Download the 2007 Year in Review in PDF format

2007 Year in Review

This document summarizes significant regulatory information circulated to Members during the MFDA's most recent fiscal year, July 1, 2006 to June 30, 2007.  Readers can access further information located on the MFDA website by clicking on the links that appear throughout.

Part 1:
Compliance Department

MFDA Members are subject to a three-year sales compliance examination cycle. The MFDA's second cycle of compliance examinations commenced in January 2006.  The following is a summary of sales compliance examinations conducted during the period July 1, 2006 to June 30, 2007:

Common sales compliance deficiencies identified to date in the course of conducting the second cycle of sales compliance examinations are set out below:

• Inadequate written policies and procedures.
• Suitability of investments.
• Incomplete Know-Your-Client ("KYC") information.
• Failure to maintain adequate evidence of trade supervision.
• New account application forms/KYC forms not on file.
• Failure to maintain adequate evidence of client trade instructions.
• Discrepancies between KYC information recorded in the client file and the KYC information recorded on the back-office system.
• Inadequate Know-Your-Product due diligence.
• Inadequate branch/sub-branch review program.
• Inadequate procedures to review and approve amendments to KYC information.

During the fiscal year ended June 30, 2007, 31 referrals were made to the Enforcement Department originating from information obtained during the second cycle of compliance examinations. 

The Financial Compliance Group monitors Member financial filings, both monthly and annual, and performs on-site financial examinations of Level 4 Members on an annual basis.  The most common deficiencies identified during these examinations during the fiscal year ended June 30, 2007 included:

• Reporting/accounting errors or miscalculations.
• Inadequate written policies and procedures.
• Failure to operate trust accounts in accordance with MFDA requirements.

During the fiscal year ended June 30, 2007, six referrals were made to the Enforcement Department originating from information obtained during the financial examination reviews. 

Further information respecting the activities of the MFDA Compliance Department is set out in the MFDA’s 2007 Annual Report.  To review those particulars, visit the “Compliance” page of the Online Annual Report.

Part 2:
Enforcement Department

During the fiscal year ended June 30, 2007, MFDA Enforcement staff issued Notices of Hearing in 21 cases. Staff identified an additional 209 cases involving violations of a minor nature that did not warrant formal disciplinary proceedings. Staff issued warning letters in those cases where the minor violation had ceased and where MFDA staff is of the view that the Member could reasonably be expected to avoid similar violations in the future. Where such is not the case, the MFDA enters into agreements and undertakings that generally require rectification of deficiencies within a specified period of time, occasionally with suitable expert assistance retained by the Member at its own expense. Of the 209 minor violation cases, 192 were closed by the issuance of a warning letter and 17 were closed with an agreement and undertaking.

MFDA Hearings Completed in 2006/2007 Fiscal Year

The MFDA concluded 16 disciplinary cases during the fiscal year 2006, as follows:

Dale Michael Graveline (“Graveline”) – On December 20, 2006, the MFDA found that Graveline misappropriated $45,500 from clients and failed to cooperate with an investigation. The MFDA ordered that Graveline be permanently prohibited from conducting securities related business, pay a fine of $100,000 and costs of $7,500. See Decision and Reasons No. 200606 for details.

Lip Fee (Philip) Chan (“Chan”) – On February 28, 2007, the MFDA found that Chan engaged in securities related business outside the Member or had a gainful occupation that was not approved by the Member and failed to invest $50,000 given to him by a client. The MFDA ordered that Chan be permanently prohibited from conducting securities related business, pay a fine of $150,000 and costs of $7,500. See Decision and Reasons No. 200607 for details.

Donald Kenneth Coatsworth (“Coatsworth”) – On March 7, 2007, the MFDA found that Coatsworth had a gainful occupation that was not approved by the Member and failed to cooperate with an investigation. The MFDA ordered that Coatsworth be permanently prohibited from conducting securities related business, pay a fine of $60,000 and costs of $7,500. See Decision and Reasons No. 200608 for details.

Jean-Pierre Groulx ("Groulx") – On May 9, 2007, the MFDA found that Groulx misappropriated $1,123,000 from his insurance clients. The MFDA ordered that Groulx be permanently prohibited from conducting securities related business. See Decision and Reasons No. 200609 for details.

