JEREMY NICHOLAS DREW AUSTIN

Transcription

1 INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA IN THE MATTER OF: THE RULES OF THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA AND JEREMY NICHOLAS DREW AUSTIN 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 March 16, 2016 at 121 King Street West, Suite 2000, Toronto, Ontario at 10:00 a.m. 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 Jeremy Nicholas Drew Austin ( Austin or the Respondent ) has committed the following contraventions that are alleged by the Staff of IIROC ( Staff ): Count 1: Between May 2009 and June 2013, Austin failed to use due diligence to ensure that recommendations were suitable for his clients AG, EG, IZ, and D Ltd. (collectively, the Clients ), contrary to Dealer Member Rule (q).

2 - 2 - Count 2: Between May 2009 to April 2012, Austin engaged in unauthorized trading in the account of EG, contrary to Dealer Member Rule Count 3: Commencing on or about August 26, 2015, Austin refused and failed to attend and give information in respect of an investigation being conducted by Staff, contrary to IIROC Dealer Member 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: OVERVIEW 1. From May 2009 until September 2014, Austin advised the Clients in respect of their accounts with Edward Jones, Manulife Securities ( Manulife ), and Mandeville Private Client Inc. (Mandeville ). 2. While Austin was at Edward Jones, he overstated the Clients investment knowledge, risk tolerance, and investment objectives and recommended trades that were not suitable for them having regard to their true investment knowledge, investment objectives and risk tolerance. In June 2013, while Austin was at Manulife, he recommended investments that were not suitable for the Clients and caused them to incur significant redemption fees. Austin also executed 130 unauthorized trades in EG s RRSP Account with Edward Jones for which he received commissions of $31, Austin has failed to attend to be interviewed by IIROC Staff in respect of his conduct. This undermined IIROC s ability to conduct a full and complete investigation into these matters. Austin 4. Austin first became registered in the investment industry on January 23, 2009.

3 From January 23, 2009 to April 27, 2012, Austin was registered as a Financial Advisor with Edward Jones. From May 16, 2012 to January 14, 2014, Austin was registered as a Registered Representative with Manulife. From April 9, 2014 to September 29, 2014, Austin was registered as a Registered Representative with Mandeville. 6. Austin has not been registered with IIROC since September 29, 2014, when he was dismissed by Mandeville. The Clients 7. AG and EG are a married couple, born in 1944 and 1950, respectively. AG and EG are retired. Prior to their retirement, they operated a family restaurant in London, Ontario which they sold in December AG and EG immigrated to Canada in the 1970s and their first language is not English. AG has a grade 9 education and EG has a grade 8 education. 8. IZ is the sister of AG and is not resident in Canada. At all material times, AG held a power of attorney over IZ s property, including the assets in her Edward Jones accounts. Austin had no direct contact with IZ. 9. AG, EG, and IZ first opened RRSP accounts with Edward Jones in They were initially advised by BT, an Edward Jones Financial Advisor who left Edward Jones in early In or about the Spring of 2009, Austin met with AG and EG at their restaurant and told them that he was their new advisor. AG and EG put their complete trust in Austin and followed him from Edward Jones to Manulife and to Mandeville. Austin visited AG and EG regularly at the restaurant and developed a personal relationship with them. 10. AG is the sole director of D Ltd., an Ontario corporation that was incorporated on July 6, D Ltd opened Canadian and US Investment accounts with Edward Jones in July 2009.

