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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: My Phuong “Vicky” Luong Dao

Heard: February 2, 2021 by electronic hearing in Toronto, Ontario
Reasons For Decision: April 9, 2021

Reasons For Decision

Hearing Panel of the Central Regional Council:

  • Frederick W. Chenoweth, Chair
  • Samuel Mah, Industry Representative
  • Joseph Yassi, Industry Representative

Appearances:

Brendan Forbes, Enforcement Counsel for the Mutual Fund Dealers Association of Canada
Nicole McAuley, Counsel for the Respondent
My Phuong “Vicky” Luong Dao, Respondent

I. BACKGROUND

  1. By Notice of Hearing dated November 26, 2019, a Hearing Panel of the Central Regional Council of the Mutual Fund Dealers Association of Canada (the “MFDA”) was convened to consider whether, pursuant to section 24.4 of By-law No. 1 of the MFDA, the Panel should accept a settlement agreement dated December 8, 2020, (“Settlement Agreement”) entered into by the Staff of the MFDA (“Staff”) and My Phuong “Vicky” Luong Dao (the “Respondent”).
  2. At the outset of the proceeding, the Panel considered a joint motion by Staff and the Respondent to move the proceedings “in camera”. The Panel granted the motion.  The Panel then considered the provisions of the Settlement Agreement, aided by submissions as to the applicable law, which should guide the Panel in determining whether or not to accept or reject the Settlement Agreement. The Panel unanimously accepted the Settlement Agreement and issued an Order accordingly.  These are the Panel’s reasons for doing so.

II. THE CONTRAVENTIONS

  1. In the Settlement Agreement, the Respondent admits that:
    1. commencing in March 2010, she has been engaged in an outside business activity that was not disclosed to or approved by the Member, contrary to the policies and procedures of the Member and MFDA Rule 1.2.1(d) (now Rule 1.3.2) and MFDA Rules 2.10, 2.5.1 and 1.1.2;
    2. commencing in March 2010, she engaged in personal financial dealings with client MH by:
      1. purchasing two condominium units (the “Condominium Units”) with client MH and accepting payments from client MH to finance the costs of purchasing and maintaining the Condominium Units;
      2. opening and maintaining a joint bank account with client MH to facilitate:
        1. the receipt of deposits including payments from client MH towards the costs of the Condominium Units;
        2. the deposit and accounting for rental income generated by the Condominium Units; and
        3. the payment of expenses (including mortgage payments) associated with the purchase and maintenance of the Condominium Units.
      3. accepting three cheques from client MH totaling $95,000 which were deposited into the Respondent’s personal bank account,

      all of which gave rise to conflicts or potential conflicts of interest that the Respondent failed to disclose to her Member, disclose in writing to the client, or otherwise address by the exercise of responsible business judgment influenced only by the best interests of the client, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.4, 2.1.1, 1.1.2, 2.10, and 2.5.1; and

    3. between November 2012 and November 2016, she submitted five Annual Representative Compliance Certification questionnaires to the Member that contained false or misleading responses, thereby interfering with the ability of the Member to supervise the Respondent’s activities, failing to observe high standards of ethics and conduct in the transaction of business, and engaging in conduct that is unbecoming and detrimental to the public interest, contrary to MFDA Rules 2.1.1, 1.1.2 and 2.5.1

III. THE FACTS

  1. In the Settlement Agreement, Staff of the MFDA and the Respondent agreed to the existence of a series of facts, which are set out in Part IV of the said Settlement Agreement. The Settlement Agreement is attached as Appendix “A” to these Reasons.
  2. As set out in the Settlement Agreement, on August 4, 2005 until December 5, 2018, the Respondent was registered in Ontario as a mutual fund sales person (now known as “dealing representative”) with WFG Securities Inc. (the “Member”), a member of the MFDA. At all material times, the Respondent conducted business in Richmond Hill, Ontario. The Member terminated the Respondent on December 5, 2018 after discovering the conduct described in the Settlement Agreement. The Respondent has not been registered in the securities industry in any capacity since her termination.

