File No. 202076
IN THE MATTER OF A SETTLEMENT HEARING PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1 OF THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA
Re: Carte Wealth Management Inc.
- 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, Carte Wealth Management Inc. (the “Respondent”).
II. JOINT SETTLEMENT RECOMMENDATION
- 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.
- 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”.
- 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.
- 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
- The Respondent is registered as a mutual fund dealer in all the provinces of Canada except Newfoundland and Labrador, and has been a Member of the MFDA since April 20, 2007.
- The Respondent is designated as a Level 3 Member of the MFDA for the purposes of determining its minimum capital. In accordance with MFDA Rule 3.1.1, a Level 3 Member of the MFDA must maintain minimum capital of $75,000 and risk adjusted capital (“RAC”) greater than zero at all times.
History of Early Warning
- From September 4, 2008 to September 25, 2015, the Respondent was designated in Early Warning as a result of variously triggering the Capital Deficiency, Liquidity, and/or the Profitability Tests, as defined in MFDA Rule 3.4.2(a). During this period, the Respondent was able to only temporarily rectify these deficiencies from time to time with capital injections via subordinated loans. On September 25, 2015, the Respondent was removed from Early Warning after having satisfied an Agreement and Undertaking it entered into with Staff on November 5, 2014, which required it to maintain a RAC in excess of $30,000 for one year.
- On April 10, 2017 and November 30, 2018, the Respondent was additionally placed in Early Warning due to failing to maintain a sufficient RAC as required by MFDA Rule 3.4.2. In each case, the Member was able to promptly rectify the capital issue.
The Respondent Fails to Maintain its RAC Above Zero
- On August 1, 2019, the Respondent was designated in Early Warning as a result of its RAC falling below zero on its June 30, 2019 Form 1, triggering the Capital Deficiency Test. The Respondent continued to trigger the Capital Deficiency Test on its July 31, 2019 Form 1. The Respondent also triggered the Frequency Test due to the multiple triggers of the early warning tests.
- On August 15, 2019, the Respondent obtained $50,000 via a subordinated loan to rectify the capital deficiency.
- On the Respondent’s November 30, 2019 Form 1, however, the Respondent again reported a RAC deficiency of $36,016, triggering the Capital Deficiency Test.
- On its December 31, 2019 Form 1, the Respondent reported that the RAC deficiency had been rectified and that it had a positive RAC of $5,978.
- On January 21, 2020, the Respondent obtained an additional $30,000 via a subordinated loan, which further ensured the Respondent would maintain a RAC above zero.
- The Respondent has maintained a positive RAC since the January 21, 2020 capital injection.
V. ADDITIONAL FACTORS
- The Respondent has not previously been the subject of an MFDA disciplinary proceeding.
- Following the events at issue, the Respondent hired a new staff member, a Chartered Accountant, who is now responsible for the Respondent’s financial affairs on a full-time basis.
- The Respondent has taken remedial measures acceptable to Staff, including establishing policies and procedures to prevent its RAC from falling below zero again.
- The Respondent admits that between June 30, 2019 and December 31, 2019, it failed to maintain at all times a risk adjusted capital greater than zero, contrary to MFDA Rule 3.1.1.
VII. TERMS OF SETTLEMENT
- The Respondent agrees to the following terms of settlement:
- the Respondent shall pay a fine of $10,000, pursuant to section 24.1.2(b) of MFDA By-law No. 1;
- the Respondent shall pay costs of $5,000, pursuant to section 24.2 of MFDA By-law No. 1;
- the Respondent shall in the future comply with MFDA Rule 3.1.1; and
- a senior officer of the Respondent will attend in person, by videoconference, or by telephone on the date set for the Settlement Hearing.
VIII. STAFF COMMITMENT
- 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 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.
IX. PROCEDURE FOR APPROVAL OF SETTLEMENT
- 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.
- 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 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.
- 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.
- 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.
- 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
- 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.
- 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
- 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.
- Any obligations of confidentiality shall terminate upon acceptance of this Settlement Agreement by the Hearing Panel.
XII. EXECUTION OF SETTLEMENT AGREEMENT
- This Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement.
- An electronic copy of any signature shall be effective as an original signature.
DATED: Nov 25, 2020
Witness – Signature
Witness – Print Name
Carte Wealth Management Inc.
“Charles Toth ”
Staff of the MFDA
Per: Charles Toth
File No. 202076
IN THE MATTER OF A SETTLEMENT HEARING
PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA
Re: Carte Wealth Management Inc.
WHEREAS on [date], the Mutual Fund Dealers Association of Canada (the “MFDA”) issued a Notice of Settlement Hearing pursuant to section 24.4 of MFDA By-law No. 1 in respect of Carte Wealth Management Inc. (the “Respondent”);
AND WHEREAS the Respondent entered into a settlement agreement with Staff of the MFDA, dated [date] (the “Settlement Agreement”), in which the Respondent agreed to a proposed settlement of matters for which the Respondent could be disciplined pursuant to ss. 20 and 24.1 of MFDA By-law No. 1;
AND WHEREAS the Hearing Panel is of the opinion that between June 30, 2019 and December 31, 2019, the Respondent failed to maintain at all times a risk adjusted capital greater than zero, contrary to MFDA Rule 3.1.1.
IT IS HEREBY ORDERED THAT the Settlement Agreement is accepted, as a consequence of which:
- The Respondent shall pay a fine of $10,000, pursuant to section 24.1.2(b) of MFDA By-law No. 1.
- The Respondent shall pay costs of $5,000, pursuant to section 24.2 of MFDA By-law No. 1.
- The Respondent shall in the future comply with MFDA Rule 3.1.1.
DATED this [day] day of [month], 20[ ].
[Name of Public Representative], Chair
[Name of Industry Representative]
[Name of Industry Representative]