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 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, Anthony Peter Chiaravalloti (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 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. ACKNOWLEDGMENT

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. Commencing in March 2013, the Respondent was registered in the securities industry.
7. Between March 27, 2014 and June 26, 2019, the Respondent was registered in Ontario as a dealing representative with Investors Group Financial Services Inc. (the “Member”), a Member of the MFDA.
8. On June 26, 2019, the Member terminated the Respondent, and he is not currently registered in the securities industry in any capacity.
9. At all material times, the Respondent carried on business in the Richmond Hill, Ontario area.

Unapproved Referral Arrangement

10. At all material times, the Member’s policies and procedures required, among other things, that its Approved Persons only participate in referral arrangements where:
    1. the Member has approved the referral arrangement and is a party to a written referral arrangement; and
    2. all fees or commissions flow through the books and records of the Member.
11. At all material times, client VL was a client of the Member whose accounts were serviced by the Respondent.
12. Fortress Real Developments Inc. (“Fortress”) was a real estate development company that offered investments in syndicated mortgages. Its projects included Kipling Court in Vaughan, Ontario and Sky City in Winnipeg, Manitoba.
13. FFM Capital Inc. (“FFM”) and Centro Mortgage Inc. (“Centro”) were mortgage brokerage companies that marketed and sold syndicated mortgage investments in Fortress’ real estate projects.
14. The Respondent referred client VL to FFM in connection with the purchase of syndicated mortgage investments.
15. On or around September 29, 2015, the Respondent attended a meeting with client VL and representatives of FFM and/or Centro, during which client VL executed paperwork to invest in syndicated mortgage investments in the amounts set out in the table below:

16. In order to invest in the syndicated mortgage investments, client VL redeemed investments from a joint account held with client VL’s spouse at the Member. The Respondent submitted the redemptions for processing by the Member.  The Respondent did not inform the Member that client VL intended to invest the proceeds of redemption in syndicated mortgage investments described above.
17. On or about October 2, 2015, client VL entered into a memorandum of understanding with Centro that provided, among other things, that a referral agent would receive 6% of the amount client VL invested in syndicated mortgage investments. The Respondent executed the memorandum of understanding as the referral agent.
18. In or about November 2015, the Respondent received a total of approximately $12,000 in connection with his referral of client VL to purchase syndicated mortgage investments through Centro.
19. The Respondent failed to obtain approval from the Member to enter into a referral arrangement with Centro.
20. The Member was not a party to any referral arrangements with Centro for the sale of the syndicated mortgage investments to client VL or other individuals.
21. The referral fees received by the Respondent in relation to the syndicated mortgage investments as described above were not recorded in the Member’s books and records.
22. The principal portion of client VL’s investment in the Kipling Court project totalling $100,000 was returned after two years. Client VL stopped receiving distributions from his investment in the Sky City project prior to its completion and, on or about December 1, 2021, the primary mortgagee on the Sky City property obtained an order of foreclosure and obtained a transfer of title to the property free and clear of all other mortgages, including the syndicated mortgage underlying client VL’s investment. Client VL suffered a loss of his $100,000 principal investment in the Sky City project.

Unapproved Outside Business Activities

23. At all material times, the Member’s policies and procedures required its Approved Persons to disclose to, and obtain approval from, the Member prior to engaging in any outside business activities.

Cornucopia Labs Incorporated

24. In or about August 2017, the Respondent and other individuals established Cornucopia Labs Incorporated (“Cornucopia”), a financial technology company that described its business as providing “education, coaching, and financial services to help Canadians realize their goals”.
25. On August 8, 2017, Cornucopia was registered as an Ontario corporation and the Respondent was identified as a director of the company. The registered office address for Cornucopia was the Respondent’s home address in Richmond Hill.
26. While registered with the Member, the Respondent was listed on the Cornucopia website as the chief executive officer, using the name “Anthony Chev”. The Respondent states the name “Anthony Chev” was a short version of his name often used by family and friends since childhood.
27. The Respondent personally invested as a co-founder approximately $20,000 in Cornucopia to develop proprietary artificial intelligence software.
28. Through Cornucopia (sometimes referred to as Cornukopia), the Respondent, engaged in, among other things, the following activities:
    1. organizing and delivering presentations to local businesses about personal financial literacy;
    2. establishing an Instagram account, using the title “The Wise Investor”, where he published, among other things, general content about investing and managing personal finances; and
    3. producing and hosting a podcast, using the title “The Wise Investor”, which provided information related to finance and real estate investing.
29. The Respondent did not disclose to the Member or obtain its approval to operate Cornucopia, as described above.

