11 ROC OCRCVM nov o2 2017

Transcription

1 ISSUED IIROC Nation^Weafing Coordinator 11 ROC OCRCVM nov o Investment Industry Regulatory Organization ot Canada Organisme canadien de reglementalion du commerce des v.ileurs mobilieres IN THE MATTER OF: THE RULES OF THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA AND ANDREW PAUL RUDENSKY NOTICE OF HEARING An initial appearance ("Initial Appearance") will be held before a hearing panel ("Hearing Panel") of the Investment Industry Regulatory Organization of Canada ("IIROC") pursuant to Sections 8203 and 8205 of the Consolidated Enforcement, Examination and Approval Rules of IIROC in this matter. The purpose of the Initial Appearance is to schedule a hearing ("Hearing"). The Initial Appearance will be held on: The Initial Appearance will be held at: December 1, 2017 at 10:00 a.m. IIROC - Quebec Room 121 King Street West, Suite 2000 Toronto, ON The Respondent must serve a Response ("Response") to this Notice of Hearing and the Statement of Allegations dated November 2, 2017 ("Statement of Allegations") in accordance with Section 8415 within 30 days from the effective date of service of this Notice of Hearing. If the Respondent does not file a Response in accordance with Section 8415(1), the Initial Appearance may be immediately converted to a Hearing. If the Respondent files a Response in accordance with Section 8415(1), the Initial Appearance will be immediately followed by an initial prehearing conference. In preparation for the prehearing conference, the Respondent must serve and file a prehearing conference form in accordance with Section 8416(5). The purpose of the Hearing will be to determine whether the Respondent has committed the contraventions that are alleged by the staff of IIROC ("Staff). The alleged contraventions are contained in the Statement ofallegations.

2 Pursuantto Section 8409, the Hearing will be conducted as a[n]: E3 Oral Hearing ~ Electronic Hearing f~l Written Hearing The Initial Appearance, the Hearing and all related proceedings will be subject to the Rules of Practice and Procedure as set out in Section Pursuant to the Rules of Practice and Procedure, the Respondent is entitled to attend the Hearing and to be heard, to be represented by counsel or by an agent, to call, examine and cross-examine witnesses, and to make submissions to the Hearing Panel at the Hearing. If the Respondent fails to serve a Response at the Hearing the Hearing Panel may, pursuant to Section 8415(4): (a) (b) (c) proceed with the hearing as set out in this Notice of Hearing, without further notice to the Respondent; accept as proven the facts and contraventions set out by Staff in the Statement of Allegations; and order sanctions and costs against the Respondent pursuant to IIROC Dealer Member Rules and If the Hearing Pariel concludes that the Respondent did commit any or all of the contraventions alleged by Staff in the Statement of Allegations, the Hearing Panel may, pursuant to IIROC Dealer Member Rules and 20.34, impose any one or more ofthe following sanctions: Where the Respondent is/was a Regulated Person who is not a Dealer Member: (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 the person, directly or indirectly, as a result ofthe contravention. (c) suspension of the person's approval or any right or privilege associated with such approval, including access to a Marketplace, for any period oftime and on any terms and conditions:

3 (d) (e) (f) (g) (h) imposition of any terms or conditions on the person's continued approval or continued access to a Marketplace; prohibition of approval in any capacity, for any period of time, including access to a Marketplace; revocation of approval; a permanent bar to approval in any capacity or to access to a Marketplace; and any sanction determined to be appropriate under the circumstances. Where the Respondent is/was a Dealer Member: (a) (b) a reprimand; 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, directly or indirectly, by reason ofthe contravention; (c) suspension of membership in IIROC or of any right or privilege associated with membership, including a direction to cease dealing with clients, for any period of time and on any terms and conditions; (d) imposition of any terms and conditions on the Dealer Member's continued membership, including on access to a Marketplace; (e) expulsion from membership and termination of the rights and privileges of membership, including access to a Marketplace; and (f) any other sanction determined to be appropriate under the circumstances. If the Hearing Panel concludes that the Respondent did commit any or all of the contraventions alleged by the Staff in the Statement of Allegations, the Hearing Panel may assess and order any investigation and prosecution costs determined to be appropriate and reasonable in the circumstances pursuant to IIROC Dealer Member Rule DATED this 2nd day of November, NATIONAL HEARING COORDINATOR Investment Industry Regulatory Organization of Canada Suite 2000, 121 King Street West Toronto, Ontario, M5H 3T9

4 IN THE MATTER OF: THE RULES OF THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA AND ANDREW PAUL RUDENSKY STATEMENT OF ALLEGATIONS Further to a Notice of Hearing dated November 2, 2017, staff of the Investment Industry Regulatory Organization of Canada make the following allegations: PART I - CONTRAVENTIONS ALLEGED Allegation 1 In April 2015, Andrew Paul Rudensky engaged in personal financial dealings with a client of his Dealer Member contrary to Dealer Member Rule 43. Allegation 2 In April 2015, Andrew Paul Rudensky made a false and misleading representation to his Dealer Member contrary to Dealer Member Rule PART II - PARTICULARS Overview 1. The Respondent, Andrew Paul Rudensky, participated through his holding company in a profit-sharing and loan arrangement with a client, RS, in a new issue of shares of

