Jarnail Kahlon
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED AND IN THE MATTER OF AN APPLICATION FOR REGISTRATION BY JARNAIL KAHLON
SETTLEMENT AGREEMENT
I. INTRODUCTION
1. This settlement agreement (the Settlement Agreement) relates to an application (the Application) for a reactivation of registration under the Securities Act (Ontario) (the Act) by Jarnail Kahlon (Kahlon), to be sponsored by Carte Wealth Management Inc. (Carte Wealth).
2. In reviewing the Application, staff of the Ontario Securities Commission (Staff) became aware of information regarding Kahlon's conduct as a registrant which could form the basis for a recommendation by Staff to the Director that the Application be refused pursuant to section 27 of the Act.
3. In the event that Staff recommended to the Director that the Application be refused, Kahlon would be entitled to an opportunity to be heard (an OTBH) pursuant to section 31 of the Act in respect of Staff's recommendation.
4. In lieu of pursuing an OTBH, Staff and Kahlon have agreed to make a joint recommendation to the Director regarding the Application, as more particularly described in this Settlement Agreement.
II. AGREED STATEMENT OF FACTS
5. The parties agree to the facts as stated herein.
A. Kahlon's Registration History
6. Kahlon has been registered as a dealing representative in the category of mutual fund dealer (and prior to September 28, 2009, a salesperson in the category of mutual fund dealer) with the following registered firms:
(a) November 1995 to October 1998: IPC Investment Corporation (IPC, and a predecessor entity, Practitioners Mutual Planning Inc.)
(b) May 1995 -- April 2003: Assante Financial Management Ltd. (Assante, and a predecessor entity, Investment and Tax Counsel Corp.)
(c) May 2003 -- September 2009: Cartier Partners Financial Group Inc., from which Mr. Kahlon's registration transitioned through acquisition in June 2004 to Dundee Private Investors Inc. (collectively, Dundee, which is now known as HollisWealth Advisory Services Inc.)
(d) September 2009 -- June 2014: Investia Financial Services Inc. (Investia)
B. Conduct at Investia
7. Kahlon failed to disclose his involvement with seven corporations while registered at Investia, including his controlling shareholder position in five of these corporations. Kahlon was required to disclose this information as outside business activity to his employer and on his Form 33-109F4 Registration of Individuals and Review of Permitted Individuals.
8. While registered at Investia, Kahlon failed to disclose, as required, his outside business activities and controlling interests in unrelated corporations on Investia's annual compliance questionnaires.
9. In 2011, an Investia branch audit found that Kahlon did not keep adequate documentary records of client notes, and Investia issued Kahlon a warning letter in 2012 for this reason. Nevertheless, in 2014, a subsequent Investia branch audit again found that Kahlon had failed to adequately document client notes.
10. These branch audits also found that Kahlon did not respond to inquiries from Investia's compliance staff in a timely manner.
11. In a settlement agreement with the Mutual Fund Dealers Association of Canada dated February 23, 2015 (the MFDA Settlement Agreement), Kahlon admitted to obtaining and maintaining 21 pre-signed forms in respect of 16 clients, some of which were used to process trades. Pursuant to the MFDA Settlement Agreement, Kahlon agreed to pay a fine and costs totaling $7,500.
C. Resignation from Investia and Submission of Application
12. Investia provided Kahlon with a 30 day notice of termination in good standing on May 30, 2014. Kahlon resigned from Investia effective June 5, 2014.
13. On June 12, 2014, Kahlon submitted the Application, which was reviewed by Staff as described herein.
14. Pending the outcome of Staff's review of the Application, Kahlon has not worked in the securities industry since his employment with Investia was terminated.