King Street Media

30. On October 27, 2017, King Street Media Inc. (“King Street”) was incorporated as an Ontario corporation, and the Respondent was identified as the sole director of the company. The registered office address for King Street was the Respondent’s home address.
31. King Street was a company that provided digital marketing services for small businesses in Ontario.
32. Commencing in or about October 2017, the Respondent engaged in activities associated with the operation of King Street, including starting up the business and opening bank accounts for the company.
33. The Respondent was listed on King Street’s website as Creative Director under the name “Anthony Chev”.
34. The Respondent had access to and control of King Street’s bank accounts. The Respondent obtained payments or loans totalling $10,100 from King Street of which he repaid $8,000.  The Respondent also used King Street’s offices to record podcasts for The Wise Investor, as described above.
35. The Respondent did not disclose to the Member or obtain its approval to engage in outside business activities on behalf of King Street.

Mediation Company

36. Commencing in or about 2019, while registered with the Member, the Respondent engaged in an outside business activity with a mediation business. The Respondent was listed on the company website as a financial expert and planner whose role included, among other things, assisting in complex financial mediations. The Respondent was not permitted to hold himself out in this manner pursuant to MFDA Rule 1.2.5[1] and the Member’s policies and procedures.
37. The Respondent did not disclose to the Member or obtain its approval to engage in outside business activities with the mediation company.

False and Misleading Statements to Member

38. Between March 2016 and March 2019, the Respondent completed four annual compliance certificates and submitted them to the Member in respect of his activities in 2015, 2016, 2017, and 2018 (the “Annual Compliance Certificates”). On the completed Annual Compliance Certificates, the Respondent indicated to the Member that:
    1. he had not been paid referral fees or received referral fees (including indirect compensation) from any third party other than through the Member;
    2. he was not, and had not been, involved in any undisclosed and unapproved outside activity; and
    3. he had not established a website, web-blog, social media profile or similar forum, (other than corporately approved websites) for the purpose of promoting his business or marketing products and services that have not been approved by the Member.
39. The Respondent’s statements to the Member in the Annual Compliance Certificates were false or misleading, because, as described above:
    1. in 2015, he received referral fees from a third party other than through the Member;
    2. commencing in 2017, he engaged in the unapproved outside business activities described above; and
    3. commencing in 2017, he established a media presence on the internet to promote his business without the knowledge or approval of the Member.

Additional Factors

40. The Respondent states that he advised client VL against making the investment in the syndicated mortgage investments. The Respondent recorded a contemporaneous client note in connection with the redemption described above at paragraph 16, in which he wrote:

They have been discussing with me for a few months over the phone the option of investing the 200k non reg into a “syndicate mortgage” with a contact they know. (fortress financial management, [TM], vaughan, hywy 27 and hywy 7).

[Client VL] wanted to withdraw the money and invest it into this investment vehicle. I advised on the risk associated with such an investment, having it locked in and illiquid. He believes it is the right investment for him as he has a 2-3 time horizon and likes the return promised by the company. I advised against it, but his reasoning was valid. Sold the positions to cash on Tuesday.

41. The Respondent did not disclose to the Member client VL’s intention to purchase syndicated mortgage investments or the Respondent’s concerns about the Respondent making the investment.
42. As described above at paragraph 19, the Respondent received $12,000 in respect of the referral of client VL and the client’s investment in syndicated mortgage investments. As described above at paragraph 23, client VL has incurred a loss of $100,000 that he invested in one of the two syndicated mortgage investments.
43. On May 17, 2019, client VL submitted a complaint to the Member concerning the Respondent’s involvement with client VL’s investment in the syndicated mortgage investments. On August 29, 2019, client VL filed a lawsuit against the Respondent, the Member, and others in connection with his investment in the syndicated mortgage investments.
44. Following the receipt of the complaint, the Member learned for the first time of the Respondent’s outside business activities through a review of the Respondent’s emails and an online search.
45. As part of its investigation, the Member reviewed large dollar redemptions submitted for processing by the Respondent, and determined that all were supported by notes or correspondence that demonstrated the monies were not intended for outside investments.
46. In addition, in September 2019, the Member sent out a letter to all of the Respondent’s clients. The letter advised that the Respondent may have been involved in referrals to investments outside the Member, including with respect to syndicated mortgage investments, and that such referrals were not permitted by the Member.  The letter also advised of the Respondent’s involvement with “Cornukopia” and “The Wise Investor” and stated that such entities were not affiliated with or approved by the Member.  The letter asked clients to contact the Member with any concerns.
47. The Member did not receive any responses to its letter to the Respondent’s clients concerning outside investments or outside business activities.
48. The Respondent states that he has limited financial means, which has limited his ability to pay financial penalties in this proceeding. The Respondent has provided evidence to MFDA Staff which confirms that he has had limited earnings since being terminated by the Member and has significant debts.
49. The Respondent has not previously been the subject of a MFDA disciplinary proceeding.
50. 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.

