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, Joe Ohanes Yalkezian (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. 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. Commencing in 1998, the Respondent was registered in the securities industry.
7. From February 2005 to August 28, 2013, the Respondent was registered in Ontario as a dealing representative with Audentium Financial Corp. (“Audentium”), a former Member of the MFDA.^[1] During this period, the Respondent was the sole owner and Ultimate Designated Person of Audentium.
8. From August 28, 2013 to March 26, 2020, the Respondent was registered in Ontario as a dealing representative with GP Wealth Management Corporation (“GP”), a Member of the MFDA.
9. Effective March 26, 2020, the Respondent resigned from GP and he is not currently registered in the securities industry in any capacity.
10. At all material times, the Respondent carried on business in the Cobourg, Ontario area.

Paying Clients’ Borrowing Costs of Leveraged Investments

11. At all material times, GP’s policies and procedures prohibited its Approved Persons from engaging in personal financial dealings with clients, including borrowing from clients, lending to clients, and extending credit to clients, without receiving GP’s approval.
12. At all material times, the Respondent was the Approved Person at Audentium and subsequently at GP who was responsible for servicing the accounts of client BV, and the accounts of clients GS and ERS (spouses).
13. In 2007, based upon the Respondent’s recommendation to borrow to invest, client BV, and clients GS and ERS implemented leveraged investment strategies in their accounts at Audentium whereby they obtained loans and used the proceeds from the loans to purchase mutual funds (the “Leveraged Investments”). In particular:
    1. client BV obtained a mortgage loan in the amount of $150,000 (the “Mortgage”) and used the proceeds from the Mortgage to purchase mutual funds in the amount of $124,000; and
    2. clients GS and ERS obtained an investment loan in the amount of $250,000 (the “Investment Loan”) and used the proceeds from the Investment Loan to purchase mutual funds in the amount of $250,000.
14. Commencing in June 2011, and continuing after the Respondent became an Approved Person with GP in August 2013 and client BV and clients GS and ERS transferred their accounts to GP, the Respondent made monthly payments (the “Monthly Payments”) to client BV and to clients GS and ERS, which the clients used to pay the borrowing costs of their Leveraged Investments. In particular:
    1. between June 2011 and June 2019, the Respondent made Monthly Payments to client BV in the total amount of $71,227, which client BV used to pay the monthly principal and interest that was due on his Mortgage; and
    2. between June 2012 and January 2015, the Respondent made Monthly Payments to clients GS and ERS in the total amount of $22,938, which they used to pay the monthly interest that was due on their Investment Loan.
15. The Monthly Payments that the Respondent paid to client BV and clients GS and ERS constituted personal financial dealings with the clients that gave rise to conflicts or potential conflicts of interest that the Respondent failed to disclose to GP.
16. The Respondent states that he made the Monthly Payments because the clients had been withdrawing funds from their Leveraged Investments in order to pay the borrowing costs of the Mortgage loan (client BV), and the Investment Loan (clients GS and ERS).
17. The clients have not repaid any of the amounts that the Respondent provided to them, and the Respondent states that he does not expect repayment.
18. By virtue of the foregoing, the Respondent engaged in personal financial dealings with client BV and clients GS and ERS, which gave rise to conflicts or potential conflicts of interest that the Respondent failed to disclose to GP or address by the exercise of responsible business judgment influenced only by the best interests of the clients.
19. In December 2019, client BV and clients GS and ERS redeemed their Leveraged Investments. The clients did not incur a loss when they redeemed their Leveraged Investments when taking into account amounts previously withdrawn.
20. In December 2019, clients GS and ERS fully repaid their Investment Loan, and in January 2020, client BV fully repaid his Mortgage.
21. The Respondent states that he was not involved in the repayment of client BV’s Mortgage or the Investment Loan of clients GS and ERS.

Misleading the Member and Preventing the Member from Ensuring Suitability of Investments

22. In October 2013, while Respondent was registered with GP and at or around the time when clients BV, GS and ERS became clients of GP, the Respondent completed and submitted to GP two Leverage Approval Forms in order to transfer the Leveraged Investments described above that client BV and clients GS and ERS had held with Audentium to GP.
23. On client BV’s Leverage Approval Form, the Respondent stated that the “client’s account” was the “source(s) of the funds to cover” the interest payments on client BV’s Leveraged Investment.
24. On the Leverage Approval Form for clients GS and ERS, the Respondent stated that the “client’s revenue” was the “source(s) of the funds to cover” the interest payments on their Leveraged Investment.
25. The Respondent’s statements on the Leverage Approval Forms were false because at the time when he completed the Leverage Approval Forms, the Respondent was making the Monthly Payments described above to client BV and clients GS and ERS, which the clients used to pay the borrowing costs of their Leveraged Investments.
26. Based on the representations on the Leverage Approval Forms, including the false statements made by the Respondent described above, GP approved the transfer of the Leveraged Investments of client BV and clients GS and ERS to GP.
27. By virtue of the foregoing, the Respondent misled GP with regard to the source of the monies that client BV and clients GS and ERS used to pay the borrowing costs of their Leveraged Investments, thereby preventing GP from ensuring that the suitability of the Leveraged Investments was assessed when they were transferred to GP.