Joseph Zollo (“Zollo”) – On March 20, 2007, the MFDA approved a settlement agreement between Staff and Zollo. Zollo admitted that he engaged in securities related business outside the Member and traded securities that he was not registered to trade. The MFDA ordered that he be suspended from conducting securities related business for three and a half years and be subject to close supervision for an additional one and a half years. See Order No. 200610 for details.

Lorne Henry (“Henry”) – On May 11, 2007, the MFDA found that Henry misappropriated $317,650 from 12 individuals, borrowed $3,500 from two clients and failed to cooperate with an investigation. The MFDA ordered that Henry be permanently prohibited from conducting securities related business, pay a fine of $350,000 and costs of $10,000. See Decision and Reasons No. 200702 for details.

Robert Michael Smylski (“Smylski”) – On May 22, 2007, the MFDA approved a settlement between Staff and Smylski in which Smylski admitted that he conducted securities related business outside the Member for which he was not registered. The MFDA ordered that Smylski be permanently prohibited from conducting securities related business and pay a fine of $5,000. See Decision No. 200707 for details.

IQON Financial Inc. (“IQON”) – On May 24, 2007, the MFDA approved a settlement between Staff and IQON in which it admitted that it had failed to supervise an Approved Person who had conducted securities related business outside the Member and it had failed to comply with the terms of an agreement with the MFDA. The MFDA ordered IQON to retain a consultant to address deficiencies in its supervisory procedures, pay a fine of $100,000 and costs of $7,500. See Decision and Reasons No. 200713 for details.

John Quigley (“Quigley”) – On July 12, 2007, the MFDA found that Quigley misappropriated $240,000 from six clients and failed to cooperate with an investigation. The MFDA ordered that Quigley be permanently prohibited from conducting securities related business, pay a fine of $290,000 and costs of $7,500. See Decision No. 200703 for details.

Rodney Jacobson (“Jacobson”) – On June 11, 2007, the MFDA approved a settlement between Staff and Jacobson in which Jacobson admitted that he had from time to time misappropriated portions of a total of $55,000 he had received from two clients. The MFDA ordered that Jacobson be permanently prohibited from conducting securities related business and pay a fine of $5,000. See Order No. 200712 for details.

Ronald Freynet (“Freynet”) – On August 14, 2007, the MFDA found that Freynet misappropriated $30,000 from three clients and failed to repay one of those clients $10,000 and also borrowed $20,000 from two other clients. The MFDA ordered that Freynet be permanently prohibited from conducting securities related business, pay a fine of $10,000 and costs of $2,500. See Decision and Reasons No. 200704 for details.

Altimum Mutuals Inc. (“Altimum”) – On June 15, 2007, the MFDA approved a settlement between Staff and Altimum in which Altimum admitted that it had distributed misleading sales communications to clients. The MFDA ordered Altimum to pay a fine of $10,000. See Decision and Reasons No. 200711 for details.

Keith Oswald Wong ("Wong") – On June 19, 2007, the MFDA found that Wong accessed the confidential client database of another Member and used information he obtained to solicit clients. The MFDA ordered that Wong be suspended from acting in a compliance or supervisory capacity for three years, complete an ethics course, pay a fine of $7,000 and costs of $1,000. See Decision No. 200709 for details.

Mary Elizabeth Rygiel ("Rygiel") – On June 25, 2007, the MFDA approved a settlement between Staff and Rygiel in which Rygiel admitted that she permitted an unregistered individual to conduct securities related business through the accounts of the Member. The MFDA ordered that Rygiel be prohibited from acting in a compliance or supervisory capacity for three years, take a proficiency course before acting as a compliance officer, pay a fine of $5,000 and costs of $1,000. See Decision and Reasons No. 200708 for details.

Robert Brick (“Brick”) – On October 29, 2007, the MFDA found that Brick misappropriated $219,000 from two clients and failed to cooperate with an investigation. The MFDA ordered that Brick be permanently prohibited from conducting securities related business, pay a fine of $269,000 and costs of $7,500. See Decision and Reasons No. 200705 for details.