D. Review of Application
15. Staff reviewed the Application by consulting documents provided by Investia, examining client files, and interviewing Kahlon. This review found the following:
(a) Kahlon also failed to disclose many of his outside business activities to Assante, and Dundee;
(b) Kahlon advised Staff that he did not disclose his outside business activities because he received compensation in a corporate capacity rather than in an individual capacity;
(c) Kahlon did not correct the Application to include all relevant outside business activities until November 5, 2014;
(d) Rather than respond in a timely manner to Investia's "Sales Compliance Review Tracking Report" in 2014, Kahlon proposed to submit responses more than three months late, ultimately resigning before providing those responses; and
(e) Despite receiving specific training at an Investia compliance conference in 2012 that Investia prohibited its dealing representatives from maintaining or using pre-signed forms, Kahlon continued to use pre-signed forms where his clients requested or proposed that they be used.
III. ADMISSIONS AND REPRESENTATIONS BY KAHLON
16. Kahlon admits that he obtained and used pre-signed forms as described in the MFDA Settlement Agreement.
17. Kahlon admits that by obtaining and using pre-signed forms, he failed to deal fairly, honestly, and in good faith with his clients, contrary to OSC Rule 31-505 Conditions of Registration.
18. Kahlon represents as follows:
(a) his misconduct with respect to pre-signed forms was not done to defraud his clients, but rather he believed that he was doing so for his clients' convenience and upon their request;
(b) he takes full responsibility for his actions and regrets his misconduct;
(c) he has suffered financial and reputational harm as a result of his misconduct;
(d) if he is registered in the future, he will comply with all applicable provisions of Ontario securities law and the rules of any self-regulatory organization to which he may be subject, and will observe high standards of honest and responsible business conduct; and
(e) he recognizes and acknowledges that additional instances of non-disclosure or the further use of pre-signed forms could result in the permanent loss of his registration.
IV. JOINT RECOMMENDATION TO THE DIRECTOR
19. In order to resolve the matter of the Application, and on the basis of the Agreed Statement of Facts and the Admissions and Representations by Kahlon set out in this Settlement Agreement, Staff and Kahlon make the following joint recommendation to the Director:
(a) Kahlon will withdraw the Application and will not reapply for a minimum period of 18 months from November 5, 2014, the date on which he corrected the Application to include all relevant disclosures;
(b) before reapplying for registration, Kahlon will successfully complete the Conduct and Practices Handbook Course;
(c) before reapplying for registration, Kahlon will fully discharge his payment obligations for the fine and costs agreed to in the MFDA Settlement Agreement;
(d) if Kahlon complies with paragraphs 19(a), (b) and (c) above, then upon Kahlon reapplying for registration in the future with a registered mutual fund dealer, Staff will not recommend to the Director that his application be refused unless Staff becomes aware after the date of this Settlement Agreement of conduct impugning Kahlon's suitability for registration or rendering his registration objectionable, and provided he meets all other applicable criteria for registration at the time he applies for registration; and
(e) in the event Kahlon's registration is reactivated his registration shall be subject to the terms and conditions set out in Schedule "A" for a period of at least one year.
20. The Parties submit that their joint recommendation is reasonable, having regard to the following factors:
(a) Kahlon has recognized and acknowledged his misconduct, and has provided assurances to Staff that he will conduct himself appropriately if he is registered again in the future;
(b) The joint recommendation requires Kahlon to obtain additional education about his professional responsibilities as a registrant;
(c) The period of time Kahlon is to be without registration under the Settlement Agreement is consistent with other relevant decisions of the Director;
(d) The terms and conditions proposed by the Settlement Agreement provide a means to detect or prevent future misconduct of a similar nature by Kahlon;
(e) Kahlon has suffered financial and reputational harm as a result of his misconduct;
(f) Kahlon has been co-operative with Staff in its review of the Application; and
(g) By agreeing to this Settlement Agreement, Kahlon has saved Staff and the Director the time and resources that would have been required for an OTBH.
