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 My Phuong “Vicky” Luong Dao (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 section 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 August 4, 2005 until December 5, 2018, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative)^[1] with WFG Securities Inc. (the “Member”), a Member of the MFDA.
7. The Member terminated the Respondent on December 5, 2018 after discovering the conduct described in this Settlement Agreement. The Respondent has not been registered in the securities industry in any capacity since her termination.
8. At all material times, the Respondent conducted business in Richmond Hill, Ontario.

The Member’s Policies and Procedures

9. At all material times, the Member’s Policies and Procedures Manual:
   1. required Approved Persons to obtain the prior written approval of their Branch Manager and the Member’s Registrations Department before entering into an Outside Business Activity;
   2. prohibited Approved Persons from engaging in personal financial dealings with clients; and
   3. required Approved Persons to immediately disclose conflicts and potential conflicts of interests to the Member’s compliance department and to potentially impacted clients in writing and together with the Member to ensure that conflicts are addressed by the exercise of responsible business judgment influenced only by the best interests of the client.

Client MH

10. In or about 2006, the Respondent met client MH.
11. On May 20, 2007, client MH became a client of the Member. Client MH was born in 1953 and is currently 66 years old.
12. The Respondent states that she and client MH had a pre-existing relationship and a friendship prior to client MH becoming a client of the Member.
13. At all material times, the Respondent was the Approved Person responsible for servicing client MH’s accounts at the Member.

The Western Battery Property

14. On March 6, 2010, the Respondent and client MH signed an Agreement of Purchase and Sale to purchase a condominium unit in a property which was to be built on Western Battery Road in Toronto, Ontario (the “Western Battery Property”). The Respondent and client MH purchased the Western Battery Property directly from the condominium developer for the purchase price of $278,900.
15. The purchase price and related costs for the Western Battery Property were to be split between the Respondent and client MH. On February 20, 2014, the purchase of the Western Battery Property closed. In advance of the closing date, the Respondent paid a deposit of $41,835 in three installment payments. On February 18, 2014, client MH made a payment of approximately $27,000 representing the funds due on closing.
16. In order to finance the purchase of the Western Battery Property, the Respondent and client MH jointly obtained a mortgage in the amount of $223,119 which was secured against the property. The mortgage listed the Respondent and client MH as the borrowers. The mortgage terms required the Respondent and client MH to make monthly payments of $1,046.54.
17. Commencing in March 2014, the Western Battery Property was intermittently rented to tenants. The rental income was paid to the Respondent by tenants and was deposited each month into a joint bank account that the Respondent and client MH opened in their names on July 2, 2013 (the “Joint Bank Account”).
18. The Respondent states that both the Respondent and client MH had full access to the Joint Bank Account at all times.
19. The rental income generated by the Western Battery Property covered a portion of the mortgage payment and some expenses payable for the maintenance of the Western Battery Property. However, because the mortgage payments and expenses exceeded the amount of rent received from tenants, the Respondent states that she asked client MH to make additional deposits into the Joint Bank Account to cover additional expenses such as the property taxes and insurance for the property.
20. The amounts and frequency of the contributions that the Respondent asked client MH to deposit into the Joint Bank Account to cover expenses associated with maintaining the Western Battery Property varied over time.
21. The Respondent states that she paid more than half of the additional funds required to cover the costs of the mortgage and expenses payable to maintain the Western Battery Property.
22. The Respondent did not provide receipts or any formal accounting to client MH for expenses that were incurred and paid from money deposited into the Joint Bank Account including rent received from tenants, monetary contributions requested from and paid by client MH and amounts that the Respondent claims that she contributed in respect of the maintenance of the Western Battery Property. There was no written agreement between the Respondent and client MH dividing the profits or costs arising from the Western Battery Property.