Cory Piggott (“Piggott”) – On October 29, 2007, the MFDA found that Piggott misappropriated $64,000 from two clients and failed to cooperate with an investigation. The MFDA ordered that Piggott be permanently prohibited from conducting securities related business, pay a fine of $114,000 and costs of $7,500. See Decision and Reasons No. 200706 for details

Further information respecting the activities of the MFDA Enforcement Department is set out in the MFDA’s 2007 Annual Report. To review those particulars, view the “Enforcement” page of the Online Annual Report.

Part 3.
Policy

The following is a summary of significant Policy matters published during the fiscal year ended June 30, 2007.

(a)     Bulletins

• Bulletin #0206-P - Exemptive Relief from MFDA Rule 3.3.2(3) (Commingling Prohibition) – advises Members that the Regulatory Issues Committee of the MFDA Board of Directors has determined that to grant exemptive relief from MFDA Rule 3.3.2 (e) would not be prejudicial to the interests of members, their clients or the public and that a Decision Document would be issued providing exemptive relief from MFDA Rule 3.3.2 (e) to all MFDA Level 3 and 4 Dealers, subject to specified conditions.
• Bulletin #0209-P – Notice of Exemption Granted Pursuant to Section 37 of By-law No. 1 – advises Members that the Regulatory Issues Committee of the MFDA Board of Directors has granted an exemption from the requirements of MFDA Rule 1.2.4 (Currency of Courses) to an employee of a Member seeking designation as a compliance officer.
• Bulletin #0211-P – Notice of Exemption Granted Pursuant to Section 37 of By-law No. 1 – advises Members that the Regulatory Issues Committee of the MFDA Board of Directors has granted an exemption from the requirements of MFDA Rule 1.2.4 (Currency of Courses) to an employee of a Member seeking designation as a trading officer.
• Bulletin #0228-M – Referral Arrangements with Lakeshore Asset Management Inc. and Meridian Global Services Inc. – outlines concerns of MFDA staff with respect to referral arrangements that some Members have in place and cautions Members with respect to referrals for specific securities.
• Bulletin #0229-M – 2006-2007 Financial Filing Deadlines – reminds Members as to the deadlines for the filing of Financial Questionnaire and Reports with the MFDA. 
• Bulletin #0234-M – Rule 2.4.1 (Payment of Commissions to Non-Registered Entities) – Extension of Transition Period to December 31, 2008 – informs Members that the applicable securities regulatory authorities have approved an extension of the suspension period for Rule 2.4.1 (Payment of Commissions to Non-Registered Entities) to December 31, 2008.
• Bulletin #0248-P – New National Instrument 31-103 Registration Requirements – CSA Seeking Public Comment – notifies Members that the Canadian Securities Administrators have published National Instrument 31-103 Registration Requirements and Companion Policy 31-103CP  Registration Requirements and that the comment period ends June 20, 2007.
• Bulletin #0250-M – Member Regulation Notice MR-0058 (Acceptable Securities Locations)  – informs Members of steps taken by MFDA staff to facilitate the process relating to the requirements outlined in Member Regulation Notice MR-0058 (Acceptable Securities Locations).
• Bulletin #0262-P – Recognition of the MFDA as a Self-Regulatory Organization in Manitoba  – advises Members that the Manitoba Securities Commission has approved the initial recognition of the MFDA as a self-regulatory organization in Manitoba and has published the initial recognition order for a 30-day comment period, which ends June 30, 2007.
• Bulletin #0263-C – Member Regulation Notice MR-0051 (Capital Provisions for Unresolved Differences in Nominee Name Assets – reminds Members that hold client securities and other investment products in nominee name of the requirements outlined in Member Regulation Notice MR-0051 (Capital Provisions for Unresolved Difference in Nominee Name Assets).

