The Mutual Fund Dealers Association of Canada (MFDA) has fined and permanently banned a trio of mutual fund representatives in two different cases in connection with improper business dealings with clients outside of their dealers.
In one case, Rouzbeh Vatanchi and Kitty Ho, two former reps of WFG Securities of Canada Inc., were accused of selling $175,000 in promissory notes to clients outside their dealer; that the outside business was not disclosed to their dealer; that they engaged in conduct unbecoming by allegedly misleading clients about the nature of enquiries from the Ontario Securities Commission (OSC) into these transactions; and for failing to co-operate with the MFDA’s investigation. The former reps did not participate in the MFDA’s hearing against them.
The MFDA panel found that Vatanchi and Ho were guilty of the allegations against them. Specifically, it found that they sold the promissory notes in connection with a foreign-exchange trading scheme that was carried out by a company calling itself RARE Investments in 2009. In 2014, an OSC hearing found that RARE breached securities laws and violated the public interest when it solicited more than $1.2 million from investors to fund its trading scheme, most of which was lost, or paid to participants in the scheme.
The MFDA hearing panel found that the transactions with RARE were made without the knowledge of the reps’ dealer in violation of MFDA rules; that the reps also misled their clients about the nature of calls from the OSC; and that they refused to co-operate with the MFDA’s investigation.
“In our view, the most serious allegation against the respondents was the failure to co-operate. Members of a self-regulating profession have a high obligation to co-operate with their governing body. As submitted by counsel, their failure to do so renders them ungovernable. In this case, their failure to co-operate severely limited the ability of the MFDA to assess their involvement with RARE,” the MFDA panel says in its reasons.
As a result, the MFDA panel permanently banned both former reps; it also fined Vatanchi $125,000 and Ho $75,000 and ordered costs of $7,500 against both of them.
In a separate case, the MFDA also handed down a permanent ban against Patrick Pasquale Caicco, a former rep, for improper outside business dealings. He was accused of selling $3.35 million worth of real estate investments to 33 clients outside his dealer, Professional Investments (Kingston) Inc., without the dealer’s knowledge or oversight.
According to the MFDA panel’s decision, Caicco admitted the transgressions and also accepted the proposed penalty from the MFDA, which included a $50,000 fine and $5,000 in costs, along with permanent ban.
Finally, the MFDA also issued its written reasons for a decision that was handed down in April against former rep Mohamed Tahir. He was also permanently banned, fined $175,000 and ordered to pay $10,000 in costs after an MFDA panel found that he violated several MFDA rules. At the time, the panel issued its decision and ordered penalties, but did not issue its reasons in the case. Tahir did not participate in the hearing against him.
In its reasons, the MFDA panel noted that Tahir’s lack of participation in the proceeding against him factored into the penalty decision. “The panel also considered that the respondent did not respond to the disciplinary proceeding. Accordingly, the respondent either does not recognize the seriousness of his misconduct or is unwilling to take responsibility,” the MFDA panel said, noting that this represents an aggravating factor in deterring the appropriate penalty.