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. 201529
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: Murray Harold Wellman and Michael John Wellman
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 Respondents, Murray Harold Wellman
and Michael John Wellman.
II.
JOINT SETTLEMENT RECOMMENDATION
2.
Staff conducted an investigation of the Respondents’ activities. The investigation
disclosed that the Respondents had engaged in activity for which the Respondents 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 Respondents recommend settlement of the matters disclosed by the
investigation in accordance with the terms and conditions set out below. The Respondents agree
to the settlement on the basis of the facts set out in Part IV herein and consent to the making of
an Order in the form attached as Schedule “A”.
4.
Staff and the Respondents 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 Respondents 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 Respondents 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.
IV.
AGREED FACTS
Registration History
6.
Michael John Wellman has been registered in the mutual fund industry since 1994.
7.
Michael John Wellman has been registered as a mutual fund salesperson (now known as
a dealing representative) with FundEX Investments Inc. (“FundEX”), a Member of the MFDA,
in Ontario since March 19, 2002 and British Columbia since October 10, 2008.
8.
Murray Harold Wellman was registered in the mutual fund industry commencing in at
least 1989.
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9.
Until he retired on December 31, 2013, Murray Harold Wellman was registered with
FundEX in Ontario from March 19, 2002 and British Columbia from July 20, 2004. Murray
Harold Wellman was also registered with FundEX in Newfoundland and Labrador from June 19,
2007 to December 24, 2009.
10.
Murray Harold Wellman is not currently registered in the securities industry in any
capacity.
11.
At all material times, the Respondents conducted business in the Waterloo, Ontario area.
12.
The Respondents jointly serviced the same client base.
Alteration of Forms Without Evidence of Client Approval
13.
Chapter 5, Section III (A) of the January 2012 version of the FundEX Policies and
Procedures Manual states that:
The use of liquid paper (i.e. white out, correction fluid) is strictly prohibited from being
used to correct material changes on any documentation. The use of liquid paper to
correct any errors placed on client documentation constitutes a change to the form
(which is a legal document). Any material changes made to a client’s trade documents,
including address changes, must be initialed by the client.
14.
In December 2013, FundEX conducted a sales compliance review of the Respondents’
client files. During the review, FundEX observed that 7 forms in 6 client files had been altered
with white out. The clients had not initialed or otherwise indicated their approval of the changes.
The dates on the altered forms ranged from April 8, 2011 to October 21, 2013.
15.
Three of the altered forms recorded Know-Your-Client (“KYC”) information updates and
the changes that were made with white out adjusted the risk tolerances and investment objectives
of the clients that were recorded on the forms.
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16.
Four of the altered forms were prepared to implement transactions for clients and the
changes that were made with white out adjusted the trade instructions that were recorded on the
forms.
17.
None of the changes that were made to forms using white out resulted in complaints from
clients or alleged client losses.
Pre-Signed Account Forms
18.
Chapter 1, Section 1 (H) of the September 2008 version of the FundEX Policies and
Procedures Manual states that:
Under no circumstances should a FundEX Associate be holding pre-signed documents
in the client file unless they are accompanied by expressed written consent instructions
(e.g. T2033 or for an upcoming maturing GIC). Any Associate found holding
pre-signed documents may face disciplinary action which may in turn affect the
Associate’s ongoing and future registration.
19.
During the December 2013 sales compliance review of the Respondents’ client files,
FundEX identified 29 trade forms in 15 client files that contained signatures, including faxed,
scanned and photocopied signatures, that were signed by the clients prior to the completion of
the forms. The dates on the forms ranged from January 7, 2011 to March 20, 2013. The forms
consisted of:
(a) 24 FundEX Order Entry Forms;
(b) 3 RESP Educational Assistance Payment Forms;
(c) 1 Mutual Fund Trade Ticket; and
(d) 1 FundEX Systematic Instruction Form.
20.
Some of the forms had been used to process transactions. The other forms were blank
forms that contained client signatures but were never used to process transactions.
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21.
FundEX also observed correspondence dated April 22, 2013 with a client that confirmed
the client’s instructions to fill in a pre-signed cheque that was subsequently used to process a
trade for the client.
