Delaney, Paul Anthony - Opportunity to be Heard

Introduction

On February 22, 2012, Paul Anthony Delaney applied for reinstatement of registration as a dealing representative in the category of mutual fund dealer, sponsored by Equity Associates Inc. (Equity). On February 23, 2012, Mr. Delaney amended his application so as to apply for reactivation of registration (the Application).

In its review of the Application, Staff (Staff) of the Ontario Securities Commission (the OSC) identified two areas of potential concern: (i) adverse information provided by Mr. Delaney’s former sponsoring firm, FundEX Investments Inc. (FundEX) in its Notice of Termination filed after Mr. Delaney resigned from FundEX; and (ii) information from the Mutual Fund Dealers Association of Canada (the MFDA) that they had opened two files in respect of complaints received in respect of Mr. Delaney’s conduct.

Staff and Mr. Delaney (through counsel) have agreed to resolve the Application through a joint recommendation that: (i) Staff will not recommend that an application by Mr. Delaney for registration as a dealing representative with Equity in the category of mutual fund dealer be refused unless Staff becomes aware after the date of this joint recommendation of conduct impugning Mr. Delaney’s integrity, proficiency or solvency; (ii) Mr. Delaney’s reactivated registration be subject to strict supervision by Equity until such time as the MFDA closes its open file in respect of Mr. Delaney’s trading activities; and (iii) Mr. Delaney’s reactivated registration be subject to terms and conditions prohibiting Mr. Delaney from effecting redemptions of mutual fund units followed by an immediate purchase of other securities or contracts of insurance with the funds received as a result of the redemption (collectively, switches) in which both the redeemed product and the purchased product are subject to deferred sales charges (DSCs).

Agreed Statement of Facts

Staff and Mr. Delaney agree as to the following facts:

Mr. Delaney’s Registration History

1. Mr. Delaney was first registered under the Securities Act (Ontario) as a salesperson in the category of mutual fund dealer with T. Delaney Financial Services Inc. from October 1985 until resigning on September 10, 1991.

2. Mr. Delaney was next registered as a salesperson in the category of securities dealer with Sutherland Investments Corporation from August 17, 1992, and on January 20, 1997, his registration transferred to Sutherland Securities Inc. He resigned on June 1, 2000.

3. Following his registration with Sutherland Securities Inc., Mr. Delaney became registered as a salesperson in the category of securities dealer with IPC Securities Corporation from June 8, 2000 until November 27, 2000.

4. Mr. Delaney first became registered with FundEX on December 15, 2000, as a salesperson in the categories of limited market dealer and mutual fund dealer. With the coming into force of National Instrument 31-103 Registration Requirements and Exemptions, Mr. Delaney’s registration transitioned to that of a dealing representative in the categories of mutual fund dealer and exempt market dealer. Mr. Delaney surrendered his exempt market dealer registration on May 11, 2011.

5. On February 9, 2012, FundEX advised Mr. Delaney that it intended to terminate his registration as a dealing representative in the category of mutual fund dealer as of February 23, 2012 (the Termination Letter). On February 22, 2012, Mr. Delaney resigned from FundEX.

6. Prior to the events underlying the Termination Letter, which are described below, Mr. Delaney had no history of disciplinary action involving the OSC or MFDA.

7. Mr. Delaney does not have any undischarged financial obligations to his FundEX clients.

Mr. Delaney’s Termination by FundEX

8. In the Termination Letter, FundEX advised Mr. Delaney that it had concerns with certain of his business practices. FundEX took the position in the Termination Letter that Mr. Delaney had failed to follow FundEX’s Compliance Policies and Procedures Manual.

9. Specifically, FundEX alleged that Mr. Delaney had been maintaining a practice of transferring client assets through switches from matured mutual fund units to products with a new DSC structure. FundEX characterized this trading practice as “churning.”

10. FundEX further alleged that Mr. Delaney had maintained blank forms signed by clients (pre-signed forms) in his client files.

11. Based on these two allegations, FundEX exercised its right to terminate its contractual agreement with Mr. Delaney and provided ten business days’ notice prior to effecting the termination.

12. Mr. Delaney denies that he ever engaged in “churning” while registered with FundEX.

Mr. Delaney’s MFDA Warning Letter

13. On April 3, 2012, the MFDA issued a warning letter (the Warning Letter) to Mr. Delaney.

14. In the Warning Letter, staff of the MFDA indicated that they determined that Mr. Delaney had obtained and used pre-signed forms. Staff of the MFDA also determined that Mr. Delaney had made amendments to client documents in respect of three clients without obtaining the particular client’s acknowledgement of these changes.

