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, Dessislava Hristova (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:
   1. on November 25, 2019, the Respondent failed to use due diligence to learn the essential facts relative to three clients when opening accounts for the clients, and opened the clients’ accounts without obtaining signed New Account Application Forms from the clients, contrary to the Member’s policies and procedures and MFDA Rules 2.2.2(b), 2.2.1[1], 2.5.1, 1.2 and 2.1.1; and
   2. on November 25, 2019, the Respondent processed the purchase of a mutual fund in a client’s account without communicating with the client, thereby engaging in unauthorized trading, contrary to the Member’s policies and procedures and MFDA Rules 2.1.1, 2.5.1 and 1.1.2.

III. TERMS OF SETTLEMENT

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 $10,000, pursuant to s. 24.1.1(b) of MFDA By-law No. 1, which shall be payable in certified funds as follows;
      1. $5,000 on or before the last business day of the first month following the acceptance of the Settlement Agreement by a Hearing Panel; and
      2. $5,000 on or before the last business day of the second month following the acceptance of the Settlement Agreement by a Hearing Panel;
   2. 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;
   3. the Respondent shall in the future comply with MFDA Rules 2.2.2(b), 2.2.1, 2.5.1, 1.1.2 and 2.1.1; and
   4. the Respondent will attend 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 17, 2011, the Respondent has been registered in Ontario as a dealing representative with CIBC Securities Inc. (the “Member”), a Member of the MFDA.
8. At all material times, the Respondent carried on business in the Toronto, Ontario area.

Background

9. At all material times, the Member’s policies and procedures required its Approved Persons to:
   1. in the presence of the client, obtain the client’s signature on the New Account Application Form (“NAAF”) when opening an account for the client; and
   2. obtain the client’s explicit and prior approval for every transaction.
10. On November 25, 2019, the Respondent met with RD who was considering opening investment accounts (the “Accounts”) with the Member for RD personally, for RD’s company (the “Company”), and for RD’s spouse, BD.
11. BD did not attend the meeting between the Respondent and RD on November 25, 2019.
12. During the meeting, which lasted 45 minutes or greater, the Respondent had a general discussion with RD about his Know-Your-Client (“KYC”) The Respondent also reviewed with RD a number of mutual funds, and the Respondent states that she and RD reviewed the Fund Facts for each of these mutual funds together.
13. The Respondent states that during the meeting, following their discussion described above, RD requested that the Respondent:
    1. open the Accounts;
    2. redeem Guaranteed Investment Certificates (“GICs”) and savings accounts that RD, the Company, and BD held at the Member’s bank affiliate; and
    3. use the redemption proceeds from the GICs and savings accounts to purchase mutual funds in the Accounts, as described in the table below:

14. During the meeting, RD made notations on the Fund Facts documents specifying the mutual funds that were discussed during the meeting, and left the Fund Facts documents with the Respondent. RD informed the Respondent that he had to leave the meeting to attend to other business, and the Respondent did not obtain signed NAAFs or other signed account forms from RD authorizing the opening of new accounts in the names of RD, the Company or BD. The Respondent informed RD that, based on the information provided by RD during the meeting, she would complete the NAAFs and other account forms (collectively, the “Account Opening Documents”) that RD and BD were required to sign in order to open the Accounts and complete the mutual fund purchases described above.  The Respondent also informed RD that following the meeting, she would send RD the Account Opening Documents so that RD and BD could sign them.
15. As described above, BD did not attend the meeting, and the Respondent never met BD in person and did not have any discussions with BD about opening an investment account or purchasing mutual funds in a TFSA.
16. On November 25, 2019, after the meeting with RD, the Respondent opened the Accounts and processed the mutual fund purchases set out above in paragraph 13:
    1. prior to sending the Account Opening Documents to RD;
    2. without communicating with or obtaining any authorization from BD; and
    3. without receiving any signed NAAFs from RD or BD.
17. On November 25, 2019, the Respondent sent the Account Opening Documents to RD, and requested that RD return the Account Opening Documents to the Respondent signed by RD and BD by November 28, 2019.
18. Prior to providing the Account Opening Documents to RD, the Respondent recorded KYC information on them.
19. The Respondent states that she completed the KYC information that she recorded for the Accounts of RD and the Company based on the discussion that she had with RD during the November 25, 2019 meeting. The Respondent acknowledges that she did not specifically discuss RD’s investment knowledge, risk tolerance, investment objectives or time horizon with RD before documenting KYC records for RD and the Company on the Account Opening Documents.
20. The Respondent acknowledges that she did not confirm with RD that the KYC information that she recorded on RD’s and the Company’s NAAFs was accurate.
21. The Respondent acknowledges that she did not communicate with BD about BD’s KYC information before documenting the KYC information that she recorded on the NAAF that she used to open BD’s TFSA.
22. Without communicating with BD, the Respondent states that she intended to record KYC information for BD’s TFSA to match the KYC information that she recorded for RD’s TFSA but that she accidentally recorded a higher risk tolerance for BD than she recorded for RD.[2]
23. On November 27, 2019, RD informed the Respondent that the Account Opening Documents that she had sent to him contained errors, and RD and BD did not ultimately sign the Account Opening Documents.
24. On or about November 28, 2019, RD became aware that the purchases of mutual funds in the Accounts set out above in paragraph 13 had occurred. RD then contacted the Respondent and requested that she reverse these transactions as he had not signed any Account Opening Documents.
25. The Respondent then processed redemptions of the mutual funds that had been purchased in the Accounts, and closed the Accounts.
26. RD and BD subsequently complained to the Member that the Respondent had opened the Accounts and processed the mutual fund purchases set out above in paragraph 13 even though RD and BD had not signed Account Opening Documents or documentation.
27. The Member and its bank affiliate credited the bank accounts of RD, the Company and BD in the total amount of approximately $4,000 to compensate RD and BD for market losses and lost interest on GICs that they had incurred as a result of the mutual fund purchase transactions described above.

Failure to Learn Essential Facts Relative to Clients and Opening Accounts Without Signed NAAFs

28. As described above at paragraph 16, the Respondent opened the Accounts for RD, the Company, and BD without first obtaining signed NAAFs from RD or BD.
29. By failing to communicate with BD, failing to receive any signed NAAFs from RD or BD, and failing to confirm with RD that the KYC information that the Respondent recorded on RD’s and the Company’s NAAFs was accurate, the Respondent failed to use due diligence to learn the essential facts relative to RD, the Company and BD when opening accounts for them.

Unauthorized Trading

30. As described above at paragraph 16, the Respondent processed the purchase of mutual funds in BD’s TFSA without communicating with or otherwise receiving any authorization from BD to process transactions on her behalf. The Respondent thereby engaged in unauthorized trading.

Additional Factors

31. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
32. By entering into the Settlement Agreement, the Respondent has saved the MFDA the time, resources, and expenses associated with conducting a contested hearing of the allegations.

V. ADDITIONAL TERMS OF SETTLEMENT

33. 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.
34. 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 mfda.ca.
35. 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.
36. 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.
37. 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.
38. 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.
39. 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.
40. 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.