Settlement Agreement

I. INTRODUCTION

1. Staff of the Mutual Fund Dealers Association of Canada (“Staff”) and the Respondent, Scott Elliott Sherman (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 December 8, 2015 and August 31, 2018, the Respondent altered, and used to process transactions, 11 account forms in respect of 9 clients by altering information on the account forms without having the client initial the alterations, contrary to MFDA Rule 2.1.1;
   2. Between June 15, 2015 and February 26, 2019, the Respondent obtained, possessed, and, in some instances used to process transactions, 49 pre-signed account forms in respect of 28 clients, contrary to MFDA Rule 2.1.1; and
   3. Between December 17, 2015 and January 7, 2016, the Respondent photocopied a client account form that had been signed by 2 clients and altered the form to complete 4 additional transactions, 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 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 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 or by video conference, 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 2005, the Respondent was registered in the securities industry.
8. Between May 1, 2014 and December 18, 2019 in Ontario, Quebec, and British Columbia, the Respondent was registered as a dealing representative with IPC Investment Corporation. (the “Member”), a Member of the MFDA.
9. The Respondent was terminated by the Member on December 18, 2019, and he is not presently registered in the securities industry.
10. At all material times, the Respondent conducted business in the Ottawa, Ontario area.

Altered Forms

11. Between December 8, 2015 and August 31, 2018, while the Respondent was an Approved Person of the Member, he altered, and used to process transactions, 11 account forms in respect of 9 clients by altering information on the account forms without having the client initial the alterations.
12. The altered account forms included: 6 trade tickets; 4 order entry forms; and 1 trade authorization for registered investments form.
13. The alterations made by the Respondent consist of alterations to: investment instructions; fund codes; account numbers; and client signature dates.

Pre-Signed Forms

14. At all material times, the Member’s policies and procedures prohibited the use of pre-signed forms.
15. Between June 15, 2015 and February 26, 2019, while the Respondent was an Approved Person of the Member, he obtained, possessed and, in some instances, used to process transactions, 49 pre-signed account forms in respect of 28 clients.
16. The pre-signed account forms included: 25 Know-Your-Client (“KYC”) forms, 6 new account application forms (“NAAF”); 11 order entry forms; 3 trade tickets; 2 transfer application forms; and 1 pre-authorized approval contribution form.

Re-Using Client Account Forms 

17. Between December 17, 2015 and January 7, 2016, while the Respondent was an Approved Person of the Member, the Respondent photocopied an order entry form that had been signed by 2 clients and altered the form to complete 4 additional transactions.

The Member’s Investigation

18. In July 2019, the Member conducted a branch review and identified the pre-signed forms, altered forms, and re-used account forms that are the subject of this Settlement Agreement.
19. On July 10, 2019, as a result of the Member’s findings during its branch review, the Member suspended the Respondent until his termination on December 18, 2019.
20. In October 2019, the Member sent audit letters to all clients whose accounts were serviced by the Respondent. This audit letter included a two‐year transaction summary and the clients KYC information for each of their accounts, and requested the client contact the Member if they did not authorize any of the transactions or if they had any concerns regarding their recorded KYC information. The Member did not receive any client responses that indicated there were unauthorized transactions within any client accounts or that incorrect KYC information had been recorded.

Additional Factors

21. There is no evidence that the Respondent received any financial benefit from engaging in the misconduct described above beyond any commissions and fees that 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.
23. By entering into this Settlement Agreement, the Respondent has saved the MFDA the time, resources and expenses associated with conducting a full hearing of the allegations.

IV. ADDITIONAL TERMS OF SETTLEMENT

24. 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.
25. 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 mfda.ca.
26. 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.
27. 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.
28. 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.
29. 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.
30. 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.