Settlement Agreement

I. INTRODUCTION

1. Staff of the Mutual Fund Dealers Association of Canada (“Staff”) and James Gerard Carney (the “Respondent”) consent and agree to settlement of this matter by way of this agreement (the “Settlement Agreement”).

2. Staff conducted an investigation of the Respondent’s activities which disclosed 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.

II. JOINT SETTLEMENT RECOMMENDATION

3. Staff and the Respondent jointly recommend that the Hearing Panel accept the Settlement Agreement.

4. The Respondent admits to the following violations of the By-laws, Rules or Policies of the MFDA:
   1. between May 2012 and January 2014, the Respondent processed approximately 188 authorized discretionary trades as part of a dollar-cost averaging strategy in relation to 10 clients, contrary to MFDA Rules 2.3.1 and 2.1.1; and
   2. between August 13, 2013 and March 31, 2014, the Respondent processed 11 trades in the accounts of 2 clients based on the requests of the clients’ spouses, contrary to MFDA Rules 2.3.1 and 2.1.1.

5. Staff and the Respondent agree and consent to the following terms of settlement:
   1. the Respondent shall pay a fine in the amount of $20,000 pursuant to s. 24.1.1(b) of MFDA By-law No. 1;
   2. the Respondent shall pay costs in the amount of $2,500 pursuant to s. 24.2 of MFDA By-law No. 1;
   3. the Respondent shall in the future comply with MFDA Rules 2.3.1 and 2.1.1; and
   4. the Respondent will attend in person on the date set for the Settlement Hearing.

6. Staff and the Respondent agree to the settlement on the basis of the facts set out in Part III herein and consent to the making of an Order in the form attached as Schedule “A”.

III. AGREED FACTS

Registration History

7. Since May 2007, the Respondent has been registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with Investors Group Financial Services Inc. (“Investors Group”), a Member of the MFDA.

8. From December 2008 to November 2012, the Respondent was registered as a branch manager with Investors Group in Ontario.

9. At all material times, the Respondent conducted business in the Brampton, Ontario area.

Authorized Discretionary Trading

10. Between May 2012 and January 2014, the Respondent engaged in authorized discretionary trading when he processed approximately 188 trades in respect of 10 clients where he determined the amount and timing of the trades.

11. The Respondent states that he processed the authorized discretionary trades to implement a dollar-cost averaging strategy. Dollar-cost averaging is a strategy whereby a client will make investments at periodic intervals in order to diversify the purchase price for a unit of a given mutual fund.

12. Under the strategy, the Respondent met with individual clients and in consultation with the clients, it was determined which mutual funds the clients would purchase and what percentage of the clients’ total investment would be allocated to each of the mutual funds (the “Target Portfolio”).

13. Once the Target Portfolio was determined, the Respondent invested the client’s monies in a money market mutual fund or deposited the monies in the client’s account as cash. The Respondent informed the client that he would, at his discretion, periodically process trades on behalf of the client by transferring the client’s investment from the money market mutual fund or cash to the mutual funds that comprised the client’s Target Portfolio (the “Transfers”).

14. The Respondent periodically processed the Transfers until the client’s entire investment was allocated in accordance with the client’s agreed upon Target Portfolio. Generally, the Respondent would fully allocate the client’s investment within several weeks to several months after the determination of the Target Portfolio.

15. The Respondent decided the date of each Transfer and the number of mutual fund units purchased by the client. The Respondent did not obtain the client’s specific authorization prior to processing each individual Transfer, and the client did not determine the specific of elements of the Transfer.  In some instances, after Transfers were processed, the client received trade confirmations indicating the details of each Transfer and/or the Respondent contacted the client in order to inform the client of the details of the Transfers.   

Trades Processed Based on Requests from Someone Other than the Client

Client TM

16. At all material times, the Respondent was the mutual fund salesperson at Investors Group responsible for servicing the accounts of client TM and her spouse, client RM.

17. On August 13, 2013, client RM contacted the Respondent’s assistant and requested that the Respondent process a $10,000 redemption from client TM’s Tax Free Savings Account (the “TFSA”) to pay personal expenses of clients TM and RM.