The Dan Leckie Property

23. On March 24, 2013, the Respondent signed an Agreement of Purchase and Sale to purchase a condominium unit in a building located on Dan Leckie Way in Toronto, Ontario (the “Dan Leckie Property”) for the purchase price of $610,200. The Respondent agreed to purchase the Dan Leckie Property directly from the condominium developer. The Respondent received a discount of $91,530 on the purchase price that was to be deducted from the balance owing upon closing.
24. On April 15, 2013, the Respondent paid $30,510 as a deposit for the Dan Leckie Property.
25. In May 2013, client MH and the Respondent agreed that client MH would become a joint purchaser of the Dan Leckie Property and would participate in the management and rental of the condominium unit to tenants to earn rental income.
26. The purchase of the Dan Leckie Property closed on June 24, 2013 and the Respondent and client MH took possession of the property.
27. In order to finance the purchase of the Dan Leckie Property, the Respondent and client MH obtained a mortgage in the amount of $396,500 that was secured against the property. The mortgage listed the Respondent and client MH as the borrowers. The terms of the mortgage required the Respondent and client MH to make bi-weekly mortgage payments on the Dan Leckie Property in the amount of $781.
28. Upon obtaining the mortgage, the Respondent and client MH obtained a line of credit also secured against the Dan Leckie Property (the “Line of Credit”). Both the Respondent and client MH are listed as borrowers on the Line of Credit and thereafter were permitted to draw upon the Line of Credit to cover expenses associated with the maintenance and management of the property.
29. Client MH contributed $117,900 towards the purchase of the Dan Leckie Property. Client MH financed her contribution towards the down payment by drawing on a home equity line of credit secured against her home.
30. The Respondent treated the $30,510 deposit that she paid at the time of purchase and the $91,530 discount that she had obtained from the vendor without the knowledge of client MH as her contribution to the down payment.
31. The Respondent did not inform client MH about the $91,530 discount that she was promised by the vendor of the Dan Leckie Property and did not share the benefit of that discount with client MH. The Respondent did not inform client MH that the total amount of money that the Respondent contributed towards the down payment on the Dan Leckie Property was limited to the $30,510 initial deposit that the Respondent had previously paid.
32. Commencing in July 2013, the Dan Leckie Property was intermittently rented to tenants.
33. The monthly mortgage payments for the Dan Leckie Property were made from the Joint Bank Account and deposits of the rental income received from tenants of the Dan Leckie Property were made into the Joint Bank Account.
34. The rental income received from the Dan Leckie Property covered a portion of the monthly mortgage payments and some additional expenses that were payable to maintain the property. The Respondent states that she asked client MH to make additional monthly contributions to cover additional expenses associated with the maintenance of the Dan Leckie Property including property taxes and insurance.
35. The amounts and frequency of the contributions that the Respondent asked client MH to deposit into the Joint Bank Account to cover expenses associated with maintaining the Dan Leckie Property varied over time.
36. The Respondent states that she paid more than half of the additional funds required to service the Dan Leckie Property.
37. The Respondent did not provide receipts or any formal accounting to client MH for expenses that were incurred in respect of the maintenance of the Dan Leckie Property. There was no written agreement between the Respondent and Client MH dividing the profits or costs arising from the Dan Leckie Property.

The Lawsuit Commenced by Client MH

38. In or about September 2017, client MH’s representatives requested information from the Respondent about the details of the Western Battery Property and the Dan Leckie Property. Client MH’s representatives also asked for an accounting from the Respondent of the value of the Western Battery Property and the Dan Leckie Property. The Respondent states that she initially asked for a signed authorization from client MH to discuss her finances with client MH’s representatives but, given an ongoing complaint to the Member by client MH about the Respondent’s conduct, the Respondent understood that she was not to contact client MH or her representatives.
39. On December 22, 2017, client MH commenced a civil proceeding against the Respondent with respect to, among other things, the Western Battery Property and the Dan Leckie Property.
40. The Respondent and client MH continue to own the Western Battery Property and the Dan Leckie Property. Both the Respondent and client MH wish to sell the Western Battery Property and the Dan Leckie Property as an important step in the process of resolving the ongoing civil litigation between them that was commenced by client MH.

Conflicts of Interest

Personal Financial Dealings – The Purchase of the Rental Properties

41. By obtaining money from client MH to finance the purchase of the Western Battery Property and the Dan Leckie Property, the Respondent engaged in personal financial dealings with client MH that gave rise to a conflict of interest.
42. The Respondent did not disclose to the Member at any time that she had obtained money from client MH to finance the purchase of the Western Battery Property and the Dan Leckie Property.
43. The Respondent did not at any time disclose to client MH that obtaining money from client MH to finance the purchase of the Western Battery Property and the Dan Leckie Property gave rise to a conflict of interest.
44. As a result of the Respondent’s failure to inform the Member about the fact that she had obtained money from client MH to finance the purchase of two rental properties, the Respondent contravened the policies and procedures of the Member and undermined the Member’s ability to address the conflicts of interest that arose as a result of these personal financial dealings by the exercise of responsible business judgement influenced only by the best interests of client MH.