Borrowing from a Client

28. At all material times, GP’s policies and procedures prohibited its Approved Persons from borrowing from clients.
29. On June 12, 2012, the Respondent borrowed $50,000 from RB (the “First RB Loan”). At that time, RB was not a client of Audentium or GP.
30. The Respondent recorded the First RB Loan in a promissory note, which stated that on June 12, 2013, the Respondent would repay RB the amount of the First RB Loan with interest at a rate of 5% per annum.
31. On June 12, 2013 and then again on June 12, 2014, the Respondent deferred repayment of the First RB Loan. The loan repayment was deferred until June 12, 2015.
32. In January 2015, RB became a client of GP, and the Respondent became the Approved Person responsible for servicing RB’s account.
33. At the time when RB became a client of GP, RB was 82 years old and was a vulnerable client by virtue of his age.
34. At the time when the Respondent became the Approved Person responsible for servicing RB’s account, the Respondent had not repaid any of the principal or interest that he owed to RB in respect of the RB Loan.
35. The Respondent was indebted to RB when RB became a client of GP, which gave rise to a conflict or potential conflict of interest that the Respondent failed to disclose to GP. Consequently, GP was unable to ensure that the conflict or potential conflict of interest was addressed by the exercise of responsible business judgment influenced only by the best interests of the client.
36. On March 20, 2015, in the period after RB became a client of GP, the Respondent borrowed an additional $40,000 from (now) client RB (the “Second RB Loan”).
37. The Respondent recorded the Second RB Loan in a promissory note, which stated that on June 12, 2015, the Respondent would repay client RB the amount of the Second RB Loan with interest at a rate of 5% per annum.
38. On June 12, 2015 and again on June 12, 2016, the Respondent deferred repayment of the First RB Loan and the Second RB Loan. The loan repayments were deferred until June 12, 2017.
39. On June 12, 2016, the Respondent also borrowed an additional $20,000 from client RB (the “Third RB Loan”).
40. As of June 12, 2016, the Respondent owed a total of $123,283.66 to client RB, which consisted of the principal and interest that was outstanding on the First RB Loan, the Second RB Loan and the Third RB Loan. The Respondent recorded the total amount owing in a promissory note that he signed, which stated that on June 12, 2017, the Respondent would repay the total amount of $123,283.66 that he owed to client RB with interest at a rate of 5% per annum.
41. On June 12, 2017, the Respondent deferred repayment of the total amount that he owed to client RB until June 12, 2018.
42. On June 12, 2018, the Respondent repaid $45,306.74 to client RB.
43. After the Respondent made this payment, he owed a total of $90,613.49 to client RB. The Respondent deferred repayment of half of this amount until December 12, 2018, and he deferred repayment of the remaining half until June 12, 2019.
44. On December 12, 2018 and April 12, 2019, the Respondent made payments to client RB totaling $93,378.82, thereby fully repaying all of the outstanding principal and interest that he owed to client RB.
45. The Respondent states that he used the monies that he borrowed from client RB to pay his personal and business expenses.
46. The loans that the Respondent obtained from client RB described above constituted personal financial dealings with a client that gave rise to a conflict or potential conflict of interest that the Respondent did not disclose to GP or ensure was addressed by the exercise of responsible business judgment influenced only by the best interests of the client.

Lending Monies to Clients

47. At all material times, GP’s policies and procedures prohibited its Approved Persons from lending to clients.
48. As set out in the table below, between July 2014 and August 2018, the Respondent provided 11 loans (the “Loans”) totaling $142,400 to 9 clients whose accounts he serviced at GP.

49. As described in the table above, the clients repaid a total of $139,317 to the Respondent. Clients SW and JST redeemed mutual funds from their accounts at GP in order to repay their loans to the Respondent.
50. The Respondent did not document in writing the terms of the Loans described above.
51. The Loans to the 9 clients constituted personal financial dealings with the clients that gave rise to conflicts or potential conflicts of interest that the Respondent did not disclose to GP or ensure were addressed by the exercise of responsible business judgment influenced only by the best interests of the clients.
52. The Respondent states that he made the Loans described above to help the clients pay personal expenses.