IV. DISCUSSION

  1. The Hearing Panel was aware that prior to accepting a Settlement Agreement, a Hearing Panel must be satisfied that:
    1. The facts admitted by the Respondent constitute misconduct in contravention of the By-law, MFDA Rules or policies, or provincial securities legislation; and
    2. The penalties contemplated in the Settlement Agreement fall within a reasonable range of appropriateness, bearing in mind the nature and extent of the misconduct and all the circumstances.
  2. The Panel accepted that the role of a Hearing Panel at a settlement hearing is fundamentally different than its role at a contested hearing. As stated by the MFDA Hearing Panel in Sterling Mutuals Inc. (Re), citing the I.D.A. Ontario District Council in Milewski (Re):
    1. We also note that while in a contested hearing the Panel attempts to determine the correct penalty, in a settlement hearing the Panel “will tend not to alter a penalty that it considers to be within a reasonable range, taking into account the settlement process and the fact that the parties have agreed.  It will not reject a settlement unless it views the penalty as clearly falling outside a reasonable range of appropriateness.” [Emphasis added].
      1. Sterling Mutual Inc. (Re), MFDA File No. 200820, Hearing Panel of the Central Regional Council, Decision and Reasons dated August 21, 2008 at para. 37
      2. Milewski (Re), [1999] I.D.A.C.D. No. 17 at p. 12, Ontario District Council Decision dated July 28, 1999
  3. The Panel also considered the principle that a Hearing Panel will not reject a settlement agreement unless the proposed penalty clearly falls outside the reasonable range of appropriateness. Settlements are necessary to assist the MFDA to fulfill its regulatory objective of protecting the public.  Settlements advance this regulatory objective by proscribing activities that are harmful to the public, while enabling the parties to reach a flexible remedy tailored to address the interests of both the regulator and a respondent.
    1. British Columbia (Securities Commission) v. Seifert, [2006] B.C.J. No. 225 at paras. 48-49 (S.C.), aff’d, [2007] B.C.J. No. 2186 at para. 31 (C.A) [“British Columbia (Securities Commission)”]

V. OUTSIDE ACTIVITY WITH CLIENT

  1. MFDA Rule 1.3.2 (formerly Rule 1.2.1(d)) allowed Approved Persons to engage in an outside activity provided that:
    1. The MFDA and the securities regulatory authority in the jurisdiction in which the Approved Person carries on, or proposes to carry on, the outside activity do not prohibit the Approved Person from engaging in such outside activity;
    2. The Approved Person discloses the outside activity to the Member;
    3. The Approved Person obtains written Member approval of the outside activity prior to engaging in such outside activity;
    4. The outside activity of the Approved Person must not be such as to bring the MFDA, its Members, or the mutual fund industry into disrepute; and
    5. To the extent that the outside activity could be confused with Member business, clear written disclosure is provided to clients that any activities related to the outside activity are not the business of the Member and are not the responsibility of the Member.
    1. MFDA Rule 1.3.2.
  2. MFDA Hearing Panels have held that, consistent with the subsections (b) and (c) of MFDA Rule 1.3.2, Approved Persons must disclose all outside activities to the Member and the outside activities must be approved by the Member, in writing, prior to the Approved Person engaging in the outside activity.
    1. Wemple (Re), [2017] Hearing Panel of the Central Regional Council, MFDA File No. 201654, Hearing Panel Decision dated June 9, 2017 at paras 25-26.
    2. Notis (Re), [2019] Hearing Panel of the Central Regional Council, MFDA File No. 201953, Hearing Panel Decision dated December 4, 2019 at para. 47.
  3. More specifically, prior MFDA Hearing Panels have held that Approved Persons must disclose to the Member all outside activities which amount to a “gainful occupation”.
    1. Notis, supra, at para. 5.
    2. Wemple, supra, at para. 24.
    3. Vitch (Re), [2011] Hearing Panel of the Central Regional Council, MFDA File No. 201103, Hearing Panel Decision dated September 22, 2011 at para. 53
  4. In the current matter, the Respondent admits that she engaged in an outside activity comprised of condominium investments which was designed to generate profit for the Respondent and client MH. The Respondent engaged in this outside activity without disclosing the outside activity to her Member and without obtaining approval from the Member prior to engaging in the outside activity.
    1. Settlement Agreement, paras. 59-60.
  5. The Respondent further admits that her conduct in respect of the outside business activity was contrary to the policies and procedures of the Member as well as MFDA Rule 1.2.1(d) (now Rule 1.3.2).
    1. Settlement Agreement, para. 73.
  6. MFDA Hearing Panels have held that where an Approved Person fails to comply with the policies and procedures of a Member requiring disclosure of an outside activity, the Approved Person has violated MFDA Rules 1.1.2 and 2.5.1.
    1. Notis, supra at para 5.
    2. Shelson (Re), [2018] Hearing Panel of the Central Regional Council, MFDA File No. 2017117, Hearing Panel Decision dated December 19, 2018 at para. 36.
    3. Sarang (Re) [2016] Hearing Panel of the Pacific Regional Council, MFDA File No. 201535, Hearing Panel Decision dated March 21, 2016.
  7. In the present case, the Respondent admits that she violated MFDA Rules 1.1.2, 2.5.1 and 2.10 by failing to disclose and have approved by the Member an outside activity, contrary to the policies and procedures of the Member. It was clear to the Panel that the first contravention was proven.
    1. Settlement Agreement, para. 73.

