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:
Settlement Agreement
Settlement Agreement
File No. 201031
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: Investia Financial Services Inc.
SETTLEMENT AGREEMENT
INTRODUCTION
1.
By Notice of Settlement Hearing, the Mutual Fund Dealers Association of Canada (the
“MFDA”) will announce that it proposes to hold a hearing to consider whether, pursuant to
section 24.4 of By-law No. 1, a hearing panel of the MFDA Central Regional Council (the
“Hearing Panel”) should accept the settlement agreement (the “Settlement Agreement”) entered
into between Staff of the MFDA (“Staff”) and Investia Financial Services Inc. (the
“Respondent”).
JOINT SETTLEMENT RECOMMENDATION
2.
Staff conducted an investigation of the Respondent’s activities. The investigation
disclosed that the Respondent had engaged in 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.
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3.
Staff and the Respondent recommend settlement of the matters disclosed by the
investigation in accordance with the terms and conditions set out below. The Respondent agrees
to the settlement on the basis of the facts set out in Part IV herein and consents to the making of
an Order in the form attached as Schedule “A”.
4.
Staff and the Respondent agree that the terms of this 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.
ACKNOWLEDGEMENT
5.
Staff and the Respondent agree with the facts set out in Part IV herein for the purposes of
this Settlement Agreement only and further agree that this agreement of facts is without
prejudice to the Respondent or Staff in any other proceeding of any kind including, but without
limiting the generality of the foregoing, any proceedings brought by the MFDA (subject to Part
IX) or any civil or other proceedings which may be brought by any other person or agency,
whether or not this Settlement Agreement is approved by the MFDA.
AGREED FACTS
Registration History
6.
The Respondent is registered as a mutual fund dealer and an exempt market dealer in all
jurisdictions in Canada (except Nunavut). The Respondent has been a Member of the MFDA
since June 7, 2002.
Corporate Structure
7.
The Respondent’s head office is located in Quebec City, Quebec (the “Head Office”).
The Respondent’s operations include branch offices located in: Rothesay, New Brunswick;
Dartmouth, Nova Scotia; Richmond Hill, Ontario; Markham, Ontario; and Calgary, Alberta
(collectively, the “Branches”).
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8.
In a transaction that closed on September 30, 2008, the parent company of the
Respondent acquired another Member of the MFDA, Aegon Dealer Services Canada Inc.
(“Aegon”). Subsequent to the closing, the operations of Aegon were merged with the operations
of the Respondent. The deficiencies identified in this Settlement Agreement do not relate to the
operations of Aegon.
Compliance Examinations
9.
Commencing on June 1, 2009, MFDA Compliance Staff conducted a third round
compliance examination of the Respondent’s Head Office and the Branches in order to assess the
Respondent’s compliance with MFDA By-laws, Rules and Policies during the period August 1,
2007 to April 30, 2009 (the “2009 Examination”). The results of the 2009 Examination were
summarized and delivered to the Respondent in a report dated November 18, 2009 (the “2009
Report”).
10.
Prior to the 2009 Examination, MFDA Compliance Staff conducted a second round
compliance examination of the Respondent’s Head Office and several of its branch locations in
order to assess the Respondent’s compliance with MFDA By-laws, Rules and Policies during the
period December 1, 2005 to July 31, 2007 (the “2007 Examination”). The results of the 2007
Examination were summarized and delivered to the Respondent in a report dated February 14,
2008 (the “2008 Report”).
Inadequate Supervision of Excessive Trading
11.
During the 2009 Examination, MFDA Compliance Staff determined that the Respondent
failed to establish, implement and maintain policies and procedures to detect instances of
excessive trading (i.e., “churning”). This item is a repeat deficiency which was originally
identified by MFDA Compliance Staff in the 2008 Report.
12.
In response to the 2008 Report, the Respondent had previously advised MFDA
Compliance Staff that, effective January 1, 2009, its supervisory staff would produce and review
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“Trend Analysis Reports” each month in order to detect possible instances of excessive trading.
13.
As a result of the conversion of three back-office systems from various merged dealers,
the Respondent discontinued its use of the Trend Analysis Reports after a period of two months
and did not subsequently implement an alternative procedure to detect excessive trading.