Unapproved Outside Activity

53. At all material times, GP’s policies and procedures prohibited its Approved Persons from engaging in outside business activities or dual occupations that were not approved by GP.
54. At all material times, the Respondent operated a holding company with the approval of GP. The approval was limited to the holding company receiving commission payments and paying office expenses.
55. Commencing in or about 2016 and continuing to when the Respondent resigned from GP in March 2020, the Respondent, via his holding company, entered into a lending arrangement with a non-profit organization (the “Organization”) whereby the Respondent’s holding company loaned monies to the Organization, which then used the monies to provide microfinancing loans to individuals in need of financial assistance.^[2]
56. During the period when the Respondent was registered with GP, the Respondent, via his holding company, loaned approximately $230,000 to the Organization pursuant to the lending arrangement described above. The Respondent’s holding company used the Respondent’s own monies as the source of the loans to the Organization.
57. For each loan, the Respondent’s holding company received interest from the Organization at a rate of 4% annually. The Respondent states that apart from one interest payment, his holding company did not retain the interest received from the Organization and instead added the interest to the principal amount of subsequent loans provided to the Organization.
58. At no time did the Respondent disclose to GP that he or his holding company was engaged in the lending arrangement described above and he did not obtain GP’s approval to engage in the lending arrangement.
59. By virtue of the foregoing, the Respondent engaged in an unapproved outside activity.

GP’s Investigation

60. In or about September 2019, GP commenced an investigation into the Respondent’s conduct as a result of a matter unrelated to the conduct described herein.
61. During the course of GP’s investigation, in or about September 2019, the Respondent disclosed to GP for the first time that he had:
    1. paid the borrowing costs of client BV’s and client GS’s and ERS’ Leveraged Investments as described above;
    2. borrowed monies from client RB as described above; and
    3. loaned monies to 9 clients as described above.

Additional Factors

62. No clients have complained with regard to the Respondent’s conduct described above.
63. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
64. By entering into the Settlement Agreement, the Respondent has saved the MFDA the time, resources, and expenses associated with conducting a full hearing of the allegations.

V. CONTRAVENTIONS

65. The Respondent admits that between June 2011 and June 2019, the Respondent engaged in personal financial dealings with clients when he:
    1. paid monies to three clients so that they could pay the borrowing costs of their leveraged investments;
    2. was indebted to a client at the time when he commenced servicing the client’s account and thereafter borrowed additional monies from the client; and
    3. loaned monies to nine clients;

    thereby giving rise to conflicts or potential conflicts of interest which the Respondent failed to disclose to the Member, or failed to address by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.4^[3], 2.5.1, 1.1.2, and 2.1.1.

66. The Respondent admits that in October 2013, the Respondent misled the Member with regard to the source of the monies that three clients used to pay the borrowing costs of their leveraged investments, contrary to MFDA Rules 2.2.1 and 2.1.1.
67. The Respondent admits that between in or about 2016 and March 2020, the Respondent engaged in an unapproved outside activity, contrary to the Member’s policies and procedures and MFDA Rules 1.3.2 (formerly Rule 1.2.1(c))^[4], 2.1.1, 2.5.1 and 1.1.2.

VI. TERMS OF SETTLEMENT

68. The Respondent agrees to the following terms of settlement:
    1. the Respondent shall be prohibited from conducting securities related business in any capacity while in the employ of or associated with any MFDA Member for a period of 5 years from the date that this Settlement Agreement is accepted by a Hearing Panel, pursuant to section 24.1.1(e) of MFDA By-law No.1;
    2. the Respondent shall pay a fine in the amount of $25,000, pursuant to s. 24.1.1(b) of MFDA By-law No. 1, which shall be payable in certified funds on the date that this Settlement Agreement is accepted by a Hearing Panel;
    3. the Respondent shall pay costs in the amount of $5,000, pursuant to s. 24.2 of MFDA By-law No. 1, which shall be payable in certified funds on the date that this Settlement Agreement is accepted by a Hearing Panel;
    4. the Respondent shall in the future comply with MFDA Rules 2.1.4, 2.2.1, 2.1.1, 2.5.1, 1.1.2 and 1.3.2; and
    5. the Respondent will attend by videoconference on the date set for the Settlement Hearing.

VII. STAFF COMMITMENT

69. 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 below. 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

70. 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.
71. 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 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.
72. 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.
73. 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.

IX. FAILURE TO HONOUR SETTLEMENT AGREEMENT

74. 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.

X. NON-ACCEPTANCE OF SETTLEMENT AGREEMENT

75. 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.
76. 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.

XI. DISCLOSURE OF AGREEMENT

77. 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.
78. Any obligations of confidentiality shall terminate upon acceptance of this Settlement Agreement by the Hearing Panel.

XII. EXECUTION OF SETTLEMENT AGREEMENT

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