Settlement Agreement

I. INTRODUCTION

1. By News Release, 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 Ryan Raymond Edward Dibbley (the “Respondent”).

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.

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 January 2012 until July 2014, the Respondent was registered as a mutual fund salesperson (now known as a dealing representative) with FundEX Investments Inc. (“FundEX”), a Member of the MFDA.

7. From January 20, 2012 until May 12, 2014, the Respondent was designated a branch manager at a branch located at 25 Main Street, Suite 1210, Hamilton Ontario (the “Branch”).

8. As a result of the events described herein, FundEX suspended the Respondent’s activities as a branch manager on or about May 9, 2014, and terminated his registration on July 24, 2014. The Respondent has not been registered in the securities industry in any capacity since July 24, 2014.

Background

9. Scott Reeves (“Reeves”) was registered as a mutual fund salesperson with FundEX from January 2004 to May 9, 2014 when his registration was terminated, in part, for failing to disclose to FundEX outside business activities.

10. Scott Reeves (“Reeves”) owned the Branch and operated it under the approved trade name, Reeves Financial Services Inc. (“Reeves Financial Services”). As President and Chief Executive Officer, Reeves was the sole officer and director of Reeves Financial Services.

11. In or about November 2011, the Respondent was hired by Reeves as Director of Sales and Business Development of Reeves Financial Services. Reeves asked the Respondent to act as branch manager, and on or about January 20, 2012, FundEX designated the Respondent as a branch manager at the Branch. The Respondent had no prior experience as a branch manager in the mutual fund industry.

12. The Respondent’s supervisory role was limited to the responsibilities and requirements of a branch manager pursuant to MFDA Policies, Rules and By-laws, and FundEX’s policies and procedures. The Respondent states that he did not have a role in establishing or the day-to-day operations of the non-mutual fund businesses at the branch

13. Based on representations made by Reeves, the Respondent states that he believed that he was joining a reputable company. The Respondent states that Reeves represented that Reeves Financial Services had in excess of $140 million in assets under management, generated $600,000 to $700,000 in revenue and had over $3 million in reserves.

Reeves’ MFDA Disciplinary Proceeding and Criminal Charges

14. Reeves was the subject of an MFDA disciplinary proceeding. In March 2017, the Hearing Panel found that Reeves engaged in the following conduct in violation of MFDA Rules, and imposed a fine of $4,500,000, a permanent prohibition on engaging in securities related business with an MFDA Member, and a $10,000 cost order:
    1. between 2004 and May 9, 2014, Reeves solicited and accepted from at least three clients a total of approximately $5,064,208, some or all of which Reeves deposited into accounts that he controlled, which Reeves failed to invest, return or otherwise account for, contrary to MFDA Rule 2.1.1., 1.1.1, 2.1.4;
    2. between 2010 and 2014, on at least 34 instances, Reeves directed the Member to deposit redemptions totaling approximately $1,126,117 from a client’s account at the Member to a bank account that did not belong to the client, by providing the Member with a void cheque that had been altered so that it appeared to the Member that the cheque corresponded to the client’s bank account when the client did not hold such an account, contrary to MFDA Rule 2.1.1;
    3. between 2009 and May 9, 2014, Reeves made statements and provided documents to at least three clients, which he knew were false, misleading or incorrect, and misrepresented to the clients the amounts and whereabouts of their investments and monies, contrary to MFDA Rule 2.1.1; and
    4. between January 8, 2004 and May 9, 2014, Reeves had and continued in other gainful occupations that were not disclosed to and approved by the Member by acting as an officer or a director for at least 11 corporations, contrary to MFDA Rules 1.2.1(c) (now MFDA Rule 1.2.1(d)) and 2.1.1.

15. Reeves was also charged with a number of criminal offences with respect to conduct described in paragraph 14 above. In October 2017, Reeves pleaded guilty to fraud in the Ontario Superior Court of Justice in Hamilton, Ontario. The sentencing hearing for Reeves is pending.

