INVESTMENT DEALERS ASSOCIATION OF CANADA THE BY-LAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA NOTICE OF HEARING

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1 INVESTMENT DEALERS ASSOCIATION OF CANADA IN THE MATTER OF: THE BY-LAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA AND JEAN-LOUIS TRUDEAU NOTICE OF HEARING TAKE NOTICE that pursuant to Part 10 of By-law 20 of the Investment Dealers Association of Canada ( the Association ), a hearing will be held before a hearing panel ( the Hearing Panel ) on (a date to be determined by the Hearing Panel) or (Month Date, Year), at (time), or as soon thereafter as the hearing can be heard, at (location). TAKE FURTHER NOTICE that, pursuant to Rule 6.2 of the Association Rules of Practice and Procedure, the hearing shall be designated on the: X The Standard Track The Complex Track THE PURPOSE OF THE HEARING is to determine whether Jean-Louis Trudeau ( the Respondent ) has committed the following contraventions that are alleged by the Association: 1

2 Count 1 Between February 2003 and May 2004, while a at MacDougall, MacDougall & MacTier Inc., a Member firm of the Association, the Respondent failed to use due diligence to ensure that the acceptance of orders for the accounts of clients F.D., R.H., C.M. and H.V. was within the bounds of good business practice, contrary to Association Regulation b), when he agreed to execute trades when he knew or should have known that the activities could be an indicator of behaviour that was unlawful, suspicious or contrary to the public interest, and that by conducting himself in this manner, he failed to fulfil his role to protect the public. Count 2 Between June 2001 and May 2004, while a Registered Representative in the employ of Thomson, Kernaghan & Co. Limited and MacDougall, MacDougall & MacTier Inc., both IDA member firms, the Respondent failed to use due diligence to ensure that he learned the essential facts relative to his clients F.D., R.H., C.M. and H.V., and to all of the orders or accounts that were accepted, contrary to Association Regulation a). Count 3 Between November 2002 and May 2004, while a Registered Representative in the employ of MacDougall, MacDougall & MacTier Inc., an IDA member firm, the Respondent failed to question his client F.D. or to verify his status as an insider of Melkior Resources Inc. and Big Red Diamond Corporation, given the transactions effected in the accounts of F.D. and in the accounts of his clients R.H., C.M. and H.V., who were referred to the Respondent by F.D., contrary to Association Regulations a) and b). Count 4 Between March 1993 and July 2002, the Respondent failed or neglected to report in writing to the IDA, within the prescribed 10 days, and on numerous occasions failed or neglected to report on various forms, that he had been disciplined by the Montréal Exchange, contrary to Association By-laws 18.4 and

3 PARTICULARS TAKE FURTHER NOTICE that the following is a summary of the facts alleged and to be relied upon by the Association at the hearing: 1. The Staff of the Association ( Staff ) conducted an investigation into the conduct of the Respondent. The investigation was initiated following receipt, on June 12, 2004, of a ComSet (Complaints and Settlement Database) report mentioning an internal investigation by MacDougall, MacDougall & MacTier Inc. («MacDougall»), an IDA member firm. The Respondent 2. The Respondent began his career in the securities industry in September 1979 and has held the following jobs as a registered person: A.E. Ames & Co. Limited September 1979 to July 1981 Dominion Securities Ames Limited / Dominion Securities Pitfield Limited / Dominion Securities Inc. July 1981 to February 1986 February 1986 to March 1988 Saumier, Morrisson & Davidson Partners Inc. March 1988 to January 1989 Midland Doherty Limited / Midland Capital Corporation January 1989 to May 1990 Midland Walwyn Capital Inc. June 1990 to November 1990 Alpha Capital inc. December 1990 to September 1991 Registered Representative Registered Representative 3

4 ScotiaMcLeod Inc. Montréal Branch 1002 Sherbrooke Street West October 1991 to June 1998 Thomson, Kernaghan & Co. Limited Montréal Branch 500 René-Lévesque Boulevard West June 1998 to July 2002 Research Capital Corporation MacDougall, MacDougall & MacTier Inc. Montréal Branch 500 René-Lévesque Boulevard West Head Office 1010 De la Gauchetière Street West July 2002 to September 2005 Canaccord Capital Inc. Montréal Branch 1010 Sherbrooke Street West September 2005 to date Application as Registered Representative and Registered filed with the IDA on March 14, 2002 and withdrawn June 25, The Respondent has completed the following securities industry courses: The Canadian Securities Course (1979) Examination based on Manual for Registered Representatives (1979) Canadian Options Course (1979) 4