14.
As a result of the foregoing deficiency, the Respondent processed trades without
conducting adequate supervision to detect instances of excessive trading in client accounts.
Inadequate Tier 1 Supervision of Trades
15.
In January 2009, the Respondent implemented policies and procedures requiring Branch
Managers and Regional Branch Managers to supervise trading activity by reviewing trade
blotters on a daily basis.
16.
During the 2009 Examination, MFDA Compliance Staff determined that the
Respondent’s supervision of trading activity was deficient in that the Branch Managers and
Regional Branch Managers:
a) failed to sign the daily trade blotters in some instances to evidence trade supervision
and suitability review; and
b) failed to review daily trade blotters in some instances in a timely manner.
17.
The Respondent, thereby, failed to ensure that its Branch Managers and Regional Branch
Managers adhered to its policies and procedures with respect to the supervision of trading
activity at the branch level. As a result, the Respondent processed trades in some instances
without evidence of adequate trade supervision and suitability review.
Inadequate Supervision of New Accounts
18.
In January 2009, the Respondent implemented policies and procedures requiring Branch
Managers and Regional Branch Managers to review and approve new accounts. In particular,
the Respondent’s policies and procedures required:
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a) Branch Managers to review a “New Account Report” on a daily basis; and
b) Regional Branch Managers to review and approve New Account Application Forms
(“NAAFs”) on a daily basis.
19.
During the 2009 Examination, MFDA Compliance Staff determined that the
Respondent’s supervision of new accounts openings was deficient in that Branch Managers
failed in some instances to review New Account Reports on a daily basis and Regional Branch
Managers failed to review and approve NAAFs on a daily basis.
20.
The Respondent thereby failed to ensure that its Branch Managers and Regional Branch
Managers adhered to its policies and procedures with respect to the supervision of new accounts.
As a result, the Respondent allowed new accounts to be opened without adequate supervision to
ensure that the accounts were suitable for clients.
Inadequate Supervision of Leveraging
21.
During the 2009 Examination, MFDA Compliance Staff determined that the Respondent
failed to establish and maintain adequate internal controls to track leveraged accounts in that the
Respondent failed to properly identify leveraged accounts in its back office system. This
deficiency prevented the Respondent from conducting adequate supervision of leveraged
accounts. As a result of this deficiency, MFDA Compliance Staff was unable to complete a
review of the Respondent’s leveraged accounts.
22.
During the 2009 Examination, MFDA Compliance Staff also determined that the
Respondent’s supervision of the suitability of leveraging recommendations was deficient in that
the Respondent’s Head Office compliance staff failed to maintain evidence of their review of
leveraging recommendations in some instances. As a result of this deficiency, leveraging
recommendations which may have been unsuitable were processed by the Respondent without
proper supervision.
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23.
In addition to the deficiencies identified during the 2009 Examination, investigations
conducted by the MFDA’s Enforcement Department identified deficiencies regarding the
supervision of referral arrangements and outside business activities during the period August
2003 to July 2010, as particularized below.
DB, KN and MH
24.
The Respondent failed to adequately supervise DB, KN and MH, Approved Persons
registered with the Respondent. DB and KN have been registered with the Respondent since
February 2007. MH has been registered with the Respondent since June 2003.
25.
Between August 2003 and June 2007, DB, KN and MH had a referral arrangement with a
third party, RS, whereby DB, KN and MH shared commissions with RS or a corporation that he
controlled, in exchange for about 19 client referrals. In many cases, RS discussed with clients
the merits of using leveraging to invest in the course of referring the clients to DB, KN and MH.
RS is registered in Ontario as a life insurance agent, but has never been registered in the
securities industry in any capacity.
26.
The Respondent failed to employ adequate supervision to prevent DB, KN and MH from
maintaining a referral arrangement with a third party. The Respondent permitted DB, KN and
MH to maintain in a referral arrangement with a third party, notwithstanding that:
a) the referrals were not made pursuant to a referral arrangement between the
Respondent and another entity;
b) there was no written agreement governing the referral arrangement;
c) the commissions paid pursuant to the referral arrangement did not flow through the
Respondent; and
d) written disclosure of the referral arrangement was not provided to the clients.
