A former mutual fund salesman must pay $30,000 to the Mutual Fund Dealers Association of Canada (MFDA) for failing in due diligence, and engaging in discretionary trading through the use of signed blank order entry form. In addition, the MFDA ordered him to make a voluntary payment to two clients.
In 2008, Meryn Fried was working as a mutual fund salesperson of Equity Associates Inc. (EA) in Vaughan, Ont. At that time a married client couple informed Fried that they wanted to open a new joint account to invest the proceeds from the sale of their house. The couple also told Fried that they would require the money in the near future to pay for the closing costs of their new house as a well as for lifestyle expenses.
According to the MFDA, Fried did not fill out a New Account Application Form (NAAF) when the new account was opened as he mistakenly believed he could depend on the forms he had filled out for accounts opened in 2005. As such, instead of following the clients’ wishes for the money to be placed in “secure and accessible” investments, Fried placed the money in mutual funds that were risked moderate to high-risk. Furthermore, trades in the account were made through the use of signed blank entry forms or photocopies of such forms.
By the time the clients asked for their investments to be redeemed to pay for their closing costs and other expenses their account had lost approximately $75,000. It was at that point the clients sent a formal complaint to EA. In addition to the fine, the MFDA ordered Fried to make a voluntary payment to the clients of $25,000.
Furthermore, an audit of Fried’s files found an invoice titled “Tax and Business Proposal – formulating of the plan and presentation” in the amount of $2,600 plus $147.17 in GST charged to the clients. The clients told the regulators they did not recall being sent this invoice and have no record of it nor did they receive a physical product for the described service. EA reimbursed the clients for this fee in 2010.
The audit also found that Fried had sent approximately 23 invoices to 19 other clients for similar services and had collected a rough total of $9,953 in fees (including the invoice for $2,600) from 21 clients. The MFDA found that Fried did not have any documentation indicating that he had discussed the fees with clients or that the services were requested or provided to clients. As well, none of the fees were processed through the accounts or through EA’s facilities.
As well, the audit further revealed that Fried processed trades using signed blank forms for over a dozen clients. Trade tickets with no client signatures were also found during the audit. In some cases, Fried had limited trading authorization, however, the documents did not indicate that he was relying on such an authorization. In other cases, Fried obtained a signature from family members who did not have trading authority on a client account.
In addition to the fines and voluntary payment, Fried is prohibited from re-applying for registration with the MFDA for four months and must successfully complete the Conduct and Practices Handbook course within 12 months. Fried was also ordered to pay $10,000 in costs.