VI. PERSONAL FINANCIAL DEALINGS WITH CLIENT

  1. MFDA Rule 2.1.4 prescribes the duties of Approved Persons when dealing with conflicts of interest. The Rules require, among other things, that:
    1. 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;
    2. 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 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); and
    3. Any conflict or potential conflict of interest that arises as referred to in Rule 2.1.4(a) shall immediately be disclosed in writing to the client by the Member, or by the Approved Person as the Member directs, prior to the Member or the Approved Person proceeding with the proposed transaction giving rise to the conflict or potential conflict of interest.
    1. MFDA Rule 2.1.4(a) – (c).
  2. Prior MFDA Hearing Panels have held that when an Approved Person purchases real property with clients for the purposes of an investment, such circumstances give rise to a conflict of interest within the meaning of Rule 2.1.4.
    1. Notis, supra, at para. 44-45
    2. Mawer, supra, at para 26.
  3. MFDA Hearing Panels have also held that when an Approved Person holds a joint bank account with a client, such circumstances give rise to a conflict of interest within the meaning of Rule 2.1.4.
    1. Bott (Re), [2017] Hearing Panel of the Central Regional Council, MFDA File No. 2016101, Hearing Panel Decision dated April 18, 2017, at para. 12.
  4. MFDA Hearing Panels have further held that when an Approved Person holds client monies in a personal bank account, such circumstances also give rise to a conflict of interest within the meaning of Rule 2.1.4.
    1. Wang (Re), [2017] Hearing Panel of the Pacific Regional Council, MFDA File No. 201762, Hearing Panel Decision dated October 2, 2017 at para 16.
  5. In the current matter, the Respondent admits that she engaged in personal financial dealings with client MH when she jointly purchased condominium investments with client MH, opened a joint bank account with client MH to facilitate payments and receipt of rental income related to the condominium investment and by accepting three cheques from client MH totaling $95,000.
    1. Settlement Agreement, para 61.
  6. The Respondent’s conduct created a conflict of interest between the Respondent and client MH. The Respondent was required to disclose the conflict to the Member, disclose the conflict in writing to the client and to ensure that the conflict was addressed by the exercise of responsible business judgment influenced only by the best interests of the client.  The Respondent admits that she did not disclose the conduct leading to the conflict of interest to the Member, failed to disclose the conduct in writing to the client and failed to address the conflict by the exercise of responsible business judgment influenced only by the best interests of the client.  It was clear to the Panel, that the Respondent’s actions were therefore contrary to MFDA Rule 2.1.4.
    1. Settlement Agreement, para 74.
  7. MFDA Hearing Panels have held that where an Approved Person engages in a conflict of interest and in turn fails to comply with the Member’s Policies and Procedures, the Approved Person contravenes MFDA Rules 2.5.1 and 1.1.2.
    1. Wemple, supra at para. 10
  8. In the present case, the Respondent admits that by failing to properly disclose or address a conflict of interest with client MH, she acted contrary to the Member’s policies and procedures and MFDA Rules 2.5.1, 2.10 and 1.1.2.
    1. Settlement Agreement, para. 76.
  9. MFDA Hearing Panels have consistently held that an Approved Person who engages in personal financial dealings or conflicts of interest with a client related to purchasing investment properties, and fails to take appropriate action to disclose or address the conflict of interest with the client, has engaged in conduct that is contrary to MFDA Rule 2.1.1.
    1. Mawer, supra at para. 27.
    2. Notis, supra at para. 4.
  10. In the present case, the Respondent admits that she contravened MFDA Rule 2.1.1 by not disclosing the conflict of interest with client MH to the Member and by contravening the Member’s policies and procedures. It was therefore clear to the Panel that the second contravention was proven.
    1. Settlement Agreement, para. 74.

