of Canada (“Staff”) in paragraphs ALL of the Notice of Hearing.
4. The Respondent stated the following at the hearing:
   1. Opening Statement by Mr. Ongechi: So I’ll make two points here. One is on the reply, which is Exhibit No. 10. I did acknowledge to all the claims or allegations as they are called, so I really don’t see why we have to go through all this today (indecipherable) everything.
   2. And then the next, which has not been pointed here, since all this happened I’ve actually paid a total of 84,100 – no, $81,456.14 to the parties mentioned here and that I mentioned it earlier to the ladies here. That’s it. Thank you.
   3. (Transcript July 17/19 at page 141 lines 8 – 17)
   4. Mr. Ongechi: So I understand correctly, as I said before, as far as I’m concerned, I admitted to everything so I don’t see why I should give more evidence. All I was saying is that I – the only thing I wanted added to that which is not part of this record is that I made all efforts to help those parties paid the amounts.
   5. (Transcript July 17/19 at page 143 lines 16 – 22)
   6. Mr. Pryor: Well, there’s a couple. I just want to confirm that the reply that you filed with respect to – that was referred to in examination-in-chief by counsel to the MFDA that you did not – you admitted all of the facts and allegations that were contained in the notice of hearing, and I just want to make sure or confirm that that’s still your position.
   7. Mr. Ongechi: Absolutely, yes. I just want (indecipherable) it –
   8. (Transcript July 17/19 at page 144 lines 4 – 12)
5. Ongechi Closing Submissions:
   1. So that’s the one point I wanted to bring up. So I never got any compensation, and I never went in to these expecting any compensation, and there was no understanding either between me and Ambrosia or the clients that I was going to be compensated for that.
   2. She did ask you to think that how could I do something like that without expecting anything. Some people do it, by the way. But that’s another case.
   3. And then, I think related to these but also to allegation number 2, the fact that she’s saying that the payments I made back, and the first point is I actually paid…and it’s not around; it’s exactly $81,456.14, and I did pay them back.
   4. She refers to the cheque for 19,750, or whatever, as proof that that was actual compensation to me because I received compensation, but no. I paid them because it’s their money that they had lost, but I don’t think it’s to Ambrosia, not because it was a referral arrangement or because I was – because I’d been paid back. I just paid them back because it was their money to get.
   5. That is my last point. (Pausing) That’s all. Thank you.
   6. (Transcript July 18/19 at page 46 line 22 – page 47 line 19)

II. FACTS

6. Ongechi was born in Nairobi, Kenya where he was educated, and presumably it was there that he earned his Masters of Business Administration. He came to Canada and settled in Ontario. Mr. Ongechi carried on his business as a mutual funds salesperson (now known as a dealing representative) from a branch of the Investors Group Financial Services Inc. (“Investors Group” or the “Member”) located in Pickering, Ontario. Investors Group is a member of the MFDA. At all material times the Respondent was also licensed to sell insurance.
7. The Respondent was registered with Investors Group from March 4, 2010 to March 2, 2016, when he was terminated as a consequence of the events which gave rise to the allegations made in these proceedings.
8. Between 2014 and 2015, the Respondent referred or assisted five clients of his at Investors Group (“Clients”) to loan monies to a retail clothing business known as “Ambrosia”. There was some doubt as to the exact nature of the transactions between the Clients and Ambrosia, but the Hearing Panel is satisfied that each was in the nature of a loan rather than an investment in the enterprise. That is how Mr. Ongechi explained it in his evidence and there was no other evidence to the contrary.
9. On the evidence presented at the hearing, including Mr. Ongechi’s admissions before and during the hearing, a total of $75,000 was loaned to Ambrosia by the five Clients as follows:

10. The loans to Ambrosia were generally to be held for a period of six months, with principal and interest payments to be paid to Clients biweekly. While paragraph 8 of the allegations which were admitted by the Respondent in his Reply states that “at least one client was to be paid interest of approximately $10,000 per month or $120,000 per year”, it seems likely that, given the close association that apparently existed between the Clients because of their relationship with the Respondent and, at least in several cases, by virtue of their common origins in northeastern Africa, that the terms would be the same for the other Clients as well. Nevertheless, whatever the terms were, no interest payments were paid by Ambrosia to any of the Clients.

