Settlement Agreement

I. INTRODUCTION

1. Staff of the Mutual Fund Dealers Association of Canada (“Staff”) and the Respondent, Michael James Farrell (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 June 14, 2013 and January 15, 2019, the Respondent obtained, possessed, and in some instances, used to process transactions, 172 pre-signed account forms in respect of 89 clients, contrary to MFDA Rule 2.1.1; and
   2. between June 6, 2013 and December 19, 2018, the Respondent altered and used to process transactions, 66 account forms in respect of 48 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 $20,000 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 be suspended from conducting securities related business in any capacity while in the employ of or associated with any Member of the MFDA for a period of 60 days, pursuant to s. 24.1.1(c) of MFDA By-law No.1;
   3. 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;
   4. the Respondent shall in the future comply with MFDA Rule 2.1.1; and
   5. the Respondent will attend in person or by videoconference 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. Commencing in December 1989, the Respondent was registered in the securities industry.
8. Commencing on September 15, 1999, the Respondent was 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.
9. From July 4, 2002 to October 20, 2009, the Member designated the Respondent as a branch manager with the Member.
10. At all material times, the Respondent conducted business in the Oshawa, Ontario area.

Pre-signed Account Forms

11. At all material times, the Member’s policies and procedures prohibited its dealing representatives from using pre-signed account forms.
12. Between June 14, 2013 and January 15, 2019, the Respondent obtained, possessed, and in some instances, used to process transactions, 172 pre-signed account forms in respect of approximately 89 clients.
13. The pre-signed account forms include: order entry forms; Registered Education Savings Plan (“RESP”) withdrawal forms; fund company investment application forms; direct transfer and transfer authorization forms; RESP payment forms; Know Your Client (“KYC”) update forms; a Home Buyers Plan withdrawal form and New Client Application forms (“NCAF”).

Altered Account Forms

14. Between June 6, 2013 and December 19, 2018, the Respondent altered and used to process transactions, 66 account forms in respect of 48 clients by altering information on the account forms without having the client initial the alterations. In some instances, the Respondent used white out to alter information on the account forms.
15. The Respondent altered information on the account forms such as fund codes and names; sales charge percentage information; KYC information; beneficiary designations; purchase start dates; and purchase instructions and transaction amounts.

The Member’s Investigation

16. On December 20, 2018 and February 22, 2019, the Member conducted a branch review of the Respondent’s files and identified the account forms that are the subject of this Settlement Agreement.
17. On May 13, 2019, the Member placed the Respondent on strict supervision for a minimum period of 90 days.
18. The Member’s strict supervision program required that the Respondent obtain pre-approval from his branch manager for all orders and he was no longer permitted to act on client Limited Trading Authorizations. The Respondent was also required to provide the Member with all trade documentation including current client KYC information and notes.
19. On or about August 23, 2019, the Member sent letters to all clients for whom the Respondent obtained pre-signed forms or altered forms, along with 3-year transaction histories. The Member requested that the clients review their transaction histories and, if applicable, their KYC information, to ensure that the trading activity was as the client directed and to advise the Member of any inconsistencies in the information. No clients reported any concerns to the Member in response to its letters.
20. Commencing in May 2019, the Respondent has paid a $625 monthly charge to the Member, deducted from the Respondent’s commission for the costs associated with his strict supervision program. As of April 1, 2021, the Respondent remains on strict supervision and has paid $14,375 to the Member.  The monthly charge continues to accrue until the MFDA proceeding is concluded.
21. The Respondent has also paid a total of $1,857 to the Member for the cost of letters and account statements mailed to the clients.
22. On September 19, 2019, the Member issued a Warning Letter to the Respondent for his misconduct and required that the Respondent sign a Letter of Understanding confirming that he adhere to all policies and procedures of the Member regarding the use of pre-signed and altered forms, as well as the rules and regulations of the MFDA.

Additional Factors

23. There is no evidence that the Respondent received any financial benefit from the conduct set out above beyond the commissions or fees he would ordinarily be entitled to receive had the transactions been carried out in the proper manner.
24. The Respondent states that the pre-signed and altered account forms as described above were obtained for the purpose of client convenience.
25. There is no evidence of client loss, client complaints or lack of authorization for the underlying transactions.
26. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
27. 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

28. 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.
29. 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.
30. 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.
31. 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 agrees to waive any rights to a full hearing, a review hearing or appeal 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 facts and contraventions described in this Settlement Agreement. 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 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.
32. 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.
33. 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.
34. 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.