Personal Financial Dealings – The Joint Bank Account

45. As stated above, on or about July 2, 2013, the Respondent and client MH opened the Joint Bank Account in order to facilitate receipt of the rental income generated by the Western Battery Property and the Dan Leckie Property and the payment of expenses for the properties, including the monthly mortgage payments on each property. The Respondent also asked client MH to make additional contributions into the Joint Bank Account to cover miscellaneous expenses associated with the maintenance of the properties that exceeded the rental income generated by the properties, including property tax and insurance.
46. By opening and maintaining the Joint Bank Account with client MH which enabled the Respondent to comingle money obtained from client MH with the Respondent’s money and which enabled the Respondent to access money contributed by or owed to client MH, the Respondent engaged in personal financial dealings with client MH that gave rise to a conflict of interest.
47. The Respondent did not disclose to the Member that she had opened the Joint Bank Account with client MH at any time.
48. The Respondent did not disclose to client MH that the opening and maintenance of a Joint Bank Account with her client gave rise to a conflict of interest.
49. Consequently, the Respondent contravened the policies and procedures of the Member and the Member was unable to take steps to ensure that the resulting conflict of interest was disclosed to the client and that steps were taken to address the conflict of interest by the exercise of responsible business judgment influenced only by the best interests of client MH.

Personal Financial Dealings – Receiving Personal Cheques from Client MH to the Respondent

50. On April 3, 2012, the Respondent accepted a cheque from client MH in the amount of $50,000 that was payable to the Respondent and was deposited into a personal bank account that was owned and controlled by the Respondent.
51. On April 25, 2013, the Respondent accepted another cheque from client MH in the amount of $20,000 that was payable to the Respondent and was deposited into a personal bank account that was owned and controlled by the Respondent.
52. On June 9, 2013, the Respondent accepted a third cheque from client MH in the amount of $25,000 that was payable to the Respondent and was deposited into a separate personal bank account that was owned and controlled by the Respondent.
53. The Respondent did not document in writing any reasons why the cheques totaling $95,000 were provided by client MH to the Respondent or the terms pursuant to which these amounts would be held or used by the Respondent or any terms of repayment.
54. In or about January 2014, the Respondent returned $25,000 to client MH. By June 2019, after the investigation of the Respondent’s conduct was completed by the MFDA, the Respondent had repaid client MH the additional $70,000 that was obtained from client MH.
55. By accepting $95,000 from client MH, the Respondent engaged in personal financial dealings with client MH that gave rise to a conflict of interest.
56. The Respondent did not disclose to the Member that she had accepted $95,000 from client MH and had deposited it into her personal bank account at any time.
57. The Respondent did not disclose to client MH that her acceptance of $95,000 from client MH gave rise to a conflict of interest.
58. Consequently, the Respondent contravened the Member’s policies and procedures and the Member was unable to take any steps to ensure that the conflict was addressed by the exercise of responsible business judgment influenced only by the best interests of client MH.

Outside Business Activities

59. As described above, in or about March 2010, the Respondent and client MH purchased real estate together to generate rental income for their mutual financial benefit.
60. The Respondent did not disclose to the Member that she intended to engage in real estate investing or real estate management with client MH and she did not receive approval from the Member to engage in real estate investing or management as an Outside Business Activity.

Personal Financial Dealings

61. As described above, commencing in or about March 2010, the Respondent engaged in personal financial dealings with client MH by:
    1. purchasing and maintaining real estate investments with client MH;
    2. opening and operating a joint bank account with client MH and co-mingling money obtained from client MH with the Respondent’s money; and
    3. accepting cheques from client MH which were deposited into the Respondent’s personal bank account.
62. The terms and conditions of their investment arrangement, the reasons why money was advanced by client MH, the use that could be or would be made of that money and terms of repayment were not documented in any written agreement between the parties. Furthermore, no collateral was provided to client MH to secure repayment of the $95,000 that she advanced to the Respondent in cash.

Misleading the Member

63. Between November 2012 and November 2016, while she was registered with the Member, the Respondent was required to complete Annual Representative Compliance Certificates (“ARCCs”) in respect of her business practices. The Respondent completed and submitted ARCCs on November 1, 2012, October 2, 2013, October 1, 2014, November 18, 2015 and November 30, 2016.
64. In each of the ARCCs which the Respondent filed with the Member, she certified that she had fully disclosed all information relating to Outside Business Activities to the Member.
65. The following answers provided by the Respondent in the ARCCs that she submitted to the Member were false or misleading:

66. By providing the answers listed above to the Member and by certifying that she had fully disclosed all information relating to Outside Business Activities to the Member, the Respondent provided false or misleading information to the Member and thereby:
    1. interfered with the Member’s ability to supervise the Respondent and ensure her compliance with the policies and procedures of the Member and regulatory requirements;
    2. failed to observe high standards of ethics and conduct in the transaction of business, and
    3. engaged in conduct that is unbecoming and detrimental to the public interest.

