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 the Respondent, Israel (Steve) Notis.

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. ACKNOWLEDGMENT

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. From June 1, 2006 to May 23, 2017, the Respondent was registered in Ontario as a mutual fund sales person (now known as a dealing representative)[1] with Investors Group Financial Services Inc. (the “Member”), a Member of the MFDA.
7. From January 20, 2011 to April 16, 2012, the Respondent was designated as a branch manager.
8. On July 4, 2017, the Member terminated the Respondent’s employment, effective May 23, 2017, as a result of certain of the conduct that is the subject of this proceeding.
9. At all material times, the Respondent conducted business in the Toronto, Ontario area.
10. The Respondent is not currently registered in the securities industry in any capacity

Personal Financial Dealings

11. At all material times, the Member’s policies and procedures prohibited its Approved Persons from engaging in any personal dealings or investment arrangements with clients.
12. On October 31, 2016, the Respondent purchased a condominium unit from a builder as an investment property. The Agreement of Purchase and Sale (“APS”) required the Respondent to make an initial deposit of $3,000, a further deposit of $25,495 30-days following the execution of the APS, and a further $28,495 one-year following the execution of the APS.
13. On or around November 30, 2016, the Respondent’s client paid $14,247.50 to the Respondent to co-invest in the purchase of the condominium. The amount of the cheque represented 50% of the deposit required under the APS within the first 30 days.
14. On March 1, 2017, the Respondent entered into an assignment agreement (the “Assignment Agreement”) to assign the purchase of the condominium to a third party. As a result of the Assignment Agreement, the Respondent and his client recovered the original deposit and each earned a profit of $39,915.

Outside Activity

15. At all material times, the Member’s policies and procedures stated:

In the event, you wish to pursue an outside business activity (OBA), you must obtain prior approval from your Regional Director, and the Vice-President, Financial Services responsible for your area, Compliance and the regulator prior to start any activity.

16. In 2015, another client of the Respondent asked the Respondent to serve as an independent director on the board of directors of a gold exploration corporation (the “GEC”). The Respondent’s client was the chief executive officer of the GEC.
17. The Respondent agreed and joined the board of directors of the GEC in June 2015. The Respondent was also appointed to the compensation committee, the governance committee, and the audit committee.
18. The Respondent received $30,000 and 325,000 stock options, which he did not exercise, as compensation over the time he served on the board of directors of the GEC.
19. The Respondent did not disclose his position with the GEC to the Member or obtain the Member’s approval in accordance with its policies and procedures.
20. The Respondent resigned from the board of directors effective June 15, 2017 after being requested by the Member to do so.

Pre-Signed Account Forms

21. At all material times, the Member’s policies and procedures prohibited its Approved Persons from obtaining, possessing, and using pre-signed account forms.
22. In February 2015, the Respondent signed an attestation, stating that “he would not collect, accept from a client, maintain for future use, or submit for processing, any form that was signed by a client prior to being completed in full.”
23. Between at least 2014 and 2017, the Respondent obtained, possessed and, in some instances, used to process transactions, 62 pre-signed account forms.
24. The pre-signed account forms consisted of one or more of the following forms: client application, security agreement on investments, transfer, credit application, investment instructions, know-your-client information form and know-your-client update form, Ontario LIRA addendum, declaration of spousal status, pre-authorized contribution agreement, and education savings plan grant.

False Statements on Annual Consultant Certificate

25. From 2014 to 2017, the Respondent completed the Member’s Annual Consultant Certificate. Each certificate required the Approved Person to indicate: (i) whether he possessed and/or used a pre-signed form; (ii) whether he was engaged in an outside activity; and (iii) whether he had reviewed and was compliant with the Member’s policies and procedures.
26. In each year, the Respondent answered “no” to questions (i) and (ii) above and “yes” to question (iii).
27. As a result of the facts set out above, some of the Respondent’s answers were false in each year from 2014 to 2017.

Misleading the Member

28. Following the Member’s discovery of the Respondent’s outside activity as a director of the GEC, it commenced an investigation into his conduct.
29. From May 2017 to June 2017, the Member wrote the Respondent various questions concerning the conduct described above and interviewed the Respondent. In response to questioning, the Respondent failed to make full disclosure of the conduct described above until confronted by the Member with new information it had independently gathered. 
30. In particular, the Respondent:
    1. did not disclose the involvement of a Member client in his purchase of an investment property; and
    2. did not disclose his full compensation as a director of the GEC.