Repayment and Commission

11. As was made abundantly clear by the Respondent in his evidence, there were two matters with which he disagreed entirely in the allegations contained in the Notice of Hearing. The first was that he was paid a commission or received any other payment or compensation with respect to the loans that were made by the Clients to Ambrosia. The second was that, as is alleged in paragraph 10 of the particulars set out in the Notice of Hearing:
    10. The clients did not receive the return of the principal of their investments, except for client MA who received a partial return of the principal in the amount of $5,000.

    We deal with each of these subjects in the following paragraphs.

12. While there appears to have been some early discussion between Enforcement Staff and the Clients, there was no evidence of any formal, or even informal, complaints having been lodged with Investors Group by the Clients with respect to these transactions. While the Investigator, Sheila Daneshvaziri (“the Investigator”), who gave evidence at the hearing, indicated that there had been several promises to forward documents by several of the Clients, none were provided to Staff. In all, it appears that there was no cooperation by the Clients in the investigation by the MFDA.
13. The only facts proffered by Staff to support the submission that the Respondent had been paid by Ambrosia for obtaining the loans was “client MA’s statement to the MFDA Investigator that the Respondent received 10% of the referrals he made to Ambrosia”, which was made by Staff in its written submission in this matter.
14. However, when the handwritten note of Ms. Daneshvaziri which is relied upon to support that submission is examined, it provides no evidence to support it. The note is as follows:
    1. M said he invested 20,000$ in December of 2014 and never received his interest payments. He said that he later learned that Duke was taking 10% of that investment. He said that he learned that from OT. He said he spoke to O when he was trying to get his money back. He has heard of AW but has never met him.
       1. Affidavit of Sheila Daneshvaziri, Volume 1, Exhibit 43
15. This statement is at least double hearsay. It is of no evidentiary value whatever. Further, the fact that Staff has gone to such lengths to establish its case based on such frail evidence helps support the conclusion of the Hearing Panel that the submission that the Respondent was paid a commission is unfounded. As a result, we are of the view that the Respondent’s evidence that he was not paid or compensated for arranging the loans should be accepted, absent any evidence to the contrary, as is the case.
16. Turning then to the issue of whether the loans made by the Clients were repaid. On one hand, there is no evidence that they weren’t repaid. We heard the admission by the Investigator that no attempts were made to ascertain whether that was the case. One would expect that, at the very least, continuing demands would have been made on Investors Group by the Clients if they had not been repaid. However, to the contrary, while there were early tentative inquiries about the possibility of payment by Investors Group, nothing was pursued. Absent any other evidence, the Hearing Panel is of the view that this absence of continuing claims corroborates Mr. Ongechi’s repeated assertions, which were made in an open and public hearing, that he had repaid $81,456.14, an amount that exceeded the principal of the loans, $75,000. In short, nobody has said they weren’t repaid except Staff who hadn’t spoken to the Clients on the subject.
17. The Hearing Panel was also troubled by the fact that no attempt was made to corroborate Mr. Ongechi’s emotional description of the pressures that had been brought to bear on him to obtain those repayments. In a response to an email from Ms. Daneshvaziri dated December 15, 2017, the Respondent wrote as follows:
    1. “I lost my job and a non-ending investigation. I receive death threats, threats to have my legs cut off, and cannot find work. This far those are the only benefits I have received. There has never been any compensation, and there never was meant to be any.”
    2. (Transcript July 17/19 at page 94 lines 13 – 18.)

Allegation #1 – Respondent Referred Clients to Invest in or to Loan Money to Ambrosia

18. The Respondent has admitted the following facts in relation to Allegation #1:
    1. The Respondent did not disclose his activities relating to Ambrosia to the Member, and the Member did not approve these activities;
    2. In addition, the Member did not have a referral arrangement with Ambrosia and no referral activity relating to Ambrosia was conducted through the Member;
    3. By referring or assisting five clients to loan money to Ambrosia, the Respondent engaged in an undisclosed and unapproved outside activity contrary to MFDA Rules 1.2.1(c) (now Rule 1.3) and 2.1.1.
19. However, as discussed in paragraph 15 above, as we have accepted the Respondent’s evidence that he was not paid a referral fee by Ambrosia, Allegation 1 (ii) that there was a referral arrangement has not been established.