27.
The MFDA’s investigation into these matters has not revealed any client losses.
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28.
The Respondent failed to adequately supervise ML, a former Approved Person who was
registered with the Respondent from December 2006 until August 2010.
29.
In January 2010, the Respondent became aware that ML had been engaging in an outside
business activity that it had not approved. Specifically, ML had been providing consulting
services related to corporate restructurings to clients and other individuals. To facilitate the
corporate restructurings, ML also referred clients to third parties and received compensation in
respect of the referrals which did not flow through the Respondent.
30.
The Respondent failed to adequately supervise ML, and adhere to its own policies and
procedures regarding outside business activities. In particular::
a) between January 2010 and July 27, 2010, the Respondent permitted ML to engage in
an outside business activity, which it had not approved;
b) the Respondent failed to take appropriate supervisory action to monitor ML’s conduct
when it became aware of ML’s outside business activity in January 2010; and
c) the Respondent failed to conduct an adequate review of ML’s outside business
activity to understand the nature of his activities and whether his activities involved
the Respondent’s clients, when it became aware of ML’s outside business activity in
January 2010.
31.
The MFDA’s investigation into these matters has not revealed any client losses
CT
32.
The Respondent failed to adequately supervise CT, an Approved Person registered with
the Respondent since August 2, 2005.
33.
In September 2009, the Respondent became aware that CT had been providing financial
planning services to clients.
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34.
In December 2009, the Respondent approved CT’s financial planning activities
notwithstanding that these services were not provided through, or on behalf of, the Respondent
or another regulated entity.
35.
In May 2010, CT elected to conduct his financial planning services through his insurance
registration.
36.
The Respondent failed to adequately supervise CT in that:
a) the Respondent failed to conduct an adequate review of CT’s financial planning
services to understand the nature of his activities when it became aware of them in
September 2009;
b) between September 2009 and December 2009, the Respondent permitted CT to
engage in financial planning services which it had not approved; and
c) between September 2009 and May 2010, the Respondent permitted CT to provide
financial services to clients notwithstanding that the services were not provided
through, or on behalf of, the Respondent or another regulated entity.
37.
As a result of the foregoing, the Respondent permitted CT to provide financial planning
services to clients which were not subject to supervision by the Respondent or another regulated
entity.
38.
The MFDA’s investigation into these matters has not revealed any client losses.
Additional Factors
39.
The Respondent has cooperated with the MFDA’s investigation of the issues that form
the subject matter of this Settlement Agreement.
40.
Some of the issues identified in the 2009 Report were aggravated by inconsistencies in
the quality of the data of dealers acquired by the Respondent.
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Addressing Historical Leveraging
41.
The Respondent has revised, and represents that it will continue to revise, its policies and
procedures with regard to supervision of excessive trading, trading activity at the branch level,
new accounts, and leveraging, and has provided a copy of those policies and procedures to
MFDA Staff. The Respondent represents that it has implemented, and will continue to
implement, those revised policies and procedures. The Respondent (hereby) undertakes to
comply with those policies and procedures in the future.
42.
The Respondent has developed a plan, which has been reviewed by MFDA Staff, to
address existing leveraged accounts (the “Leverage Review Action Plan”). The Respondent
asserts that it will fully carry out the terms of the Leverage Review Action Plan to the
satisfaction of MFDA Staff. The Respondent may be subject to further disciplinary action
should it fail to adequately implement the Leverage Review Action Plan.
CONTRAVENTIONS
43.