Additional Factors

67. The Respondent states that she has fully reimbursed to client MH the $95,000 that was deposited with and held by the Respondent.
68. The Western Battery Property and the Dan Leckie Property are still jointly owned by the Respondent and client MH. The Joint Bank Account is still in operation to facilitate the payment of expenses and receipt of rental income from the Western Battery Property and the Dan Leckie Property.
69. The civil proceeding commenced by client MH against the Respondent in respect of the Western Battery Property and the Dan Leckie Property is still ongoing.
70. The Respondent states that at no time did she undertake any actions with an intent to harm client MH.
71. The Respondent has not previously been the subject of MFDA proceedings.
72. By entering into this Settlement Agreement, the Respondent has saved the MFDA the time, resources, and expenses that would have been necessary to conduct a contested hearing on the merits.

V. CONTRAVENTIONS

73. Commencing in March 2010, the Respondent has been engaged in an outside business activity that was not disclosed to or approved by the Member, contrary to the policies and procedures of the Member and MFDA Rule 1.2.1(d)^[2] (now Rule 1.3.2) and MFDA Rules 2.10, 2.5.1 and 1.1.2;
74. Commencing in March 2010, the Respondent engaged in personal financial dealings with client MH by:
    1. purchasing two condominium units (the “Condominium Units”) with client MH and accepting payments from client MH to finance the costs of purchasing and maintaining the Condominium Units;
    2. opening and maintaining a joint bank account with client MH to facilitate:
       1. the receipt of deposits including payments from client MH towards the costs of the Condominium Units;
       2. the deposit and accounting for rental income generated by the Condominium Units; and
       3. the payment of expenses (including mortgage payments) associated with the purchase and maintenance of the Condominium Units; and
    3. accepting three cheques from client MH totaling $95,000 which were deposited into the Respondent’s personal bank account

    all of which gave rise to conflicts of interest that the Respondent failed to disclose to her Member, disclose in writing to the client, or otherwise address by the exercise of responsible business judgment influenced only by the best interests of the client, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.4, 2.1.1, 1.1.2, 2.10, and 2.5.1; and

75. Between November 2012 and November 2016, the Respondent submitted five Annual Representative Compliance Certification questionnaires to the Member that contained false or misleading responses, thereby interfering with the ability of the Member to supervise the Respondent’s activities, failing to observe high standards of ethics and conduct in the transaction of business, and engaging in conduct that is unbecoming and detrimental to the public interest, contrary to MFDA Rules 2.1.1, 1.1.2 and 2.5.1.

VI. TERMS OF SETTLEMENT

76. The Respondent agrees to the following terms of settlement:
    1. the Respondent shall be permanently prohibited from conducting securities related business in any capacity while in the employ of or associated with any MFDA Member commencing from the date of acceptance of this Settlement Agreement by a Hearing Panel, pursuant to section 24.1.1(e) of MFDA By-law No. 1;
    2. the Respondent shall pay a fine in the amount of $50,000 in certified funds upon acceptance of the Settlement Agreement by a Hearing Panel, pursuant to section 24.1.1(b) of MFDA By-law No. 1;
    3. the Respondent shall pay costs in the amount of $10,000 in certified funds upon acceptance of the Settlement Agreement by a Hearing Panel, pursuant to section 24.2 of MFDA By-law No.
    4. the Respondent will attend the Settlement Hearing on the date set for the Settlement Hearing.

VII. STAFF COMMITMENT

77. 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 set out in Part IV and 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 facts and contraventions that are not set out in Parts IV and V of this Settlement Agreement or in respect of conduct that occurred outside the specified date ranges of the facts and contraventions set out in Parts IV and 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 SETTLMENT AGREEMENT

78. 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.
79. 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 her 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.
80. 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 section 24.1.1 of By-law No. 1 for the purpose of giving notice to the public thereof in accordance with section 24.5 of By-law No. 1.
81. 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 her.

IX. FAILURE TO HONOUR SETTLEMENT AGREEMENT

82. 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.

X. NON-ACCEPTANCE OF SETTLEMENT AGREEMENT

83. 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.
84. Whether or not this Settlement Agreement is accepted by the Hearing Panel, the Respondent agrees that she 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

85. 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.
86. Any obligations of confidentiality shall terminate upon acceptance of this Settlement Agreement by the Hearing Panel.

XII. EXECUTION OF SETTLEMENT AGREEMENT

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

[1] In September 2009, the registration category mutual fund salesperson was changed to “dealing representative” when National Instrument 31-103 came into force.
[2] Effective December 3, 2010, Rule 1.2.1(d) concerning dual occupations was renumbered as 1.2.1(c). Effective March 17, 2016, Rule 1.2.1(c) was amended and renumbered as MFDA Rule 1.3. Approved Persons have always been required to ensure that the Member is aware of and approves of any Approved Person’s engagement in outside business activities.