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 MFDA 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 PEAK Investment Services Inc. (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 s. 24.1 of
   MFDA 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. ACKNOWLEDGEMENT

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. Since March 4, 2003, the Respondent has been a Member of the MFDA that is registered as a Mutual Fund Dealer in all 10 Canadian provinces and in the Yukon and Northwest Territories. The Respondent’s head office is located in Montreal, Quebec.
7. On May 2, 2012, the Respondent amalgamated with former MFDA Member Promutuel Capital Financial Services Firm Inc.
8. As of February 29, 2020, 301 Approved Persons were registered with the Respondent and working at 102 office locations (branch and sub-branch locations) outside of the province of Quebec.

Overview

9. As set out in more detail below:
   1. in 2016, during an MFDA sales compliance examination of the Respondent, it came to light that the Respondent had not adequately addressed compliance deficiencies that had previously been identified by the MFDA associated with the Respondent’s failure to ensure that, among other things, on-site branch and sub-branch reviews occurred at each of the Respondent’s business locations as required by MFDA Policy No. 5[1] and MFDA Rule 2.5.1;
   2. between 2011[2] and 2017, the Respondent failed to submit mandatory reports to the MFDA on the Member Event Tracking System (“METS”) on a timely basis or at all concerning incidents of possible misconduct including instances of unauthorized discretionary trading, undisclosed outside activities and personal financial dealings in contravention of MFDA Policy No. 6 and MFDA Rule 1.4(a); and
   3. between 2009 and 2017, the Respondent failed to conduct adequate or timely supervisory investigations after discovering potential misconduct by certain of its Approved Persons, contrary to MFDA Rule 2.5.1 and MFDA Policy No. 3.

The 2014 and 2016 MFDA Sales Compliance Examination Reports Of The Respondent

10. On December 12, 2016, MFDA Compliance Staff issued a report (the “2016 Compliance Report”) that identified compliance deficiencies observed by MFDA Compliance Staff during a compliance examination (the “2016 Compliance Examination”) that was conducted at the Respondent’s head office, three of its branch locations and three of its sub-branch locations to evaluate compliance by the Respondent with the By-laws, Rules and Policies of the MFDA during the period April 1, 2014 to April 30, 2016.
11. Prior to the 2016 Compliance Examination, in 2014, MFDA Compliance Staff previously conducted a compliance examination of the Respondent to evaluate the Respondent’s compliance with its regulatory obligations during the period November 1, 2011 to March 31, 2014 (the “2014 Compliance Examination”). Compliance deficiencies that were identified during the 2014 Compliance Examination were recorded in a report dated October 1, 2014 (the “2014 Compliance Report”) that was delivered to the Respondent.

Contravention #1 – Failure To Comply With MFDA Policy No. 5

12. MFDA Policy No. 5 states that “Members are generally expected to perform an on-site review of their branches no less than once every three years. However, Members must review certain branches more frequently than once every three years if justified based on risk. . . . Under no circumstances however, should a Member never perform an on-site review of a branch.”

2014 Compliance Deficiency – Failure To Conduct Branch Reviews At All Business Locations

13. One of the compliance deficiencies identified by MFDA Compliance Staff in the 2014 Compliance Report addressed the fact that the Respondent had failed to conduct on-site branch reviews at one branch and 10 sub-branch locations during the 3 years prior to the 2014 Compliance Examination.
14. After receiving the 2014 Compliance Report, the Respondent updated its policies and procedures to implement an appropriate schedule for branch reviews of all of the Respondent’s business locations as required by MFDA Policy No. 5 and MFDA Rule 2.5.1.