5 Brookfield Asset Management Inc. Class A Limited Shares ( BAM.A ) without the knowledge or consent of his Dealer Member, Richardson GMP Limited ( RGMP ). As a result, RGMP was not able to prohibit Rudensky s personal financial dealings with the client. 2. When Rudensky was asked by RGMP about the source of the funds used to cover his short sale position in BAM.A, Rudensky made a false and misleading representation in an attempt to conceal his personal financial dealings with RS. Background 3. Rudensky was a Registered Representative with RGMP from November 2009 until September 8, 2015, when he resigned from his employment with RGMP. Rudensky held personal accounts at RGMP, including but not limited to: (a) (b) a margin account in the name of his holding company, Dark Horse Financial Corp. ( Dark Horse ) (the Dark Horse Margin Account ); and a margin short account in the name of Dark Horse (the Dark Horse Margin Short Account ). 4. Rudensky was a Registered Representative with Beacon Securities Limited from January 26, 2016 until he was dismissed due to market conditions on February 1, Rudensky has not been registered with IIROC since February 1, At all material times and since 2014, RS was a client of RGMP. RS had been a client of RGMP s predecessor firm, Macquarie Private Wealth Inc., since In or around 2014, Rudensky knew that RS was a client of RGMP. Personal Financial Dealings (i) The Profit-Sharing and Loan Arrangement 7. In April 2015, RGMP was engaged in a bought deal offering of BAM.A shares to be issued on April 27, 2015 at an offering price of USD$

6 8. On April 20, 2015, the BAM.A offering became pro-eligible with a selling concession of USD$1.12 per share, thereby enabling pros, such as Rudensky, to purchase new issue BAM.A shares at a drawn down price of USD$ On April 21, 2015, Rudensky sold short 135,000 BAM.A shares through his Dark Horse Short Margin Account (the BAM.A Short Sale ). The total dollar value of the BAM.A Short Sale was USD$7,474, The BAM.A Short Sale was the largest transaction in terms of dollar value that Rudensky had ever completed. 10. Rudensky intended to cover immediately his short position by purchasing 135,000 new issue BAM.A shares at the draw down price of USD$ He did so by requesting an allotment of 135,000 new issue BAM.A shares on April 21, The total dollar value of the 135,000 new issue BAM.A shares was USD$7,408, Rudensky knew that he would not have sufficient funds to cover the margin call relating to the BAM.A Short Sale that would be required by the settlement date of April 24, Rudensky also knew that he would not receive his allocation of 135,000 shares of BAM.A shares until April 27, Accordingly, Rudensky, through his holding company Dark Horse, entered into a promissory note dated April 21, 2015, whereby Rudensky, on behalf of Dark Horse, promised to pay to RS the sum of $3,000,000, together with a profit allocation of 70% gross profit on sale of Brookfield, and payable on or before April 30, 2015, being USD$44,076 (the Profit-Sharing and Loan Arrangement ). Rudensky did so without RGMP s knowledge or consent. 13. On April 24, 2015, Rudensky received a wire transfer of CAD$3,000,000 from RS into his Dark Horse bank account held at Bank of Montreal (the Dark Horse Bank Account ), which funds he transferred to his Dark Horse Margin Account and used to cover the margin call relating to the BAM.A Short Sale. 14. On April 27, 2015, Rudensky received the allocation of BAM.A shares, which he used to cover the BAM.A Short Sale. 3

7 15. Rudensky s gross profit on the BAM.A Short Sale was approximately USD$65, On or about April 27, 2015, Rudensky sent a wire transfer in the amount of CAD$3,000,000 from his Dark Horse Margin Account to RS (through his Dark Horse Bank Account) and delivered a cheque in the amount of USD$44,076 to RS, all in accordance with the Profit-Sharing and Loan Arrangement. (ii) RGMP Policy Regarding Personal Financial Dealings 17. Rudensky knew or ought to have known that RGMP did not permit employees to borrow from, or lend to, clients, or enter into private business or financial arrangements with clients without the prior written approval of RGMP. This policy was explicitly stated on RGMP s 2014 Annual Canvas form, which Rudensky completed on January 28, Furthermore, Question #10 on RGMP s 2014 Annual Canvas form asked: Do you have any personal business dealings with clients which would include personal loans or interest in a business partnership? If so, please provide details below. 19. At no time prior to August 2015 did Rudensky disclose to RGMP any details regarding the Profit-Sharing and Loan Arrangement. Rudensky did so only when RGMP made further inquiries regarding the source of the $3,000,000 in August 2015, which was months after the Profit-Sharing and Loan Arrangement had transpired in April Although Rudensky left the employment of RGMP before he completed his 2015 Annual Canvas form, by virtue of having completed his 2014 Annual Canvas form on January 28, 2015, Rudensky knew or ought to have known that his conduct in respect of the Profit-Sharing and Loan Agreement was contrary to RGMP s policy regarding personal financial dealings and Dealer Member Rule Furthermore, Rudensky communicated details regarding the Profit-Sharing and Loan Arrangement with RS through his personal address instead of his RGMP address. By doing so, Rudensky intentionally concealed the details of the Profit-Sharing and Loan Arrangement from RGMP. 4

8 False and Misleading Representation 22. On or about April 24, 2015, James King, Director, Wealth Management & Branch Manager, Toronto Office at RGMP, asked Rudensky about the source of the $3,000,000 that was used to cover the BAM.A Short Sale. Instead of providing particulars regarding the Profit-Sharing and Loan Arrangement with RS, Rudensky responded by stating: they are owned as a result of a collateralized loan from my Queen st loft. 23. This was a false and misleading representation. The source of the $3,000,000 was from RS. Rudensky admitted to Staff that the equity of his Queen St. loft in April 2015 was approximately $500,000. No charge in respect of the $3,000,000 was ever registered against the Queen St. loft. 24. Rudensky knew or ought to have known that particulars regarding the Profit-Sharing and Loan Arrangement were relevant to RGMP s inquiry as to the source of the $3,000,000 that was used to cover the BAM.A Short Sale. DATED at Toronto, Ontario, this 2 nd day of November,