NOTICE OF HEARING INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA IN THE MATTER OF: THE BY-LAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA

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1 INVESTMENT INDUSTRY REGULATORY ORGANIZATION 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 SANDY JOSEPH BORTOLIN 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 Canada ( IIROC ), a set date hearing will be held before an IIROC hearing panel (the Hearing Panel ) on Wednesday, November 23, 2011, at Legal Transcript Services, 350 Bay Street, Suite 700, Toronto, Ontario, M5H 2S6, at 10:00 a.m., or as soon thereafter as this matter can be heard. TAKE FURTHER NOTICE that, pursuant to Rule 6.2 of the IIROC Dealer Member Rules of Practice and Procedure ( Rules of Practice and Procedure ), the hearing shall be designated on the: Standard Track Complex Track TAKE FURTHER NOTICE that on June 1, 2008, IIROC consolidated the regulatory and enforcement functions of the Investment Dealers Association of Canada ( 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 IDA to carry out its regulatory functions with respect to the conduct of IDA Members and registrants occurring before June 1, 2008.

2 -2- THE PURPOSE OF THE HEARING is to determine whether Sandy Joseph Bortolin ( Bortolin or the Respondent ) has committed the following contraventions alleged by staff of IIROC ( Staff ): From as early as 2003 and continuing until 2008, the Respondent, contrary to IDA Bylaw 29.1 and IIROC Dealer Member Rule 29.1: (d) carried on outside business activities without the knowledge or approval of his Member Firm; engaged in personal financial dealings with his clients without the knowledge or approval of his Member Firm; facilitated suspicious transactions; and misled Staff in their investigation of his activities, hampering the investigation. PARTICULARS TAKE FURTHER NOTICE that the following is a summary of the facts alleged and to be relied upon by Staff at the hearing: A. Overview 1. Over the course of more than ten years, Bortolin abused his privileged position as a registered representative in the securities industry by carrying on undisclosed and unapproved activities off-shore, on his own behalf and on behalf of his clients. In doing so, Bortolin facilitated secret insider trading by at least one of his clients and may have facilitated money laundering for a few of his clients. 2. As a registered representative and market participant, Bortolin has the privilege of access to the capital markets. Bortolin has the commensurate obligation to act as a gatekeeper to those markets. Being a gatekeeper requires, at minimum, that participants maintain and promote the purposes of securities regulation, being to protect investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in the capital markets. 3. Bortolin failed in his gatekeeper obligation when he failed to prevent his clients from accessing the capital markets for the purpose of suspicious and illegal activity. Contrary to his obligations as a gatekeeper, Bortolin actively facilitated his clients access to the markets and facilitated their suspicious and illegal activities.

3 -3- B. Registration History 4. Bortolin was first registered with the IDA in 1983 and became a registrant of IIROC on June 1, Bortolin worked at various firms, including BMO Nesbitt Burns Inc. ( Nesbitt ), over the period from June 1992 to January Bortolin left Nesbitt to work for Lombard Odier Darier Hentsch Securities (Canada) Inc., an IDA Member Firm, from January 2000 to March Bortolin went back to Nesbitt from March 2002 until January 2009 when he was terminated for cause. Bortolin joined Canaccord Capital Corporation on January 22, 2009, where he worked until early September C. Bahamian Accounts 6. Separately from his work as a registered representative through his dealer, Bortolin carried on securities trading activities in the Bahamas for over ten years for himself and his clients. 7. As early as 1997, Bortolin opened a series of securities trading accounts in his own name and in the name of a personal holding company in the Bahamas at Lombardier Odier Darier Hentsch Private Bank & Trust Ltd. ( Darier Hentsch Bahamas ) and, subsequently, at Bank Clariden Leu (later Bank Leu) ( Bank Leu ). 8. As early as 1995, Bortolin also referred a number of individuals, including his wife and other individuals who were his clients at Nesbitt, to Darier Hentsch Bahamas and Bank Leu for the purpose of opening securities trading accounts. Bortolin Personal Accounts and Wife s Accounts 9. Bortolin referred his wife, RB, to Darier Hentsch Bahamas as early as 1995, when she opened an account there (the RB DHB Account ). Bortolin had a power of attorney for the RB DHB Account, pursuant to which he provided trading instructions and instructions on closing the account and transferring the funds. The account was closed in July In 1997, Bortolin jointly opened an account at Darier Hentsch Bahamas (the Bortolin DHB Account ) with PM, another individual. Bortolin opened the Bortolin DHB Account with PM in the name of Trinity Capital Investments Ltd. ( Trinity ). Trinity was incorporated in the Commonwealth of the Bahamas pursuant to the Bahamas International Business Companies Act The Bortolin DHB Account was closed in December The money in the account was divided equally between PM and Bortolin, and Bortolin s portion of the funds was transferred to the RB DHB Account. 12. In October 2001, Bortolin opened an account jointly with his wife, RB, at Bank Leu. That account was held under the code name SKI. In October 2008, pursuant to

