The Toronto-based Mutual Fund Dealers Association of Canada (MFDA) has ordered W.H Stuart Mutuals Ltd. in Markham, Ont. to cease selling or opening any new accounts with the public as the fund dealer is likely to become undercapitalized.
According to MFDA documents released on Wednesday, for the months of February and March 2013, W.H Stuart reported a risk adjusted capital (RAC) of less than $10,000. Such a low RAC means that W.H Stuart is likely to become undercapitalized in the event of a material liability.
Furthermore, Marilyn Stuart, part owner of W.H. Stuart, authorized the sale of mutual funds without the knowledge of a client, and had the proceeds placed into a subsidiary of the company, W.H Stuart Insurance Agency Ltd. The client’s advisor, an approved person with W.H Stuart, alerted securities regulators to the transaction and also confronted Stuart, who claimed the transaction had been made in error. Stuart used money from the subsidiary to re-purchase the mutual fund for the client.
In its notice of application, the MFDA states that its investigation indicated that Stuart likely made other unauthorized transactions with all of the redemptions going to W.H Stuart or its insurance subsidiary.
As such, the MFDA has placed several orders on the company, such as the suspension of all operating and trust accounts. Other orders made by the MFDA include:
- W.H Stuart must maintain a daily list of house accounts and reports on all activity on the accounts;
- the company cannot process any trades made in house accounts without MFDA approval;
- the dealer member cannot directly or indirectly make payments to an officer, director, partner, shareholder, related company, affiliate or associate of W.H Stuart without the written permission of a senior vice president of the MFDA; and
- W.H Stuart must provide the MFDA will access to all its books, record and emails, including those stored on computers, hard drives or any other electronic devices.
Marilyn Stuart specifically is suspended from any securities related business and is banned from accessing or performing any transactions on W.H Stuart’s back office operating system.
So, far neither Marilyn Stuart nor the company has co-operated with the MFDA’s investigation.
In 2012, the self-regulatory organization found that W.H. Stuart “failed to comply with early warning requirement in 2009 by making payments to parties without the prior written consent of the MFDA.”
According to the notice of application, the Alberta Securities Commission has permanently banned Marilyn Stuart from acting as an officer and director for the illegal distribution of securities in Alberta.