2016 Repeat Deficiency – Failure To Conduct Branch Reviews At All Business Locations

15. In the 2016 Compliance Report, MFDA Compliance Staff recorded the fact that the 2014 compliance deficiency concerning the failure to conduct branch reviews at all business locations as required by MFDA Policy No. 5 and in compliance with the Member’s updated policies and procedures had not been rectified.
16. During the 2016 Compliance Examination, MFDA Compliance Staff observed that, the Respondent had 151 Approved Persons and 102 business locations (including both branch and sub-branch locations) outside the Province of Quebec at the time of the 2016 Compliance Examination but the Respondent had failed to conduct on-site reviews of 35 of those 102 business locations where 55 Approved Persons conducted business on behalf of the Respondent during the 3 year period preceding the 2016 Compliance Examination, contrary to the Respondent’s policies and procedures concerning branch reviews..
17. MFDA Sales Compliance Staff also identified concerns that in certain circumstances where branch and sub-branch reviews were completed by the Respondent, among other things, the Respondent failed to document all deficiencies that were observed during branch reviews that were completed and the Respondent’s compliance staff sometimes failed to adequately follow up on compliance deficiencies that were identified during branch reviews.
18. Accordingly, as reflected in the paragraphs above, the Respondent failed in certain circumstances, to comply with the requirements set out in MFDA Policy No. 5 and MFDA Rule 2.5.1.

Contravention #2 – Failure To Make Mandatory Reports On METS On A Timely Basis

19. In the 2014 Compliance Report, MFDA Compliance Staff identified a deficiency in reporting by the Respondent on the Member Event Tracking System (“METS”) through which events described in MFDA Policy No. 6 must be submitted to the MFDA in compliance with the timelines stipulated in MFDA Policy No. 6.
20. Specifically, Staff observed that two Approved Persons had been terminated for cause and that heightened supervision (close supervision) had been imposed on a third Approved Person as a consequence of conduct that concerned possible regulatory violations but none of the three events had been reported on METS, contrary to requirements set out in MFDA Policy No. 6. Two of those three Approved Persons were subsequently named as subjects of disciplinary proceedings commenced by the MFDA.
21. After receiving the 2014 Compliance Report, the Respondent amended its policies and procedures to address the Respondent’s obligations to make timely reports on METS in compliance with MFDA Policy No. 6.
22. However, subsequently, the Respondent failed to adequately implement its updated policies and procedures concerning its obligations to file timely reports on METS. After the Respondent received the 2014 Compliance Report, between October 2014 and December 2017, 15 additional cases were discovered that ought to have been reported on METS but were not reported on METS on a timely basis in compliance with MFDA Policy No. 6.
23. The 15 METS reports that the Respondent failed to submit on a timely basis in compliance with MFDA Policy No. 6 included cases in which the Respondent failed to submit reports concerning information that appeared to reveal that Approved Persons of the Respondent had been engaged in conduct in contravention of regulatory requirements.
24. Prior to 2018, the Respondent failed to implement adequate policies, procedures and internal controls to ensure that it complied with its obligations to file mandatory reports to the MFDA on METS on a timely basis, contrary to MFDA Policy No. 6 and MFDA Rule 1.4(a).

Contravention #3 – Failure To Conduct Adequate or Timely Reasonable Supervisory Investigations

25. Between 2011[3] and 2017, the Respondent failed to conduct adequate or timely supervisory investigations (“RSIs”) of the activities of 10 Approved Persons when information came to the attention of the Respondent that should have triggered additional investigatory and supervisory action to determine the full scope of possible misconduct that Approved Persons were engaged in and safeguard the interests of clients.
26. The Respondent discovered that the 10 Approved Persons were potentially engaged in various types of serious misconduct that included the following:
    1. unauthorized trading;
    2. personal financial dealings;
    3. engagement in undisclosed outside activities, referral arrangements and/or engagement in securities related business that was not processed through the Member; and
    4. alleged misappropriation of client funds from a family member’s account.

Upon discovering the information, the Respondent failed to conduct adequate or timely RSIs.

