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. 201361
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: Alfonso Chin
SETTLEMENT AGREEMENT
I.
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 Central Regional Council (the “Hearing
Panel”) of the MFDA should accept the settlement agreement (the “Settlement Agreement”)
entered into between Staff of the MFDA (“Staff”) and the Respondent, Alfonso Chin.
II.
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.
III.
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 accepted by the Hearing Panel. For greater
certainty, this agreement is not intended to and does not prohibit the Respondent’s ability to
conduct business in the purchase and sale of insurance products, including segregated funds.
IV.
AGREED FACTS
Registration History
6.
Between January 10, 1997 and April 26, 2012, the Respondent was registered in Ontario
as a mutual fund salesperson with Quadrus Investment Services Ltd. (“Quadrus”), a Member of
the MFDA. On or about April 26, 2012, the Respondent was terminated by Quadrus as a result
of the events described herein.
7.
During the material time, the Respondent was also licensed in Ontario as a life insurance
agent with London Life Insurance Company (“London Life”) and carried on business as a
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8.
During the material time, the Respondent carried on his insurance and financial planning
businesses through his company, CHC Financial Planning Concepts Inc. (“CHC”). The
Respondent was an officer and employee of CHC.
9.
During the material time, the Respondent conducted mutual fund business from a
Quadrus branch office in Mississauga, Ontario.
10.
The Respondent is not currently registered in the securities industry in any capacity.
11.
The Respondent resides in Mississauga, Ontario.
Securities Related Business Outside the Member
12.
On January 11, 2012, Staff became aware of the Respondent’s conduct following receipt
of a report submitted by Quadrus through the MFDA’s Member Events Tracking System
(“METS”), in accordance with MFDA Policy No. 6, that the Respondent had an undisclosed
outside business activity.
Lexxco Investment Corporation
13.
According to its marketing materials, Lexxco Investment Corporation1 (“Lexxco”) is a
private company that carries on business lending monies to real estate owners and developers
and funds those loans by issuing promissory notes to investors. The promissory notes have terms
between one to three years and pay interest monthly or annually at rates between 7 to 12 per cent
annually (the “Lexxco Investment”).
14.
According to Lexxco’s website:
1 Lexxco is also known as Lexxco Mortgage Investment Corporation; and ILC Corporation.
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We are a diversified, financial solution mediator. Lexxco has been a premier provider of
real estate investment opportunities to investors in the GTA since 1997. The foundation
of our service is the depth of our local market knowledge. Our 14 year history of
maintaining investor-borrower relationship in local markets its enables us to be the best
information source for investors locally. We specialize in tax minimization, investment
advisors for clients, brokerage and related professional services. Lexxco seamlessly
integrates next-generation thought leadership with best-of-breed methodologies,
technology & human capital.
Our investment consultants and loan professionals are able to provide clients with an
unparalleled perspective on investment as well as on the lending side of real estate market
locally and regionally. Included in our activities, but not limited to have been transaction
involving shopping centers, office and industrial buildings, apartment properties, single
tenant, net-lease properties, hotel / motels, senior housing facilities, self-storage and land,
in addition to the more traditional mortgage arrangement / financing mediation. Lexxco
has established itself in real estate on the GTA level.
With years of experience advising investors in real estate market, the company has
established a truly superior record of knowledge. We have been trusted advisors for
institutional and private investors. Our success over the years is the broad base of
experience that we enjoy at Lexxco. Our knowledge of the real estate market is
comprehensive and cuts across the spectrum of commercial developments and geographic
market place in the GTA.
15.
Since in or around 2002, the Respondent has known AL, the President and CEO of
Lexxco.
16.
In April 2009, the Respondent personally invested a total of $100,000 in the Lexxco
Investment. In May 2009, the Respondent received his principal back plus interest of $602.73.
Referral Fees
17.
Between 2006 and 2011, the Respondent referred or facilitated the sale of a total of
$3,105,000 of the Lexxco Investment to 2 Quadrus clients and 11 other individuals (who were
London Life insurance clients) and was paid referral fees or compensation in the total amount of
$105,600 on account of those investments.
18.
In civil litigation arising from Lexxco investments, the Respondent has pleaded that his
dealings with Lexxco were undertaken in the Respondent’s capacity as an officer and employee
of CHC.
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19.
