THE PURPOSE OF THE HEARING

Transcription

1 INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA IN THE MATTER OF: THE RULES OF THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA AND WASSEEM DIRANI NOTICE OF HEARING TAKE NOTICE that pursuant to Part 10 of Dealer Member Rule 20 of the Investment Industry Regulatory Organization of Canada ( IIROC ), a hearing will be held before a hearing panel of IIROC ( Hearing Panel ) on February 23 rd, 2016 at IIROC offices, 121 King Street West, Suite 2000 Toronto, Ontario in the British Columbia Room at 10:00 am or as soon thereafter as the hearing can be heard. TAKE FURTHER NOTICE that pursuant to Rule 6.2 of IIROC s Dealer Member Rules of Practice and Procedure ( Rules of Practice and Procedure ), that the hearing shall be designated on the: The Standard Track The Complex Track THE PURPOSE OF THE HEARING is to determine whether Wasseem Dirani ( Dirani or the Respondent ) has committed the following contraventions that are alleged by the Staff of IIROC ( Staff ): Count 1 From April 2014 to January 2015 the Respondent engaged in business conduct or practice which is unbecoming or detrimental to the public interest in that he misappropriated funds from clients, contrary to IIROC Rule Count 2 From August to December 2014 the Respondent engaged in business conduct or practice which is unbecoming or detrimental to the public interest in that he executed unauthorized transactions in the accounts of clients, contrary to IIROC Rule 29.1.

2 - 2 - Count 3 From July 2012 to May 2015 the Respondent engaged in business conduct or practice which is unbecoming or detrimental to the public interest in that he engaged in personal financial dealings with clients, contrary to IIROC Rule Count 4 From October to November 2015 the Respondent failed to co-operate with an IIROC investigation by failing to attend at a compelled interview, contrary to IIROC Rule PARTICULARS TAKE FURTHER NOTICE that the following is a summary of the facts alleged and to be relied upon by Staff at the hearing: A. Overview 1. The Respondent misappropriated funds from his clients OL and AL, a married couple, when he asked for and cashed three cheques payable to his personal corporation totaling $68,000. The funds had been provided on the understanding that they would be invested on OL and AL s behalf but the Respondent failed to do so. 2. The Respondent executed unauthorized transactions in the accounts of these clients in order to deposit funds into the clients bank account, when the clients understood the deposits to be dividends from the alleged investments. 3. The Respondent engaged in personal financial dealings with his clients IS and FNS when he borrowed a total of $50,000 from these clients and gave them three promissory notes for the loans. In the case of his client SM, Dirani promised to compensate this client for account losses and executed five agreements to reflect that promise. 4. The Respondent was compelled to attend an IIROC interview on three separate occasions; however he has to date failed to co-operate with IIROC by failing to attend an interview. 5. The majority of the Respondent s misconduct occurred after he entered into a settlement agreement with IIROC Staff admitting to prior violations of IIROC s Rules. B. Registration History 6. The Respondent was a registrant with three IIROC member firms, as follows: Edward Jones from June 2003 to March 2013 IPC Securities Corporation ( IPC ) from April 2013 to February 2015 Burgeonvest Bick Securities Limited from February to May 2015