By engaging in the conduct described above, the Respondent admits the following:
a) during the period August 2007 and April 2009, the Respondent failed to establish,
implement and maintain policies and procedures to detect instances of excessive
trading, contrary to MFDA Rules 2.2.1, 2.5, 2.9, and 2.10, and MFDA Policy No. 2;
b) during the period January 2009 and April 2009, the Respondent failed to ensure that
its supervisory staff adhered to its policies and procedures with respect to the
supervision of trading activity at the branch level, contrary to MFDA Rules 2.2.1, 2.5,
2.9, and 2.10, and MFDA Policy No. 2;
c) during the period January 2009 and April 2009, the Respondent failed to ensure that
its supervisory staff adhered to its policies and procedures with respect to the
supervision of new accounts, contrary to MFDA Rules 2.2.1, 2.2.2, 2.2.3, 2.5, 2.9,
and 2.10, and MFDA Policy No. 2;
d) during the period January 2009 and April 2009, the Respondent failed to establish and
maintain adequate internal controls, and books and records, pertaining to leveraged
accounts, contrary to MFDA Rules 2.9, 5.1 and 2.2.1;
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e) during the period August 2003 and June 2007, the Respondent failed to employ
adequate supervision to prevent Approved Persons, DB, KN and MH, from
maintaining referral arrangements with a third party, contrary to MFDA Rules 2.4.2,
2.5 and 2.9;
f) during the period January 2010 and July 2010, the Respondent failed to adequately
supervise the outside business activities of an Approved Person, ML, contrary to
MFDA Rules 1.2.1(d) (now MFDA Rule 1.2.1(c)), 2.4.2, 2.5, and 2.9; and
g) during the period September 2009 and May 2010, the Respondent failed to
adequately supervise the outside business activities of an Approved Person, CT,
contrary to MFDA Rules 1.2.1(d) (now MFDA Rule 1.2.1(c)), 2.4.2, 2.5, and 2.9.
TERMS OF SETTLEMENT
44.
The Respondent agrees to the following terms of settlement:
a) the Respondent shall pay a fine in the amount of $100,000 upon the acceptance of this
Settlement Agreement;
b) the Respondent shall implement the revised policies and procedures identified in this
Settlement Agreement;
c) the Respondent shall implement the Leverage Review Action Plan identified in this
Settlement Agreement;
d) the Respondent shall pay costs in the amount of $15,000 pursuant to s. 24.2 of By-law
No. 1;
e) the Respondent acknowledges that any issues pertaining to its obligation to handle
client complaints pursuant to MFDA Rule 2.11 and MFDA Policy No. 3 is unaffected
by this Settlement Agreement;
f) the Respondent shall in the future comply with all MFDA By-laws, Rules and
Policies, and all applicable securities legislation and regulations made thereunder,
including MFDA Rules 1.2.1(d) (now MFDA Rule 1.2.1(c)), 2.2.1, 2.2.2, 2.2.3, 2.4.2,
2.5, 2.9, 2.10, and 5.1 and MFDA Policy No. 2; and
g) a senior office of the Respondent will attend the settlement hearing in person.
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45.
If this Settlement Agreement is accepted by the Hearing Panel, Staff will not initiate any
proceeding under the By-laws of the MFDA against the Respondent in respect of the facts set out
in Part IV and the contraventions described in Part V of this Settlement Agreement, subject to
the provisions of Part IX below. Nothing in this Settlement Agreement precludes Staff from
investigating or initiating proceedings in respect of any facts and contraventions that are not set
out in Parts IV and V of this Settlement Agreement or in respect of conduct that occurred outside
the specified date ranges of the contraventions set out in Part V, whether known or unknown at
the time of settlement. Furthermore, nothing in this Settlement Agreement shall relieve the
Respondent from fulfilling any continuing regulatory obligations, including, for greater certainty,
any obligations regarding the handling of client complaints arising out of facts and
contraventions set out in Parts IV and V.
PROCEDURE FOR APPROVAL OF SETTLEMENT
46.
Acceptance of this Settlement Agreement shall be sought at a hearing of the Central
Regional Council of the MFDA on a date agreed to by counsel for Staff and the Respondent.
47.
Staff and the Respondent may refer to any part, or all, of the Settlement Agreement at the
settlement hearing. Staff and the Respondent also agree that if this Settlement Agreement is
accepted by the Hearing Panel, it will constitute the entirety of the evidence to be submitted
respecting the Respondent in this matter, and the Respondent agrees to waive its 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.
48.
Staff and the Respondent agree that if this Settlement Agreement is accepted by the
Hearing Panel, then 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.
49.
Staff and the Respondent agree that if this Settlement Agreement is accepted by the
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Hearing Panel, 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 it.
FAILURE TO HONOUR SETTLEMENT AGREEMENT
50.
