The Mutual Fund Dealers Association of Canada has sanctioned 12 former mutual-fund representatives with fines amounting to $865,000.
In a decision handed down last week, the MFDA said that between2008 and 2014, the former representatives from a Mississauga, Ontario branch of WFG securities recommended investment loans to clients for whom they were inappropriate, altering and falsifying know-your-client (KYC) information on a total of 95 documents, and committing other offences.
The respondents were also found guilty of attempting to cover up their contraventions. Most of the affected clients had limited to no investing knowledge or experience, and had never previously borrowed money to invest. When some clients complained to WFG Securities that they had been placed in unsuitable leveraged investment strategies, the firm found evidence that clients’ KYC files and loan applications had been falsified or tampered with to reflect:
- Inflated market values of their residences;
- Cash and other assets that the clients did not own or that were inflated in value;
- Investments that the clients did not hold or were inflated in value;
- That the clients, contrary to fact, had “high” risk tolerances and “good” investment knowledge;
- Liabilities that did not reflect the true nature and extent of what the clients actually had to contend with; and
- Overstated values for clients’ net worth and income.
As an investigation into the incidents went under way, the former representatives agreed to adopt a united front. In two separate meetings, they agreed not to reveal their roles in falsifying or altering client information to the firm, and that they would deny any knowledge, responsibility, or wrongdoing with respect to the documents that were falsified, altered, or fabricated. In implementing the cover-up, they provided false and misleading responses to the firm. They were terminated on August 21, 2014.
The MFDA later summoned them for interviews regarding their conduct; most failed to cooperate. Some did not attend their scheduled interviews, while others misled MFDA staff or failed to produce copies of documents and records that the MFDA staff requested for its investigation.
Overall, 51 clients were found to have gotten caught up in the scheme, borrowing a combined total of approximately $4.2 million to invest in mutual funds. The MFDA estimated that the scheme generated between $100,000 and $150,000 in combined commissions, though that total doesn’t include trailer commissions.
“Many of the Respondents were part time workers at the branch and held down other jobs. Most, if not all, were naïve,” the MFDA said. “We concluded that the Respondents were unsophisticated and not knowledgeable about the leveraged investments they sold. This was inexcusable.”
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