5 Material Facts Client F.D. 4. The Respondent was the Registered Representative responsible for accounts , A and R held by F.D. at Thomson, Kernaghan & Co. Limited («Thomson»). 5. The Respondent opened account in April 1999 and accounts A and R in February 2002 for F.D. at Thomson. 6. The February 2002 New Client Application Form («NCAF») from Thomson states that F.D. is President of Société Conseil Corquen Inc. and General Manager of AntOro Resources Inc. («Antoro»). 7. The April 1999 NCAF from Thomson and that of February 2002 from Thomson indicate that the Respondent met the client personally. 8. The accounts were transferred to MacDougall after Thomson ceased its activities, around July The Respondent remained the Registered Representative responsible for the accounts of F.D. at MacDougall. 10. The Respondent opened accounts X-4 and A-7 for F.D. at MacDougall in November According to the November 2002 NCAF from MacDougall, F.D. resides in Boucherville, Québec, he is the General Manager of Antoro, hold or controls 10% or more of the voting rights in Antoro, and has insider status at Korinor Resources Inc. («Korinor»), as well as at Antoro. 12. According to the November 2002 NCAF from MacDougall, his estimated net liquid assets are between $100,000 and $249,999, his estimated net fixed assets are between $100,000 and $249,999, and his annual income (from all sources) is approximately $100, According to the November 2002 NCAF from MacDougall, F.D. s investment goals are 100% speculation and his risk tolerance is 100% high. 14. On the November 2002 NCAF from MacDougall, his investment knowledge is indicated as advanced. 15. The November 2002 NCAF from MacDougall indicates that the Respondent met the client personally and that the client is related to the Respondent. 5

6 16. F.D. was Secretary of Antoro since May 2001, Director since October 2002, and President since February He held an interim position on the Board of Directors of Melkior Resources Inc. («Melkior») since November 2002, was President from May 2003 to June 2005, and a director from April He was president, chief executive officer and a director of Corporation Big Red Diamond («Big Red») since December At all material times, Ressources Minières Pro-Or Inc. («Pro-Or»), Melkior, Big Red, and Antoro were companies listed on the Canadian Venture Exchange. 20. The principal business of these four companies was mining exploration and development. 21. The companies had as their domicile and mailing address: 400 Saint-Jacques Street, Suite 200, Montréal, Québec. 22. In a statement to the IDA made on or about December 16, 2004, the Respondent stated to the Association s investigator that he had known F.D. for about eight years and that their relationship began when certain clients of the Respondent purchased tax shelters in mining companies owned by F.D. 23. On or about January 11, 2005, the Autorité des Marchés Financiers instituted criminal proceedings against F.D. before the Court of Québec for having failed to report within 10 days the changes to his securities holdings in Big Red, Melkior and Antoro with respect to which he was an insider. Client C.M. 24. The Respondent was the Registered Representative responsible for accounts A and B held by C.M. at Thomson. 25. The Respondent opened accounts A and B for C.M. at Thomson in September The September 2001 NCAF from Thomson indicates that the Respondent did not meet the client personally and that she was referred by F.D. 27. The accounts were transferred to MacDougall when Thomson ceased its activities, around July The Respondent remained the Registered Representative responsible for C.M. s accounts at MacDougall. 6

7 29. The Respondent opened accounts A-6 and B-4 for C.M. at MacDougall in March According to the March 2003 NCAF from MacDougall, C.M. works as a technician and resides in Toronto, Ontario. 31. According to the March 2003 NCAF from MacDougall, her estimated net worth is between $50,000 and $99,999 and her estimated annual income (from all sources), is approximately $70, According to the March 2003 NCAF from MacDougall, C.M. s investment objectives are 100% speculation and her risk tolerance is 100% high. 33. On the March 2003 NCAF from MacDougall, her investment knowledge is indicated as being average. 34. The March 2003 NCAF from MacDougall indicates that the Respondent did not meet the client personally, that he has known her since September 2001 and that she was referred by F.D. Client H.V. 35. The Respondent was the Registered Representative responsible for account A held by H.V. at Thomson. 36. The Respondent opened account A for H.V. at Thomson in June The June 2001 NCAF from Thomson indicates that the Respondent met the client personally. 38. The account was transferred to MacDougall after Thomson ceased its activities, around July The Respondent remained the Registered Representative responsible for H.V. s account at MacDougall. 40. The Respondent opened accounts A-3 and B-1 for H.V. at MacDougall in March According to the March 2003 NCAF from MacDougall, H.V. works as a sales representative and resides in Saint-Bruno, Québec. 7

