Settlement Agreement

Settlement Agreement
File No. 201414

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: Patrick Cronin



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, Patrick Cronin.

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
XI) 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.

IV.
AGREED FACTS

Registration History

6.
From February 1997 to November 14, 2006, the Respondent was registered in Ontario as
a mutual fund salesperson with Clarica Investco Inc. (“Clarica”).1 Clarica became a Member of
the MFDA on January 11, 2002. Clarica terminated the Respondent after it learned he was
engaging in undisclosed outside business activity with respect to arranging private loans and
mortgages.

7.
From November 29, 2006 to November 8, 2011, the Respondent was registered in
Ontario as a mutual fund salesperson with Desjardins Financial Security Investments Inc.
(“Desjardins”), a Member of the MFDA. Desjardins terminated the Respondent as a result of the
events described herein.

1 On June 25, 2007, Clarica changed its name to Sun Life Financial Investment Services (Canada) Inc.
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8.
At all material times, the Respondent was licensed in Ontario as an insurance agent and
carried on this activity through the affiliated insurance distributors for Clarica and Desjardins:
Clarica Financial Services Inc. and Desjardins Financial Security Independent Network,
respectively.

9.
The Respondent has been licensed in Ontario as a mortgage agent since July 1, 2008.

10.
At all material times, the Respondent conducted business in and around Dublin, Ontario,
located near Stratford, Ontario.

11.
The Respondent is not currently registered in the securities industry in any capacity. The
Respondent is currently licensed by the Financial Services Commission of Ontario as an
insurance agent and mortgage broker.

Undisclosed Dual Occupation

A. Clarica

12.
In July 2006, Clarica received a complaint from MB, an insurance client of the
Respondent, alleging that the Respondent was arranging private loans and mortgages.

13.
MB alleged that the Respondent had negotiated and arranged for private loans and
mortgages between MB, as the borrower, and the Respondent and other persons, as the lenders,
in respect of a property located at 27 Market Place in Stratford, Ontario. MB further alleged,
among other things, that the Respondent was the principal of a business or undertaking which
arranged private loans and mortgages between a pool of approximately 40 private lenders and
borrowers (some of whom were clients of Clarica). MB alleged that the private loans and
mortgages charged high rates of interest and, in addition to interest payments the Respondent
received, he also earned fees and other payments in respect of these activities, including a
brokerage fee ranging from 5% to 10% of the value of the loan.

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14.
The Respondent had not previously disclosed to Clarica’s head office that he was
involved in arranging private loans and mortgages and Clarica never approved the Respondent
engaging in an outside business activity of this nature. After receiving MB’s complaint, Clarica
immediately commenced an investigation.

15.
During the course of its investigation, Clarica interviewed the Respondent. The
Respondent admitted to Clarica that he had arranged numerous private loans and mortgages for
individuals during the time he was registered with Clarica, including the mortgage for MB
relating to a restaurant located at 27 Market Place in Stratford, Ontario. The Respondent
advised Clarica that he had taken over for his late father, who had, together with his relatives and
friends, arranged private loans and mortgages for individuals in the local community. The
Respondent denied that he solicited clients to be lenders but acknowledged that some of the
individuals in the pool of lenders were clients. The Respondent stated that the loans and
mortgages to MB were the only ones that the Respondent had arranged directly with a borrower;
the Respondent stated that in all other instances the loans had been arranged by two mortgage
brokers located in London, Ontario.

16.
The Respondent acknowledged that he received fees and other payments in respect of his
activities arranging private loans and mortgages.

17.
In November 2006, based on the results of its investigation, which indicated that the
Respondent had been carrying on an undisclosed outside business activity arranging private
loans and mortgages for third parties, Clarica and its affiliated insurance distributor terminated
its relationship with the Respondent.

B. Desjardins

18.
In November 2006, following his termination by Clarica, the Respondent joined
Desjardins as a mutual fund salesperson, as well as an insurance agent with its affiliated
insurance distributor.