16. Staff does not allege that the Respondent was aware that Reeves was misappropriating client monies and misleading clients with respect to the whereabouts of their monies, or that the Respondent participated in any of these activities.

17. At all times the Respondent states that he trusted Reeves and was not suspicious of the manner in which Reeves conducted his business affairs at Reeves Financial Services. The Respondent states that he trusted that Reeves operated the business at the Branch in a compliant manner.

Contravention #1 – Undisclosed Outside Business Activities

18. At all material times, FundEX’s policies and procedures with respect to outside business activities stated the following:
    1. FundEX must be aware and approve of Representatives who wish to engage in another occupation before the Representative engages in such activity.  Representatives must notify Head Office Compliance in writing, using the “Outside Business Activity Approval Form,” of any employment or occupation proposed other than as a Representative dealing in mutual funds and related products for FundEX.  On the Outside Activity Approval Form Representatives must provide details such as:
       • Name and nature of the business;
       • The title or position of the Representative;
       • The number of hours to be devoted to the business;
       • A description of any potential for confusion or conflicts of interest; and
       • Any applicable fees for the service provided through the business.

19. On October 23, 2012, Reeves incorporated “Reeves Wealth Services Corp.” (“Reeves Wealth”). FundEX subsequently approved the trade name, Reeves Wealth Services.

20. The Respondent states that Reeves informed him that Reeves Wealth was set up as a division of Reeves Financial Services to receive and manage the commissions received from FundEX from the sale of mutual fund products. The Respondent was named as an officer and director of Reeves Wealth at the request of Reeves. The Respondent did not disclose to FundEX that he was named to those positions with Reeves Wealth.

21. At no time did the Respondent hold himself out as an officer or director of Reeves Wealth nor did he attend any meetings of directors of this entity. The Respondent did not receive any fees, commissions or any remuneration from Reeves Wealth.

22. At all times the Respondent believed that Reeves Wealth was part of the Reeves Financial Services’ core business and, as such, the fact that he was named as an officer and director of Reeves Wealth did not constitute an outside business activity. The Respondent now recognizes that he ought to have disclosed to FundEX that he was named as officer and director of Reeves Wealth.

23. On October 23, 2012, Reeves incorporated “Reeves Group Solutions Limited” (“Reeves Group”). Reeves did not disclose Reeves Group to FundEX for approval.

24. The Respondent states that Reeves informed him that Reeves Group was set up as a division of Reeves Financial Services for accounting purposes to manage group product commissions. The Respondent states that he was named as a director of Reeves Group at the request of Reeves. The Respondent did not disclose to FundEX that he was named as a director of Reeves Group.

25. The Respondent did not conduct any business activities related to Reeves Group. At no time did the Respondent hold himself out as a director of Reeves Group nor did he attend any meetings of directors of this entity. The Respondent did not receive any fees, commissions or any remuneration from Reeves Group.

26. At all times, the Respondent believed that Reeves Group was part of the Reeves Financial Services’ core business and, as such, the fact that he was named as a director of Reeves Group did not constitute an outside business activity. The Respondent now recognizes that he ought to have disclosed to FundEX the fact that he was named as a director of Reeves Group.

Contravention #2 – Failure to Report Outside Business Activities Operating at the Branch

27. At all material times, FundEX’s Branch Manager Manual, stated the following:
    1. The [branch manager] has two primary roles at FundEX:
       • The first role is trade review and account supervision; and
       • The second is to act as FundEX’s eyes and ears for front-line compliance at the branch supervising the activities of Representatives within their branch and sub-branch locations.
    2. *          *          *
    3. Branch Manager General Responsibilities
       Ensure that the business conducted on behalf of FundEX by a Representative and other employees and agents at the branch is in compliance with regulations and FundEX’s policies and procedures.
    4. *          *          *
    5. Promote prudent business practices at the branch and ensure adherence to all applicable securities rules, regulations and policies.
    6. *          *          *
    7. Administrative Duties … Immediately advise the [Regional Branch Manager] of any irregularities or contravention of any pertinent regulation of compliance policies by Representatives of the branch