3 - 3 - C. Misappropriation 7. Dirani met his clients OL and AL, a married couple, in early 2014 while he was employed by IPC. In April 2014 he opened a joint cash account, a TFSA account for each of them, and a LIRA account for AL. 8. The investment objectives for all accounts were 100% growth. OL and AL told Dirani they wanted to preserve their capital while generating monthly income. 9. In April 2014 OL and AL transferred $138,000 1 of assets held primarily in mutual fund units into the accounts with Dirani as follows: $76,000 worth of assets into the joint cash account, and $62,000 into AL s LIRA account. 10. In April 2014 Dirani sold the main asset in the joint cash account generating $76,000 in cash. Of the total proceeds, he transferred $41,500 to OL and AL s bank account leaving a balance of $35,000 in the account. 11. In May 2014 Dirani invested the majority of the remaining $35,000 into units of two mutual funds in the amount of $22,500 in the first fund, and $10,500 in the second fund. 12. In June 2014 Dirani transferred the mutual fund units with a value of $22,500 into AL s TFSA account and the mutual fund units with a value of $10,500 into OL s TFSA account. 13. Dirani recommended that the cash amount of approximately $41,500 that had been transferred to OL and AL s bank account be invested in a company called WKD Consulting ( WKD ). OL and AL agreed with this recommendation as they understood from Dirani that it was a principal guaranteed investment that offered a steady monthly income. 14. WKD was in fact a numbered company, namely Ontario Inc. o/a WKD Consulting, which is owned by Dirani. 15. Dirani had previously described his ownership of WKD on an IIROC registrations database as follows: Mr. Dirani s Personal Corporation. Life Insurance Sales Corporate Life License with Financial Services Commission of Ontario. IPC Securities Corporation does not pay commissions or salary to Ontario Inc. o/a WKD Consulting. Mr. Dirani will not be working through his corporation for life insurance business and will run all life insurance business through Burgeonvest Insurance Corporation (BIC). 1 All figures provided in this section have been rounded downward.

4 OL and AL ultimately gave Dirani three cheques totaling $68,00 all payable to WKD as follows: April 29, 2014 $35,000 June 2, 2014 $10,000 January 10, 2015 $23,000 $68, Prior to receiving the first cheque, Dirani provided these clients with a Unit Purchase Agreement (the Agreement ), dated April 26, According to the terms of the Agreement, OL and AL had allegedly purchased 7 units of a Private Pooled Income Trust at $5,000/unit, for a total investment of $35, A description of the investment explained that it was a purchase of units of the Private Pooled Income Trust, with a guaranteed annual interest rate of 10% per annum. The Agreement further explained that in the event of default, the entire balance would immediately become due and payable. The agreement was signed by OL and AL and was witnessed. 19. As detailed below, these clients ultimately demanded the return of their funds from Dirani and he later repaid OL and AL a total of $55,000 of the $68,000. D. Unauthorized Trading 20. Between June 2014 and December 2014, OL and AL received a total of $6, paid into their bank account by way of monthly deposits of approximately $1000, which they understood from Dirani had been generated by their investment in WKD. 21. However, the deposits into their bank account were in fact comprised of deposits of residual cash amounts from their own joint cash and TFSA accounts, dividends on IPC investments, together with redemptions that Dirani had processed within their accounts. 22. OL and AL were not aware of and did not agree to the deposits of residual cash into their bank account; further they were not aware of and did not authorize the redemption transactions.

5 Specifically, these clients monthly account statements reflected the following activity: Account Date Dividends Residual Cash Total Deposited to Bank Account Joint Cash June 3, 2014 $ $ $900 Account Joint Cash July 2, 2014 $0 $900 $900 Account Redemptions AL TFSA August 29, 2014 $ $525 $ OL TFSA August 29, 2014 $216 $0 $216 AL TFSA September 9, 2014 $ $900 $1, AL TFSA October 22, 2014 $ $ $ OL TFSA November 3, $0 $ AL TFSA November 12, 2014 $91.27 $850 $ AL TFSA December 23, 2014 $ $ $ Total: $1, $5, $6, E. Personal Financial Dealings with Client Clients OL and AL 24. When the monthly deposits described above were not received into their bank account in February and March 2015, OL and AL became concerned. Further they did not understand why the market value of their accounts was so low. They attempted to contact Dirani and when he did not respond, they complained to IPC. 25. On March 11, 2015 Dirani responded to OL and AL s inquiries via advising them that they had received: Investment income as of Dec 31 of $6, % return in 9 months and further indicated, in part:.the dividends were in the account today, so take another look as it was done manually. I am sorry if any of this has put you uneasy at all, but know everything is safe 100% and I have only taken the utmost care in your accounts and our relationship. 26. However, the $6,808 represented by Dirani to be investment income in fact consisted of residual cash amounts from their own joint cash and TFSA accounts, dividends on IPC investments, together with redemptions that Dirani processed within their accounts. 27. The clients received a further payment of $1000 in March of This payment was made in the form of a cheque that they received from Dirani written on the account of

