Dealing rep fined for sales-driven transaction processing

Transactions in 2016 and 2017 were done to help fund advisor increase his compensation, MFDA says

Dealing rep fined for sales-driven transaction processing

The Mutual Fund Dealers Association of Canada (MFDA) has fined Troy Allen Hale, an Alberta-based dealing representative, who processed transactions for clients in a way that led caused them to sustain losses.

According to a settle agreement between the MFDA and Hale, he engaged in conflicts of interest with 18 clients when he processed 18 transactions for them from November 2016 to October 2017 as redemptions and purchases, rather than switches.

The MFDA said Hale processed them as redeem-and-purchase transactions because it would contribute more to meeting annual sales targets set by his firm. Conducting the transactions as switches would have resulted in roughly $2,700 in revenue counting toward the applicable targets; processing the transactions as redemptions and purchases generated roughly $111,000 in sales revenue that counted toward the sales targets.

“To process the switches, the Respondent had the clients sign redemption and purchase forms on the same day, with the purchases to be processed after the redemptions had been completed,” the settlement agreement said.

In doing so, the MFDA said Hale exposed his clients to the risk that the mutual funds would change in value as the trades had yet to settle, and their assets weren’t invested yet.

That risk materialized as losses for nine of the affected clients’ mutual funds and deposit accounts. Because of price changes that occurred between when the redemptions were done and the purchases were completed, those nine accounts taken together sustained losses amounting to $3,200.25.

“Had the Respondent completed the transactions as switches, rather than redemptions and purchases, the transactions would not have exposed the clients to this risk as the assets would have remained invested,” the MFDA said, explaining he could have prevented those losses by processing the transactions as switches.

Hale also obtained 10 pre-signed account forms from 10 clients, consisting of purchase order forms with purchase order amounts left blank at the time the clients signed the forms. He used the forms in the course of his sales-motivated redemption-and-purchase activities.

The questionable transactions were uncovered as part of a national review of trading activity conducted by Hale’s employer institution in November 2017. The firm issued a warning letter regarding his conduct in March 2018, and offered compensation to clients who suffered losses because of Hale’s actions.

The MFDA took note of mitigating factors such as Hale’s lack of previous disciplinary history with the MFDA, his cooperation with the investigation, and lack of evidence that clients complained about his conduct.

Hale has agreed to pay a $22,500 fine, as well as $2,500 in costs. He also agreed to in the future comply with MFDA rules 1.1.2, 2.1.1, 2.1.4, and 2.5.1.

 

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