RE: HUGH DAMIAN BAGNELL NOTICE OF HEARING IN THE MATTER OF A DISCIPLINE HEARING PURSUANT TO BY-LAW 20

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1 IN THE MATTER OF A DISCIPLINE HEARING PURSUANT TO BY-LAW 20 OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA RE: HUGH DAMIAN BAGNELL NOTICE OF HEARING NOTICE is hereby given that a hearing will be held before the Nova Scotia District Council ( the District Council ) of the Investment Dealers Association of Canada ( the Association ), on Thursday September 18, 2003, at the Citadel Halifax Hotel, 1960 Brunswick Street, Halifax, Nova Scotia, at 9:30 am or as soon thereafter as the hearing can be held regarding a disciplinary action brought by the Association concerning Hugh Damian Bagnell ( Bagnell or "the Respondent"). NOTICE is further given that the staff of the Association allege the following violations of the By-laws, Regulations or Policies of the Association: 1. On or about July 23, 2003, the Respondent, a former Registrant of a Member of the Association, refused and/or failed to attend and give information in respect of an investigation being conducted by the Association s Enforcement Department, contrary to Association By-law Registration History: PARTICULARS 2. The Respondent was approved as a Registered Representative ( RR ) on January 22, 1988, with the Halifax office of Richardson Greenshields of Canada Ltd. ( RG ). He was also registered at RG as a Registered Representative Options ( RRO ) as of June 3, 1988, as well as a Registered Futures Contract Representative Options ( RFCRO ) as of May 26, On November 1, 1996, RG amalgamated with and changed its name to RBC Dominion Securities Inc. ( RBCDS ). From November 1, 1996 to January 8, 2003, the Respondent was approved as an RRO/RFCRO with RBCDS. UTN: 3. On January 15, 2003, the Association received a Uniform Termination Notice dated January 8, 2003 ( UTN ) from RBCDS. The UTN indicates that the Respondent had voluntarily resigned on January 8, 2003, and that there had been four client complaints alleging unauthorized transactions and unsuitable investments.

2 Client complaints: 4. To date, RBCDS has received over one dozen written client complaints regarding the Respondent s conduct with allegations including discretionary or unauthorized trading, unsuitable investments and churning. The time period covered by the complaints is generally from 2000 to Most of the complaints are similar in nature. Some of these individuals have also submitted written complaints to the Association. Discretionary trading: 5. The Association has interviewed several complainants. Some of the allegations by former clients WB, DK/KK, JW/BW, JL, WM, DK/JK and BM/SM are very similar. Essentially, the clients allege that Bagnell made numerous discretionary trades in their accounts in that the price, quantity, security and/or timing of the trades were not confirmed with the client in advance. In some cases, the majority of the trades were made on a discretionary basis. At least some of the clients were informed by Bagnell that this was the normal process. None of these client accounts had been accepted and approved as discretionary accounts by the Member firm. Unsuitable investments: 6. It appears that several of the clients are unsophisticated investors with limited education and investment experience, who relied on Bagnell to oversee their accounts. The investments in issue are almost all technology oriented stocks or mutual funds. Some of the trades include extensive short term trading of a few securities, with a focus on the high- tech sector and with limited diversification. For each of the clients listed in paragraph 5 above, the account holdings appear to be extremely unsuitable given the actual objectives and risk tolerances of the clients. Conduct unbecoming: 7. Information currently available to the Association indicates that the Respondent updated know your client ( KYC ) forms to indicate more aggressive investment objectives and risk factors, without the client s knowledge or consent. On some occasions, when clients complained about certain trades to Bagnell which he had made on a discretionary basis, Bagnell allegedly informed them that the trades could not be reversed and that they should trust him. One client indicated that Bagnell had made a purchase in her account despite being told not to do so by the client. Bagnell subsequently refused to reverse the trade, claiming that this could not be done. Client losses: 8. It appears that all of the clients listed in paragraph 5 above sustained substantial losses in their accounts, both in dollar terms and as a percentage of their accounts. 2

3 Client DK: 9. As one example, DK is a farmer with limited formal education and limited investment knowledge. On February 28, 2001, the total value of DK s account was just over $173,000. By the end of December 2002, the total value of the account was less than $2,000. Taking into consideration withdrawals from the account, there was a net loss of some $157,000, or 90.6%, during this period. 10. As of May 31, 2002, DK s account was valued at just under $64,000 and consisted of 86% technology oriented socks and mutual funds. By the end of December 2002, the total value of the account had declined as indicated above. The account consisted of ATI Technologies, a higher risk stock (92%) and two other speculative stocks. 11. DK s investment objectives were 50% income and 50% growth, with risk factors of 50% investment grade and 50% good quality. A KYC update was completed in early May The updated KYC indicates investment objectives of 25% long term growth, 25% intermediate term growth and 50% short term growth, with risk factors of 20% investment grade, 20% good quality, 30% speculative and 30% high risk. DK did not see this KYC update and it does not accurately reflect his true objectives or risk tolerances. 12. Information obtained to date by the Association indicates a pattern of updating client s KYC forms without their knowledge or consent. In other cases, the investment objectives and risk factors listed by the Respondent on the original KYC forms seem to be more aggressive than the clients actual objectives. Association s investigation: 13. In March 2003, the Association commenced an investigation into the Respondent s conduct while he was employed by RBCDS. During the course of its investigation to date, the Association has obtained some material from RBCDS and has interviewed several complainants, however, the Respondent has information relevant to these transactions which Association Staff requires to complete its investigation. 14. By letters dated March 20, 2003 and May 16, 2003, the Association wrote to the Respondent by registered mail and advised him that the Enforcement Department had begun an investigation into his conduct while he was employed as a Registered Representative at RBCDS. Canada Post confirmations indicate that the Respondent received the above 2 letters on April 7 th and May 23 rd, respectively. Failure to attend at an interview: 15. Peter Ingleton ( PI ), the Association Investigator assigned to the Respondent s file contacted him by telephone on June 19, PI informed Bagnell that he would be required to attend an interview in Halifax during the week of July 21-25, The Respondent indicated that he would call PI the following week to discuss his availability. PI asked him if he intended to participate in the investigation and Bagnell replied that he was not prepared to answer that question at that time. The Respondent did not 3

