Settlement Agreement

I. INTRODUCTION

1. Staff of the Mutual Fund Dealers Association of Canada (“Staff”) and the Respondent, Hugo Donais (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 March 2010 and November 2016, he, or his assistants for whom he was responsible, altered and in some cases, used to process transactions, 18 account forms in respect of 14 clients by altering information on the account forms without having the clients initial the alterations, contrary to MFDA Rule 2.1.1; and
   2. between February 2011 and July 2016, he, or his assistants for whom he was responsible, obtained, possessed, and in some cases, used to process transactions, 30 pre-signed account forms in respect of 22 clients, contrary to MFDA Rule 2.1.1.
5. Staff and the Respondent agree and consent to the following terms of settlement:
   1. the Respondent shall be prohibited from conducting securities related business in any capacity while in the employ of or associated with any MFDA Member for a period of 3 months pursuant to s. 24.1.1(e) of MFDA By-Law No. 1;
   2. the Respondent shall pay a fine in the amount of $2,500 in certified funds, pursuant to s. 24.1.1.(b) of MFDA By-law No. 1;
   3. the Respondent shall pay costs in the amount of $2,500 in certified funds, pursuant to s. 24.2 of MFDA By-law No. 1;
   4. the payment by the Respondent of the Fine and Costs shall be made to and received by MFDA Staff in certified funds as follows:
      1. $1,500 (Costs) upon acceptance of the Settlement Agreement by the Hearing Panel;
      2. $583.35 (Costs) on or before the last business day of the 1st month following the date of the acceptance of the Settlement Agreement by the Hearing Panel;
      3. $583.33 (Costs and Fine) on or before the last business day of the 2nd month following the date of the acceptance of the Settlement Agreement by the Hearing Panel;
      4. $583.33 (Fine) on or before the last business day of the 3rd month following the date of the acceptance of the Settlement Agreement by the Hearing Panel;
      5. $583.33 (Fine) on or before the last business day of the 4th month following the date of the acceptance of the Settlement Agreement by the Hearing Panel;
      6. $583.33 (Fine) on or before the last business day of the 5th month following the date of the acceptance of the Settlement Agreement by the Hearing Panel; and
      7. $583.33 (Fine) on or before the last business day of the 6th month following the date of the acceptance of the Settlement Agreement by the Hearing Panel.
   5. the Respondent shall in the future comply with MFDA Rule 2.1.1; and
   6. 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. From March 2008 until April 2017, the Respondent was registered in British Columbia as a mutual fund salesperson (now known as a dealing representative) with Sun Life Financial Investment Services (Canada) Inc. (the “Member”), a Member of the MFDA.
8. The Respondent is not currently registered in the securities industry in any capacity.
9. At all material times, the Respondent conducted business in the Victoria, British Columbia area.

Altered Account Forms

10. Between March 2010 and November 2016, the Respondent, or his assistants for whom he was responsible, altered 18 account forms in respect of 14 clients by either:
    1. altering information on the account forms without having the clients initial the alterations; or
    2. using liquid correction fluid to alter information on the account forms without having the clients initial the alterations.
11. The altered account forms consisted of:
    1. 1 account linking agreement form;
    2. 2 account application forms;
    3. 1 fee agreement form;
    4. 1 identity verification form;
    5. 1 international tax classification form;
    6. 1 Know Your client (“KYC”) form;
    7. 3 order tickets;
    8. 2 CRA direct transfer forms; and
    9. 6 transfer authorization forms.
12. The alterations the Respondent, or his assistants, made to the account forms included alterations to fund names, fund codes, investment amounts, account numbers, time horizon information, signature dates, and personal information of clients.
13. In 16 instances, the Respondent, or his assistants, submitted the altered forms to the Member for processing.

Pre-Signed Account Forms

14. At all material times, the Member’s policies and procedures prohibited its Approved Persons from obtaining, holding, or using pre-signed account forms.
15. Between February 2011 and July 2016, the Respondent, or his assistants for whom he was responsible, obtained, possessed, and in 9 instances, used to process transactions, 30 pre-signed account forms in respect of 22 clients.
16. The pre-signed account forms consisted of:
    1. 8 account application forms;
    2. 1 private managed assets program account information form;
    3. 1 dealer change form;
    4. 1 identity verification form;
    5. 1 KYC form;
    6. 4 order tickets;
    7. 1 pre-authorized chequing form;
    8. 1 signature for electronic application form;
    9. 1 CRA direct transfer form; and
    10. 11 transfer authorization forms.

The Member’s Investigation

17. In or around March 9, 2017, Sun Life terminated the Respondent’s registration as a result of matters which are not related to the subject matter of this Settlement Agreement.
18. In April 2017, the Member identified pre-signed account forms as part of a review of client files that were being reassigned from the Respondent to another advisor. The Member subsequently commenced an investigation and audit of all of the client files maintained by the Respondent and identified the remaining account forms that are the subject of this Settlement Agreement.
19. On or about June 21, 2017, the Member sent letters to the clients whose accounts were serviced by the Respondent, which included recent transaction statements, in order to determine whether the transactions in the clients’ accounts were authorized. The letters also included a summary of the clients’ KYC information and the Member requested that the clients review the information to ensure the KYC information was accurate. No clients reported any concerns.

Additional Factors

20. There is no evidence that the Respondent received any financial benefit from engaging in the misconduct described above beyond any commissions and fees that he would ordinarily be entitled to receive had the transactions been carried out in the proper manner.
21. There is no evidence of any client loss or that the transactions were unauthorized.
22. The Respondent states the altered and pre-signed forms were obtained for client convenience.
23. The Respondent has not been the subject of prior MFDA disciplinary proceedings.
24. The Respondent states, and Staff has been provided evidence, that the Respondent’s annual income has been significantly reduced subsequent to the termination of his mutual fund registration in March 2017, and he is limited in his ability to contribute additional amounts towards a fine and costs in this matter. The Respondent acknowledges that absent his limited ability to pay, it would have been appropriate for him to be subject to a penalty that included a greater fine due to the conduct that is the subject of this Settlement Agreement.
25. On or about July 10, 2018, the Respondent was the subject of a decision of the Insurance Council of British Columbia in relation to the obtaining and using of pre-signed and altered account forms further to the Respondent’s insurance licence. The Insurance Council of British Columbia imposed a fine of $1,000, costs of $1,512.50, and required the Respondent to complete an insurance industry course. The Respondent completed the industry course as ordered and, on or about December 6, 2018, the Respondent paid the fine and costs owing to the Insurance Council of British Columbia.
26. 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

27. 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.
28. 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. 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.
29. 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.
30. 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 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.
31. 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.
32. 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.
33. 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.