MFDA Hearing Panel approves settlement agreement with Sterling Mutuals Inc.

TORONTO, June 28, 2016 /CNW/ - A settlement hearing in the matter of Sterling Mutuals Inc. (the "Respondent") was held on May 26, 2016 in Toronto, Ontario before a Hearing Panel of the Central Regional Council of the Mutual Fund Dealers Association of Canada ("MFDA"). The Hearing Panel has approved the Settlement Agreement ("Settlement Agreement") between Staff of the MFDA and the Respondent, and has issued its Decision and Reasons.

Some of the facts in the Settlement Agreement also concern the conduct of Armstrong & Quaile Associates Inc. ("A&Q"), a former Member of the MFDA that amalgamated with the Respondent on May 29, 2015

In its Decision and Reasons dated June 27, 2016, the Hearing Panel imposed the following sanctions on the Respondent:

• a fine in the amount of $75,000;
• costs payable to the MFDA in the amount of $20,000; and
• payment of compensation to clients JH and JH in the amount of $34,000;
• shall in the future comply with MFDA Rules 2.1.1, 2.1.4, 2.2.1, 2.5 and 2.11, MFDA Policy Nos. 2, 3 and 6 and the Respondent's policies and procedures concerning complaint handling by, among other things:
  (i)  ensuring that all information and events that should be reported to the MFDA on the Member Event Tracking System ("METS") are reported in a timely way;
  (ii)  ensuring that complaints are handled by qualified and impartial supervisory staff or compliance staff;
  (iii)  prohibiting the subjects of a complaint from taking any role in the complaint handling process that involves contact with the complainant concerning the subject-matter of the complaint;
  (iv)  ensuring that complaints are handled by the Member promptly and fairly; and
  (v)  taking reasonable supervisory action upon receipt of a complaint.

In the Settlement Agreement, the Respondent admitted the following:

a)	prior to its amalgamation with the Respondent, commencing in June 2010, A&Q failed to report to the MFDA that it had received a client complaint that alleged that an Approved Person, Barry Hunt, had engaged in personal financial dealings with a client and had potentially engaged in unauthorized outside business activities and/or unauthorized securities related business with a client, contrary to MFDA Rules 2.1.1, 2.1.4 and 2.11 and MFDA Policies No. 3 and 6;
b)	prior to its amalgamation with the Respondent, commencing in June 2010, A&Q failed to conduct a reasonable supervisory investigation with respect to the conduct of an Approved Person, Barry Hunt, after it received a complaint on behalf of client VM alleging that Hunt had engaged in personal financial dealings and had potentially engaged in unauthorized outside business activities and/or securities related business that was not carried on for the account of the Member, contrary to MFDA Rules 2.5.1, 2.1.1 and MFDA Policy No. 2;
c)	prior to its amalgamation with the Respondent, commencing in June 2010, A&Q failed to ensure that a complaint submitted on behalf of client VM with respect to the conduct of Approved Person, Barry Hunt, was handled promptly and fairly by qualified compliance staff and inappropriately permitted the subject of the complaint to engage in the complaint handling process without supervision, contrary to MFDA Rules 2.11, 2.1.1 and 2.1.4 and MFDA Policy No. 3;
d)	prior to its amalgamation with the Respondent, commencing in August 2010, A&Q failed to ensure that a complaint received from clients JH and JH that alleged that unsuitable leveraged investment recommendations had been made to the complainants by BO, a former Approved Person of A&Q, was handled promptly and fairly, contrary to MFDA Rules 2.11, 2.1.1 and 2.1.4 and MFDA Policy No. 3;
e)	commencing in December 2012, the Respondent failed to conduct a reasonable supervisory investigation after receiving a complaint from client JN, and failed to ensure that the complaint was handled promptly and fairly by qualified compliance staff and inappropriately permitted the subjects of the complaint to engage in the complaint handling process without supervision, contrary to MFDA Rules 2.5, 2.11, 2.1.4, and 2.1.1, and MFDA Policies No. 2 and 3; and
f)	between May 2014 and March 2015, the Respondent: (a) failed to adequately supervise the conduct of Approved Persons SW and BY to ensure that: (i) accurate KYC information was recorded for each client; and (ii) the investments held in portfolios transferred to the Respondent from another Member and serviced by Approved Persons SW and BY and trade orders accepted for such clients thereafter were suitable for the clients; and (b) directed SW and BY to obtain signed documents from clients that purported to release the Respondent and its Approved Persons from liability for contraventions of their suitability obligations, contrary to MFDA Rules 2.2.1(a), (b), (c) and (e)(i), 2.1.1, 2.1.4 and 2.5.1 and MFDA Policy No. 2.

Copies of the Decision and Reasons and the Settlement Agreement are available on the MFDA website at www.mfda.ca. During the period described in the Decision and Reasons, the Respondent was registered as a mutual fund dealer in all Canadian provinces and in the Territory of Nunavut, as was A&Q prior to its amalgamation with the Respondent.

The MFDA is the self-regulatory organization for Canadian mutual fund dealers, regulating the operations, standards of practice and business conduct of its Members and their approximately 83,000 Approved Persons with a mandate to protect investors and the public interest. For more information about the MFDA's complaint and enforcement processes, as well as links to 'Check an Advisor' and other Investor Tools, visit the For Investors page on the MFDA website.

SOURCE Mutual Fund Dealers Association of Canada

Charles Toth, Director, Litigation, 416-943-4619, [email protected]