RE: MAURICE GUY BRAZEAU

Transcription

1 IN THE MATTER OF A DISCIPLINE HEARING PURSUANT TO BY-LAW 20 OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA RE: MAURICE GUY BRAZEAU NOTICE OF HEARING NOTICE is hereby given that a hearing will be held before the Ontario District Council ( the District Council ) of the Investment Dealers Association of Canada ( the Association ), on Wednesday, October 20, 2004, at 155 University Avenue, Suite 302, Toronto, Ontario, at 10:00 am or as soon thereafter as the hearing can be held regarding a disciplinary action brought by the Association concerning Maurice Guy Brazeau ("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: Between December 2000 and July 2001 the Respondent, while a Registered Representative with the Association at the Member firms of HSBC Securities (Canada) Inc. and BMO Nesbitt Burns Inc., engaged in conduct unbecoming or detrimental to the public interest, contrary to By-law 29.1, in that he, a) traded improperly and contrary to the best interests of LP and MP by arranging the purchase and sale of illiquid stock in their joint account for the sole purpose of attempting to generate capital losses for the financial benefit of the one of the Respondent s other clients; b) processed five unauthorized purchases in the joint account of LP and MP in an attempt to make up for the losses generated by the trading noted in paragraph a) above, and c) improperly guaranteed to LP that there would be no loss to the joint account as a result of the trades conducted in paragraphs a) and b), above. Registration History of Respondent PARTICULARS 1. The Respondent has been registered with the Association since May Between February 1998 and March 2001, the Respondent was employed at the Ottawa office of HSBC Securities (Canada) Inc. ( HSBC ) or its predecessors as Vice President, Registered Representative Options. The Respondent transferred his registration to the Ottawa office of BMO Nesbitt Burns Inc. ( BMO ) in April He was employed there

2 - 2 - as a Registered Representative Options until his termination in September He has not been registered with the Association since that time. 2. At all material times the Respondent was the registered representative of his clients LP and MP. Respondent s Termination from BMO Nesbitt Burns 3. BMO filed a Uniform Termination Notice dated September 21, 2001 regarding the Respondent s dismissal from the firm on September 6, The form indicates that the Respondent was dismissed for cause due to client complaints concerning suitability. 4. The circumstances surrounding the Respondent s dismissal from BMO formed the basis of an IDA Investigation into his conduct which commenced January 3, Joint Account of LP and MP 5. The clients held a joint margin account, ( the joint account ), # E, which was serviced by the Respondent while he was employed at HSBC. When the Respondent transferred his employment and registration to BMO, the clients moved their joint account there as well where it became account # This account was opened on March 6, 2001 and was also serviced by the Respondent. (i) Fictitious Trade 6. In December 2000 the Respondent wished to accommodate an account holder whose portfolio contained illiquid stock that he wished to sell in order to generate losses for income tax purposes. The Respondent explained the situation to LP and asked LP whether he would buy and hold some of the customer s stock for a period of 30 days after which time the transaction would be reversed. Although LP did not like the idea, the Respondent assured him that the transaction would not result in any losses to his account. In this way, the Respondent was able to convince the account holder to participate in the scheme. 7. The Respondent has admitted to Association staff that he made the above-noted proposal to LP and that he carried out the plan in the joint account. 8. On December 27 and 29, 2000, in furtherance of the plan described in paragraph 6 above, the Respondent purchased a total of 366,000 shares of Syscan International Inc. ( Syscan ) for the joint account at a cost of $147, There was no bona fide reason for this transaction. It was not meant to benefit the joint account and was conducted solely for the purpose of attempting to generate capital losses

3 - 3 - to circumvent Canadian income tax laws. By implicating LP and MP in such activity, the Respondent had placed his clients legally, as well as financially, at risk. 10. The Syscan shares were sold for $143,320 on February 7, 2001 at a loss of almost $4,000. (ii) Unauthorized Trades 11. Once the loss to the joint account was realized, the Respondent attempted to make up the amount by processing further trades. To this end, the Respondent made five unauthorized purchases in the joint account. He has admitted that these purchases were unauthorized and that they were made with the intention of earning back the losses sustained as a result of the Syscan trades. 12. The following chart lists the unauthorized trades made by the Respondent in the joint account: Sett. Date #Shares / Stock Pur. Price Firm (i) February 27, ,000 Kookaburra $ 68,756 HSBC Resources Ltd. (ii) February 28, ,000 Hilton Petroleum Ltd. $ 53,871 HSBC (iii) February 28, ,500 Kookaburra $ 9,148 HSBC Resources Ltd. (iv) April 27, ,000 Hilton Petroleum Ltd. $ 31,092 BMO (v) May 16, ,000 Dynasty Components $176,973 BMO Inc. 13. At the time of transferring their account from HSBC to BMO, LP and MP were unaware that the Respondent had processed unauthorized transactions in their account. 14. Sometime in or around March 2001, LP learned from trade confirmations or account statements that the purchases of Kookaburra Resources Ltd. ( Kookaburra ) and Hilton Petroleum Ltd. ( Hilton ) had been made in the HSBC joint account without his or MP s knowledge or consent. LP then contacted the Respondent who promised LP that they would not lose any money on these stocks 15. Subsequent to this discussion, the Respondent made two further purchases in the joint account without the clients knowledge or consent. These were the purchase of another 20,000 shares of Hilton on April 27, 2001 and the purchase of 50,000 shares of Dynasty Components Inc. ( Dynasty ) on May 16, 2001.

4 When LP learned of the unauthorized purchase of Dynasty shares, he called the Respondent. The Respondent again guaranteed that the joint account would not lose any money on the unauthorized purchases. 17. The Respondent has admitted that he guaranteed to LP that the account would not lose money on the unauthorized trades. 18. Nevertheless, LP verbally complained about the Dynasty purchase to other BMO staff. 19. As a result the Respondent contacted his branch manager about having the Dynasty purchase cancelled from the joint account. BMO management authorized the cancellation and it was completed on July 27, (iii) Losses 20. Each of the stocks which the Respondent purchased in anticipation of making a profit to pay back the loss realized on the illegitimate Syscan transactions suffered a substantial decline in value, as detailed below. Kookaburra Resources Ltd. 21. As of September 30, 2001 the 45,500 Kookaburra shares, purchased in February 2001 for a total of $77, had a market value of only $11, This was a reduction of $66,529.00, representing an 86 % decline in value. Hilton Petroleum Ltd. 22. The 40,000 Hilton shares, purchased in February and April 2001 for a total of $84,963 were sold in May 2001 for $60,315. This was a loss to the joint account of $24,648, representing a 29% decline in value. Dynasty Components Inc. 23. The 50,000 shares of Dynasty purchased for $176, were cancelled from the joint account on July 27, 2001 at no cost to the LP or MP. The trade was then reversed into the Respondent s error account on July 27, 2001 at a loss of $106,781.28, representing a 61% decline in value. 24. With respect to the Dynasty trade cancellation, Association staff was informed by BMO Compliance personnel that the Respondent would not be personally responsible for reimbursing the firm for this loss as it would be applied to the future commissions of his former team members at the firm.

5 - 5 - 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. 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: Kenneth J. Kelertas, Enforcement Counsel A Reply may either:

6 - 6 - (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 day of September ALEKSANDER POPOVIC Vice-President Enforcement Division INVESTMENT DEALERS ASSOCIATION OF CANADA 121 King St. W., Ste 1600 Toronto, ON M5H 3T9