8 42. According to the March 2003 NCAF from MacDougall, her estimated net worth is between $100,000 and $249,999, and her estimated annual income (from all sources) is approximately $60, According to the March 2003 NCAF from MacDougall, H.V. s investment objectives are 100% speculation, and her risk tolerance is 100% high. 44. On the March 2003 NCAF from MacDougall, her investment knowledge is indicated as being average. 45. The March 2003 NCAF from MacDougall indicates that the Respondent did not meet the client personally, that he has known her for two years, and that she was referred by F.D. Client R.H. 46. The Respondent was the Registered Representative responsible for accounts A-0 and X-4 held by R.H. at MacDougall. 47. The Respondent opened account A-0 for R.H. at MacDougall in October According to the October 2003 NCAF from MacDougall, R.H. works as a Manager, Maintenance, and resides in Hull, Québec. 49. According to the October 2003 NCAF from MacDougall, his estimated net worth is between $100,000 and $249,999, and his estimated annual income (from all sources) is approximately $75, According to the October 2003 NCAF from MacDougall, R.H. s investment objectives are 30% overnight trades and 70% speculation and his risk tolerance is 100% high. 51. On the October 2003 NCAF from MacDougall, his investment knowledge is indicated as being average. 52. The October 2003 NCAF from MacDougall indicates that the Respondent did not meet the client personally and that he was referred by F.D. 53. R.H. s wife, S.D., is F.D. s sister. 8

9 Transactions on client accounts 54. When the accounts were opened, both at Thomson and at MacDougall, the Respondent did not meet clients C.M., H.V. and R.H. in person, and the NCAF were not filled out in the clients presence. 55. At all material times, the Pro-Or, Melkior, Big Red or Antoro securities were traded in the accounts of the Respondent s clients F.D., C.M., H.V. and R.H. 56. The securities were acquired by the clients either through purchases on the secondary market, through private placements or, in the case of R.H., through the exchange of mining properties for shares. 57. Most of the share certificates were delivered by messenger to MacDougall and deposited in the clients accounts. 58. Since clients C.M., H.V. and R.H. were referred to the Respondent by F.D., the Respondent confirmed the source of the securities in the clients accounts with F.D. 59. Between October 2001 and January 2003, seven purchase transactions, for a total value of $42,473.88, and four sales transactions, for a total value of $47,078.96, were executed in C.M. s accounts A and A Thereafter, namely between February 2003 and May 2004, trading activities changed significantly. 61. Twenty-eight (28) share deposits were made to C.M. s account A One hundred and five (105) sale transactions, for a total value of $1,558,455.35, out of a total of one hundred and seven (107) trades were executed in C.M. s account A Fifty (50) cheques were issued in C.M. s name by MacDougall, for a total amount of $1,542,207.62, at her request. 64. Between June 2001 and January 2003, four purchase transactions, for a total value of $22,224.25, and three sale transactions, for a total value of $69, were effected in H.V. s accounts A and A Thereafter, namely between February 2003 and May 2004, trading activities changed significantly. 66. Twenty-two (22) share deposits were made to H.V. s account A Sixty-three (63) sale transactions, for a total value of $955,385.27, out of 68 trades were effected in H.V. s account A-3. 9

10 68. Forty (40) cheques were made out to H.V. by MacDougall, for a total of $944,572.60, at her request. 69. Between October 2003 and May 2004, twenty (20) share deposits were made in R.H. s account A Sixty-one (61) sale transactions, for a total value of $711,686.86, out of a total sixtyone (61) trades were effected in R.H. s account A Twenty-three (23) cheques were issued in R.H. s name by MacDougall, for a total amount of $721,201.56, at his request. 72. Between June 2001 and October 14, 2003, twelve (12) purchase transactions, for a total value of $81,813.34, and fourteen (14) sale transactions, for a total value of $107,149.87, were effected in F.D. s accounts A and A The purchase, on August 27, 2002, and the sale, on August 28, 2002, of 10,100 units of Calpine Power Income Fund, at the same prices, and having as their settlement date August 29, 2002, were not included in the analysis, given that this series of trades is equivalent to a cancellation. 74. Thereafter, namely between October 15, 2003 and May 2004, trading activities changed significantly. 75. Eight (8) share deposits were made to F.D. s account A Twenty-one (21) sale transactions, for a total value of $270,953.19, out of twentythree (23) trades were effected in F.D. s account A Eighteen (18) cheques or electronic fund transfers, for a total amount of $296,896.08, were issued or executed in F.D. s name by MacDougall, at his request. 78. The total value of the cheques issued and electronic fund transfers executed on behalf of the four clients was $3,504, According to the Respondent, the instructions to sell came from the clients. 80. On or about June 18, 2004, MacDougall asked the Respondent to cease all transactions with these four clients, given the type of trading activities, and with any other client engaging in this type of activity. 81. The total gross commission earned for the trades effected in the accounts of the four clients come to $94,730.38: 10

