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 s. 24.4 of MFDA By-law No. 1, a hearing panel of the MFDA Prairie Regional Council (the “Hearing Panel”) should accept the settlement agreement entered into between Staff of the MFDA (“Staff”) and Roland Mah (“Respondent”) (the “Settlement Agreement”).

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 November 1994 to the present, the Respondent has been registered in Alberta and, from 2016 to the present, in British Columbia, as a dealing representative with PFSL Investments Canada Ltd. (“PFSL” or the “Member”), a Member of the MFDA.
7. From November 27, 2009 to October 11, 2016, the Respondent also acted as a Branch Manager. On a voluntary basis, the Respondent agreed to relinquish his role as Branch Manager pending the resolution of the matters described herein.
8. At all material times, the Respondent carried on business from a branch located in Edmonton, Alberta (the “Branch”).

Background

9. From June 13, 2016 to July 14, 2016, MFDA Sales Compliance staff conducted a sales compliance examination (“Examination”) of the Member’s head office and four of the Member’s branch locations, one of which was the Branch. The Examination covered the period from June 1, 2013 to April 30, 2016.
10. During the Examination, MFDA Sales Compliance staff identified concerns regarding uniformity of Know-Your-Client (“KYC”) documentation for the Respondent’s client accounts, as well as for two Approved Persons under the Respondent’s supervision.

Inaccurate Recording of KYC Information

11. At all material times, the Respondent conducted detailed meetings with his clients, in order to gather their KYC information, including:
    • using the Member’s standard KYC form to collect the client’s information;
    • noting the client’s age and number of years they had to reach their investment goals;
    • discussing with the client their knowledge and experience of investing in general, investing in mutual funds, and their understanding of the behavior and risks associated with different mutual funds;
    • asking the client when they expected to need a significant portion of their investment;
    • determining the client’s risk tolerance and how much of a decline they would be willing to accept; and
    • explaining that mutual fund investments may fluctuate or decline in value.
12. In or about 2016, when MFDA Sales Compliance staff conducted the Examination, the Respondent serviced approximately 420 clients.
13. The Examination identified that the Respondent completed the KYC information for the his clients’ accounts as follows:
    • approximately 94% of the clients’ accounts were recorded as a “high” risk tolerance; and
    • approximately 94% of the clients’ accounts were recorded as a “aggressive growth” (83%) or “growth” (11%).
14. At the material time, the Respondent supervised two other Approved Persons at the Branch, GH and SK, both of whom had similar uniformity concerns regarding their clients’ accounts, as follows:
    1. GH:
       • approximately 92% of the clients’ accounts were recorded as a “high” risk tolerance; and
       • approximately 90% of the clients’ accounts were recorded as a “aggressive growth” (69%) or “growth” (21%).
    2. SK:
       • approximately 96% of the clients’ accounts were recorded as a “high” risk tolerance; and
       • approximately 100% of the clients’ accounts were recorded as a “aggressive growth” (86%) or “growth” (14%).
15. The Respondent states that he recorded the clients’ KYC information identifying them as being high risk and growth-oriented in order to demonstrate a “worst case scenario” to the clients, i.e. that mutual funds might fluctuate or decline in value.
16. At all material times, notwithstanding that the Respondent portrayed his clients as being high risk and growth-oriented on their KYC documentation, most of his clients were invested in a ‘growth’ portfolio, consisting of a mix of fixed income and equity based mutual funds, consistent with a ‘medium risk’ tolerance and a ‘moderate growth’ investment goal. The clients’ account holdings were consistent with the clients’ actual KYC investment objectives.
17. The Respondent states that there was no intention on his part to deceive or mislead any clients or PFSL as to the manner in which his clients were being portrayed in the KYC documentation.