28. The signage posted at the entrance of the Branch listed the following business entities as operating out of the location:
    1. Reeves Financial Group;
    2. Reeves Financial Services Inc.;
    3. Reeves Group Solutions Limited;
    4. Reeves Mortgage Solutions Inc.;
    5. Reeves Private Wealth Inc.;
    6. Reeves Wealth Services Corporation;
    7. Reeves Portfolio Management Inc.; and
    8. Reeves Financial Charitable Foundation.

29. Only Reeves Financial Services and Reeves Wealth had been disclosed to FundEX and approved by it.

30. On May 9, 2014, FundEX attended at the branch for an unannounced visit at which time it first identified the remaining business entities listed at paragraph 28 above.

31. Based on representations made by Reeves and other executives at Reeves Financial Services, the Respondent believed that the above entities were either divisions of Reeves Financial Services and, such, part of the its’ core business, or were not operational. As such, the Respondent believed that the signage listing the above business entities did not constitute reportable outside business activities.

32. The Respondent did not disclose to FundEX the signage listing these entities at the Branch. In his capacity as branch manager, the Respondent now recognizes that he ought to have (a) determined whether the outside business activities listed on the signage at the entrance of the Branch had been disclosed to FundEX and approved by it, and (b) if not, reported any undisclosed/unapproved outside business activities to FundEX.

Contravention #3 – Failure to report the Branch’s financial difficulties

33. The Respondent states that, in or about January 2014, Reeves held a meeting at the Branch with employees of the Branch, including the Respondent and executive management of Reeves Financial Services. During that meeting, Reeves advised that the Chief Financial Officer of Reeves Financial Services had inappropriately invested reserve monies totaling approximately $3 million.

34. The Respondent states that Reeves showed him and other employees a copy of a portfolio statement purporting to show the reserve holdings managed by a company called “Adroit”. The Respondent states that he accepted the portfolio statement and Reeve’s statements that the liquidity issues at the Branch were temporary, that the Branch was financially stable.

35. The Respondent did not believe that the information provided by Reeves untrue or that the mutual fund business at the Branch and/or the servicing of mutual fund clients was compromised in any way. The Respondent states that neither he nor other employees questioned the veracity of the statements made by Reeves.

36. Subsequent to the January 2014 meeting, in his capacity as branch manager, the Respondent became aware of the following information at the Branch:
    1. the Respondent was not paid his salary in the amount of approximately $25,000 for the last 15 weeks of employment with Reeves Financial Services;
    2. the Respondent personally made a $3,500 payment of expenses at the Branch, including a furniture leasing company and a human resources company;
    3. the Respondent personally loaned a total of $20,000 to Reeves and Reeves Financial Services in exchange for a promissory note dated March 17, 2014, to assist with paying expenses at the Branch, including to the Branch’s landlord; and
    4. In or about April 2014, the Respondent learned that expenses at the Branch where not paid as they came due such that it was necessary to put in place payment plans with service providers, including the Branch’s landlord, leasing companies, and a telecommunications company.

37. The Respondent states that he has not been repaid the monies he provided to pay expenses at the Branch.

38. Based on the representations made by Reeves, the Respondent states that he was not concerned about the mutual fund business at the Branch and, as such, did not believe that the above events constituted events that he was required to report to FundEX in his capacity as branch manager.

39. The Respondent now recognizes that he ought to have notified FundEX of the above information at the time that he was made aware of the information as the above events constituted red flags about the financial difficulties experienced at the Branch. FundEX would have been obligated to conduct a reasonable supervisory investigation into the activities at the Branch, as required by the MFDA Rules and Policies.