4 - 4 - Austin Failed to Ensure That Recommendations Were Suitable for the Clients 11. When AG, EG, and IZ opened their accounts with Edward Jones in the Spring of 2008, the Know-Your-Client ( KYC ) information indicated that all three of them had limited investment knowledge and experience, risk tolerance of 100% Medium, and Account Objectives of Income & Growth 70% and Growth 30%. 12. Between May 2009 and April 2012, Austin updated the Clients KYC information on 32 occasions to increase their investment knowledge and experience and their risk tolerance such that: a) Between May 20, 2008 and August 21, 2011, AG s investment knowledge and experience changed from Limited to Extensive and his risk tolerance increased from Medium 100% to High 100%; b) Between July 10, 2009 and July 1, 2011, D Ltd. s investment knowledge and experience changed from Moderate to Extensive and its risk tolerance increased from Medium 60% and High 40% to High 100%; c) Between May 20, 2008 and January 28, 2010, EG s investment knowledge and experience changed from Limited to Moderate and her risk tolerance increased from Medium 100% to High 100%; and d) Between June 23, 2008 and October 5, 2009, IZ s risk tolerance changed from Medium 100% to High 100%. The KYC updates for the Clients are listed at Schedule A hereto. 13. The Clients did not sign or agree to the KYC information updates and their true investment knowledge and experience, risk tolerance and objectives did not change. The risk tolerance and objectives that Austin entered into Edward Jones system were inaccurate and not suitable for the Clients. Each update was an overstatement made by Austin to justify trading that was too risky for the Clients.

5 - 5 - Unsuitable Recommendations While at Edward Jones 14. The Clients were unsophisticated investors with limited investment knowledge and experience and medium risk tolerance. However, while he was with Edward Jones, Austin recommended speculative and high-risk securities that were not suitable for them. The Clients trusted Austin and accepted his recommendations without question. 15. Austin s trading in the Clients accounts at Edward Jones was excessive. His annualized turnover ratio for the account of D Ltd was 3.29 times. For the RRSP accounts the annualized turnover rations were: EG 2.62 times, AG 2.4 times, and IZ 2.2 times. 16. Austin tailored the KYC information to the Clients portfolio holdings, rather than recommending securities that were consistent with the Clients true risk tolerance and objectives. This was to Austin s benefit as while he was with Edward Jones he earned total commissions of $196,098 from the Clients accounts. The Clients however experienced trading losses in the total amount of approximately $400,000 across the RRSP accounts of AG, EG, IZ, and in the trading accounts of D Ltd. Unsuitable Investments While at Manulife 17. When the Clients opened accounts at Manulife, their KYC provided for a time horizon of 1-3 years. However, Austin recommended that the Clients purchase funds on a Deferred Sales Charge ( DSC ) and Low-Load ( LL ) basis, which caused them to incur significant redemption fees. This recommendation was unsuitable. 18. In January 2013, Austin purchased units for all of the Clients in a Mackenzie Sentinel Corporate Bond Fund on a DSC and LL basis. On June 10, 2013, Austin switched the Mackenzie Sentinel Corporate Bond Fund positions for units in a Mackenzie Canadian Money Market Fund on a DSC basis. Just seven days later, on June 17, 2013, Austin sold those positions and purchased units in a Sentry Canadian Income Fund, which he subsequently switched back to Money Market Funds.

6 D Ltd incurred $24, in redemption fees in respect of the sale of the Mackenzie Canadian Money Market Funds. AG incurred redemption fees of $585.69, EG incurred redemption fees of $1,690.75, and IZ incurred redemption fees of $3, Manulife recognized that the recommendations to invest on a DSC basis were not suitable for the Clients and offered to compensate them for the redemption fees that they paid on the sales of the Mackenzie Canadian Money Market Fund. 20. Austin also failed to properly advise AG, EG, and D Ltd as to the amount of income that could reasonably be generated by their assets and withdrawn without compromising principal. Austin advised AG that he could withdraw $5,000 per month for living expenses and AG understood that the return on the investments of AG, D Ltd, and EG could support for this amount. Based on Austin s advice, between January 2013 and December 2013, AG withdrew $82, from the account of D Ltd. In fact, the withdrawals exceeded the income generated and were partially funded through margin borrowing. Unauthorized Trading 21. EG held sole authority to trade in her RRSP account. From May 2009 until April 2012, there were 130 trades in EG s RRSP Account, 81 of which were reported as solicited and 49 of which were marked unsolicited. However, EG never provided trading instructions to Austin and did not authorize any of the trades in her RRSP Account. Austin received commissions of $31, for the unauthorized transactions in EG s RRSP account. Failure to Cooperate with IIROC Investigation Service of First Compel Letter 22. By letter dated April 22, 2015 (the Opening Letter ), IIROC advised Austin that an investigation had begun into his conduct while he was employed with Edward Jones. The Opening Letter was sent to Austin by registered mail, but he did not collect it and it was returned to IIROC.