4 -4- instructions from Bortolin, Bank Leu closed the SKI account and transferred the assets into another account at Bank Leu held under the code name CURLEY. 13. The CURLEY account was held in the name of the Lawrence Group, an entity controlled by Bortolin. Grmovsek Accounts 14. Bortolin referred Stanko Joseph Grmovsek ( Grmovsek ) to Darier Hentsch Bahamas in July 2000 to open an account in the name of Penn State Capital Corporation ( Penn State ). Penn State, owned beneficially by Grmovsek, was incorporated in the Commonwealth of the Bahamas in December 1999 pursuant to the Bahamas International Business Companies Act In June 2001, Grmovsek instructed Darier Hentsch Bahamas to transfer the assets from the Penn State account into a personal account in his name. That account, in Grmovsek s name, was opened at Darier Hentsch Bahamas in September Grmovsek granted Bortolin a management mandate over his account at Darier Hentsch Bahamas, pursuant to which Bortolin was authorized to manage the account, including making transactions in the account at Bortolin s discretion. 17. Grmovsek s personal account at Darier Hentsch Bahamas was closed in April 2004, pursuant to his instructions to close it and transfer the assets to an account at Bank Leu, care of Peter Wirth. Grmovsek s instructions were sent to Darier Hentsch Bahamas by Bortolin s assistant at Nesbitt, in a Nesbitt envelope. 18. Bortolin introduced Peter Wirth, a representative of Bank Leu, to Grmovsek at Bortolin s Nesbitt offices in Toronto on October 21, Grmovsek subsequently opened an account at Bank Leu for Penn State, under the code name PENNSTATE. 19. Bortolin had a power of attorney over the PENNSTATE account. He frequently provided trading instructions to Bank Leu for that account, either by facsimile communication or by telephone from his office at Nesbitt in Toronto, or by cell phone, generally routed through his office at Nesbitt. 20. Grmovsek also opened a securities trading account at Nesbitt in April, 2006, with Bortolin as investment advisor. Grmovsek opened this account, six years after Bortolin referred him to Darier Hentsch Bahamas, for the purpose of justifying his meetings with Bortolin at Nesbitt s offices. 21. Over the period that he was carrying on business with Bortolin in the Bahamas and Canada, Grmovsek was engaged in extensive insider trading on behalf of himself and another person. Grmovsek has been subject to criminal and securities regulatory penalties in connection with that activity, including imprisonment. 22. On October 27, 2009, Grmovsek pleaded guilty in the Ontario Court of Justice to two charges arising from his buying or selling securities using material non-public

5 -5- information, contrary to sections 381 and 382.1(1) of the Criminal Code, R.S.C. 1985, c. C-46 (the Code ), and to one charge arising from his transfer of proceeds obtained from the commission of an offence with intent to conceal those proceeds, contrary to section (1) of the Code. Grmovsek was sentenced to 39 months imprisonment for each charge, to be served concurrently. 23. On October 26, 2009, the Ontario Securities Commission approved a settlement agreement in which Grmovsek admitted to engaging in an illegal insider trading scheme over the period from 1994 to Grmovsek has also been charged by the US Securities and Exchange Commission with allegations of insider trading in breach of US securities law. RC and NC Accounts 24. Bortolin s clients included RC and her husband, NC, both of whom opened various accounts with Bortolin at Nesbitt starting in Bortolin referred RC and NC to Bank Leu in 2004, and they opened an investment account there in February That account was opened initially under the code name VALLEY but subsequently held under the code name SOLE. Bortolin was authorized to provide trading instructions on that account by way of a limited power of attorney. Other Client Accounts 26. Bortolin referred other clients to Bank Leu from time to time but has not disclosed the identities of those clients. D. Fees From Bahamian Activities 27. Bortolin received various ongoing payments from Grmovsek for the referral to Bank Leu. Those payments were generally made by way of transfer from Grmovsek s PENNSTATE account to Bortolin s SKI account. Those payments include a total of at least $77,795, as follows: US$10,000 on April 20, 2004; US$12,000 on January 19, 2005; US$13,795 on January 27, 2005; and (d) quarterly payments in the amount of $3,000 starting in Bortolin also received referral fees from Bank Leu, which were paid by deposit into the CURLEY account. E. Bahamian Account Transfers 29. In addition to the fees described above, Bortolin caused various transfers among the Bahamian accounts from time to time. Bortolin has not provided any explanation for those transfers.

