ON BEHALF OF. TAKE FURTHER NOTICE that pursuant to Rule 6.2 of IIROC s Rules of Practice and Procedure, that the hearing shall be designated on the:

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1 INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA ON BEHALF OF INVESTMENT DEALERS ASSOCIATION OF CANADA IN THE MATTER OF: THE BY-LAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA AND THE DEALER MEMBER RULES OF THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA AND ROCCO TONY CORNACCHIA NOTICE OF HEARING TAKE NOTICE that pursuant to Part 10 of Dealer Member Rule 20 and Section 1.9 of Schedule C.1 to Transition Rule No.1 of the Investment Industry Regulatory Organization of Canada ( IIROC ), a hearing will be held before a hearing panel of IIROC ( the Hearing Panel ) on March 8, 2011 at Reportex Agencies Ltd., 925 West Georgia St, Suite 1010 Vancouver, BC 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 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 Rocco Tony Cornacchia, (the Respondent ) has committed the following contraventions that are alleged by the Staff of IIROC ( Staff ):

2 - 2 - COUNT 1 Between June 2007 and July 2007, the Respondent, while employed as a Registered Representative ( RR ) at Northern Securities Inc. ( Northern ), a Member firm, had twelve of his clients participate in a private placement for which the issuer relied on the accredited investor exemption from the registration and prospectus requirements of the British Columbia Securities Act, when those clients did not qualify for the accredited investor exemption, contrary to Dealer Member Rule 29.1 (then Association By-law 29.1). COUNT 2 Between inclusive, the Respondent, while an RR at Northern, failed to use due diligence to remain informed of the essential facts relative to as many as twelve clients by failing to update the New Client Application Forms ( NCAF ) for these clients, contrary to Dealer Member Rule (a) (then Association Regulation (a)) and/or Dealer Member Rule 29.1 (then Association By-law 29.1). PARTICULARS TAKE FURTHER NOTICE that the following is a summary of the facts alleged and to be relied upon by the Staff at the hearing: THE RESPONDENT 1. The Respondent first became licensed in the securities industry as an RR in January 1990 when he became employed with Georgia Pacific Securities Corp. That firm was purchased by Northern in January 2003 and the Respondent became employed as an RR with Northern where he continues to be registered. 2. The Respondent does not have any disciplinary history. 3. The matters outlined herein came to the attention of Staff as a result of a referral from the British Columbia Securities Commission ( BCSC ) on March 17, The referral advised Staff that the Respondent may have had some of his clients participate in a private placement for which the clients were not qualified participants pursuant to the British Columbia Securities Act (the Act ). RUSSELL BREWERIES PRIVATE PLACEMENT 4. In July 2007 Russell Breweries Inc. ( Russell ), a TSX Venture Exchange issuer, completed a private placement to 117 residents in British Columbia (the Private Placement ). For all the distributions, Russell relied upon the Accredited Investor Exemption from the registration and prospectus requirements of the Act. 5. Section 61 of the Act provides:

3 - 3 - (1) Unless exempted under this Act or the regulations, a person must not distribute a security unless (a) a preliminary prospectus and a prospectus respecting the security have been filed with the executive director, and (b) the executive director has issued receipts for the preliminary prospectus and prospectus. 6. National Instrument Prospectus and Registration Exemptions, section 2.3 Accredited Investor provides: (1) The dealer registration requirement does not apply in respect of a trade in a security if the purchaser purchases the security as principal and is an accredited investor. (2) The prospectus requirement does not apply to a distribution of a security in the circumstances referred to in subsection (1). 7. National Instrument defines accredited investor to mean, inter alia: (j)an individual who, either alone or with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000 ( Item J ). (k)an individual whose net income before taxes exceeded $200,000 in each of the 2 most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the 2 most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year. 8. National Instrument defines financial assets to mean: (a) cash, (b) securities, or (c) contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation. 9. The Conduct and Practices Handbook ( CPH ) provides that: Registrants must ensure that their conduct is in accordance with the Securities Acts of the province or provinces in which registration is held. 10. Russell gave a presentation to Northern about the Private Placement, which the Respondent attended. The Respondent subsequently contacted select clients to inquire whether they were interested in participating in the Private Placement. The Respondent provided those clients that indicated interest with a Subscription Agreement to complete. 11. Twelve of the Respondent s clients participated in the Private Placement as follows: Client # of Units Cost WH 5,000 $3,000 DO 5,000 $3,000 ARA 5,000 $3,000 HR 10,000 $6,000 HM 5,000 $3,000