V. CONTRAVENTIONS

51. The Respondent admits that in October 2015, he entered into a referral arrangement with a third party and earned compensation for referring a client to purchase syndicated mortgage investments, thereby participating in a referral arrangement to which the Member was not a party, contrary to the Member’s policies and procedures, and MFDA Rules 2.4.2,[2]1.1, 2.5.1, and 1.1.2.
52. The Respondent admits that between August 2017 and June 2019, he engaged in unapproved outside business activities by establishing, operating, or acting as a director with respect to two companies and promoting or holding himself out as engaging in a mediation business without the prior approval of the Member, contrary to the Member’s policies and procedures and MFDA Rules 1.3.2, 1.2.5, 2.1.1, 2.5.1, and 1.1.2.
53. The Respondent admits that between March 2016 and March 2019, he provided false or misleading statements to the Member on annual compliance questionnaires, contrary to MFDA Rule 2.1.1.

VI. TERMS OF SETTLEMENT

54. The Respondent agrees to the following terms of settlement:
    1. the Respondent shall be prohibited from conducting securities related business while in the employ of or association with a Member of the MFDA for a period of 3 years from the date the Settlement Agreement is accepted, pursuant to section 24.1.1(e) of MFDA By-law No. 1;
    2. the Respondent shall pay a fine in the amount of $15,000, pursuant to section 24.1.1(b) of MFDA By-law No. 1;
    3. the Respondent shall pay costs in the amount of $5,000, pursuant to section 24.2 of MFDA By-law No. 1;
    4. the Respondent shall pay the fine and costs in instalments as follows:
       1. $5,000 (fine) and $5,000 (costs) payable in certified funds on the date the Settlement Agreement is accepted;
       2. $1,000 (fine) payable on or before July 29, 2022;
       3. $1,000 (fine) payable on or before August 31, 2022;
       4. $1,000 (fine) payable on or before September 30, 2022;
       5. $1,000 (fine) payable on or before October 31, 2022;
       6. $1,000 (fine) payable on or before November 30, 2022;
       7. $1,000 (fine) payable on or before December 30, 2022;
       8. $1,000 (fine) payable on or before January 31, 2023;
       9. $1,000 (fine) payable on or before February 28, 2023;
       10. $1,000 (fine) payable on or before March 31, 2023; and
       11. $1,000 (fine) payable on or before April 28, 2023;
    5. the Respondent shall in the future comply with MFDA Rules 2.4.2, 1.3.2, 1.2.5, 2.1.1, 2.5.1, and 1.1.2;
    6. the Respondent will attend by videoconference on the date set for the Settlement Hearing.

VII. STAFF COMMITMENT

55. 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 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.

VIII. PROCEDURE FOR APPROVAL OF SETTLEMENT

56. 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.
57. 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 his 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.
58. 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. 24.1.1 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.
59. 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 him.
60. 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 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.

IX. NON-ACCEPTANCE OF SETTLEMENT AGREEMENT

61. 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.
62. Whether or not this Settlement Agreement is accepted by the Hearing Panel, the Respondent agrees that he 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.

X. DISCLOSURE OF AGREEMENT

63. 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.
64. Any obligations of confidentiality shall terminate upon acceptance of this Settlement Agreement by the Hearing Panel.

XI. EXECUTION OF SETTLEMENT AGREEMENT

65. This Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement.
66. An electronic copy of any signature shall be effective as an original signature.

[1] Effective December 31, 2021, MFDA Rule 1.2.5 was renamed and amended.  As the Respondent engaged in the alleged misconduct addressed in this proceeding prior to December 31, 2021, in this proceeding, Staff is relying on the wording in the version of MFDA Rule 1.2.5 that was in effect prior to the December 31, 2021 amendments.
[2] Effective December 31, 2021, MFDA Rule 2.4.2 was amended.  As the Respondent engaged in the alleged misconduct addressed in this proceeding prior to December 31, 2021, in this proceeding, Staff is relying on the wording in the version of MFDA Rule 2.4.2 that was in effect prior to the December 31, 2021 amendments.