15. MFDA staff stated its view in the Warning Letter that there was sufficient evidence to support a finding that Mr. Delaney breached MFDA Rules and FundEX’s policies and procedures.

16. The MFDA communicated to Mr. Delaney in the Warning Letter that although it considered his conduct to be “a serious matter,” it would not be initiating formal disciplinary proceedings in respect of the allegations described in paragraph 14 herein, and that it considered all aspects of Mr. Delaney’s file in respect of pre-signed forms to be closed.

17. However, the MFDA also noted in the Warning Letter that MFDA staff would be opening a file to review “allegations made concerning [Mr. Delaney’s] trading activities while registered with FundEX[.]”

18. Staff and Mr. Delaney believe that this new MFDA file relates to FundEX’s allegations of “churning.”

Mr. Delaney’s Position

19. Mr. Delaney admits that he obtained and used pre-signed forms, and that he amended client documents without obtaining all necessary acknowledgments, in breach of MFDA Rules and in contravention of FundEX’s Compliance Policies and Procedures Manual.

20. Although Mr. Delaney does not believe that the complaint made to the MFDA in respect of “churning” has merit, Mr. Delaney accepts full responsibility for his conduct as set out in the Warning Letter.

21. Mr. Delaney will cooperate fully with the MFDA investigation into the “churning” allegations.

Joint Recommendation

Staff and Mr. Delaney jointly recommend that in light of the facts agreed to above, the appropriate sanctions to address the agreed facts in this case are that:

1. Staff will not recommend that an application by Mr. Delaney for registration as a dealing representative with Equity in the category of mutual fund dealer be refused unless Staff becomes aware after the date of this joint recommendation of conduct impugning Mr. Delaney’s integrity, proficiency or solvency;
2. Mr. Delaney’s reactivated registration will be subject to strict supervision by Equity until such time as the MFDA closes its open file in respect of Mr. Delaney’s trading activities; and
3. Mr. Delaney’s reactivated registration will be subject to terms and conditions prohibiting Mr. Delaney from effecting switches in which both the redeemed product and the purchased product are subject to DSCs.

Staff and Mr. Delaney submit that their joint recommendation is reasonable in light of the sanctioning considerations identified by the Commission in decisions such as Re Al-tar Energy Corp. (2011), 34 O.S.C.B. 447.

Acknowledgements

1. Mr. Delaney acknowledges that if the Director accepts this joint recommendation:

1. He agrees to waive all rights to a full hearing, judicial review, or appeal of this matter; and
2. A copy of the Director’s decision accepting this joint recommendation, which may include reference to all or part of the agreed statement of facts, may be published on the OSC website and in the OSC Bulletin;

2. Staff and Mr. Delaney acknowledge that if the Director does not accept this joint recommendation:

1. This joint recommendation and all discussions and negotiations between Staff and counsel for Mr. Delaney in relation to this matter shall be without prejudice to Staff or Mr. Delaney; and
2. Mr. Delaney will be entitled to all available proceedings in relation to Staff’s recommendation should Staff recommend that the Application be refused or made subject to terms and conditions.

* * *

Having reviewed and considered the agreed statement of facts, representations, and submissions contained in this memorandum, I, Marrianne Bridge, in my capacity as Director under the Securities Act (Ontario):

 Accept the joint recommendation of the parties, and hereby order that Paul Anthony Delaney’s application for reactivation of registration as a dealing representative in the category of mutual fund dealer, sponsored by Equity Associates Inc. (Equity), is granted. I make this order on the express understanding that:
• Staff will recommend, and Mr. Delaney and Equity will accept, that Mr. Delaney’s reactivated registration will be subject to strict supervision by Equity until such time as the Mutual Fund Dealers Association of Canada closes its open file in respect of Mr. Delaney’s trading activities; and
• Staff will recommend, and Mr. Delaney and Equity will accept, that Mr. Delaney’s reactivated registration will be subject to terms and conditions prohibiting Mr. Delaney from effecting redemptions of mutual fund units followed by an immediate purchase of other securities or contracts of insurance with the funds received as a result of the redemption (collectively, switches) in which both the redeemed product and the purchased product are subject to deferred sales charges.

___ Do not accept the joint recommendation of the parties.