During the course of Staff’s investigation, the Respondent provided the following
information to Staff with respect to the Quadrus clients and other individuals who purchased the
Lexxco Investment from or through the Respondent (the “Lexxco Investors”):
Lexxco
Date of
Amount(s)
Amount(s) Repaid
Client
Respondent’s /
Investor
investment(s)
Invested
to Investor
CHC’s
Compensation
RH&DH
2006
$700,000
$387,525
No
2006 – $30,000
2008-2009
$450,000
$124,008
2008 – $16,000
2009 – $30,000
BH&MH
2006
$100,000
2010 – $22,500
No
2006 – $4,000
2009
Reinvested
2011 – $22,500
2009 – $10,000
$100,000 plus
$150,000
PP
2007
$100,000
2010 – $100,000 plus
No
2007 – $4,000
interest (unknown)
JS&LA
2008
$230,000
2009 – $19,941
No
2008 – $9,200
2010 – $19,941
2010 – unknown*
2011
Reinvested
2011 – $19,941
2011 – unknown*
$230,000 plus
$130,000
LD
2008
$60,000
2009 – $5,196
Yes
2008 – $2,400
2010 – $5,196
2011
Reinvested
2011 – $5,196
$45,000 and
2011 – $15,000
withdrew
$15,000
CV
2010
$300,000
2010 – $25,500
No
Unknown*
2011
40,000
2011 – $19,125
JW
2010
$100,000
None
No
Unknown*
ME
2011
$410,000
2011 – $19,731
No
Unknown*
LFC
$200,000
None
No
Unknown*
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Lexxco
Date of
Amount(s)
Amount(s) Repaid
Client
Respondent’s /
Investor
investment(s)
Invested
to Investor
CHC’s
Compensation
MC
2011
$150,000
None
Yes
Unknown*
Totals
$3,105,000
$812,000
2
$105,6002
* = the Respondent stated that after 2009 he suspended invoicing Lexxco for personal reasons
but intended to resume at a later date. Staff was unable to determine the timing and amount of
the compensation, if any, received by the Respondent in respect of these particular investments.
20.
The Respondent acted as an intermediary between Lexxco and the Lexxco Investors by,
among other things:
a) completing the applicable Lexxco documentation with the Lexxco Investors;
b) delivering completed Lexxco documentation and investment monies to Lexxco on
behalf of the Lexxco Investors; and
c) delivering the promissory notes issued by Lexxco to the Lexxco Investors.
21.
The Respondent did not seek or obtain approval from Quadrus to sell the Lexxco
Investment. The Respondent did not disclose to Quadrus that the Respondent was referring or
facilitating the sale of the Lexxco Investment to clients or other individuals.
22.
The Lexxco Investment was not a product approved by Quadrus for sale or referral by its
Approved Persons, including the Respondent. The transactions in respect of the Lexxco
Investment were not processed for the account or through the facilities of Quadrus. Quadrus did
not have a referral arrangement with Lexxco.
23.
In July 2011, several Lexxco Investors did not receive their scheduled interest payments
and contacted the Respondent. In response, the Respondent contacted AL and arranged for the
interest payments to be made.
2 The Respondent subsequently produced documents showing that he had received exactly $102,053.56, exclusive of
the unknown amounts.
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24.
In early August 2011, the Financial Services Commission of Ontario (“FSCO”) issued an
order freezing the assets and trust monies of Lexxco on the grounds that the public may be
adversely affected by the activities of Lexxco. Lexxco had been licensed as a mortgage
administrator with the FSCO since January 30, 2009.
25.
On October 27, 2011, AL was arrested and subsequently charged with 12 counts of fraud
over $5,000. The police alleged that Lexxco was a Ponzi scheme; that AL was using monies
from new investors to make payments to existing investors; and that AL was also using investor
monies for his own personal use.
26.
On October 31, 2011, Lexxco Investor CV contacted the Respondent after reading the
media reports about AL’s arrest and Lexxco’s legal and financial difficulties. By letter dated
November 3, 2011, the Respondent advised the Lexxco Investors that he had become aware that
AL had been arrested and charged with several counts of fraud. The Respondent denied having
any knowledge that AL was operating a Ponzi scheme.
27.
As set out in the chart above, of the total amount of $3,105,000 invested by the Lexxco
Investors, the Respondent believed only approximately $812,000 was repaid to them.
28.
In or around February 2012, Lexxco Investors BH&MH, RH&DH and JS&LA
commenced civil proceedings against the Respondent and CHC in respect of the Lexxco
Investment.
29.
In or around August 2013, Lexxco Investor CV commenced a civil proceeding against
the Respondent and others in respect of the Lexxco Investment.
V.
CONTRAVENTIONS
30.
The Respondent admits that between 2006 and 2011, the Respondent engaged in
securities related business that was not carried on for the account and through the facilities of the
Member by referring or facilitating the sale of at least $3,105,000 of investments in a mortgage
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investment corporation to 2 clients and 11 other individuals outside the Member, contrary to
MFDA Rules 1.1.1(a) and 2.1.1.
31.
The Respondent admits that between 2006 and 2011, the Respondent received at least
$102,053.56 in referral fees for referring or facilitating the sale of investments in a mortgage
investment corporation to 2 clients and 11 other individuals, thereby participating in a referral
arrangement in relation to securities related business to which the Member was not a party,
contrary to the requirements of sections 13.7 and 13.8 of National Instrument 31-103, and
MFDA Rules 2.4.2 and 2.1.1.
VI.
TERMS OF SETTLEMENT
32.