6 Ontario Inc., the numbered company operating as WKD; the address on the cheque was Dirani s home address. 28. The clients deposited this cheque into their bank account on March 13, 2015; however, it was returned due to insufficient funds on March 16, OL and AL ultimately advised Dirani that they intended to complain to IIROC and that they would consider contacting the police. Subsequently, Dirani repaid OL and AL a portion of the money he had misappropriated as follows: May 8, 2015 $30,000 May 25, 2015 $25,000 $55, On June 17, 2015 following their complaint to IPC, the firm compensated these clients for the remainder of their overall losses in the accounts with Dirani in the amount of $21,000. Client SM 31. SM was referred to Dirani by a friend in 2008 and opened an account with him. Dirani recommended to SM that he take out a $50,000 secured line of credit against his house, in order to invest. 32. Although SM was hesitant to do so, given that he had one year remaining on his mortgage, he agreed as he had told Dirani he wanted to grow his retirement savings but did not want to put his money at risk. 33. Dirani opened a margin account for SM and deposited the $50,000. The investments did not do well, and by 2012 SM became troubled when he did not see any increase in his assets. As well, he did not understand how a margin account operated or why interest was being charged in the account. 34. SM approached Dirani in 2012 to discuss the losses in his account. Dirani offered to compensate SM personally for any losses in relation to the $50,000 investment. SM agreed to give Dirani five years to repay any losses, but asked that their agreement be put in writing. 35. Between July 2012 and June 2014 Dirani executed five agreements whereby he undertook to personally make up any losses in SM s account. 36. Subsequently, Dirani gave SM a cheque dated October 15, 2014 for $4, SM cashed the cheque, and then on Dirani s advice wrote a personal cheque for $4,600 for deposit directly into his IPC account.

7 Dirani gave SM a second cheque for $8,781 on October 15, 2015; however, it was returned due to insufficient funds. Clients IS and FNS 38. In addition, in early 2015 Dirani s clients IS and FNS, a married couple, loaned Dirani $50,000 via three personal loans. IS and FNS received promissory notes from Dirani in relation to the repayment of these loans, as follows: Date Loan Amount Terms of Promissory Notes with interest rate 12% per annum January 15, 2015 $20,000 from IS due April 15, 2015 interest of $2,400, to be paid on the due date February 15, 2015 $10,000 from IS due July 15, 2015 same April 15, 2015 $20,000 from FNS due October 15, 2015 Total $50,000 same 39. To date these loan amounts have not been repaid by Dirani. E. Failure to Co-operate 40. In the context of the investigation into these matters, Dirani was compelled by letter dated September 1, 2015 to attend at an IIROC interview on October 1, On September 24, 2015 Dirani requested an extension of time in order to retain counsel. The extension was granted with a request that he provide the name of such counsel by October 13, Dirani did not provide the name of counsel as requested and on October 14, 2015 Staff of IIROC again compelled Dirani to attend an interview on October 28, 2015 and offered him the opportunity to review documents to be used at the interview on October 27, 2015 or another day of his choosing. 43. On October 14, 2015 Dirani advised that he would attend to review documents but requested an interview date in November as he had to retain new counsel. 44. Dirani did not provide the name of new counsel as requested or which day he would attend to review documents, accordingly on October 27, 2015 Staff of IIROC compelled Dirani for a third time to attend an interview on November 16, On November 13, 2015 Dirani attended at IIROC offices and reviewed documents to be used at the interview.