(b)     Member Regulation Notices

• MR-0055 – Undivided Interests in Land (Issue Date: July 06, 2006) clarifies the obligations of Members and Approved Persons with respect to the marketing of investments in undivided interests in land to clients.
• MR-0056 – Business Continuity Planning (Issue Date: October 23, 2006) provides guidance to Members regarding the development and implementation of business continuity plans.
• MR-0057 – Joint Regulatory Notice on the Role of Compliance and Supervision (Issue Date: December 5, 2006) outlines SRO expectations regarding the implementation of an effective compliance function and the role, responsibility and accountability of the Member, the board of directors, management, compliance departments and compliance officers in supervising Member business.
• MR-0058 – Acceptable Securities Locations (Issue Date: December 14, 2006) provides guidance to Members regarding certain requirements under MFDA Rule 3.3.
• MR-0059 – Complaint Handling Obligations (Issue Date: December 20, 2006) clarifies Members’ obligations with respect to the handling of client complaints.
• MR-0060 – Penalty Guidelines (Issue Date: January 18, 2007) sets out penalty guidelines for use in disciplinary proceedings for the benefit of respondents, Hearing Panels and the public.
• MR-0061 – Member Obligations Regarding Outsourcing (Issue Date: February 14, 2007) – reminds Members and Approved Persons of their obligation with respect to compliance with MFDA By-laws, Rules and Policies where the Member or Approved Person has outsourced certain functions to outside service providers.
• MR-0062 – Exempt Securities of Non-Arm’s Length Issuers (Issue Date: May 24, 2007) – clarifies the obligations of Members and Approved Persons with respect to securities sold pursuant to exemptions under applicable securities legislation in which a Member or Approved Person of a Member has a direct or indirect interest.
• MR-0063 – Extension to Effective Date of Acceptable Securities Locations Requirement (Issue Date: June 18, 2007) – advises Members that the transition period set to expire on June 30, 2007 is extended to December 31, 2007, provided the Member complies with the additional reporting requirements set out in MR-0063.

 (c)    New and Amended Regulatory Instruments

• (i) Rule and By-law Amendments approved/finalized during the prior fiscal year:
  • MFDA Rules 3.2.2 (Member Capital) and Rule 3.2.5 (Notice Regarding Accelerated Payment of Long Term Debt) were amended effective December 8, 2006. See Bulletin #0240-P.
  • MFDA Rule 1.2.4 (Currency of Courses) and Section 1 of MFDA By-law No. 1 were amended effective January 8, 2007. See Bulletin #0246-P.
  • MFDA Rule 1.2.5 was amended and MFDA Rule 1.2.6 was repealed June 20, 2007 to be effective July 3, 2007. See Bulletin #0265-P.
• (ii)     Policy Amendments approved/finalized during the prior fiscal year:
  • MFDA Policy 5 (Branch Review Requirements) was approved effective July 24, 2006. See Bulletin #0210-P.
  • Amendment to MFDA Policy 3 (Handling Client Complaints) was approved June 20, 2007 to be effective July 3, 2007. See Bulletin #0265-P.
  • MFDA Policy 6 (Information Reporting Requirements) was approved June 20, 2007 to be effective July 3, 2007. See Bulletin #0265-P.
• (iii)    Amendments to Forms approved/finalized during the prior fiscal year:
  • Amendment to MFDA Financial Questionnaire and Report was approved effective December 8, 2006. See Bulletin #0240-P.

MFDA Policy Advisory Committee

The MFDA Policy Advisory Committee ("PAC") provides advice, comments and reports to MFDA staff on a variety of matters including regulatory and policy initiatives and industry trends and practices. Members of the PAC are selected with a view to ensuring that the PAC is reasonably representative of MFDA membership. The Terms of Reference provide that the PAC shall consist of up to 12 members including the Chairs of each Regional Council of the MFDA who will be ex officio members of the PAC.

In August 2007, MFDA staff issued a bulletin seeking applications for two new members on the PAC to fill vacancies. In light of the number of well qualified applicants that submitted applications, and in order to ensure that the composition of the PAC is representative of the different Member constituencies, MFDA staff was of the view that it would be appropriate to increase the number of members of the PAC to fourteen. Accordingly, four new members of the PAC were appointed by the MFDA President and Chief Executive Officer. The new members are:

• Susan Monk, PEAK Investment Services Inc.
• Ann David, Royal Mutual Funds Inc.
• Sean McGratten, Dundee Private Investors Inc.
• Renée Piette, National Bank Securities Inc.

Further information respecting the MFDA Policy activities are set out in the MFDA’s 2007 Annual Report. To review those particulars, please visit the “Policy” page of the Online Annual Report.

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Download the 2007 Year in Review in PDF format