V. ADDITIONAL FACTORS

Remediation of Client Accounts

18. In or about August 2016, the Member’s Chief Compliance Officer and Senior Vice President – Operations conducted a 4-5 hour meeting with the Respondent in order to reiterate the processes required to be used when collecting and documenting client KYC information and how to properly use the required Member forms.
19. From about August 2016 to February 2018, the Member implemented a remediation process in order to update KYC information for the Respondent’s affected clients, as well as those of Approved Persons GH and SK, and to rebalance the clients’ accounts, where necessary.
20. A Senior National Sales Director of the Member conducted meetings with 50 of the Respondent’s clients in order to obtain and correctly record KYC information for those clients. The Respondent was in attendance and observing at each of these meetings, and then carried on meeting with the balance of his clients to carry out the same process. The Member’s head office monitored the results of the entire remediation process.
21. At the conclusion of the remediation process, the Respondent had met with 95% of his clients. 87% (of the 95%) of his clients were now recorded as having a ‘moderate growth’ objective and a ‘medium risk’ objective, and the clients’ investments (as recommended by the Respondent) reflected the clients’ KYC information. Only 11 of the Respondent’s 420 clients (holding less than 1% of the Respondent’s assets under management) made changes to their account holdings during the remediation process.
22. A similar remediation process was undertaken for the clients of GH and SK, resulting in 81% of GH’s clients being recorded as having a ‘moderate growth’ objective and a ‘medium risk’ objective, and 99% of SK’s clients being recorded as having a ‘moderate growth’ objective and a ‘medium risk’ objective
23. The Respondent paid an amount of $20,000 to assist with the completion of the remediation process.

VI. MITIGATING FACTORS

24. The Respondent has no previous MFDA disciplinary history.
25. None of the Respondent’s clients suffered any losses as a result of the Respondent’s conduct described herein.
26. Neither the Member nor Staff has received any client complaints regarding the matters described herein.
27. The Respondent cooperated fully with Staff’s investigation, and sought an early resolution in this matter.
28. The Respondent gained no financial or other benefit as a result of the conduct described herein.
29. As noted above, the Respondent paid an amount of $20,000 to assist with the completion of the remediation process.

VII. CONTRAVENTIONS

30. The Respondent admits that from June 1, 2013 to April 30, 2016, he:
    1. learned, but failed to record on Member account forms, accurate Know-Your-Client information for clients; and
    2. failed in his capacity as Branch Manager to supervise two Approved Persons to ensure they recorded accurate Know-Your-Client information for clients on Member account forms,

    contrary to MFDA Rules 2.2.1(b) and 2.5.5(f).

VIII. TERMS OF SETTLEMENT

31. The Respondent agrees to the following terms of settlement:
    1. the Respondent shall pay a fine in the amount of $5,000, pursuant to s. 24.1.1(b) of MFDA By-law No. 1;
    2. the Respondent shall in the future comply with MFDA Rules 2.2.1(b) and 2.5.5(f); and
    3. the Respondent will attend in person on the date set for the Settlement Hearing.

IX. STAFF COMMITMENT

32. 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 the contraventions described in this Settlement Agreement, subject to the provisions of Part XI 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 this Settlement Agreement or in respect of conduct that occurred outside the specified date ranges of the facts and contraventions, 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.

X. PROCEDURE FOR APPROVAL OF SETTLEMENT

33. Acceptance of this Settlement Agreement shall be sought at a hearing of the Prairie 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.
34. 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 its 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.
35. 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 MFDA 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.
36. 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.

XI. FAILURE TO HONOUR SETTLEMENT AGREEMENT

37. 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.
38. If the Respondent does not comply with the attached Order, Staff and the Respondent shall have the right to appear before the Hearing Panel for additional guidance on fulfilling the terms of the Order.

XII. NON-ACCEPTANCE OF SETTLEMENT AGREEMENT

39. 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.
40. 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.

XIII. DISCLOSURE OF AGREEMENT

41. 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.
42. Any obligations of confidentiality shall terminate upon acceptance of this Settlement Agreement by the Hearing Panel.

XIV. EXECUTION OF SETTLEMENT AGREEMENT

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