Settlement Agreement

I. INTRODUCTION

1. The Mutual Fund Dealers Association of Canada (the “MFDA”) will announce that it proposes to hold a hearing (the “Settlement Hearing”) to consider whether, pursuant to section 24.4 of MFDA 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, Paul Bannab (the “Respondent”).
2. Staff and the Respondent, consent and agree to the terms of this Settlement Agreement.
3. Staff and the Respondent jointly recommend that the Hearing Panel accept the Settlement Agreement.

II. CONTRAVENTIONS

4. The Respondent admits to the following violations of the By-laws, Rules or Policies of the MFDA:

Beginning in October 2017, the Respondent, in his capacity as alternate branch manager, failed to report to the Member in close supervision reports that an Approved Person who was the subject of the reports had borrowed monies from three clients who were also Approved Persons of the Member, contrary to the Member’s policies and procedures and MFDA Rules 1.1.2,  2.1.1, 2.5.1, and 2.5.5(f).

III. TERMS OF SETTLEMENT

5. Staff and the Respondent agree and consent to the following terms of settlement:
   1. the Respondent shall be permanently prohibited from acting as a branch manager or in any supervisory capacity for a Member of the MFDA, effective from the date of the Order, pursuant to section 24.1.1(f) of MDFA By-law No. 1;
   2. the Respondent shall pay a fine in the amount of $5,000, pursuant to s. 24.1.1(b) of MFDA By-law No. 1;
   3. the Respondent shall pay costs in the amount of $5,000, pursuant to s. 24.2 of MFDA By-law No. 1;
   4. The payment by the Respondent of the fine and costs shall be made to and received by the MFDA in certified funds as follows:
      1. $5,000 upon acceptance of the Settlement Agreement;
      2. $1,666.66 on or before the last business day of the first month following the date of the acceptance of the Settlement Agreement;
      3. $1,666.67 on or before the last business day of the second month following the date of the acceptance of the Settlement Agreement; and
      4. $1,666.67 or before the last business day of the third month following the date of the acceptance of the Settlement Agreement;
   5. the Respondent shall in the future comply with MFDA Rules1.2, 2.1.1, 2.5.1, and 2.5.5(f); and
   6. the Respondent shall 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 this Settlement Agreement herein and consent to the making of an Order in the form attached as Schedule “A”.

IV. AGREED FACTS

Registration History

7. Since November 2011, the Respondent has been registered in Ontario as a dealing representative with PFSL Investments Canada Inc. (the “Member”), a Member of the MFDA.
8. In June 2011, the Member designated the Respondent as an alternate branch manager.
9. At all material times, the Respondent conducted business in the St. Catharines, Ontario area.

Failure to Adequately Query and Report Potential Misconduct

10. At all material times, the Member had policies and procedures that prohibited its Approved Persons from borrowing monies from clients and other Approved Persons at the Member.
11. At all material times, the Member’s policies and procedures provided that branch managers were responsible for supervising the conduct and activities of Approved Persons, in accordance with MFDA Rules, provincial securities laws and the Member’s policies.
12. On October 29, 2015, the Canada Revenue Agency (the “CRA”) sent a Requirement to Pay to the Member in respect of taxes owed by the Respondent’s branch manager, CW.
13. Due to the circumstances described in paragraph 12 above, on November 16, 2015, the Ontario Securities Commission (the “OSC”) imposed terms and conditions on CW’s registration effective December 1, 2015, which required the Member to conduct close supervision on CW and complete close supervision reports that the Member would retain and make available for the OSC’s review upon its request.
14. The Member delegated to the Respondent the task of completing the monthly close supervision reports. Beginning in December 2015, the Respondent completed the monthly close supervision reports, and sent the completed reports to the Member’s head office.
15. The monthly close supervision reports required, among other things, reporting of any failure to comply with the requirements of the MFDA or the Member’s policies and procedures to the OSC. Specifically, the close supervision reports during the material period contained a section entitled “Part D – Additional Information”, which stated:

If as part of its supervision the Registered Individual during the review period the firm has identified any instance where the Registered Individual may not have complied with securities legislation, the requirements of an applicable self-regulatory organization, or the firm’s policies and procedures, please identify those instances below, unless they have already been identified elsewhere in this report.