The Respondent agrees to the following terms of settlement:
(a) a permanent prohibition on the authority of the Respondent to conduct securities
related business in any capacity while in the employ of or associated with any MFDA
Member, pursuant to section 24.1.1(e) of MFDA By-law No. 1;
(b) a fine in the amount of $30,000, pursuant to section 24.1.1(b) of MFDA By-law No.
1, which fine shall be reduced by any amounts, excluding payments for legal costs,
that the Respondent can establish, based on documentary evidence acceptable to Staff
in its sole discretion, that he has paid to Lexxco Investors on or before July 4, 2014 to
settle civil actions commenced by them against the Respondent;
(c) costs in the amount of $2,500, pursuant to section 24.2 of MFDA By-law No. 1; and
(d) the Respondent will attend in person, on the date set for the Settlement Hearing.
VII.
STAFF COMMITMENT
33.
If this Settlement Agreement is accepted by the Hearing Panel, Staff will not initiate any
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proceeding under the By-laws of the MFDA against the Respondent in respect of 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 facts and contraventions set out in Parts IV and VII, 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.
VIII. PROCEDURE FOR APPROVAL OF SETTLEMENT
34.
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.
35.
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 his 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.
36.
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.
37.
Staff and the Respondent agree that if this Settlement Agreement is accepted by the
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 him.
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IX.
FAILURE TO HONOUR SETTLEMENT AGREEMENT
38.
If this Settlement Agreement is accepted by the Hearing Panel and, at any subsequent
time, the Respondent fails to honour any of the Terms of Settlement set out herein, Staff reserves
the right to bring proceedings under section 24.3 of 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.
X.
NON-ACCEPTANCE OF SETTLEMENT AGREEMENT
39.
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.
40.
Whether or not this Settlement Agreement is accepted by the Hearing Panel, the
Respondent agrees that he 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.
XI.
DISCLOSURE OF AGREEMENT
41.
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
Settlement Agreement is not accepted by the Hearing Panel, except with the written consent of
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both the Respondent and Staff or as may be required by law.
42.
Any obligations of confidentiality shall terminate upon acceptance of this Settlement
Agreement by the Hearing Panel.
XII.
EXECUTION OF SETTLEMENT AGREEMENT
43.
This Settlement Agreement may be signed in one or more counterparts which together
shall constitute a binding agreement.
44.
A facsimile copy of any signature shall be effective as an original signature.
Dated this 2nd day of May, 2014.
“William E. Pepall”
“Alfonso Chin”
Witness – Signature
Alfonso Chin
William E. Pepall
Witness – Print name
“Shaun Devlin”
Staff of the MFDA
Per: Shaun Devlin
Senior Vice-President,
Member Regulation – Enforcement
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Schedule “A”
Order
File No. 201361
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: Alfonso Chin
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
Alfonso Chin (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:
a) between 2006 and 2011, the Respondent engaged in securities related business that
was not carried on for the account and through the facilities of the Member by
referring or facilitating the sale of at least $3,105,000 of investments in a mortgage
Page
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investment corporation to 2 clients and 11 other individuals outside the Member,
contrary to MFDA Rules 1.1.1(a) and 2.1.1; and
b) between 2006 and 2011, the Respondent received at least $102,053.56 in referral fees
for referring or facilitating the sale of investments in a mortgage investment
corporation to 2 clients and 11 other individuals, thereby participating in a referral
arrangement in relation to securities related business to which the Member was not a
party, contrary to the requirements of sections 13.7 and 13.8 of National Instrument
31-103, and MFDA Rules 2.4.2 and 2.1.1.
IT IS HEREBY ORDERED THAT:
1.
The Settlement Agreement is accepted, as a consequence of which the following
penalties and costs are imposed upon the Respondent:
(i)
a permanent prohibition on the authority of the Respondent to conduct securities
related business in any capacity while in the employ of or associated with any MFDA
Member, pursuant to section 24.1.1(e) of MFDA By-law No. 1;
(ii)
a fine in the amount of $30,000, pursuant to section 24.1.1(b) of MFDA By-law No.
1, which fine shall be reduced by any amounts, excluding payments for legal costs,
that the Respondent can establish, based on documentary evidence acceptable to Staff
in its sole discretion, that he has paid to Lexxco Investors on or before July 4, 2014 to
settle civil actions commenced by them against the Respondent; and
(iii)
costs in the amount of $2,500, pursuant to section 24.2 of MFDA By-law No. 1; and
2.
If at any time a non-party to this proceeding requests production of, or access to, any
materials filed in, or the record of, this proceeding, including all exhibits and transcripts, then the
MFDA Corporate Secretary shall not provide copies of, or access to, the requested documents to
the non-party without first redacting from them any and all intimate financial or personal
information, pursuant to Rules 1.8(2) and (5) of the MFDA Rules of Procedure.
Page
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DATED this [day] day of [month], 20[ ].
Per: __________________________
[Name of Public Representative], Chair
Per: _________________________
[Name of Industry Representative]
Per: _________________________
[Name of Industry Representative]
DM 386529 v1
Page
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