A hearing panel of the Central Regional Council of the Mutual Fund Dealers Association of Canada has fined the president of IOCT Financial Inc. $10,000 for taking a dividend payment while the company was designated “in early warning”.

A settlement hearing in the matter of IOCT and Michelle Anne Bolhuis was held Friday in Toronto. Bolhuis is the controlling shareholder and the president of IOCT.

On Oct. 4, 2005, IOCT notified the MFDA of its intention to resign its membership and transfer its client accounts by way of bulk transfer to BMO Nesbitt Burns Inc.

Approximately one year earlier, on Nov. 3, 2004, MFDA staff had designated IOCT “in early warning” after the dealer triggered liquidity and profitability tests.

While designated in early warning, IOCT was required to obtain the prior written consent of the MFDA to “make any payments by way of loan, advance, bonus, dividend, repayment of capital or other distribution of assets to any director, officer, partner, shareholder, related company, affiliate or associate.”

The MFDA approved the bulk transfer of IOCT’s non- registered client accounts to BMO by way of negative confirmation. IOCT’s registered client accounts did not form part of the bulk transfer. Each such account required IOCT to obtain positive client authorization prior to transferring the account. This meant that IOCT was required to contact each client individually and obtain their written authorization before transferring their account.

During the course of IOCT’s resignation process, the MFDA was intermittently informed by IOCT that it was having difficulty locating some of the clients to obtain the required positive authorizations.

IOCT continued to trigger liquidity and profitability tests and continued in early warning until December 2008, when its registration was suspended.

IOCT’s rights and privileges of membership in the MFDA were suspended effective Feb. 10, 2009, and its resignation from MFDA membership remained pending until the resolution of the MFDA’s investigation.

In the settlement approved by the MFDA hearing panel IOCT and Bolhuis admitted that:

• in or about April 2007, IOCT made a dividend payment in the amount of $102,000 to Bolhuis while IOCT was designated in early warning without the prior written consent of the MFDA; and

• in or about July 2007, IOCT increased its non-allowable assets by $9,923 while designated in early warning without the prior written consent of the
MFDA.

Bolhuis also admitted that she has failed to co-operate with the MFDA by failing to attend an interview to provide a statement as requested by MFDA staff during the course of its investigation.

The hearing panel made the following orders:

• IOCT membership in the MFDA be terminated;
• Bolhuis be prohibited from conducting securities related business while in the employ of, or sponsored by, any MFDA Member for a period of three years;
• Bolhuis pay a $10,000 fine and $5,000 in costs.

The fine must be paid by Mar. 1, 2010, or Bolhuis will be permanently prohibited from conducting securities related business while in the employ of, or sponsored by, any MFDA member.

IE