16. In October 2017, CW borrowed a total of $15,000 from the Respondent. At this time, the Respondent was also a client of the Member. CW told the Respondent that he required the funds to pay his tax arrears. As of October 14, 2020, CW repaid the monies that he borrowed from the Respondent.
17. At all material times, HH and MK were both clients of the Member and Approved Persons registered with the Member. In or around 2018 or 2019, HH and MK informed the Respondent that they had loaned money to CW in the past, and had since been repaid.
18. In his capacity as alternate branch manager, the Respondent was required to report to the Member the information that he had received that CW had borrowed monies from HH and MK. Furthermore, this information should have been documented in the monthly close supervision reports.  In light of the financial concerns triggered by a Requirement to Pay, conduct reflecting that CW might be experiencing financial difficulties was particularly relevant to record on monthly supervision reports.
19. Upon receiving the information from HH and MK, the Respondent did not take any steps to query CW about the monies that he had borrowed from HH and MK to determine, among other things, the circumstances of the borrowing or whether CW had borrowed monies from any other clients or Approved Persons of the Member. The Respondent also failed to report to the Member that CW had borrowed $15,000 from him, and he did not report the information that he had received from HH and MK described above at paragraph 17.
20. The Respondent also failed to indicate in any of the monthly close supervision reports he completed that he received information from HH and MK that CW had borrowed monies from them. Rather, the Respondent indicated “no incidents to report” or a similar statement when he completed the “Part D – Additional Information” section of the monthly close supervision reports described above at paragraph 15 that requested any instance be identified where CW may not have complied with securities legislation, the requirements of the MFDA, or the Member’s policies and procedures.
21. In or about February 2020, the Member received information that CW had borrowed monies from clients, reported the information to the MFDA, and commenced an investigation into CW’s conduct. Through this investigation, it was determined that between August 3, 2011 and July 4, 2018, CW borrowed a total of approximately $158,000 from five clients who were also Approved Persons of the Member. This included $5,000 that Wilkins borrowed from HH and a total of $5,500 that he borrowed from MK. By July 2020, CW had repaid all the amounts that he borrowed from these clients and Approved Persons.
22. Had the Respondent reported the information that he received that CW borrowed monies from HH and MK as he was required to do, the Member would then have been obligated to conduct a reasonable supervisory investigation into these activities, taken steps to ensure that the Respondent ceased engaging in these activities, and reported the alleged conduct to the MFDA.

Additional Factors

23. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
24. By entering into this Settlement Agreement, the Respondent has saved the MFDA the time, resources and expenses that would have otherwise been necessary to conduct a contested hearing of the allegations.

V. ADDITIONAL TERMS OF SETTLEMENT

25. 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.
26. The Settlement Agreement is subject to acceptance by the Hearing Panel. 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.
27. 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.
28. 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 at the settlement hearing, subject to rule 15.3 of the MFDA Rules of Procedure;
    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. except for any proceedings commenced to address an alleged failure to comply with this Settlement Agreement, Staff will not initiate any proceeding under the By-laws of the MFDA against the Respondent in respect of the contraventions described in this Settlement Agreement. Nothing in this Settlement Agreement precludes Staff from investigating or initiating proceedings in respect of any contraventions that are not set out in this Settlement Agreement, 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;
    4. the Respondent shall be deemed to have been penalized by the Hearing Panel pursuant to section 24.1.1 of MFDA By-law No. 1 for the purpose of giving notice to the public thereof in accordance with section 24.5 of MFDA 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.
29. 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 this 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.
30. 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 MFDA By-law No. 1, unaffected by the Settlement Agreement or the settlement negotiations.
31. 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. The terms of the Settlement Agreement, including the attached Schedule “A”, will be released to the public if and when the Settlement Agreement is accepted by the Hearing Panel.
32. The Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement. A facsimile or electronic copy of any signature shall be as effective as an original signature.