18. On August 13, 2013, the Respondent, acting on client RM’s request, processed two redemptions in client TM’s TFSA in the amounts of $5,178.96 and $4,852.25. The Respondent states that he was under the assumption that client TM was aware of the request.  

19. The Respondent:
    1. did not receive instructions from client TM to process the redemptions in her account; and
    2. used his discretion to select which mutual funds would be redeemed.

20. There was no power of attorney or similar authorization from client TM on file that authorized the Respondent to act on the request of client RM on behalf of client TM.

Client RD

21. At all material times, the Respondent was the mutual fund salesperson at Investors Group responsible for servicing the accounts of client RD, and her spouse, client DD.

22. On March 25, 2014, client DD contacted the Respondent by email and requested that approximately $37,000 be redeemed from client RD’s accounts to pay personal expenses of client RD on an urgent basis.

23. Between March 25, 2014 and March 31, 2014, the Respondent, acting on client DD’s request, processed 9 redemptions in 3 of client RD’s accounts in the total amount of $35,690.11. Without instructions from client RD, the Respondent used his discretion to select which mutual funds would be redeemed and the dates that the redemptions would occur.  Clients DD and RD had previously indicated to the Respondent that they would require $37,000 by the end of March 2014 to pay personal expenses of client RD. 

24. There was no power of attorney or similar authorization from client RD on file that authorized the Respondent to act on the request of client DD on behalf of client RD.

Action Taken by the Member

25. Investors Group became aware of the misconduct that is the subject of this Settlement Agreement during an investigation of client RD’s and client DD’s complaint regarding the Respondent, which was unrelated to the misconduct described above.

26. On June 27, 2014, Investors Group compliance staff met with the Respondent and discussed with him the requirement to always obtain the client’s authorization prior to processing trades in the client’s account and to maintain written documentation evidencing the client’s authorization of each trade.

27. On July 25, 2014, Investors Group issued a cautionary letter to the Respondent regarding the misconduct described in this Settlement Agreement, and commencing in October 2014, Investors Group placed the Respondent in its File Improvement Program for a period of three months. During this period, Investors Group reviewed 27 trades that were processed by the Respondent for evidence that each trade was authorized by the client. No concerns were identified.

Additional Factors

28. There is no evidence that the Respondent received any financial benefit from engaging in the misconduct described in this Settlement Agreement, beyond the commissions and fees that he would ordinarily be entitled to receive had the transactions been carried out in the proper manner.

29. There is no evidence of client harm with respect to the misconduct described in this Settlement Agreement.

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

31. By entering into this Settlement Agreement, the Respondent has saved the MFDA the time, resources and expenses associated with conducting a full hearing of the allegations.

IV. ADDITIONAL TERMS OF SETTLEMENT

32. This settlement is agreed upon in accordance with section 24.4 of MFDA By-law No. 1 and Rules 14 and 15 of the MFDA Rules of Procedure.

33. The Settlement Agreement is subject to acceptance by the Hearing Panel which shall be sought at a hearing (the “Settlement Hearing”). At, or following the conclusion of, the Settlement Hearing, the Hearing Panel may either accept or reject the Settlement Agreement.

34. The Settlement Agreement shall become effective and binding upon the Respondent and Staff as of the date of its acceptance by the Hearing Panel. Unless otherwise stated, any monetary penalties and costs imposed upon the Respondent are payable immediately, and any suspensions, revocations, prohibitions, conditions or other terms of the Settlement Agreement shall commence, upon the effective date of the Settlement Agreement.

35. Staff and the Respondent agree that if this Settlement Agreement is accepted by the Hearing Panel:
    1. the Settlement Agreement will constitute the entirety of the evidence to be submitted respecting the Respondent in this matter;
    2. the Respondent waives any 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;
    3. Staff will not initiate any proceeding under the By-laws of the MFDA against the Respondent in respect of the facts and the contraventions described in this Settlement Agreement. 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 this Settlement Agreement.  Furthermore, nothing in this Settlement Agreement shall relieve the Respondent from fulfilling any continuing regulatory obligations;
    4. 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; and
    5. 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 the Respondent.

36. If, for any reason, this Settlement Agreement is not accepted 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 the Settlement Agreement or the settlement negotiations.

37. Staff and the Respondent agree that the terms of the 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.

38. The Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement. A facsimile copy of any signature shall be effective as an original signature.