27. In some cases, the Respondent failed to conduct an adequate RSI. In other cases, at least some appropriate investigatory steps were taken by the Respondent (such as communication with clients and a review of additional files of clients serviced by the Approved Person), however, the Respondent did not take such steps on a timely basis.
28. Many of the Approved Persons whose conduct ought to have triggered RSIs, subsequently were named as respondents to disciplinary proceedings commenced by Staff. In particular, the Respondent failed to conduct adequate or timely RSIs concerning the conduct of the individuals listed below:
    1. Ammy Cuiqin Yang – Hearing File No. 201766
    2. Kenneth John Fialho – Hearing File No. 201767
    3. James Morson Stoddard – Hearing File No. 201837
    4. Gordon David Brock – Hearing File No. 201838
    5. Joshua Brock – Hearing File No. 201839
    6. Taayla Markell Mark – Hearing File No. 201915
    7. Frank Louis Surrette – Hearing File No. 201922,
    8. Jesse Vu – Hearing File No. 201936; and
    9. Manjit Singh Cheema – Hearing File No. 201952.
29. After discovering that an Approved Person was engaged in possible misconduct that did or could have detrimentally affected the interests of clients, the Respondent had an obligation to investigate whether:
    1. the conduct had in fact contravened the regulatory obligations of the Approved Person and if so, what steps could be taken (including disciplinary action and heightened supervisory measures) or controls implemented to prevent the continuation of the misconduct;
    2. additional misconduct by the Approved Person or others detrimentally affected clients; and
    3. additional clients were impacted by the misconduct beyond those impacted by the conduct that initially came to the attention of the Respondent.
30. After concerns were raised about possible misconduct by 10 different Approved Persons (including the 9 Approved Persons listed in paragraph 28 above, who were later named as respondents to MFDA disciplinary proceedings), the Respondent failed to take important steps, as required in the circumstances, to complete an adequate or timely RSI including the following:
    1. in some cases, the Respondent did not issue written directions to certain Approved Persons to cease their engagement in potential misconduct;
    2. in some cases, the Respondent did not take steps to impose appropriate heightened supervision or other controls on the Approved Person on a timely basis to ensure that the potential misconduct ceased;
    3. in some cases, the Respondent did not take steps to explain to the Approved Person why their conduct was inconsistent with regulatory requirements and/or the policies and procedures of the Member and train the Approved Persons to cease similar conduct in the future;
    4. in some cases, the Respondent did not attend the business locations of the Approved Persons on a timely basis to complete a review of client files, transaction records, relevant electronic records, correspondence with clients and potentially relevant financial records in order to identify the full scope of the activities of the Approved Persons and identify any additional clients that may have been affected by the possible misconduct of the Approved Persons;
    5. in some cases, the Respondent did not send timely letters to clients making reference to the specific concerns raised about the Approved Person’s conduct (such as the possibility that the Approved Person had processed unauthorized trades in client accounts or had engaged in personal financial dealings with some clients), advising them to review their account and transaction records and inviting them to report relevant information to the Respondent about matters under investigation including any particular instances of similar conduct known to the clients;
    6. in some cases, the Respondent did not contact complainants directly to obtain their versions of relevant events and instead, relied on the Approved Person’s explanation for their conduct; and
    7. in some cases when Approved Persons were subsequently terminated by the Respondent, the Respondent did not inform clients that the Approved Person was no longer authorized to conduct securities related business on behalf of the Respondent.
31. On the basis of the deficiencies described above, between 2009 and 2017, the Respondent failed to conduct adequate or timely supervisory investigations after discovering potential misconduct by its Approved Persons to reveal the full scope of possible misconduct and to reduce the risk of potential continuing harm to clients, contrary to MFDA Rule 2.5.1 and MFDA Policy No. 3.