22.
Subsequent to the sales compliance review, the Respondents informed FundEX that they
sometimes obtained pre-signed forms from clients to facilitate client convenience and to reduce
the number of in-person meetings with clients.
23.
There is no evidence that the Respondents have engaged in unauthorized or discretionary
trading and the Respondents deny that they have ever processed trades without receiving prior
instructions from the client.
Trade Processed Without Evidence of Client Authorization
24.
Chapter 5, Section III (A) of the January 2012 version of the FundEX Policies and
Procedures Manual states that:
For client name accounts Representatives must act only on written instructions from
the client. Such directions must be documented in the form of a FundEX order entry
form or fund company application. If a Limited Authorization Form (“LAF”) is in
place, trade instructions may be accepted verbally or by email if the client cannot sign
an order entry form. If you are meeting with a client in person, it is expected that a
client signature is obtained even in the case an LAF is on file. It is mandatory to
attach the source and the details of the transactions.
[…]
For Nominee name accounts, a client signature is not necessary to process trades and a
LAF is not required to take verbal and/or email instructions from the client. However
detailed client notes evidencing client authorization are required for each trade before
a transaction can take place. Discretionary trading is strictly prohibited.
25.
During the December 2013 sales compliance review, FundEX observed that on February
21, 2013, a $2,000 purchase had been processed in the account of a client using an order entry
form that was not signed by the client. FundEX also observed that there were no notes
evidencing the client’s authorization of the purchase and that there was no limited trading
authorization on file for the client.
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26.
On December 20, 2013, FundEX sent letters to all of the Respondents’ clients providing
transaction summaries for the previous three year period to determine whether the Respondents
had engaged in any unauthorized trading in the client accounts. None of the clients reported any
concerns to FundEX.
27.
On December 20, 2013, FundEX also sent each of the Respondents a Letter of
Reprimand and required that both Respondents sign and return an Acknowledgement stating that
they are aware and agree to adhere to FundEX’s policies and procedures.
28.
The Respondents were also required to submit to internal strict supervision by FundEX
for a period of 90 days from December 23, 2013 to March 25, 2014 and they were both required
to pay a fine totaling $1,500 ($500 per month) during the period of strict supervision.
29.
No additional contraventions of FundEX’s policies and procedures were discovered
during the period of internal strict supervision.
Additional Factors
30.
No clients serviced by the Respondents have complained about their conduct.
31.
There is no evidence that the Respondents received any financial benefit from engaging
in the misconduct described above, beyond the commissions or fees that they would ordinarily
be entitled to receive had the transactions been carried out in the proper manner.
32.
The Respondents cooperated with FundEX’s internal investigation into their conduct.
33.
The Respondents have not previously been the subject of MFDA disciplinary
proceedings.
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34.
By entering into this Settlement Agreement, the Respondents have saved the MFDA the
time, resources and expenses associated with conducting a full hearing of the allegations.
V.
CONTRAVENTIONS
35.
The Respondents admit that:
(a)
between about April 2011 and October 2013, they altered the risk tolerances,
investment objectives or investment instructions that were recorded on 7 account
forms in respect of 6 clients, contrary to MFDA Rule 2.1.1;
(b)
between about January 2011 and April 2013, they obtained, maintained and, in
some instances, used to process trades, 29 pre-signed account forms and 1 pre-
signed cheque in respect of 16 clients, contrary to MFDA Rule 2.1.1; and
(c)
on February 21, 2013, they processed a trade in a client account without
documenting the client’s authorization of the trade, contrary to MFDA Rule 2.1.1.
VI.
TERMS OF SETTLEMENT
36.
The Respondents agree to the following terms of settlement:
(a)
Murray Harold Wellman shall pay a fine in the amount of $10,000 pursuant to
s. 24.1.1(b) of MFDA By-law No. 1;
(b)
Michael John Wellman shall pay a fine in the amount of $10,000 pursuant to
s. 24.1.1(b) of MFDA By-law No. 1;
(c)
Murray Harold Wellman shall pay costs in the amount of $1,000 pursuant to
s. 24.2 of MFDA By-law No. 1;
(d)
Michael John Wellman shall pay costs in the amount of $1,000 pursuant to s. 24.2
of MFDA By-law No. 1;
(e)
the Respondents shall in the future comply with MFDA Rule 2.1.1; and
(f)
the Respondents will attend in person, on the date set for the Settlement Hearing.