Allegation #2 – Respondent Engaged in Personal Financial Dealings With Clients

20. At all material times, the Member’s Policies and Procedures prohibited its Approved Persons, including the Respondent, from entering into a private settlement with a client, and required that all settlements be approved and issued by the Member. Additionally, the Member’s Policies and Procedures prohibited its Approved Persons, including the Respondent, from writing personal cheques to a client.
21. On or about September 7, 2015, Client AS Inc. advised the Respondent in writing that it considered the Respondent responsible for the principal plus interest totaling $19,755 owed to Client AS Inc. by Ambrosia for Client AS Inc.’s loan to Ambrosia. On or about September 18, 2015, the Respondent and Client AS Inc. signed a promissory note in which the Respondent agreed to pay Client AS Inc. the sum of $19,755 representing the amount owed to the Client by Ambrosia (“Promissory Note”).
22. The Promissory Note provided that the Respondent pay the $19,755 to Client AS Inc. by means of six personal cheques postdated from October 31, 2015 to March 31, 2016 (“Cheques”). Such Cheques were provided by the Respondent to Client AS Inc.
23. Client AS Inc. subsequently deposited the Cheques but they were returned to Client AS Inc. uncashed due to non-sufficient funds in the Respondent’s account.
24. The Respondent did not disclose to the Member, and the Member was not otherwise aware of the Promissory Note, an assignment of the cause of action by Client AS Inc. against Ambrosia (“Assignment”) or the Cheques.
25. By entering into the Promissory Note and the Assignment and providing the Cheques to AS Inc., it is admitted by the Respondent that he:
    1. Engaged in personal financial dealings with a client which created a conflict or potential conflict of interest that the Respondent failed to address by the exercise of responsible business judgment influenced only by the best interest of the client, contrary to MFDA Rules 2.1.4 and 2.1.1; and/or
    2. Entered into a settlement agreement with a client without the Member’s knowledge or prior written consent, contrary to MFDA Rules 2.1.4 and 2.1.1, and MFDA Policy No. 3.

Allegation #3 – Respondent Failed to Report Legal Proceedings and a Garnishment Order to the Member

Legal Proceeding Commenced by Client AS Inc.

26. On January 21, 2016 Client AS Inc. commenced a small claims court proceeding in the Ontario Superior Court of Justice against the Respondent seeking damages in the amount of $19,755 relating to Client AS Inc.’s loan to Ambrosia. The statement of claim was subsequently served on the Respondent and on February 29, 2016, Client AS Inc. was granted default judgment against the Respondent.
27. On February 29, a Notice of Garnishment was issued by the Superior Court of Justice regarding the default judgment and presumably was served on the Respondent as the Respondent admitted that it had been issued.
28. The Respondent did not report to the Member at any time that a legal proceeding had been commenced by Client AS Inc. against him. However, the Member became aware in March 2016 that the Respondent had been named as a Defendant in the two small claims court proceedings above described when it received the related Notices of Garnishment.
29. The Respondent in his Reply has admitted that, by failing to report to the Member, within two business days or at all, that he had been named as a Defendant in two civil claims commenced by the Clients and that there was a garnishment order rendered against him pursuant to civil claims commenced by a Client that he engaged in conduct contrary to MFDA Rules 1.4(b) and 2.1.1, Section 4 of MFDA Policy No. 6.

Legal Proceeding Commenced by Client SA

30. The Investigator stated that Client SA commenced a small claims proceeding in the amount of $19,755 as well and that garnishment proceedings were also instituted. However, under questioning by one member of the Hearing Panel, the Investigator admitted that Staff did not have, nor did it ever have, a copy of the statement of claim issued by Client SA. Thus its contents were unknown, assuming it ever existed.
31. To confuse matters further, during the proceedings the Respondent stated that there was only one statement of claim, presumably referring to the AS Inc. statement of claim which was in evidence before us.
32. In the result, because of the doubt raised about its existence, the Hearing Panel decided not to find that the second civil proceeding referred to in Allegation #3 had been established. However, there is no doubt that Allegation #3 as it pertained to the AS Inc. proceeding was established and the Hearing Panel so found.

