Settlement Agreement

I. INTRODUCTION

1. Staff of the Mutual Fund Dealers Association of Canada (“Staff”) and the Respondent, Jerome Thomas Bates (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 Mutual Fund Dealers Association of Canada (“MFDA”):
   1. between October 2009 and April 2017, the Respondent, or his assistant for whom he was responsible, altered and used to process transactions, 27 account forms in respect of 15 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 October 2009 and April 2017, the Respondent failed to comply with the Member’s policies and procedures by failing to record and maintain evidence of client instructions with respect to alterations made to 27 account forms in respect of 15 clients, contrary to MFDA Rules 2.5.1, 1.1.2, and 2.1.1.
5. Staff and the Respondent agree and consent 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 s. 24.1.1.(b) of MFDA 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 s. 24.2 of MFDA By-law No. 1;
   3. the Respondent shall in the future comply with MFDA Rules 1.1.2, 2.1.1 and 2.5.1; and
   4. the Respondent will attend in person or via teleconference 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 October 1995 to November 2017, the Respondent was registered as a mutual fund salesperson (now known as a dealing representative) in British Columbia with Investia Financial Services Inc.^[1] (the “Member”), a Member of the MFDA.
8. The Respondent was also registered in Alberta at various times until September 2009, and Ontario until November 2017.
9. Between March 1997 and August 2011, the Member designated the Respondent as a Branch Manager.
10. In November 2017, the Respondent resigned from the Member.
11. The Respondent is not currently registered in the securities industry in any capacity.
12. At all material times, the Respondent conducted business in the Chilliwack, British Columbia area.

Altered Account Forms

13. Since at least February 2012, the Member’s policies and procedures required its approved persons to obtain client initials on any material changes to a client’s trade documents, and to not use liquid correction fluid on account forms.
14. Between October 2009 and April 2017, the Respondent, or his assistant for whom he was responsible, altered 27 account forms in respect of 15 clients by:
    1. in 25 instances, altering information on the account forms without having the clients initial the alterations; and
    2. in 2 instances, using liquid correction fluid to alter information on the account forms, without having the clients initial the alterations.
15. The altered account forms consisted of:
    1. 1 account change form;
    2. 4 fund transfer fee disclosure forms;
    3. 1 new account application form;
    4. 12 order instruction forms;
    5. 1 self directed purchase form;
    6. 7 trade tickets; and
    7. 1 withdrawal of assets from a registered plan disclosure form.
16. The alterations to the account forms included alterations to fund codes, investment amounts, redemption fees, and client signature dates.
17. The Respondent, or his assistant, submitted the altered forms to the Member to process transactions in the clients’ accounts.
18. The Respondent was a branch manager when he, or his assistant, obtained and used 6 of the altered account forms as described above.

Failure to Maintain Evidence of Client Instructions

19. At all material times, the Member’s policies and procedures required its approved persons to maintain a record of all client conversations.
20. The Respondent did not maintain notes of client conversations pertaining to the alterations that he or his assistant made to the account forms described above at paragraph 14.

The Member’s Investigation

21. In June 2017, the Member identified the altered account forms that are the subject of this Settlement Agreement as a result of a file review. The Member subsequently commenced an investigation.
22. On or about September 14, 2017, the Member placed the Respondent on close supervision for a period of 90 days.
23. In October 2017, as part of its investigation, the Member sent letters to all of the clients serviced by the Respondent, along with copies of the clients’ account transaction histories for the last three years, in order to determine if the Respondent had engaged in unauthorized trading In November 2017, the Member sent separate audit letters to the clients where altered account forms were identified, which included summaries of their KYC information, in order to ensure the KYC information was recorded according to their instructions. No clients reported any concerns in response to either of the Member’s letters. The Respondent paid a $500 administration charge and $432 mailing charge to Investia with respect to the audit letters.
24. On or about November 8, 2017, the Respondent resigned from the Member.

Additional Factors

25. 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.
26. There is no evidence of client complaints relating to the Respondent’s conduct as described herein.
27. There is no evidence of any client loss.
28. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
29. 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

30. 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.
31. 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 mfda.ca.
32. 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.
33. 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 contraventions described in this Settlement Agreement. Nothing in this Settlement Agreement precludes Staff from investigating or initiating proceedings in respect of any 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.
34. 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.
35. 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.
36. 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.

[1] Commencing October 1995, the Respondent was registered as a mutual fund salesperson with AEGON Dealer Services Canada Inc. (“AEGON”).  In September 2008, AEGON amalgamated with Investia Financial Services Inc.