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 Sebastian Encalada (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. Between November 9, 2012 and November 3, 2016, the Respondent was registered in Ontario as a dealing representative with TD Investment Services Inc. (“TDIS”), a Member of the MFDA.

7. At all material times, the Respondent operated out of a TDIS branch located in Brampton, Ontario.

8. The Respondent is not currently registered in the securities industry in any capacity.

Unauthorized Discretionary Trading

9. At all material times, IM was a retail banking client of TD Canada Trust (“TD Bank”). IM was not a client of TDIS until the Respondent, without the knowledge or authorization of IM, opened an account for IM at TDIS and processed trades in the account, as described in greater detail below.

10. In February 2015, IM sold his home and deposited the proceeds from the sale into his savings account at TD Bank.

11. On or about March 15, 2015, the Respondent contacted IM by telephone to discuss options for the use of the proceeds from the sale of IM’s house. The Respondent had previously arranged a mortgage at TD Bank for a separate investment property that IM had purchased.

12. IM was considering the purchase of another home in the near future and did not want to subject his money to any investment risk. Therefore, IM informed the Respondent that he wanted to open a high interest savings account and maintain the proceeds of the home sale on deposit in that bank account.

13. On March 27, 2015, without the knowledge or authorization of IM, the Respondent completed a Non-Registered Account Application Form (“NRAAF”) in IM’s name, and processed two purchases in the account:
    1. TD Monthly Income Fund in the amount of $40,000; and
    2. TD Comfort Balanced Portfolio in the amount of $60,000.

14. On the same day, the Respondent also set up, without the knowledge or authorization of IM, a Pre-Authorized Purchase Plan (“PPP”) that automatically invested an additional $500 each month from IM’s savings account into each of the two funds described above.

15. Between March 27, 2015 and October 22, 2015, the unauthorized PPP resulted in 14 additional trades being processed in IM’s account, including the purchase of $3,500 of units of the TD Monthly Income Fund and $3,500 of units of the TD Comfort Balanced Portfolio.

16. IM did not meet with the Respondent on March 27, 2015, authorize the Respondent to open a mutual fund account for him, sign the NRAAF, or authorize the fund purchases or the implementation of the PPP.

17. The Respondent falsified IM’s signature on the NRAAF in order to open an account for IM at TDIS and process the transactions described in paragraphs 13 – 15 above.

18. On July 23, 2015, the Respondent prepared and completed a Transaction and Account Maintenance Form (the “Transaction Form”) for IM’s account at TDIS, and processed two additional purchases in the account:
    1. TD Monthly Income Fund in the amount of $10,000; and
    2. TD Comfort Balanced Portfolio in the amount of $35,000.

19. IM did not meet with the Respondent on July 23, 2015, sign the Transaction Form, or authorize the Respondent to process fund purchases in IM’s account at TDIS.

20. The Respondent falsified IM’s signature or initials on the Transaction Form in order to process the transactions described in paragraph 18 above.

21. In about July 2015, IM noticed that he was receiving statements indicating that a mutual fund account had been opened in his name and that purchases had been processed in the account without his knowledge or authorization.

22. At that time, IM left voicemail messages for the Respondent inquiring about the unauthorized trades but the Respondent did not contact him. IM then contacted TDIS with regards to the Respondent’s conduct.

23. In September 2015, the Respondent went on medical leave from TDIS. The Respondent states that his medical condition had some impact on his ability to make decisions during the material time, but did not prevent him from fulfilling his obligations as a registrant.

24. On October 14, 2015, IM attended the Respondent’s TDIS branch location and met with another Approved Person. IM signed a new Transaction Form which cancelled the PPP payments.

25. On October 22, 2015, TDIS reversed the trades in IM’s account. IM was ultimately made whole by TDIS and suffered no losses as a result of the unauthorized discretionary trading.

26. Between March 27, 2015, and October 14, 2015, a total of $151,500 worth of mutual funds were purchased in IM’s account without IM’s consent, knowledge, or authorization.

V. CONTRAVENTIONS

27. The Respondent admits that:
    1. between March 2015 and October 2015, he opened an account for an individual and processed 18 transactions in the account, without the individual’s knowledge or authorization, thereby engaging in discretionary trading, contrary to MFDA Rules 2.3.1 and 2.1.1; and
    2. between March 2015 and October 2015, he falsified an individual’s signature or initials on two account forms in order open an account and process 18 transactions in the individual’s account, contrary to MFDA Rule 2.1.1.

VI. TERMS OF SETTLEMENT

28. The Respondent agrees to the following terms of settlement:

1. The Respondent’s authority to conduct securities related business in any capacity while in the employ of or associated with any MFDA Member shall be prohibited for a period of one year from the date of the order, pursuant to section 24.1.1(e) of MFDA By-law No. 1;
2. the Respondent shall pay a fine in the amount of $5,000 pursuant to section 24.1.1(b) of By-law No. 1;
3. the Respondent shall pay costs in the amount of $5,000 pursuant to section 24.2 of By-law No. 1 upon acceptance of this Settlement Agreement;
4. The Respondent’s fine and costs shall be payable as follows:
   1. $2,500 payable on or before the date of the settlement hearing; and
   2. $7,500 payable no later than 60 days from the date that the Settlement Agreement is accepted by the Hearing Panel;
5. If the Respondent fails to comply with the provision of subparagraph (d)(ii), the authority of the Respondent to conduct securities related business while in the employ of or associated with a Member of the MFDA shall be immediately suspended without further notice or order of the Hearing Panel until such time as the Respondent demonstrates to the satisfaction of Staff that he has complied with the provisions of subparagraph (d)(ii); and
6. the Respondent will attend in person, on the date set for the Settlement Hearing.

VII. STAFF COMMITMENT

29. 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 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 Respondent from fulfilling any continuing regulatory obligations.

VIII. PROCEDURE FOR APPROVAL OF SETTLEMENT

30. 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. MFDA Settlement Hearings are typically held in the absence of the public pursuant to section 20.5 of MFDA By-law No. 1 and Rule 15.2(2) of the MFDA Rules of Procedure. If the Hearing Panel accepts the Settlement Agreement, then the proceeding will become open to the public and a copy of the decision of the Hearing Panel and the Settlement Agreement will be made available at mfda.ca.

31. 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.

32. 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. 24.1.1 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.

33. 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.

IX. FAILURE TO HONOUR SETTLEMENT AGREEMENT

34. 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

35. 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.

36. 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

37. 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.

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

XII. EXECUTION OF SETTLEMENT AGREEMENT

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

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