Rempel, Edward Allen - Settlement Agreement

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 EDWARD ANDREW REMPEL

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 Edward Andrew Rempel ("Rempel") as a mutual fund dealing representative with Canfin Magellan Investments Inc.

2. In reviewing the Application, staff of the Ontario Securities Commission ("Staff") became aware of information regarding Rempel'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, Rempel 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 Rempel 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. Rempel's Registration History

6. Rempel has been registered under the Act as follows:

(a) September 19, 1994 to August 22, 2000 -- salesperson (mutual funds, limited market dealer), W. H. Stuart Mutuals Ltd.;

(b) August 30, 2000 to November 9, 2001 -- salesperson (mutual funds), Status Financial Inc.;

(c) November 14, 2001 to September 28, 2009 -- salesperson (mutual funds, limited market dealer), Armstrong & Quaile Associates Inc. ("A&Q");

(d) September 28, 2009 to May 29, 2015 -- mutual fund dealing representative and exempt market dealing representative, A&Q; and

(e) May 29, 2015 to August 5, 2015 -- mutual fund dealing representative and exempt market dealing representative, Sterling Mutuals Inc. ("Sterling").

7. On August 5, 2015, Rempel voluntarily resigned from Sterling. It is Rempel's understanding that he resigned in good standing, however Sterling has advised Staff that had Rempel not resigned, the firm would have terminated his employment on the basis of the misconduct referred to in section C of part II of this Settlement Agreement.

8. Since his resignation from Sterling, Rempel has not been registered under the Act.

B. Submission of the Application

9. On August 11, 2015, Rempel submitted the Application. At that time, a hearing by the Mutual Fund Dealers Association of Canada (the "MFDA") into certain allegations of misconduct on the part of Rempel (the "Allegations") had been completed, and a decision on the Allegations by the MFDA was pending.

10. Subsection 27(1) of the Act states: "[o]n receipt of an application by a person ... and all information ... required by the Director" the Director shall register the person unless it appears to the Director that the person is not suitable for registration or that their registration is otherwise objectionable.

11. On September 1, 2015, Staff notified counsel for Rempel that the Allegations were of such a nature that, if true, they would impugn Rempel's suitability for registration as they indicated that he may lack the requisite integrity for registration. Accordingly, Staff was of the view that the MFDA hearing panel's pending findings with respect to the Allegations was information that was required under subsection 27(1), and that the Application was therefore incomplete.

12. The Application was held in abeyance pending the MFDA hearing panel's decision regarding the Allegations.

C. The Allegations and Finding of Misconduct

13. The Allegations were issued against Rempel in a Notice of Hearing dated October 15, 2013 bearing MFDA file number 201348, and were as follows:

Allegation #1: On September 19, 2011, without the knowledge or prior written consent of his firm, Rempel telephoned client KS, who had filed a complaint against Rempel with his firm, in order to:

(a) persuade client KS to withdraw part of his complaint against Rempel;

(b) offer to compensate client KS for the deferred sales charges he would incur if he withdrew his complaint and collapsed the leveraged investment strategy that was the subject matter of the complaint; and

(c) impose conditions on his proposal to client KS in order to keep the proposal secret;

contrary to MFDA Rules 2.1.1 and 2.1.4, MFDA Policy No. 3 and the Policies and Procedures of the Member Firm.

Allegation #2: On November 28, 2011, prior to learning that client KS had recorded the telephone conversation of September 19, 2011 referred to in Allegation #1, Rempel sent a written statement to the MFDA in which he falsely denied that he had attempted to:

(a) persuade client KS to withdraw all or part of his complaint; and

(b) negotiate a settlement with client KS without the prior written consent of his firm;

contrary to MFDA Rule 2.1.1 and section 22.1 of MFDA By-law No. 1.

14. On November 10, 2014 Rempel successfully completed the Conduct and Practices Handbook Course.

15. On November 24-28, 2014, January 12-14, 2015, February 4, 2015, and May 6, 2015, the MFDA held a hearing into the Allegations. In a written decision dated September 3, 2015 (the "Merits Decision"), the MFDA found that the Allegations had been established against Rempel.

16. The misconduct found by the MFDA in the Merits Decision impugns Rempel's integrity, and therefore his suitability, for registration.

17. On November 2, 2015, the MFDA held the penalty hearing to determine the appropriate sanction to impose on Rempel. On that day, the MFDA panel accepted a joint submission by counsel for Rempel and staff of the MFDA and ordered that the following sanctions be imposed on Rempel (the "Sanctions Decision"):

(a) from November 2, 2015 (the date of the hearing on sanctions) until August 5, 2018 (three years from the date Rempel ceased to be registered), Rempel is prohibited from conducting securities related business while in the employ of or associated with a member of the MFDA;

(b) after August 5, 2018, if Rempel seeks to become re-registered to conduct securities related-- business while in the employ of or associated with a member of the MFDA, Rempel shall be subject to strict supervision by the member with which he becomes re-registered for a period of 12 months from the date that he becomes re-registered;

(c) Rempel shall pay a fine in the amount of $100,000; and

(d) Rempel shall pay costs in the amount of $25,000.

D. Additional Warnings and Cautions Issued to Rempel

18. Prior to the initiation of the proceedings against Rempel in respect of the Allegations, the MFDA issued warning and cautionary letters to Rempel as follows (the "Warnings and Cautions"):

(a) January 30, 2009 -- a letter was issued regarding an allegation that Rempel had made unsuitable leverage recommendations to certain of his clients;

(b) May 10, 2013 -- a letter was issued regarding an allegation that Rempel had made an unsuitable investment recommendation to one of his clients; and

(c) July 4, 2013 -- a letter was issued regarding an allegation that Rempel provided an unbalanced presentation of the risk and benefits of using leverage in an investment plan document he created for certain of his clients, and that leverage recommendations he made to those clients were unsuitable for them.

19. The Warnings and Cautions are of concern to Staff as they may impugn Rempel's proficiency for the purpose of registration.

IV. JOINT RECOMMENDATION TO THE DIRECTOR

20. In order to resolve the matter of the Application, and on the basis of the findings in the Merits Decision, the penalties imposed on Rempel in the Sanctions Decision, and the Warnings and Cautions, Rempel and Staff make the following joint recommendation to the Director:

(a) Rempel will withdraw the Application and will not reapply for registration in any capacity, nor will he act as a permitted individual, until at least August 5, 2018;

(b) if Rempel complies with paragraphs 20(a) above, then upon Rempel reapplying for registration in the future as a dealing representative 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 Rempel'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

(c) in the event Rempel'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.

21. The Parties submit that their joint recommendation is reasonable, having regard to the following factors:

(a) While the period of registration prohibition contemplated by this Settlement Agreement is lengthy, it is commensurate with the seriousness of the misconduct found by the MFDA in its Merits Decision, and as reflected in the Sanctions Decision;

(b) Rempel has suffered financial and reputational harm as a result of his misconduct;

(c) By agreeing to this Settlement Agreement, Rempel has saved Staff and the Director the time and resources that would have been required for an OTBH.

22. Staff and Rempel acknowledge that if the Director does not accept this joint recommendation:

(a) this joint recommendation and all discussions and negotiations between Staff and Rempel in relation to this matter shall be without prejudice to the parties; and

(b) Rempel 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.

23. 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.

Schedule "A"

Terms and Conditions

The registration of Edward Andrew Rempel (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, Compliance and Registrant Regulation Branch if he is under investigation by the MFDA or is reprimanded in any way by the MFDA.

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 Edward Andrew Rempel (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 [Insert name of dealer] 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.

{*} 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.