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37.
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 Respondents 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 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 Respondents from fulfilling any continuing regulatory obligations.
VIII. PROCEDURE FOR APPROVAL OF SETTLEMENT
38.
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 Respondents.
39.
Staff and the Respondents may refer to any part, or all, of the Settlement Agreement at
the settlement hearing. Staff and the Respondents 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 Respondents in this matter, and the Respondents agree to waive their 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.
40.
Staff and the Respondents agree that if this Settlement Agreement is accepted by the
Hearing Panel, then the Respondents 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.
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41.
Staff and the Respondents agree that if this Settlement Agreement is accepted by the
Hearing Panel, neither Staff nor the Respondents will make any public statement inconsistent
with this Settlement Agreement. Nothing in this section is intended to restrict the Respondents
from making full answer and defence to any civil or other proceedings against them.
IX.
FAILURE TO HONOUR SETTLEMENT AGREEMENT
42.
If this Settlement Agreement is accepted by the Hearing Panel and, at any subsequent
time, the Respondents fail 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
Respondents 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 Respondents 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
43.
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 Respondents 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.
44.
Whether or not this Settlement Agreement is accepted by the Hearing Panel, the
Respondents agree that they 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.
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45.
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 Respondents and Staff or as may be required by law.
46.
Any obligations of confidentiality shall terminate upon acceptance of this Settlement
Agreement by the Hearing Panel.
XII.
EXECUTION OF SETTLEMENT AGREEMENT
47.
This Settlement Agreement may be signed in one or more counterparts which together
shall constitute a binding agreement.
48.
A facsimile copy of any signature shall be effective as an original signature.
DATED this 9th day of August, 2015.
“Paula Wellman”
“Murray Harold Wellman”
Witness – Signature
Murray Harold Wellman
Paula Wellman
Witness – Print name
“Paula Wellman”
“Michael John Wellman”
Witness – Signature
Michael John Wellman
Paula Wellman
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. 201529
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: Murray Harold Wellman and Michael John Wellman
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 MFDA By-law No. 1 in respect
of Murray Harold Wellman and Michael John Wellman (the “Respondents”);
AND WHEREAS the Respondents entered into a settlement agreement with Staff of the
MFDA, dated [date] (the “Settlement Agreement”), in which the Respondents agreed to a
proposed settlement of matters for which the Respondents 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 about April 2011 and October 2013, the Respondents altered the risk
tolerances, investment objectives or investment instructions that were recorded on 7
account forms in respect of 6 clients, contrary to MFDA Rule 2.1.1.
Page
11 of 13
(b) between about January 2011 and April 2013, the Respondents obtained, maintained
and, in some instances, used to process trades, 29 pre-signed account forms and 1 pre-
signed cheque in respect of 16 clients, contrary to MFDA Rule 2.1.1; and
(c) on February 21, 2013, the Respondents processed a trade in a client account without
documenting the client’s authorization of the trade, contrary to MFDA Rule 2.1.1.
IT IS HEREBY ORDERED THAT the Settlement Agreement is accepted, as a
consequence of which:
1.
The Respondent, Murray Harold Wellman shall pay:
(a) a fine in the amount of $10,000, pursuant to s. 24.1.1(b) of MFDA By-law No. 1; and
(b) costs in the amount of $1,000 pursuant to s. 24.2 of MFDA By-law No. 1.
2.
The Respondent, Michael John Wellman shall pay:
(a) a fine in the amount of $10,000, pursuant to s. 24.1.1(b) of MFDA By-law No. 1; and
(b) costs in the amount of $1,000 pursuant to s. 24.2 of MFDA By-law No. 1.
3.
The Respondents shall in the future comply with MFDA Rule 2.1.1.
4.
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.
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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 451031 v1
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