Additional Factors

31. The Respondent states that he considered the client with whom he purchased the condominium unit a close personal friend.
32. The Respondent states that neither he nor any of his clients traded in any of the securities of the GEC.
33. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
34. The Respondent cooperated with Staff’s investigation and admitted to some of the allegations at the outset of the investigation.
35. By entering into this Settlement Agreement, the Respondent has saved the MFDA the time, resources, and expenses associated with conducting a full hearing on the allegations.

V. CONTRAVENTIONS

36. The Respondent admits that between November 2016 and March 2017, he engaged in personal financial dealings with a client of the Member by obtaining funds from the client to invest in a condominium property jointly with the client, contrary to the Member’s policies and procedures and MFDA Rules 2.1.4, 2.1.1, and 1.1.2 and 2.5.1.
37. The Respondent admits that between June 2015 and June 2017, he had and continued in an outside activity by serving on the board of directors of a gold exploration corporation that was not disclosed to and approved by the Member, contrary to the Member’s policies and procedures and MFDA Rules 1.2.1(c) (now 1.3.2)[2], 2.1.1, and 1.1.2 and 2.5.1.
38. The Respondent admits that between at least 2014 and 2017, he obtained, possessed and, in some instances, used to process transactions, 62 pre-signed account forms, contrary to the Member’s policies and procedures and MFDA Rules 2.1.1 and 1.1.2 and 2.5.1.
39. The Respondent admits that between July 2014 and March 2017, he falsely indicated on the Member’s Annual Consultant Certificate that he: (i) did not possess and use pre-signed forms; (ii) was not engaged in any outside activities; and (iii) had reviewed and was compliant with the Member’s policies and procedures, contrary to MFDA Rule 2.1.1.
40. The Respondent admits that between May 2017 and June 2017, he misled the Member during the course of an investigation into his conduct, contrary to MFDA Rule 2.1.1.

VI. TERMS OF SETTLEMENT

41. The Respondent agrees 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 4 years from the date the Settlement Agreement is accepted, pursuant to section 24.1.1(e) of MFDA By-law No. 1;
    2. the Respondent shall pay a fine in the amount of $35,000, pursuant to section 24.1.1(b) of MFDA By-law No. 1, in instalments as follows:
       1. $10,000 in certified funds upon acceptance of the Settlement Agreement;
       2. $5,000 in certified funds on or before the last business day of the first month following the acceptance of the Settlement Agreement;
       3. $5,000 in certified funds on or before the last business day of the second month following the acceptance of the Settlement Agreement;
       4. $5,000 in certified funds on or before the last business day of the third month following the acceptance of the Settlement Agreement;
       5. $5,000 in certified funds on or before the last business day of the fourth month following the acceptance of the Settlement Agreement;
       6. $5,000 in certified funds on or before the last business day of the fifth month following the acceptance of the Settlement Agreement.
    3. the Respondent shall pay costs in the amount of $5,000 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.2 of MFDA By-law No. 1;
    4. the Respondent shall in the future comply with MFDA Rules 1.3.2, 2.1.1, 2.1.4, and 1.1.2 and 2.5.1; and
    5. the Respondent will attend in person on the date set for the Settlement Hearing.

VII. STAFF COMMITMENT

42. If this Settlement Agreement is accepted by the Hearing Panel, Staff will not continue 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 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

43. 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.
44. 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.
45. 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.
46. 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. 
47. 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.

IX. NON-ACCEPTANCE OF SETTLEMENT AGREEMENT

48. 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.
49. 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.

X. DISCLOSURE OF AGREEMENT

50. 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.
51. Any obligations of confidentiality shall terminate upon acceptance of this Settlement Agreement by the Hearing Panel.

XI. EXECUTION OF SETTLEMENT AGREEMENT

52. This Settlement Agreement may be signed in one or more counterparts, which together shall constitute a binding agreement.
53. An electronic copy of any signature shall be effective as an original signature.

[1] In September 2009, the registration category Mutual Fund Salesperson changed to “Dealing Representative” when National Instrument 31-103 came into force.

[2] On March 14, 2016, Rule 1.2.1(c) was revised and renumbered as Rule 1.3.2.