11 Clients Periods Gross Commission C.M. February 2003 to May 2004 $42, H.V. February 2003 to May 2004 $25, R.H. October 2003 to May 2004 $19, F.D. October 15, 2003 to May 2004 $ 7, The commission share received by the Respondent for the trades effected in the accounts of the four clients comes to $41,581.89: Clients Periods Commission received by the Respondent C.M. February 2003 to May 2004 $18, H.V. February 2003 to May 2004 $12, R.H. October 2003 to May 2004 $ 7, F.D. October 15, 2003 to May 2004 $ 2, On or about January 26, 2005, H.V. stated to the Association Investigator that certain cheques made out in his name were exchanged with M.C. for cash. 84. On or about January 28, 2005, R.H. stated to the Association Investigator that certain cheques made out in his name were exchanged with M.C. for cash. 85. M.C., who is an insurance agent, has his office at 6874 Jarry Street East, Saint- Léonard, Québec. 86. A person by the name of M.C. has been a shareholder of Big Red before and, on May 5, 2004, someone named M.C. was part of the Antoro placement. 87. Most of the cheques issued in the name of C.M., H.V., R.H. and F.D. were picked up by messenger from the reception desk at MacDougall. 88. Most of the cheques issued in the name of C.M., H.V. and R.H. were deposited to the same bank account no at the Royal Bank. 89. A cheque dated December 12, 2003 and made out to F.D. was deposited to account no at the Royal Bank. 90. The branch of the Royal Bank where the cheques were deposited is located at 7155 Jean-Talon Street East, Anjou, Québec, just a few blocks from the office of M.C. 91. Three cheques dated respectively November 15, 2002, August 18, 2003 and October 27, 2003 and made out to C.M. were deposited to another Royal Bank account, no , held by Société Conseil Corquen Inc. («Corquen»). 11

12 92. This branch of the Royal Bank is located at 360 Saint-Jacques Street West, Montréal, Québec. 93. Corquen is a consulting firm located at 400 Saint-Jacques Street West, Suite 200, Montréal, Québec, which is the same address as Pro-Or, Melkior, Big Red and Antoro, and next door to the Royal Bank branch. 94. On November 23, 2004, F.D. was a director of Corquen, and his wife C.W. was a director, as well as president and majority shareholder of Corquen. 95. On November 21, 2005, F.D. was a director, shareholder, as well as the president and secretary-treasurer of Corquen. 96. On November 21, 2005, S.D., who is R.H. s wife and de F.D. s sister, was a shareholder of Corquen. 97. The activities of clients C.M., H.V., R.H. and F.D. provided grounds to suspect behaviour that was unlawful, suspicious, or contrary to the public interest. 98. The Respondent did not question the account transactions and agreed to execute them, thus failing in his role of gatekeeper of the securities industry. 99. The Respondent did not question his clients and nor did he question himself regarding, among other things: a. the source of the securities deposited in the accounts b. the fact that the trades in the accounts were almost exclusively sale transactions c. the value, frequency and number of trades in the accounts d. the value, frequency and number of cash payouts from the accounts e. the connections that existed between the clients f. the similarity of the trades between the accounts g. the reasons for using a messenger to deliver the share certificates and cheques h. the fact that a messenger was used to deliver cheques from MacDougall s Montréal office to clients residing in Toronto, Ontario and Hull, Québec, when the cheques were deposited within days to bank branches located in Montréal, Québec 12