6 -6- Transfers from Bortolin to Clients RC and NC 30. Funds were transferred from one of Bortolin s Bahamian accounts, or an account he controlled, into Bahamian accounts in the name of RC and NC. There were are least five such transfers between 2003 and 2007: (d) on November 20, 2003, $14,500 was transferred from the RB DHB Account to an account held at Darier Hentsch Bahamas by RC and NC; on April 28, 2005, $39,500 was transferred from the SKI account to the VALLEY/SOLE account; on September 1, 2005, $40, was transferred from the SKI account to the VALLEY/SOLE account; and on May 8, 2007, $49,000 was transferred from from the SKI account to the VALLEY/SOLE account. 31. Bortolin has not provided any explanation for these transfers. Transfers from Grmovsek to RC/NC and Cash Deliveries 32. On at least thirteen occasions between November 15, 2004, and February 27, 2008, Bortolin caused a transfer of funds from one of Grmovsek s accounts in the Bahamas into one of the accounts held by RC and/or NC in the Bahamas. Those transfers were typically in the amount of $49,000 and the thirteen transfers together were in the amount of $599, Grmovsek did not know RC or NC, and did not learn their identities at any point through the course of the transfers from his account to theirs. The only common point between Grmovsek, RC and NC was Bortolin. 34. Bortolin caused the following transfers to be made from Grmovsek s PENNSTATE account to accounts in the name of RC and/or NC, initially at Darier Hentsch Bahamas and then at Bank Leu: $30,000 on November 15, 2004 (into an account at Darier Hentsch Bahamas in the names of RC and NC); $30,000 on January 19, 2005; $49,000 on June 1, 2005 (into the VALLEY/SOLE account at Bank Leu); (d) $49,000 on October 27, 2005; (e) $49,000 on December 22, 2005; (f) $49,000 on February 24, 2006;

7 -7- (g) $49,000 on May 3, 2006; (h) $49,000 on August 10, 2006; (i) $49,000 on December 6, 2006; (j) $49,000 on March 8, 2007; (k) $49,000 on June 26, 2007; (l) $49,000 on September 12, 2007; and (m) $49,000 on February 27, To facilitate each of these transfers, Grmovsek signed directions to Bank Leu to transfer the funds from his PENNSTATE account pursuant to instructions from Bortolin to follow. Generally, Grmovsek met with Bortolin at his Nesbitt office for the purpose of signing such directions. 36. Bortolin sent Grmovsek s directions to Bank Leu by facsimile from his Nesbitt office, followed by a separate direction to Bank Leu, signed by Bortolin, to transfer the funds from the PENNSTATE account into the VALLEY/SOLE account. Bortolin frequently followed up the facsimile instructions by telephone confirmation to Bank Leu. 37. Following each of the transfers from PENNSTATE to VALLEY/SOLE, Bortolin provided Grmovsek with an envelope of cash in the amount of $49,000 less amounts presumably held back as fees to Bortolin. 38. Although he created and sent the directions to Bank Leu from his Nesbitt office, Bortolin took some steps to conceal his dealings concerning the transfers from Grmovsek to NC and RC, and his deliveries of cash. For instance, in communications with Grmovsek, Bortolin from time to time used code words to signal that there was cash available for a transfer. On June 25, 2007, for example, Bortolin sent an to Grmovsek with the subject heading shoes but the exchange discussed scheduling a meeting and lunch the following day, with nothing about shoes. One of the thirteen transfers was effected the day following this , on June 26, There is no apparent reason for Grmovsek, NC and RC, unknown to each other, to exchange these or any amounts of money. Bortolin has not provided any explanation or reason for the transfers. 40. Bortolin knew or ought to have known that the transfers of material amounts of money between people who have no independent connection to, or knowledge of, each other are suspicious. Further, Bortolin knew through at least one exchange with Grmovsek that Grmovsek had knowledge of methods for laundering money through casinos. 41. The transfers of money between Grmovsek and NC and RC ought to have raised concerns for Bortolin, including concerns about potential money laundering.

8 -8- F. Conduct Unbecoming Unapproved and Undisclosed Outside Business Activities 42. Bortolin engaged in the following activities outside the scope of his employment for his various Dealer Members: referred clients to offshore financial institutions; accepted powers of attorney or other management roles for offshore accounts; and gave trading instructions to offshore financial institutions for client accounts. 43. Bortolin received an undisclosed amount of money as compensation for the foregoing activities, from the clients who opened the accounts and/or from the offshore institutions. 44. Nesbitt at all material times required its employees, including registered representatives, to complete a disclosure form on an annual basis pursuant to Nesbitt s internal policy FirstPrinciples: Our Code of Business Conduct and Ethics (the Annual Form ). Among other things, the Annual Form required disclosure of all outside business activities and details of any employee or related accounts held outside of Nesbitt. These requirements were known to Bortolin through Nesbitt s internal policies. 45. In his June 2007 and June 2008 Annual Forms, Bortolin failed to disclose of any of the following to Nesbitt: (d) the existence and details of his outside business activities in connection with his accounts in the Bahamas; the existence and details of his clients accounts in the Bahamas over which he had trading authority; his practice of providing trading instructions on behalf of clients for their accounts in the Bahamas; and the fees he received in connection with the Bahamian accounts. 46. Bortolin did not obtain approval for any of his outside business activities. 47. Despite failing to disclose or obtain approval for his outside business activities, Bortolin carried on meetings, communications, telephone calls and facsimile communications in furtherance of these activities through his office at Nesbitt and using Nesbitt resources and stationary, contrary to Nesbitt policies. 48. In failing to disclose his outside business activities and failing to obtain approval for those activities, Bortolin failed to observe high standards of ethics and conduct in the transaction of his business and engaged in business conduct and practices which are unbecoming and detrimental to the public interest.

