Settlement Agreement

I. INTRODUCTION

1. Staff of the Mutual Fund Dealers Association of Canada (“Staff”) and the Respondent, Gary William Sexton (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 February 2012 and February 2018, the Respondent, or his assistants for whom he was responsible, obtained, possessed, and used to process transactions, 29 pre-signed account forms in respect of 24 clients, contrary to MFDA Rule 2.1.1; and
   2. between February 2012 and December 2017, the Respondent, or his assistants for whom he was responsible, altered 37 account forms in respect of 35 clients by altering information on the account forms without having the client initial the alterations, 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 pay a fine in the amount of $12,500 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 Rule 2.1.1; and
   4. 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. Since July 1996, the Respondent has been registered in Ontario as a mutual fund salesperson (now known as a dealing representative) with FundEX Investments Inc. (the “Member”), a Member of the MFDA. The Respondent was also registered as a mutual fund dealing representative with the Member in Alberta from October 2003 to January 2010, in Nova Scotia from February 2008 to April 2008, and in Prince Edward Island from March 2011 to November 2014.
8. At all material times, the Respondent conducted business in the Grimsby, Ontario area.

Pre-Signed Account Forms

9. At all material times, the Member had policies and procedures that prohibited its Approved Persons from obtaining or using pre-signed account forms.
10. Between February 2012 and February 2018, the Respondent, or his assistants for whom he was responsible, obtained, possessed, and used to process transactions, 29 pre-signed account forms in respect of 24 clients.
11. The pre-signed account forms consisted of:
    1. 12 Know Your Client (“KYC”) Update forms;
    2. 6 Transfer Authorization for Registered Investments (“TARI”) forms;
    3. 3 Order Entry forms;
    4. 3 Fund Company Application forms;
    5. 2 New Client Application forms;
    6. 2 Registered Education Savings Plan (“RESP”) Educational Assistance Payment forms; and
    7. 1 Family Education Savings Plan Application form.

Altered Account Forms

12. At all material times, the Member had policies and procedures that required client initials on all changes made to client documents.
13. Between February 2012 and December 2017, the Respondent, or his assistants for whom he was responsible, altered 37 account forms in respect of 35 clients by altering information on the account forms without having the client initial the alterations.
14. The altered account forms consisted of:
    1. 21 KYC Update forms;
    2. 2 New Client Application forms;
    3. 2 Fund Company Application forms;
    4. 10 Order Entry forms;
    5. 2 RESP Educational Assistance Payment form.
15. The Respondent made alterations to the account forms including alterations to investment instructions and KYC information.

The Member’s Investigation

16. On or about August 16, 2018, during the course of a branch audit, the Member reviewed all of the client files serviced by the Respondent and identified the pre-signed and altered account forms that are the subject of this Settlement Agreement.
17. On September 13, 2018, the Member issued to a reprimand letter to the Respondent for pre-signed and altered account forms, and placed him under strict supervision. During the period of strict supervision the Member imposed a monthly financial penalty of $625 on the Respondent. The strict supervision and monthly penalty imposed by the Member will continue until the conclusion of the current MFDA proceeding. As of January 28, 2020, $10,000 has been deducted from the Respondent’s commissions. The Respondent also paid to the Member a total of $978 in administrative fees to cover the cost of client mailings.
18. On September 13, 2018, the Respondent signed a Letter of Undertaking from the Member acknowledging that he agreed with the facts and discipline set out in the Member’s reprimand letter dated September 13, 2018. The Respondent also signed an Acknowledgement from the Member agreeing that he had read and understood and agreed to comply with the Member’s policies and procedures, all applicable rules and regulations of the MFDA, and provincial securities regulations in the jurisdictions in which he is registered.
19. On or about October 4, 2018, the Member sent a letter with a 3-year transactional summary to all clients serviced by the Respondent. The Member requested that the clients review their transaction summaries to ensure that the trading activity was completed as directed and to report any inconsistencies by October 26, 2018. No clients have reported any concerns.
20. On March 4, 2019, the Member issued a warning letter to the Respondent with respect to the pre-signed and altered account forms that are the subject of this Settlement Agreement, and on March 6, 2019, the Respondent signed a Letter of Undertaking from the Member agreeing to comply with the Member’s policies and procedures, all applicable rules and regulations of the MFDA, and provincial securities regulations in the jurisdictions in which he is registered.

Additional Factors

21. There is no evidence that the Respondent received any benefit from engaging in the misconduct described above beyond the commissions or fees he would ordinarily be entitled to receive had the transactions been carried out in the proper manner.
22. There is no evidence of client loss or lack of authorization for the underlying transactions.
23. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
24. 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.

IV. ADDITIONAL TERMS OF SETTLEMENT

25. 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.
26. 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.
27. 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.
28. 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.
29. 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.
30. 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.
31. 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.