Allegation #4 – Respondent Made False or Misleading Statements to the Member and MFDA Staff

Circumstances of Client SA’s Investment in Ambrosia

33. The Respondent, in his Reply, admitted that he had provided false or misleading statements during the course of each of the Member’s investigation and MFDA Staff’s investigation into his conduct as follows:
    1. In a memo dated March 4, 2016, the Respondent advised his Branch Manager that during an annual review with Client SA in February 2015:
       1. “…[client SA] mentioned during our conversation that while he liked the mutual funds, he was looking for more returns on his investments and wanted to know if there were other alternatives out there. I mentioned that there was a company looking for funding and that it would pay interest on the funds. He asked who this was and I informed him of the company, Ambrosia.”
    2. In a memo dated October 26, 2016 from the Respondent to MFDA Staff, the Respondent advised that he had introduced Client SA to investing in Ambrosia during an annual community event on June 6, 2015 when the Respondent seated Client SA at the same table with a principal of Ambrosia and introduced them.
    3. On July 26, 2017, during his MFDA investigative interview (“MFDA Interview”), the Respondent advised MFDA Staff that he made Client SA aware of Ambrosia on December 29, 2014 when the Respondent introduced Client SA to a principal of Ambrosia at a Christmas party.

Knowledge of Client DP’s Investment in Ambrosia

34. During his MFDA Interview, the Respondent advised MFDA Staff that he only became aware in June 2016 that Client DP had invested in Ambrosia.
35. However, in an email from Client DP to the Respondent dated January 4, 2016, DP requested information regarding when the payments from Ambrosia to Client DP would start. Accordingly, the Respondent had been aware of Client DP’s investment in Ambrosia since at least January 4, 2016.

Knowledge of Other Clients Whom the Respondent Referred to Invest in Ambrosia

36. In response to a question from MFDA Staff requesting that the Respondent “confirm the total number of clients you referred to Ambrosia and provide the client names”, the Respondent stated, in a memo to MFDA Staff dated October 26, 2016, that Client SA and Client AS Inc. were the only Clients he had referred to Ambrosia.
37. During his MFDA Interview, the Respondent stated that he was unaware of anyone else who had invested in Ambrosia other than Client SA, Client AS Inc. and Client DP.
38. However, in an email from the Respondent to MFDA Staff dated December 15, 2017, the Respondent advised that he had also referred Client GN and other mutual fund clients to Ambrosia.
39. Further, in an email dated January 8, 2016 from the Respondent to Client MA, the Respondent informed Client MA that the Respondent had begun to arrange personal financing in order to pay Client MA his Ambrosia investment payments. Accordingly, the Respondent was aware that he had also referred Client MA to invest in Ambrosia.
40. The Respondent admitted in his Reply that the conduct described in summary above constituted providing false or misleading statements to:
    1. The Member during the course of its investigation into his conduct, thereby interfering with the Member’s ability to supervise and investigate the Respondent’s conduct, contrary to MFDA Rule 2.1.1; and
    2. MFDA Staff during the course of its investigation into the Respondent’s conduct, thereby interfering with MFDA Staff’s ability to conduct its investigation, contrary to MFDA Rule 2.1.1 and section 22.1 of MFDA By-law No. 1.

III. CONCLUSION

41. In summary, for the foregoing reasons, we found that Allegation #1(i), Allegation #2, Allegation #3 (with respect only to one civil claim), and Allegation #4 had each been established.
42. We also found that, as there is no basis on the record before us for disbelieving the Respondent’s evidence that he earned nothing from facilitating the loans to Ambrosia, he did not have a referral arrangement within the meaning of MFDA Rule 2.4.2 as was alleged in Allegation #1(ii).
43. Finally, we also found, on a balance of probabilities, the Respondent voluntarily repaid each of the Clients the amount of their respective loans.
44. We will now proceed to a hearing to determine the appropriate penalty or penalties in light of the foregoing findings.