4 - 4 - TJIT 4,000 $2,400 PH 10,000 $6,000 TW 10,000 $6,000 SK 5,000 $3,000 JC 5,000 $3,000 AS 5,000 $3,000 JM 10,000 $6, During a routine review of the Private Placement, the BCSC discovered that at least three of the clients listed in paragraph 11 herein, namely WH, HM and DO were not accredited investors. The BCSC s concern was that the Respondent provided inappropriate or incorrect investment advice to his clients regarding exemptions under the Act. WH 13. The most recent NCAF on file for WH at Northern is dated July 28, WH s annual income is recorded as $95,000. He has no spouse. His estimated liquid assets are $400,000 and his fixed assets are $600,000. On the Accredited Investor Questionnaire Appendix to the Private Placement Subscription Agreement ( Appendix ) dated June 26, 2007, WH checked off Item J as being applicable to him. 14. The Respondent advised Staff that the information recorded on WH s NCAF was very accurate at the time of the Private Placement. DO 15. DO s original account was opened at Georgia Pacific. The NCAF dated September 15, 1989 recorded that DO was single, had an annual income of $60,000 and that his net worth was over $100,000. The Respondent became the RR for DO s account on June 6, Other than the change of RR, no other changes were recorded on DO s NCAF. The June 6, 2001 NCAF was the most current information recorded for DO at the time of the Private Placement. On the Appendix dated June 30, 2007, DO checked off Item J as being applicable to him. 16. An NCAF update was completed on April 28, 2008 for DO s account, subsequent to the Private Placement. That update indicates DO s annual income to be $80,000, liquid assets of $20,000 and fixed assets of $1,000, The Respondent advised Staff that at the time of the Private Placement, he asked DO what his net worth was and was advised that it was just over $1,000,000. DO advised the Respondent that his home was worth close to that. ARA 18. ARA s initial NCAF is dated February 25, ARA s annual income is noted as $50,000 + (he is the owner/manager of a retail business). His net worth is noted as over

5 - 5 - $100,000. That NCAF appears to have been updated in or around April However, the only change appears to be to the RR (this is when the Respondent took over the account) and to the investment objectives (changed to 100% venture). There were no changes to income or net worth. This was the most current information prior to the Private Placement. 19. On the Appendix dated June 28, 2007, ARA checked off Item J as being applicable to him. The Respondent advised Staff that at the time of the Private Placement, he asked ARA about his net worth. ARA advised that he was worth well over $1,000,000 but would otherwise provide no further details. HR 20. The only NCAF on file for HR is dated March 4, HR s annual income is noted as between $50,000 - $99,999 and his net worth is noted as over $100, On the Appendix dated June 27, 2007, HR checked off Item J as being applicable to him. HM 22. The only NCAF on record for HM is dated April 15, HM s annual income is recorded as $100,000 and his net worth is recorded as over $100,000. The Respondent took over the account in 2001, but there was no corresponding NCAF update. 23. On the Appendix dated June 27, 2007, HM checked off Item J as being applicable to him. TJIT 24. The NCAF for TJIT s account is dated April 28, TJIT s annual income is recorded as $50,000 and his net worth is also recorded as $50,000. There is an NCAF update dated November 9, 2001 however the only information changes were TJIT s address, the name of his employer and the RR change to the Respondent s name. 25. On the Appendix dated June 29, 2007, TJIT checked off Item J as being applicable to him. PH 26. PH s NCAF is dated September 7, His annual income is noted as $100,000 and his net worth notes $200,000 in liquid assets and $1,000,000 in fixed assets. There are no further NCAF updates. 27. On the Appendix dated June 26, 2007, PH checked off Item J as being applicable to him.

6 - 6 - TW 28. TW s NCAF is dated December 2, TW s annual income is noted as $85,000 and his net worth is $240,000 and is comprised of all liquid assets. There are no further NCAF updates. 29. On the Appendix dated June 29, 2007, TW checked off Item J as being applicable to him. 30. The Respondent advised Staff that at the time of the Private Placement, TW confirmed to him that he was an accredited investor and worth more than $1,000,000 because TW had just recently purchased a farm. The Respondent did not question TW about any details of the farm purchase. SK 31. SK s NCAF is dated November 19, His annual income is recorded as $35,000 + and his net worth is noted as over $100M. There is an NCAF update dated September 7, 2001 but the only updated information is to change the RR to the Respondent s name. There are no further NCAF updates. 32. On the Appendix dated June 28, 2007, SK checked off Item J as being applicable to him. 33. The Respondent advised Staff that at the time of the Private Placement, SK told him that he was worth over $1 million. When asked if he knew how SK earned the one million dollars, the Respondent stated that it was pretty obvious as SK owned a new and used car business and he may own another business. The client is an entrepreneur. JC 34. JC s (the Respondent s brother) NCAF is dated April 2, His annual income is noted as $35,000 and his net worth is noted as $100,000. There are no further NCAF updates. 35. On the Appendix dated June 27, 2007, JC checked off Item J as being applicable to him. 36. The Respondent advised Staff that he kept any update information in his personal notes and that those notes were no longer available as he discards them periodically. The Respondent stated that even though JC is his brother, there are certain things he was not told. He understood that JC had a home worth $700,000 or $800,000. AS 37. AS s NCAF is dated February 18, His annual income is noted as $50,000+ and his net worth is noted as over $100M. On October 19, 2001, the NCAF was updated to reflect that the Respondent was now AS s RR and that AS was no longer an insider of a public company. No other information was updated. On March 19, 2007 a Change in