Additional Facts

32. In a separate proceeding commenced by Quebec’s provincial securities regulator, the Autorité des marchés financiers (the “AMF”), the Respondent and its former Chief Compliance Officer were subject to disciplinary action and accepted responsibility for compliance deficiencies associated with shortcomings in the Respondent’s internal controls and supervision processes. In May 2018, a settlement agreement between the Respondent and the AMF was accepted that resulted in the payment by the Respondent to the AMF of an administrative penalty of $200,000 and costs of $20,000.
33. The Respondent has no previous MFDA disciplinary history.
34. The Respondent cooperated with the MFDA during the investigation process.
35. There is no evidence that the Respondent’s misconduct resulted in financial harm to clients.[4]
36. Since the Respondent received the 2016 Compliance Report, the Respondent has expended significant resources and engaged several external consultants and lawyers to review and assist it to revise its policies and procedures. In total, the Respondent states that it has spent over $1,000,000 on external consultants and lawyers to assist the Respondent with establishing and implementing revised policies and procedures, reviewing and updating its governance structure, and to supplement training to its staff to address its compliance deficiencies.
37. Since 2017, the Respondent states that it has hired 10 additional compliance staff, restructured the compliance department to delineate responsibilities for daily supervision, branch audits, and regulatory affairs, promoted two employees into supervisor/associate director roles and increased salaries of compliance staff. The Respondent also retained a consultant to assist with the branch review program and subsequently hired the consultant as a permanent employee.
38. In November 2018, the Respondent hired a new Chief Compliance Officer in compliance with conditions of the resolution of the disciplinary proceeding taken by the AMF against the Respondent and its former Chief Compliance Officer.
39. The Respondent established a compliance committee composed of senior executives that attend management meetings to ensure that all issues raised in the annual report by the Chief Compliance Officer are being addressed.
40. The Respondent has enhanced its policies and procedures, increasing its compliance resources and retaining the services of external consultants when appropriate to assist the Respondent to ensure that it appropriately addresses the compliance deficiencies described in this Settlement Agreement in the future.

V. CONTRAVENTIONS

41. The Respondent admits that prior to December 1, 2016, the Respondent failed to ensure that, among other things, on-site branch and sub-branch reviews occurred at each of the Respondent’s business locations in accordance with the requirements set out in MFDA Policy No. 5, MFDA Rule 2.5.1 and the Respondent’s policies and procedures.
42. The Respondent admits that prior to February 1, 2018, the Respondent failed to implement adequate policies, procedures and internal controls to ensure that it complied with its obligations to make mandatory reports to the MFDA on the Member Event Tracking System (“METS”) on a timely basis, contrary to MFDA Policy No. 6 and MFDA Rule 1.4(a).
43. The Respondent admits that between 2011 and 2017, the Respondent failed to conduct adequate or timely supervisory investigations after discovering potential misconduct by its Approved Persons, contrary to MFDA Rule 2.5.1 and MFDA Policy No.  3.

VI. TERMS OF SETTLEMENT

44. The Respondent agrees to the following terms of settlement:
    1. the Respondent shall pay a fine in the amount of $75,000, pursuant to s. 24.1.2(b) of MFDA By-law No. 1;
    2. the Respondent shall pay costs in the amount of $15,000, pursuant to s. 24.2 of MFDA By-law No. 1;
    3. the Respondent shall in the future comply with MFDA Rules 2.5.1 and 1.4, and MFDA Policy Nos. 3, 5 and 6.
    4. A senior officer of the Respondent will attend in person, on the date set for the Settlement Hearing.

VII. STAFF COMMITMENT

45. 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 or any of its officers or directors 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 SETTLEMENT

46. 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.
47. 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 its 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.
48. 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. 24.1.2 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.
49. 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 it. 

IX. FAILURE TO HONOUR SETTLEMENT AGREEMENT

50. 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 or any of its officers or directors 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

51. 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.
52. Whether or not this Settlement Agreement is accepted by the Hearing Panel, the Respondent agrees that it 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

53. 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.
54. Any obligations of confidentiality shall terminate upon acceptance of this Settlement Agreement by the Hearing Panel.

XII. EXECUTION OF SETTLEMENT AGREEMENT

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

[1] MFDA Policy No. 5 came into force for the first time on July 24, 2006.  The Policy was subsequently amended effective March 17, 2016 and for a second time effective on January 19, 2017.  For purposes of this Settlement Agreement, Staff is relying on the wording of the original version dated July 24, 2006.

[2]During the 2014 compliance examination that covered the period November 1, 2011 to March 31, 2014, as set out in further detail below, MFDA Staff discovered that the Respondent had failed to report on the Member Event Tracking System (“METS”) that Approved Persons of the Respondent had been terminated during the period.  As it turned out, some of the underlying conduct that resulted in those terminations was first discovered by the Respondent in 2009 and 2010 and the underlying conduct should have also been reported on METS.

[3]See Note 2 above.

[4]In the case of Frank Surrette, it is unknown whether the Approved Person misappropriated client money from a family member’s account due to his failure to cooperate with Staff’s investigation.