VII. MISLEADING THE MEMBER

  1. MFDA Hearing Panels have further held that when an Approved Person makes a false or misleading statement to a Member, the Approved Person has contravened MFDA Rule 2.1.1.
    1. Notis, supra at para. 53-56.
    2. Wemple, supra
  2. In the current matter, the Respondent admits that she violated MFDA Rule 2.1.1 by providing false or misleading responses on five annual compliance certifications, thereby interfering with the ability of the Member to supervise the Respondent’s activities, failing to observe high standards and conduct in the transaction of business and engaging in conduct that is unbecoming and detrimental to the public interest.
    1. Settlement Agreement, para. 75.
  3. MFDA Hearing Panels have held that where an Approved Person misleads the Member and in turn fails to comply with the Member’s Policies and Procedures, the Approved Person contravenes MFDA Rules 2.5.1 and 1.1.2.
    1. Wemple, supra at para. 10
    2. Notis, supra at para. 53-56
  4. In the present matter, the Respondent admits that she violated MFDA Rules 2.5.1 and 1.1.2 by providing false or misleading responses on five annual compliance certifications contrary to the policies and procedures of the Member and MFDA Rules 1.1.2 and 2.5.1. The Panel therefore concluded that the third contravention was proven.
    1. Settlement Agreement, para. 73.