V. Additional factors

40. The Respondent fully cooperated with Staff’s investigations in respect of the matters described above.

41. The Respondent has not been the subject of prior MFDA disciplinary proceedings.

42. There is no evidence that the Respondent sought to receive, or received, any financial benefit from engaging in the conduct described above.

43. The issue of client loss is currently before the courts as part of ongoing civil proceedings commenced by clients. No clients of FundEX have commenced direct claims against the Respondent.

44. By admitting the facts and contraventions described above, the Respondent has saved the MFDA the time and resources associated with conducting a fully contested hearing on the merits.

VI. CONTRAVENTIONS

45. The Respondent admits that:
    1. between October 2012 and May 9, 2014, he failed to disclose to the Member two outside business activities for which he was named officer and/or director, contrary to MFDA Rules 1.2.1(c) (now MFDA Rule 1.3.2);
    2. between 2013 and May 9, 2014, in his capacity as branch manager, he did not adequately query or report to the Member unapproved outside business activities at the branch location supervised by the Respondent, contrary to MFDA Rules 2.5.5(f); and
    3. between January 2014 and May 9, 2014, in his capacity as a branch manager, he failed to adequately query or advise the Member of information concerning financial difficulties at the branch location supervised by the Respondent, contrary to MFDA Rules 2.5.5(f).

VII. TERMS OF SETTLEMENT

46. Staff and the Respondent agree and consent to the following terms of settlement:
    1. the Respondent shall be prohibited from acting in the position of a branch manager while in the employ of or associated with any MFDA Member for a period of six (6) months effective from the date of the Order, pursuant to section 24.1.1(c) of MFDA By-law No. 1;
    2. the Respondent shall pay a fine in the amount of $5,000 pursuant to s. 24.11(b) of MFDA By-Law No. 1;
    3. the Respondent shall pay costs in the amount of $2,500 pursuant to s. 24.2 of MFDA By-Law No 1;
    4. the payment by the Respondent of the fine and costs described above in subparagraphs 46(b) and (c) shall be made to and received by MFDA Staff in certified funds as follows:
       1. $2,500 (costs) shall be paid upon acceptance of the Settlement Agreement by the Hearing Panel;
       2. $1,000 (fine) shall be paid on or before the last business day of the first month following the acceptance of the Settlement Agreement by the Hearing Panel;
       3. $1,000 (fine) shall be paid on or before the last business day of the second month following the acceptance of the Settlement Agreement by the Hearing Panel;
       4. $1,000 (fine) shall be paid on or before the last business day of the third month following the acceptance of the Settlement Agreement by the Hearing Panel;
       5. $1,000 (fine) shall be paid on or before the last business day of the fourth month following the acceptance of the Settlement Agreement by the Hearing Panel;
       6. $1,000 (fine) shall be paid on or before the last business day of the fifth month following the acceptance of the Settlement Agreement by the Hearing Panel; and
    5. If the Respondent fails to make any of the payments described above in subparagraph 46(d) then:
       1. any outstanding balance of the fine and costs owed by the Respondent shall immediately become due and payable to the MFDA; and
       2. the Respondent shall be prohibited from conducting securities related business while in the employ of or associated with a Member of the MFDA until such time as the total amount outstanding of the fine and costs owed by the Respondent is paid to the MFDA, pursuant to section 24.3.13(c) of MFDA By-law No.1.

VIII. STAFF COMMITMENT

47. 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 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 facts and contraventions that are not set out in Parts IV and VI 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 VI, 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.

IX. PROCEDURE FOR APPROVAL OF SETTLEMENT

48. 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.

49. 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.

50. 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.

51. 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.

X. FAILURE TO HONOUR SETTLEMENT AGREEMENT

52. 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.

XI. NON-ACCEPTANCE OF SETTLEMENT AGREEMENT

53. 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.

54. 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.

XII. DISCLOSURE OF AGREEMENT

55. 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.

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

XIII. EXECUTION OF SETTLEMENT AGREEMENT

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

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