8 On November 15, 2015 Dirani advised via that he would not attend the IIROC interview on November 16, 2015 due to a death in his family and that he would be in contact with IIROC to reschedule the interview. 47. By letter dated November 17, 2015 Staff of IIROC advised him that the matter would be proceeding in the normal course and that a charge for failing to co-operate might be pursued, however that he could remedy that failure by attending an interview. 48. As of the date hereof, Dirani has had no further contact with Staff of IIROC. 49. The majority of the events outlined above occurred after the Respondent had entered into a settlement agreement with IIROC Staff in January of In that settlement agreement, the Respondent agreed that, during a period from March 2006 to June 2012, he had failed to use due diligence to ensure that recommendations were suitable for his client. 50. In addition, he admitted that in August of 2012 he engaged in undisclosed personal business with a client without the knowledge or consent of his firm. The Settlement Agreement was approved by an IIROC Hearing Panel in February of GENERAL PROCEDURAL MATTERS TAKE FURTHER NOTICE that the hearing and related proceedings shall be subject to the Rules of Practice and Procedure. TAKE FURTHER NOTICE that pursuant to Rule 13.1 of the Rules of Practice and Procedure, the Respondent is entitled to attend and be heard, be represented by counsel or an agent, call, examine and cross-examine witnesses, and make submissions to the Hearing Panel at the hearing. RESPONSE TO NOTICE OF HEARING TAKE FURTHER NOTICE that the Respondent must serve upon the Staff of IIROC a Response to the Notice of Hearing in accordance with Rule 7 of the Rules of Practice and Procedure within twenty (20) days (for a Standard Track disciplinary proceeding) or within thirty (30) days (for a Complex Track disciplinary proceeding) from the effective date of service of the Notice of Hearing. FAILURE TO RESPOND OR ATTEND HEARING TAKE FURTHER NOTICE that if the Respondent fails to serve a Response or attend the hearing, the Hearing Panel may, pursuant to Rules 7.2 and 13.5 of the Rules of Practice and Procedure:

9 - 9 - (a) proceed with the hearing as set out in the Notice of Hearing, without further notice to the Respondent; (b) accept as proven the facts and contraventions alleged by Staff in the Notice of Hearing; and (c) order penalties and costs against the Respondent pursuant to Dealer Member Rules 20.33, and PENALTIES & COSTS TAKE FURTHER NOTICE that if the Hearing Panel concludes that the Respondent did commit any or all of the contraventions alleged by Staff in the Notice of Hearing, the Hearing Panel may, pursuant to Dealer Member Rules and 20.34, impose any one or more of the following penalties: Where the Respondent is/was an Approved Person: (a) (b) a reprimand; a fine not exceeding the greater of: (i) $1,000,000 per contravention; and (ii) an amount equal to three times the profit made or loss avoided by such Approved Person by reason of the contravention. (c) (d) (e) (f) (g) (h) (i) suspension of approval for any period of time and upon any conditions or terms; terms and conditions of continued approval; prohibition of approval in any capacity for any period of time; termination of the rights and privileges of approval; revocation of approval; a permanent bar from approval with the IIROC; or any other fit remedy or penalty. Where the Respondent is/was a Dealer Member: (a) a reprimand;

10 (b) a fine not exceeding the greater of: (i) $5,000,000 per contravention; and (ii) an amount equal to three times the profit made or loss avoided by the Dealer Member by reason of the contravention; (c) (d) (e) (f) (g) suspension of the rights and privileges of the Dealer Member (and such suspension may include a direction to the Dealer Member to cease dealing with the public) for any period of time and upon any conditions or terms; terms and conditions of continued Membership; termination of the rights and privileges of Membership; expulsion of the Dealer Member from membership in the IIROC; or any other fit remedy or penalty. TAKE FURTHER NOTICE that if the Hearing Panel concludes that the Respondent did commit any or all of the contraventions alleged by the Staff in the Notice of Hearing, the Hearing Panel may pursuant to Dealer Member Rule assess and order any investigation and prosecution costs determined to be appropriate and reasonable in the circumstances. DATED at Toronto, this 7th day of December, ELSA RENZELLA VICE-PRESIDENT, ENFORCEMENT INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA Suite 2000, 121 King Street West Toronto, Ontario M5H 3T9