9 -9- Unapproved and Undisclosed Personal Financial Dealings 49. Bortolin s payments of significant amounts of money to his clients RC and NC, through his own account or through RB s account over which Bortolin had discretion, were instances of personal financial dealings between Bortolin and those clients. 50. Bortolin did not disclose his personal financial dealings with RC and NC to Nesbitt in his Annual Form or otherwise. 51. In conducting personal financial dealings with his clients RC and NC, failing to disclose those activities and failing to obtain approval for those activities, Bortolin failed to observe high standards of ethics and conduct in the transaction of his business and engaged in business conduct and practices which are unbecoming and detrimental to the public interest. Suspicious Transactions 52. Bortolin knew or ought to have known that the transfers from Grmovsek to RC and NC were suspicious transactions. As a registered representative with access to the capital markets, Bortolin should not have been taking steps to facilitate these transfers. Instead, he had an obligation to learn more about the transfers and disclose them to Nesbitt and the appropriate authorities. He failed to do so. 53. By causing the suspicious transfers between Grmovsek and RC/NC and by failing to report those transfers to Nesbitt and the appropriate authorities, Bortolin failed to observe high standards of ethics and conduct in the transaction of his business and engaged in business conduct and practices which are unbecoming and detrimental to the public interest. (d) Misleading Staff 54. Bortolin repeatedly misled Staff in respect of their investigation of this matter and thereby hampered the investigation. 55. Misleading Staff on Compensation In an initial interview by Staff, on March 5, 2009, Bortolin denied that he received any compensation in connection with Grmovsek s Bahamian accounts, stating instead that his involvement in those accounts was strictly a client service. 56. In fact, however, Bortolin did receive compensation of more than $75,000 in connection with Grmovsek s Bahamian accounts, as described above. By letter dated March 12, 2010, from his counsel to Staff, Bortolin confirmed that he received approximately $45,000 to $50,000 in referral fees for introducing clients to Bahamian banks. 57. Misleading Staff Regarding Bahamian Accounts By letter dated January 27, 2010, Staff asked Bortolin, among other things, to identify offshore bank and brokerage accounts held by him, over which he had/has control or authority, of immediate family members

10 -10- including those held jointly, and in a corporate name where he had/has a beneficial interest or was/is involved as a director or officer. 58. By letter from his counsel dated March 12, 2010, Bortolin advised Staff that he has no off shore brokerage accounts, nor has he control or authority over any such. Bortolin further advised that [n]o immediate members of his family have off shore brokerage accounts nor do they have any interest in any corporation that does. Finally, Bortolin advised that he does have an immediate family member who did hold an off shore bank account which was closed in October or November 2008, and noted that he did have authority in relation to that bank account. 59. In his letter to Staff, Bortolin failed to disclose his interest in or control over the RB DHB Account, the Bortolin DHB Account, the SKI Account or the CURLEY Account. 60. By misleading Staff in the course of their investigation, Bortolin failed to observe high standards of ethics and conduct in the transaction of his business and engaged in business conduct and practices which are unbecoming and detrimental to the public interest. 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 Staff 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:

11 -11- proceed with the hearing as set out in the Notice of Hearing, without further notice to the Respondent; accept as proven the facts and contraventions alleged by Staff in the Notice of Hearing; and order penalties and costs against the Respondent pursuant to IIROC 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 Panel may, pursuant to IIROC Dealer Member Rules and 20.34, impose any one or more of the following penalties: Where the Respondent is/was an Approved Person: (d) (e) (f) (g) (h) (i) 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. 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 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 Member by reason of the contravention; 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; (d) (e) (f) (g) 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.

12 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 IIROC Dealer Member Rules assess and order any investigation and prosecution costs determined to be appropriate and reasonable in the circumstances. DATED at Toronto, this 2 nd day of November, JEFFREY KEHOE VICE-PRESIDENT,ENFORCEMENT INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA 121 KING STREET WEST,SUITE 1600 TORONTO,ONTARIO M5H 3T9