21. Staff and Kahlon acknowledge that if the Director does not accept this joint recommendation:
(a) this joint recommendation and all discussions and negotiations between Staff and Kahlon in relation to this matter shall be without prejudice to the parties; and
(b) Kahlon will be entitled to an OTBH in accordance with section 31 of the Act in respect of any recommendation that may be made by Staff regarding his registration status.
22. The parties agree that this Settlement Agreement, and any Director's decision approving of it, will be published on the OSC's website and in the OSC Bulletin.
April 21, 2016
April 20, 2016
Schedule "A"
Terms and Conditions
The registration of Jarnail Kahlon (the "Registrant") under the Securities Act (Ontario) (the "Act") is subject to the following terms and conditions, which were imposed by the Director pursuant to section 27 of the Act:
Strict Supervision
1. For a period of at least twelve months from the date these terms and conditions are imposed:
(a) The registration of the Registrant shall be subject to strict supervision by his sponsoring firm.
(b) The Registrant's sponsoring firm is to submit written monthly supervision reports (in the form specified in Appendix A) to the Ontario Securities Commission (the "OSC"), Attention: Deputy Director, Registrant Conduct Team, Compliance and Registrant Regulation Branch, and also to the Mutual Fund Dealers Association ("MFDA"), Attention: Manager, Compliance. These reports will be submitted within 15 calendar days after the end of each month.
(c) The Registrant must immediately report to the OSC's Deputy Director, Registrant Conduct Team, Compliance and Registrant Regulation Branch if he is under investigation by the MFDA or is reprimanded in any way by the MFDA.
Delivery of Documents
2. For a period of at least twelve months from the date these terms and conditions are imposed:
(a) The Registrant may not process any transactions for a client without the client's written authorization, which must be delivered to the Registrant's sponsoring firm at the time the Registrant processes the transaction.
(b) If the Registrant processes a transaction for a client using a document that is signed or initialed by a client and that is not the original version of the document (a "Copied Document"), the Registrant must deliver the original document to his sponsoring firm within one week of the transaction to permit the firm to verify the authenticity of the Copied Document, including whether the Copied Document was created using a pre-signed form.
Outside Business Activity
3. Any marketing material in respect of Peel Tax & Accounting (PT&A), including but not limited to any content on the PT&A website, must be reviewed and approved by the Registrant's sponsoring firm before being published or otherwise disseminated.
These terms and condition of registration constitute Ontario securities law, and a failure by the Registrant to comply with these terms and conditions may result in further regulatory action against him, including a suspension of his registration.
Appendix "A"
Strict Supervision Report
I hereby certify that supervision has been conducted for the month ending __________, 201_ of the trading activities of Jarnail Kahlon (the "Registrant") by the undersigned. I further certify the following:
1. All orders, both buy and sell, and sales contracts have been reviewed by a supervising officer of Carte Wealth prior to the trade occurring.
2. All client accounts have been reviewed for leveraging, suitability of investments, overconcentration of investments, excess trading or switching, and any amendments to know your client information.
3. A review of trading activity on a daily basis has been conducted of the dealing representative's client accounts.
4. No transactions have been made in any client account until the full and correct documentation is in place.
5. The Registrant has not been granted any power of attorney over any client accounts.
6. All payments for the purchase of the investments were made payable to the dealer or the mutual fund company. There were no cash payments accepted.
7. No client complaints have been received during the preceding month. If there have been complaints, an outline of the nature of the complaint and follow-up action initiated by the company is attached.{*}
8. There has been no handling of clients' funds or securities or issuance of cheques to clients without management approval.
9. Any transfer of funds or securities between clients' accounts has been authorized in writing and reviewed by the supervising officer.
10. Spot audits relative to the Registrant's client accounts have been conducted during the preceding month to ensure compliance with these procedures and no violations of these procedures were discovered.
______________________________
Date
______________________________
Signature of Supervising Officer
______________________________
Name of Supervising Officer
{*} In the event of client complaints or violations of securities legislation and/or the dealer's internal policies and procedures, the Ontario Securities Commission must be notified immediately.