7 - 7 - Investment Objectives form was signed by AS to reflect his new investment objective of 100% Aggressive Growth. 38. There is another NCAF update dated April 1, 2008 which notes AS s annual income as $40,000 and his net worth comprised of $250,000 liquid assets and $1,000,000 fixed assets. This update was subsequent to the Private Placement and was prompted by IIROC s investigation into this matter. 39. On the Appendix dated June 27, 2007, AS checked off Item J as being applicable to him. JM 40. JM s NCAF is dated July 11, It notes JM s annual income as $75,000 and his net worth as over $100M. There is an NCAF update dated February 17, 1998 to reflect that the Respondent was now JM s RR. No other information was updated. There is another update dated September 2, 2004 but there was no update of financial information. A subsequent update is dated March 26, The only information that was changed was JM s investment objectives. The spaces for information about finances and assets were left blank. 41. The final update is April 1, 2008 which noted annual income as $125,000, liquid assets of $2,100,000 and fixed assets of $600,000. This update was subsequent to the Private Placement and was prompted by IIROC s investigation into this matter. Accordingly, the most recent financial information available at the time of the Private Placement was based on his February 17, 1998 NCAF. 42. On the Appendix dated June 27, 2007, JM checked off Item J as being applicable to him. 43. The Respondent advised Staff that at the time of the Private Placement, he asked JM if he was worth more than $1,000,000 and JM told him absolutely. I ve got stocks, I ve got a home. RESPONDENT S UNDERSTANDING 44. In his statement to Staff, the Respondent, when asked what client assets were used to determine the $1,000,000 net worth requirement, stated: I m under the belief that physical assets, real estate, stocks and bonds, cash in accounts. Any other inheritances they are or were going to be getting. 45. When asked by Staff if he explained to his clients what constituted a financial asset, the Respondent stated: Yes. The understanding that if a person has real estate is a financial asset. If they have money in the bank. One of the individuals has an RRSP with me that at the time was worth between five to $600,000. So, you know, it doesn t take much to go. He s going to have a home, and he tells me that he s got accounts at other places in town..

8 - 8 - Well, I described, as you asked before, all the possible variables of financial assets that are incurred, whether it be liquid cash, whether it be fixed assets of real estate or cars or boats, or anything they could sell in which they can turn into cash. I believe that s the definition for an asset. 46. The Respondent either misunderstood or was not aware of the definition of financial asset in National Instrument As a result the Respondent s clients who participated in the Private Placement were not accredited investors and accordingly were not qualified participants pursuant to securities legislation. 47. The Respondent earned $1,768 in commissions and 336 brokers warrants with respect to the Private Placement. FAILURE TO UPDATE NCAFs 48. The CPH states the following in respect of the duty of a registrant to know his/her client: The Know Your Client (KYC) rule is paramount for the industry. All registrants, except those granted the exemption from the suitability requirement, must make a diligent and business-like effort to learn the essential financial and personal circumstances and the investment objectives of each client. Client account documentation should reflect all material information about the client s current status, and should be updated to reflect any material changes to the client s status in order to assess suitability of investment recommendations [emphasis added]. It is not always sufficient to Know Your Client the registrant must also be able to prove that he or she does Registrants must document any material changes to their clients situations. This includes changes to net worth, income, employment, investment objectives and marital status. In addition to completing a NAAF for all new clients, registrants should update existing clients NAAFs periodically. The form should be updated whenever there is a major change in a client s circumstances 49. On or about July 16, 2007, Northern issued a Compliance Department Memorandum to all its retail and support staff. This memorandum was titled New Client Application Form Update. The NCAF update form was changed to add the account open date, the client address and broker code. The memorandum also stated: Note: Please be advised this form is only to be used when the open date of the account is within the last 2 years. For accounts opened more than 2 years ago, a new updated NCAF must be completed. [emphasis added] 50. The Respondent advised that, as a result of Staff s investigation into this matter, he updates NCAFs as soon as there is a specific change and that he was in the process of

9 - 9 - updating all his NCAFs. He acknowledged that Northern requires a new NCAF if the existing NCAF is over two years old. 51. As set out in paragraphs herein, the NCAFs for the clients (except for PH) had not, at the time of the Private Placement, been updated in at least two years. This includes the financial information for those clients which information was material for the purposes of determining whether a client qualified for the accredited investor exemption. Accordingly, the Respondent failed to remain informed of the essential facts relative to those clients. 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. TAKE FURTHER NOTICE that on June 1, 2008, IIROC consolidated the regulatory and enforcement functions of the IDA and Market Regulation Services Inc. Pursuant to the Administrative and Regulatory Services Agreement between the IDA and IIROC, effective June 1, 2008, the IDA has retained IIROC to provide services for the Association to carry out its regulatory functions with respect to the conduct of IDA Members and registrants occurring before June 1, 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:

10 (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 the 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 IIROC; or any other fit remedy or penalty. Where the Respondent is/was a Member firm: (a) a reprimand;

11 (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 Member by reason of the contravention; (c) (d) (e) (f) (g) suspension of the rights and privileges of the Member (and such suspension may include a direction to the 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 Member from membership in 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 Vancouver, this 20th day of October, Warren Funt Vice President, Western Canada INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA Suite 2800, 1055 West Georgia Street Vancouver, BC V6E 3R5