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19.
In the course of joining Desjardins, the Respondent disclosed to Desjardins in writing that
he and his family members loaned personal monies to third party borrowers through private
mortgages and received compensation for this activity. The Respondent characterized this
activity as confined to his family’s personal finances and carried out through mortgage brokers
and lawyers who handled the transactions. By letter dated January 19, 2007, in response to
follow-up inquiries from Desjardins, the Respondent described his activity as follows:
…With respect to personal finances, family members and myself do lend
our personal money on real estate mortgages that are presented to us
through the broker network. We receive a call and then review the real
estate involved. If we feel positive about it, we agree to finance the loan
and negotiate the rate with the broker who completes all required
paperwork and forms through our lawyers. We receive interest and
principle payments as well as a lenders fee that is based on the amount of
work we have invested in making the decision to finance, any expenses
incurred (mileage, appraisals, opinions, environmental, etc.) and a
discharge fee for providing discharge statements and documents to release
interest at time of payout.

20.
Additionally, in the January 19, 2007 letter, the Respondent advised Desjardins that he
was entering into a referral arrangement with a mortgage brokerage in a manner which suggested
that clients in need of mortgage financing would be referred to an arm’s length mortgage broker:
One addition to our ? [sic] will be an informal referral arrangement with
M. & Associates, a mortgage brokerage in London. Clients in need of
mortgage financing will be given the opportunity to discuss mortgage
options with one of their representatives and in turn their clients given my
name for their insurance needs. All of this business will be done on a no
money exchange basis.

21.
The Respondent failed to adequately explain, or omitted to explain, to Desjardins the true
nature and extent of his activity in relation to arranging private loans and mortgages. The
Respondent confined his explanations and descriptions of his activity to arranging private loans
and mortgages in relation to his family’s “personal money”. The Respondent did not disclose to
Desjardins’ head office, as he had admitted to Clarica during the course of its investigation, that
his outside activity included arranging private loans and mortgages between a pool of third party
lenders, which included himself and some clients of Desjardins, and third party borrowers, some
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of whom may also be clients of Desjardins or its insurance distributor, and receiving a fee for
this activity.

22.
Based upon the Respondent’s representations and omissions, Desjardins approved the
Respondent’s outside activity in relation to his family’s personal finances.

Licensed Mortgage Agent and Interra

23.
On or about July 1, 2008, the Respondent became licensed in Ontario as a mortgage
agent. The Respondent did not disclose his status as a licensed mortgage agent to Desjardins’
head office.

24.
On December 11, 2008, the Respondent submitted a Dual Occupation/Outside Business
Activities – Representative Declaration form (the “OBA Declaration”) to Desjardins in which he
disclosed that, in addition to engaging in life and health insurance activities, he was the President
of Interra Management Group (“Interra”) and had been since June 2004. In the OBA
Declaration, the Respondent described his duties in relation to Interra as follows: “administer
family holdings of a real estate company + secure all financing + approve all purchase and
sales”.

25.
In February 2009, in response to follow-up inquiries from Desjardins, the Respondent
indicated that his family had a family trust, that one of the activities of the trust was that of a
“secondary private mortgage lender” and that as a trustee of the family trust, the Respondent’s
responsibilities included overseeing the assets and administration of the family trust.

26.
Desjardins approved the Respondent’s involvement with Interra based upon the
Respondent’s description of his activities.

27.
The Respondent did not, at any time, disclose to Desjardins that his private loan and
mortgage activities extended beyond his involvement with Interra and mortgage transactions
involving family monies. Among other things, the Respondent failed to disclose to Desjardins
that:
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(a)
he informed potential third party lenders about opportunities to become involved
in loans and private mortgages;
(b)
he arranged private mortgages on behalf of third party borrowers and lenders;
(c)
he earned fees and other payments in respect of his loan and private mortgage
activities;
(d)
he was a licensed mortgage agent;
(e)
he borrowed monies from third parties through private mortgages; and
(f)
his private loan and mortgage activities involved individuals who were not family
members of the Respondent, including Desjardins clients and insurance clients.

Desjardins received a complaint from an insurance client

28.
In March 2011, Desjardins received a complaint from an insurance client of the
Respondent who alleged, among other things, that the Respondent had arranged for the insurance
client to participate in the syndicate of lenders for MB’s property at 27 Market Place in Stratford,
Ontario. Desjardins commenced an investigation of the complaint.

29.
On November 8, 2011, based on the results of its investigation, Desjardins terminated the
Respondent.

Additional

30.
The Respondent is 47 years old.

31.
At all material times, the Respondent maintained a small book of mutual fund business.
He serviced approximately 35 clients when he was registered with Clarica and approximately 10
clients when he was registered with Desjardins.