7 On June 18, 2015, an IIROC Investigator sent the Opening Letter to Austin by to the address an address that Austin used to communicate with IIROC in November Austin did not acknowledge receipt of the . On or about June 29, 2015, the IIROC Investigator attempted to contact Austin by telephone at the number listed in NRD. The IIROC Investigator attempted phone contact three times, but there was no answer and the pre-recorded response indicated that messages would not be accepted. 24. On July 16, 2015, a process server engaged by IIROC personally served Austin with the Opening Letter and a letter dated June 30, 2015 compelling him to attend IIROC s offices on August 26, 2015 in order to provide a statement in aid of the investigation (the First Compel Letter ). The letters were left with Austin at an address on Quinton Road in London, Ontario ( Quinton Road ), which is the residential address listed for him in the National Registration Database maintained by IIROC. 25. By letter dated August 5, 2015, IIROC advised Austin that the investigation had been expanded to include his tenure with Manulife. This letter was sent to Austin by registered mail to Quinton Road, but he did not collect it and it was returned to IIROC. Austin Fails To Attend His Interview on August 26, By dated August 11, 2015, the IIROC Investigator reminded Austin of his interview scheduled for August 26, 2015 and asked him to confirm that he would be in attendance. On August 12, 2015, the IIROC Investigator left a voic message for Austin at a telephone number for Austin that AG had provided. 27. On August 17, 2015, Austin telephoned the IIROC Investigator and confirmed that he would attend the interview on August 26, 2015 at 2:00 p.m. He arranged to arrive at IIROC s offices at 12:30 p.m. so that he could review the documents that would be used at the interview. 28. On August 21, 2015, the IIROC Investigator sent an message to Austin at his address jeremyaustin@live.com, which was provided to IIROC by AG, inviting

8 - 8 - Austin to arrive earlier at IIROC s office since the documents to be referred to at the interview were voluminous. 29. Austin responded by on August 24, 2015 and advised IIROC that 2 hours would not be sufficient time for him to familiarize himself with the documents. Austin requested a copy of the documents and also advised that he did not feel as though a meeting on the 26 th is possible 30. In an effort to accommodate Austin s concerns, the IIROC Investigator offered by on August 24, 2015 to allow Austin to review the documents for the entire day on August 26 and reschedule his interview for September 2, Austin did not respond to this communication. 31. Austin failed to attend at IIROC s offices on August 26, 2015 to review documents or to provide a statement. Attempted Service of Second Compel Letter 32. By letter August 27, 2015, IIROC again compelled Austin to attend IIROC s offices on September 9, 2015 in order to provide a statement in aid of the investigation (the Second Compel Letter ). The Second Compel Letter was sent to Austin at Quinton Road by regular mail and registered mail and was also sent by on August 27 and 31, When Austin did not collect the Second Compel Letter sent by registered mail or respond to it, IIROC engaged a process server who attempted to personally serve the Second Compel Letter on Austin on August 28, 29, and 31, 2015 at Quinton Road and at Austin s workplace. Despite multiple attempts, personal service of the Second Compel Letter was unsuccessful. Austin Fails To Attend His Interview on September 9, Austin did not attend for his interview on September 9, 2015 and has not replied to IIROC s letter of August 27, There has been no communication between Austin and IIROC Staff since August 24, 2015.

9 - 9 - Failure to Attend Has Impeded Investigation 35. As a result of Austin s failure to attend an interview and answer IIROC s questions, IIROC has been unable to complete its investigation into Austin s conduct. 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: (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

10 Panel may, pursuant to Dealer Member Rules and 20.34, impose any one or more of the following penalties: (a) a reprimand; (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 13 th day of January 2016, ELSA RENZELLA VICE-PRESIDENT, ENFORCEMENT INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA Suite 2000, 121 King Street West Toronto, Ontario M5H 3T9