4 subsequently call back. PI left a message at Bagnell s home on June 27, 2003, for Bagnell to call him, but Bagnell did not respond to that message. 16. By letter dated July 4, 2003, the Association wrote to Bagnell by courier and by registered mail, compelling him to attend for an interview on July 23, 2003, in order to answer the Association s questions. The Association advised the Respondent that they were relying on their investigative powers as set out in By-law 19.5, a copy of which was enclosed in the July 4 th letter. Bagnell was also sent copies of 2 previous Association disciplinary bulletins dealing with violations of By-law The Canada Post confirmation indicates that the registered letter was delivered to the customer on July 7 th, The Respondent did not reply to this letter, nor did he respond to the messages for him to call the Association, which messages were left at his home by PI on July 11 and July 22, In the July 22, 2003 message, PI also reminded him of the interview and asked Bagnell to call him if he did not intend to appear at the interview scheduled for the following day. There was no response to that message. 18. As of this date, the Respondent has not been interviewed by the Association, nor has he provided any documentation or information to the Association. The Respondent s failure to attend and provide information as requested by the Association in accordance with By-law 19.5 has compromised the Association s ability to complete the investigation. NOTICE is further given that the Respondent shall be entitled to appear and be heard and be accompanied by counsel or agent at the hearing and to call, examine and cross-examine witnesses. NOTICE is further given that Association By-laws provide that if, in the opinion of the District Council, the Respondent has failed to comply with or carry out the provisions of any applicable federal or provincial statute relating to trading or advising in respect of securities or commodities or of any regulation or policy made pursuant thereto; has failed to comply with or carry out the provisions of any By-law, Regulation, Ruling or Policy of the Association; has engaged in any business conduct or practice which such District Council in its discretion considers unbecoming or not in the public interest; or is otherwise not qualified whether by integrity, solvency, training or experience, the District Council has the power to impose any one or more of the following penalties: (a) (b) (c) (d) (e) (f) a reprimand; a fine not exceeding the greater of: (i) $1,000, per offence; and (ii) an amount equal to three times the pecuniary benefit which accrued to such person as a result of committing the violation; suspension of approval of the person for such specific period and upon such terms as such District Council may determine; revocation of approval of such person; prohibition of approval of the person in any capacity for any period of time; such conditions of approval or continued approval as may be considered appropriate by the District Council. 4

5 NOTICE is further given that the District Council may, in its discretion, require that the Respondent pay the whole or part of the costs of the proceedings before the District Council and any investigation relating thereto. NOTICE is further given that the District Council may accept as having been proven any facts alleged or conclusions drawn by the Association in the Notice of Hearing and Particulars that are not specifically denied, with a summary of the facts alleged and conclusions drawn based on those alleged facts, in a Reply. NOTICE is further given that the Respondent has ten (10) days from the date on which this Notice of Hearing and Particulars was served, to serve a Reply upon: Investment Dealers Association of Canada Suite King St. West, Toronto, Ontario M5H 3T9 Attention: Kathryn Andrews, Enforcement Counsel A Reply may either: (i) (ii) specifically deny (with a summary of the facts alleged and intended to be relied upon by the Respondent, and the conclusions drawn by the Respondent based on all the alleged facts) any or all of the facts alleged or the conclusions drawn by the Association in the Notice of Hearing and Particulars; or admit the facts alleged and conclusions drawn by the Association in the Notice of Hearing and Particulars and plead circumstances in mitigation of any penalty to be assessed. NOTICE is further given that if the Respondent fails to serve a Reply or attend at the hearing, notwithstanding that a Reply may have been served, the District Council may proceed with the hearing of the matter on the date and at the time and place set out in this notice, or on any subsequent date, at any time and place, without further notice to and in the absence of the Respondent, and the District Council may accept the facts alleged or the conclusions drawn by the Association in this notice as having been proven and may impose any of the penalties prescribed by the By-laws of the Association. DATED at Toronto this 3rd day of September, ALEKSANDER POPOVIC Vice-President Enforcement Division INVESTMENT DEALERS ASSOCIATION OF CANADA 121 King St. W., Ste 1600 Toronto, ON M5H 3T9 5