32.
The Respondent has not previously been the subject of MFDA disciplinary proceedings.

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33.
The Respondent cooperated with Staff during its investigation into his conduct.

34.
By entering into this Settlement Agreement, the Respondent has saved the MFDA the
time, resources and expense associated with conducting a full hearing of the allegations set out in
the Notice of Hearing.

35.
The Respondent has expressed remorse for his actions.

V.
CONTRAVENTIONS

36.
The Respondent admits that, between January 11, 2002 and November 8, 2011, he had
and continued in another gainful occupation that was not disclosed to and approved by the two
Members with which he was registered in succession by arranging private loans and mortgages
for third party borrowers and lenders, some of whom were clients, contrary to MFDA Rules
1.2.1(c)2 and 2.1.1.

VI.
TERMS OF SETTLEMENT

37.
The Respondent agrees to the following terms of settlement:
(a)
the Respondent shall, for a period of ten (10) years, be prohibited from
conducting securities related business while in the employ of or associated with
any MFDA Member, pursuant to s. 24.1.1(e) of MFDA By-law No. 1;
(b)
the Respondent shall pay a fine in the amount of $10,000 pursuant to s. 24.1.1(b)
of MFDA By-law No. 1 upon acceptance of this Settlement Agreement;
(c)
the Respondent shall pay costs in the amount of $2,500 pursuant to s. 24.2 of
MFDA By-law No. 1 upon acceptance of this Settlement Agreement; and
(d)
the Respondent shall in the future comply with MFDA Rules 1.2.1(c) and 2.1.1.

VII.
STAFF COMMITMENT

38.
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

2 Formerly MFDA Rule 1.2.1(d).
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contraventions described in Part VI of this Settlement Agreement, subject to the provisions of
Part X below. Nothing in this Settlement Agreement precludes Staff from investigating or
initiating proceedings in respect of any 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 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.

VIII. PROCEDURE FOR APPROVAL OF SETTLEMENT

39.
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.

40.
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 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.

41.
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.

42.
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 him.

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IX.
FAILURE TO HONOUR SETTLEMENT AGREEMENT

43.
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

44.
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.

45.
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

46.
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
both the Respondent and Staff or as may be required by law.

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47.
Any obligations of confidentiality shall terminate upon acceptance of this Settlement
Agreement by the Hearing Panel.

XII.
EXECUTION OF SETTLEMENT AGREEMENT

48.
This Settlement Agreement may be signed in one or more counterparts which together
shall constitute a binding agreement.

49.
A facsimile copy of any signature shall be effective as an original signature.

DATED this 15th day of January, 2015.

“Gordon Cudmore”

“Patrick Cronin”
Witness – Signature

Patrick Cronin

Gordon Cudmore
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. 201414

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: Patrick Cronin



ORDER


WHEREAS on May 22, 2014, the Mutual Fund Dealers Association of Canada (the
“MFDA”) issued a Notice of Hearing pursuant to sections 20 and 24 of By-law No. 1 in respect
of Patrick Cronin (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, between January 11, 2002
and November 8, 2011, the Respondent had and continued in another gainful occupation that was
not disclosed to and approved by the two Members with which he was registered in succession
by arranging private loans and mortgages for third party borrowers and lenders, which included
borrowing from clients, contrary to MFDA Rules 1.2.1(c) (formerly MFDA Rule 1.2.1(d)) and
2.1.1;
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IT IS HEREBY ORDERED THAT the Settlement Agreement is accepted, as a
consequence of which:
1.
The Respondent shall, for a period of ten (10) years, be prohibited from conducting
securities related business while in the employ of or associated with any MFDA Member,
pursuant to s. 24.1.1(e) of MFDA By-law No. 1;
2.
The Respondent shall pay a fine in the amount of $10,000 pursuant to s. 24.1.1(b) of
MFDA By-law No. 1 upon acceptance of this Settlement Agreement;
3.
The Respondent shall pay costs in the amount of $2,500 pursuant to s. 24.2 of MFDA
By-law No. 1 upon acceptance of this Settlement Agreement;
4.
The Respondent shall in the future comply with MFDA Rules 1.2.1(c) and 2.1.1; and
5.
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.

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

Per: __________________________

[Name of Public Representative], Chair

Per: _________________________

[Name of Industry Representative]

Per: _________________________

[Name of Industry Representative]

DM 400150 v1
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