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 Prairie 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 Respondent, Jake Florentino Cadigal (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 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. Since August 5, 2008, the Respondent has been registered in Manitoba, Saskatchewan, Alberta and Ontario as a mutual fund salesperson / dealing representative[1] and has been an Approved Person with Doheny Securities Limited (“DSL” or the “Member”), a Member of the MFDA.
7. Between December 1991 and August 2008, the Respondent was registered as a mutual fund salesperson in Manitoba, Alberta and Ontario and was an Approved Person with another mutual fund dealer that became a Member of the MFDA on January 11, 2002.
8. At all material times, the Respondent carried on business in the Winnipeg, Manitoba area.

Clients LT and JT

9. Shortly after the Respondent became an Approved Person at DSL in August 2008, client LT and her husband client JT transferred their investment accounts and became clients of DSL. The Respondent was the Approved Person responsible for servicing their accounts. The Respondent had been a close family friend of clients LT and JT for more than 20 years.

Unauthorized Redemption and Signature Falsification

10. On September 26, 2008, clients LT and JT opened a registered education savings plan (“RESP”) account at DSL to fund the post-secondary school education of their children AT and LT2. Clients LT and JT were joint account holders of the RESP. Only one signature was required and either account holder acting alone could authorize transactions in the account.
11. On January 7, 2015, clients LT and JT separated.
12. Following their marital breakdown, client JT, the father of the children, was granted custody of the children.
13. In October 2016, AT, the oldest daughter of clients LT and JT was attending university. A tuition payment was due at around that time. AT and client JT contacted the Respondent to find out if the tuition payment could be funded from the RESP account.
14. The Respondent confirmed that the tuition payment could be funded by means of a redemption from the RESP account. He obtained client JT’s signature on a redemption form authorizing the trade. As the RESP account was a joint account and he assumed that client LT would not object to the proposed redemption from the RESP account to fund the required tuition payment, the Respondent prepared the redemption form with both of the joint account holders identified on the signature line of the redemption form.
15. The Respondent made no attempt to speak with client LT or to otherwise contact her about the proposed redemption transaction. Without the knowledge, authorization or approval of client LT, the Respondent falsified client LT’s signature next to her name on the signature line of the redemption transaction form and submitted the form to be processed.
16. On October 17, 2016, without the knowledge, authorization or approval of client LT, a redemption in the amount of $7,743 was processed from the RESP account using the form containing the falsified signature of client LT and the proceeds were applied to pay AT’s tuition.
17. It later came to light that between March 25, 2015 and October 17, 2016, the Respondent had falsified client LT’s signature on a total of 9 account forms, as reflected in the chart below:

18. By falsifying client LT’s signature on the 9 forms, the Respondent created the false representation on that documentation that client LT was aware of, authorized and approved the content of those forms and signed each of those forms when this was not in fact the case.

Failure to Disclose Conflict Of Interest

19. At all material times, DSL’s policies and procedures required its Approved Persons to immediately disclose to DSL any conflict of interest that arises, or can reasonably be expected to arise, with respect to any client.
20. On March 17, 2015, client LT updated her will, and named the Respondent as Executor or her estate.
21. On or around March 29, 2015, client LT provided the Respondent with a copy of her updated will and told him that she had named him as Executor of her estate.
22. The Respondent knew or ought to have known that when client LT named him in her will as the Executor of her estate, the circumstances gave rise to a potential conflict of interest that he was required to disclose to DSL and to ensure that it was addressed by the exercise of responsible business judgment influenced only by the best interests of the client.
23. The Respondent did not inform DSL that he had been named in client LT’s will as the Executor of her estate. On August 10, 2015 the Respondent completed a compliance questionnaire as part of an audit of his branch by compliance staff of DSL. One of the questions on the compliance questionnaire asked the Respondent: “are you or a relative an executor/executrix for any of your clients?” The Respondent responded to that question with the answer “no” when he knew that his answer was false.
24. On January 17, 2017, client LT amended her will and the Respondent is no longer named as Executor of her estate.

Client LT’s Complaint

25. On February 14, 2017, client LT submitted a complaint letter to DSL in which she alleged among other things that unauthorized transactions had been processed in her RESP account and that the Respondent had agreed to be named as the Executor of her estate which she alleged gave rise to a conflict of interest.
26. On April 21, 2017, DSL conducted an investigation into the allegations that client LT had made in her complaint letter. DSL identified the 9 RESP account forms listed above that contained falsified signatures of client LT during its investigation.
27. After completing its investigation, DSL disciplined the Respondent by imposing a $2,500 fine on August 4, 2017, and placed the Respondent under close supervision since February 13, 2017.
28. On June 14, 2017, as part of its investigation, DSL sent audit letters to all of the clients whose accounts were serviced by the Respondent in order to determine whether any unauthorized transactions had been processed in their accounts. No additional clients reported unauthorized transactions to DSL.

V. CONTRAVENTIONS

29. The Respondent admits to the following violations of the By-laws, Rules or Policies of the MFDA:
    1. Between March 2015 and October 2016, without the knowledge, authorization or approval of client LT, the Respondent signed the signature of client LT on 9 account forms, thereby falsely representing that client LT was aware of and had approved the content of the forms and that she had authorized a redemption from the account when that was not the case, contrary to the policies and procedures of the Member and MFDA Rule 2.1.1;
    2. Between March 2015 and January 17, 2017, the Respondent was named in the will of his client LT as Executor of her estate which gave rise to a potential conflict of interest between the Respondent and client LT, which the Respondent failed to disclose to the Member or address by the exercise of responsible business judgment influenced only by the best interests of the client, contrary to MFDA Rules 2.1.4 and 2.1.1.

VI. TERMS OF SETTLEMENT

30. The Respondent agrees to the following terms of settlement:
    1. The Respondent shall pay a fine in the amount of $15,000 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.1.1(b) of By-law No. 1;
    2. The Respondent shall pay costs in the amount of $2,500 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.2 of By-law No. 1;
    3. The Respondent shall in the future exercise due diligence to comply with MFDA Rules 2.1.4, 2.1.1 and the policies and procedures of any Member he is associated with; and
    4. The Respondent will attend the Settlement Hearing in person.

VII. STAFF COMMITMENT

31. 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 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 contraventions that are not set out in Part V of this Settlement Agreement or in respect of conduct that occurred outside the specified date ranges of the contraventions set out in Part 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

32. 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 www.mfda.ca
33. 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.
34. 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 and/or 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.
35. 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 it him.

IX. FAILURE TO HONOUR SETTLEMENT AGREEMENT

36. 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 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

37. 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.
38. Whether or not this Settlement Agreement is accepted by the Hearing Panel, the Respondent agrees that it 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

39. 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.
40. Any obligations of confidentiality shall terminate upon acceptance of this Settlement Agreement by the Hearing Panel.

XII. EXECUTION OF SETTLEMENT AGREEMENT

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

[1]On September 28, 2009, as a result of the implementation of National Instrument 31-103, the mutual fund salesperson registration category was changed to “dealing representative – mutual fund dealer”.