If this Settlement Agreement is accepted by the Hearing Panel and, at any subsequent
time, the Respondent fails to comply with any of the terms of the Settlement Agreement, Staff
reserves the right to bring proceedings under the By-laws of the MFDA against the
Respondent based on, but not limited to, the facts set out in Part IV of the Settlement Agreement,
as well as the breach of the Settlement Agreement. If such additional enforcement action is
taken, the Respondent agrees that the proceeding(s) may be heard and determined by a hearing
panel comprised of all or some of the same members of the hearing panel that accepted the
Settlement Agreement, if available.
NON-ACCEPTANCE OF SETTLEMENT AGREEMENT
51.
If, for any reason whatsoever, this Settlement Agreement is not accepted by the Hearing
Panel or an Order in the form attached as Schedule “A” is not made 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 this Settlement Agreement or the settlement negotiations.
52.
Whether or not this Settlement Agreement is accepted by the Hearing Panel, the
Respondent agrees that it will not, in any proceeding, refer to or rely upon this Settlement
Agreement or the negotiation or process of approval of this Settlement Agreement as the basis
for any allegation against the MFDA of lack of jurisdiction, bias, appearance of bias, unfairness,
or any other remedy or challenge that may otherwise be available.
DISCLOSURE OF AGREEMENT
53.
The terms of this Settlement Agreement will be treated as confidential by the parties
hereto until accepted by the Hearing Panel, and forever if, for any reason whatsoever, this
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Settlement Agreement is not accepted by the Hearing Panel, except with the written consent of
both the Respondent and Staff or as may be required by law.
54.
Any obligations of confidentiality shall terminate upon acceptance of this Settlement
Agreement by the Hearing Panel.
EXECUTION OF SETTLEMENT AGREEMENT
55.
This Settlement Agreement may be signed in one or more counterparts which together
shall constitute a binding agreement.
56.
A facsimile copy of any signature shall be effective as an original signature.
Dated: December 15, 2011
“Kim Lavigne”
“Louis H. DeConinck”
Witness – Signature
Investia Financial Services Inc.
Per: Louis H. DeConinck, President
Kim Lavigne
Witness – Print Name
“Mark
Gordon”
Staff of the MFDA
Per:
Mark
Gordon
Executive
Vice-President
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Schedule “A”
Order
File No. 201031
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: Investia Financial Services Inc.
ORDER
WHEREAS on [date], the Mutual Fund Dealers Association of Canada (the “MFDA”)
issued a Notice of Settlement Hearing pursuant to section 24.4 of By-law No. 1 in respect of
Investia Financial Services Inc. (the “Respondent”);
AND WHEREAS the Respondent entered into a settlement agreement with Staff of the
MFDA, dated [date] (the “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 the Respondent has failed to
comply with or carry out the provisions of MFDA Rules 1.2.1(d) (now MFDA Rule 1.2.1(c)),
2.2.1, 2.2.2, 2.2.3, 2.4.2, 2.5, 2.9, 2.10, and 5.1 and MFDA Policy No. 2;
IT IS HEREBY ORDERED THAT the Settlement Agreement is accepted, as a
consequence of which:
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1. The Respondent shall pay a fine in the amount of $100,000 upon the acceptance of
the Settlement Agreement.
2. The Respondent shall implement the revised policies and procedures identified in the
Settlement Agreement.
3. The Respondent shall implement the Leverage Review Action Plan identified in the
Settlement Agreement.
4. The Respondent shall pay the costs of this proceeding in the amount of $15,000 upon
the acceptance of the Settlement Agreement.
5. The Respondent shall in the future comply with all MFDA By-laws, Rules and
Policies, and all applicable securities legislation and regulations made thereunder,
including MFDA Rules 1.2.1(d) (now MFDA Rule 1.2.1(c)), 2.2.1, 2.2.2, 2.2.3, 2.4.2,
2.5, 2.9, 2.10, and 5.1 and MFDA Policy No. 2.
DATED this [day] day of [month], 20[ ].
Per: __________________________
[Name of Public Representative], Chair
Per: _________________________
[Name of Industry Representative]
Per: _________________________
[Name of Industry Representative]
Doc 283528
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