VIII. PENALTY

  1. Factors that Hearing Panels frequently consider when determining whether a penalty is appropriate include the following:
    1. the seriousness of the allegations proved against the Respondent;
    2. the Respondent’s past conduct, including prior sanctions;
    3. the Respondent’s experience and level of activity in the capital markets;
    4. whether the Respondent recognizes the seriousness of the improper activity;
    5. the harm suffered by investors as a result of the Respondent’s activities;
    6. the benefits received by the Respondent as a result of the improper activity;
    7. the risk to investors and the capital markets in the jurisdiction, were the Respondent to continue to operate in capital markets in the jurisdiction;
    8. the damage caused to the integrity of the capital markets in the jurisdiction by the Respondent’s improper activities;
    9. 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;
    10. the need to alert others to the consequences of inappropriate activities to those who are permitted to participate in the capital markets; and
    11. previous decisions made in similar circumstances.
    1. Headley (Re), [2006] Hearing Panel of the Pacific Regional Council, MFDA File No. 200509, Hearing Panel Decision dated February 21, 2006, at para.
  2. The Panel also referred to the MFDA’s Sanction Guidelines, which came into effect on November 15, 2018. The Guidelines are not mandatory or binding on the Panel, but provide a summary of the key factors upon which discretion can be exercised consistently and fairly.  The Guidelines recommend considerations of many of the same factors that have been applied in previous cases and are listed and applied above.
    1. MFDA Sanction Guidelines
  3. The Respondent’s actions were serious. The Respondent engaged in personal financial dealings with a client which she did not disclose to the Member.  The Respondent’s actions deprived the Member of the ability to address the conflict by withholding mandatory disclosure of the conflict from the Member.
  4. The Respondent’s actions also amounted to an outside activity, which she also did not disclose to the Member. This action also deprived the Member of the ability to review and approve the outside activity and potentially address the issue caused by the outside activity in the best interest of the client.
  5. In addition, the Respondent made false or misleading statements to the Member on five annual compliance certifications related to the conflict of interest and co-mingling client’s monies with the Respondent’s monies. This conduct further limited the Member’s ability to resolve the conflict of interest created by the Respondent in the best interest of the client.
  6. Given the seriousness of these actions, the sanctions against the Respondent were warranted. The Panel considered that the client had invested a total of approximately $145,800.  This money is still invested in the condominium properties held jointly by the Respondent and the client.
  7. As of the date of the Settlement Agreement, the client’s monies remained at risk and had not been returned to her by the Respondent.
  8. The Panel concluded that the client may ultimately suffer potential financial harm, if the value of the condominium properties decreased to a value lower than the purchase price of the real estate.
  9. Conversely, if the value of the condominium increased or in the future increases to a value above the initial purchase price, the Respondent may stand to realize a direct financial benefit from the investments in the condominium project she had made in conjunction with the client.
  10. In addition, the Respondent obtained a total of $95,000 from the client, which she held in a personal bank account. The Respondent obtained access to these, interest free and without terms of repayment.  The Panel concluded that this amount constituted a financial benefit that the Respondent derived from her personal financial dealings with the client.
  11. The Respondent’s actions are an example of the type of conduct that can bring the reputation of the mutual fund industry into disrepute. The Respondent ought to have recognized the harm that such conduct could cause to the advisor-client relationship and the fact that such conduct contravened her duty to comply with her regulatory obligations and the policies and procedures of the Member.
  12. Finally, the Respondent also provided false information on five annual compliance certifications that she submitted to the Member.
  13. The Panel concluded that, each of the Respondent’s contraventions caused harm to the integrity of the capital markets.
  14. The Panel was mindful that the proposed penalties would deter the Respondent from engaging in similar conduct by permanently prohibiting her from engaging in securities related business on behalf of any Member. The penalties would also deter other licensed individuals from engaging in similar misconduct by imposing meaningful sanctions on Approved Persons who engage in such behavior.
  15. Finally, the Respondent had not previously been the subject of MFDA disciplinary proceedings. Additionally, by entering into the Settlement Agreement, the Respondent had accepted responsibility for her misconduct.  She had also saved the MFDA and the Membership at large, the time, resources and expenses associated with a full disciplinary hearing.

IX. RESULT

  1. For all the above reasons, the Panel concluded that the Settlement Agreement was reasonable and proportionate. Accordingly, the following penalties were imposed upon the Respondent:
    1. The Respondent shall be permanently prohibited from conducting securities related business in any capacity while in the employ of or associated with any MFDA Member commencing from the date of this Order, pursuant to section 24.1.1(e) of MFDA By-law No. 1;
    2. The Respondent shall pay a fine of $50,000 in certified funds on the date of this Order, pursuant to section 24.1.1(b) of MFDA By-law No.1;
    3. The Respondent shall pay costs of $10,000 in certified funds on the date of this Order, pursuant to section 24.2 of MFDA By-law No.1; and
    4. 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.
  • Frederick W. Chenoweth
    Frederick W. Chenoweth
    Chair
  • Samuel Mah
    Samuel Mah
    Industry Representative
  • Joseph Yassi
    Joseph Yassi
    Industry Representative

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