13 100. The Respondent failed to ensure that he learned the essential facts relative to his clients and to the orders and accounts that were accepted, notably: a. When opening accounts at MacDougall and Thomson, he did not meet the clients C.M., H.V. and R.H., and the NCAF were not filled out by him in their presence. b. He relied on a third party, F.D., a person with insider status with regard to the securities deposited to the clients accounts, to confirm the source of the junior mining stocks c. He did not question his clients C.M. and H.V. about the major change in the trading activities in their accounts, which began in February 2003 d. He did not question his client F.D. about the major changes in the trading activity in his account which began on October 15, 2003 e. He did not question his clients C.M., H.V., R.H. and F.D. regarding the trading activity in their accounts, which did not reflect their financial situation as stated in the NCAF 101. Considering the trades effected in F.D. s accounts and in those of the other clients, C.M., H.V. and R.H., who were referred to the Respondent by F.D., and the fact that F.D. was an insider in other junior mining companies, such as Antoro and Korinor, the Respondent failed to verify or to question F.D. s status as an insider of Melkior and Big Red By acting in this manner, he failed to use due diligence to ensure that he learned the essential facts relative to his client F.D. and to ensure that the acceptance of orders in these accounts was within the bounds of good business practice Consequently, the information regarding F.D. s situation did not result in a change in his file to include his status as an insider of Melkior and Big Red, an essential fact regarding his personal circumstances. Failure or neglect to report an important fact 104. On or about March 19, 1993, pursuant to a settlement offer, the Respondent accepted the imposition of disciplinary measures by the Montréal Exchange, namely a fine of $2000 and payment of $500 in investigation costs. He acknowledged having opened a new client account without knowing and understanding his client s investment objectives, financial circumstances and investment knowledge At the time, the Respondent was employed as a Registered Representative and Registered with ScotiaMcLeod inc., an IDA member firm The Respondent did not advise the Association of these disciplinary measures within ten days, as he was required to do The Respondent knew or should have known that these disciplinary measures represented a change in the information mentioned on the previously filed Uniform 13

14 Application for Registration/Approval for individuals (Form 3) and that he was required to advise the Association of the change in writing within 10 days On or about March 12, 2002, the Respondent signed an Application for Transfer of Approved Person to Research Capital Corporation (Transfer Application No. 1), an IDA member firm, and this application was filed with the Association on March 14, On or about July 5, 2002, the Respondent signed an Application for Transfer of Approved Person to MacDougall (Transfer Application No. 2) and this application was filed with the Association on July 5, 2002 and on July 8, On transfer applications No. 1 and No. 2, the Respondent failed or neglected to report that there had been changes in the information mentioned in the previously filed Uniform Application for Registration/Approval for individuals (Form 3), concerning disciplinary measures When the Respondent signed transfer applications No. 1 and No. 2 in March 2002 and July 2002, he knew or should have known that he had been the object of disciplinary measures and that this was a change in the information mentioned under the question concerning disciplinary measures in the previously filed Form 3, and that it had to be reported At the request of the Association, in order to update his file, the Respondent signed a Uniform Application for Registration/Approval (Form 1-U-2000) on or about July 25, 2002, for MacDougall, which was submitted to the Association on July 29, The Respondent failed or neglected to report that he had previously been the object of disciplinary measures by the Montréal Exchange When the Respondent signed Form 1-U-2000 in July 2002, he knew or should have known that he had been the object of disciplinary measures and that this information had to be reported under the question concerning disciplinary measures. 14

15 GENERAL PROCEDURAL MATTERS TAKE FURTHER NOTICE that the hearing and related proceedings shall be subject to the Association s Rules of Practice and Procedure. TAKE FURTHER NOTICE that pursuant to Rule 13.1, the Respondent is entitled to attend and be heard, be represented by counsel or an agent, call, examine and crossexamine 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 Association a Response to the Notice of Hearing in accordance with Rule 7 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: (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 the Association in the Notice of Hearing; and (c) order penalties and costs against the Respondent pursuant to By-law 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 Association in the Notice of Hearing, the Hearing Panel may, pursuant to By-law and By-law 20.34, impose any one or more of the following penalties: Where the Respondent is/was an Approved Person: (a) a written reprimand; (b) a fine not exceeding the greater of: 15

16 (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) suspension of approval for any period of time and upon any conditions or terms; (d) terms and conditions of continued approval; (e) prohibition of approval in any capacity for any period of time; (f) termination of the rights and privileges of approval; (g) revocation of approval; (h) a permanent bar from approval with the Association; or (i) any other fit remedy or penalty. Where the Respondent is/was a Member firm: (a) a written 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 Member by reason of the contravention; (c) 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 on any conditions or terms; (d) terms and conditions of continued Membership; (e) termination of the rights and privileges of Membership; (f) expulsion of the Member from membership in the Association; (g) any other fit remedy or penalty. 16

17 TAKE FURTHER NOTICE that if the Hearing Panel concludes that the Respondent did commit any or all of the contraventions alleged by the Association in the Notice of Hearing, the Hearing Panel may pursuant to By-law assess and order any investigation and prosecution costs determined to be appropriate and reasonable in the circumstances. DATED at Montréal, on Carmen Crépin Vice-President, Québec Investment Dealers Association of Canada 1 Place Ville-Marie, Suite 2802 Montréal, Québec H3B 4R4 Tel.: (514) Fax: (514)