(1) Misappropriated funds in the amount of $150,000 from the account of the N.B.O.

Transcription

1 IN THE MATTER OF A DISCIPLINE HEARING PURSUANT TO BY-LAW 20 OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA Re: JAMES DONALD BRUCE 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 January 10, 2003, at 155 University Avenue at the offices of Atchison & Denman Court Reporters Services, 3 rd floor, Toronto, Ontario, at 9:30 AM., or as soon thereafter as the hearing can be scheduled, regarding a disciplinary action brought by the Association concerning James Donald Bruce ("the Respondent"). NOTICE is further given that the staff of the Association allege the following violations of the Bylaws, Regulations or Policies of the Association: During the period from September 1995 to January 1997, inclusive, the Respondent engaged in conduct unbecoming a registered representative contrary to By-law 29.1 in that he: (1) Misappropriated funds in the amount of $150,000 from the account of the N.B.O. (2) Misappropriated funds in the amount of $10,000 from the account of M.S. and E.S.. (3) Misappropriated funds in the amount of $1,700 from the estate account of N.U. (4) Misappropriated funds in the amount of $10,625 from the account of N.U. & Associates Ltd. (5) Misappropriated funds in the amount of $55,800 from the account of C.C. (6) Misappropriated funds in the amount of $47, from the accounts of M.L. (7) Changed the mailing address for the account of M.L. from the client s actual address to another address, which was not that of the client, without the knowledge or consent of the client. (8) Forged the signatures of four clients in order to facilitate the misappropriation of twentynine (29) cheques. PARTICULARS NOTICE is further given that the following is a summary of the facts alleged and intended to be relied upon and the conclusions drawn by the Association at the said hearing:

2 - 2 - General Overview 1. At all material times, the Respondent was a Registered Representative at the North Bay office of Nesbitt Burns Inc. (now BMO Nesbitt Burns and hereinafter referred to as Nesbitt ), a Member firm of the Association. The Respondent has been registered and employed in the securities industry as follows: August 1995-January 1997 Nesbitt RR June 1993-July 1995 Midland Walwyn Capital Officer, Branch Manager RR November 1986-April 1993 Richardson Greenshields Officer, RR 2. On January 27, 1997, the Respondent was dismissed for cause by Nesbitt. According to the Uniform Termination Notice ( UTN ), the reasons for his dismissal were as follows: (1) client complaints of discretionary trading; (2) changes of client s addresses without authority; and (3) apparent irregularities relating to cheques issued to clients. 3. Following the Respondent s termination, Nesbitt retained the firm Price Waterhouse Coopers, Chartered Accountants, to conduct a forensic examination of the client accounts for which the Respondent was responsible. The forensic examination revealed numerous irregularities including forgery and misappropriation of funds from various client accounts. 4. As a result of the findings made by Price Waterhouse Coopers, the matter was referred to the North Bay police. In January 1999, the Respondent was charged with over fifty criminal offences of theft and uttering forged documents. The Respondent pleaded guilty to 14 counts of theft under $5,000, 1 count of theft over $5,000 and 1 count of uttering a forged document. At the same time, he also pleaded guilty to 32 counts of fraud type offences that were unrelated to his activities at Nesbitt. The Respondent was globally sentenced to jail for a period of two (2) years less a day followed by a period of probation of twelve (12) months. Account of the N.B.O. 5. On January 15, 1997, a cheque in the amount of $150,000 was provided to the Respondent for deposit in the account of the N.B.O. The Respondent then misdirected this cheque by depositing it into the corporate account of CFAN Holdings Inc. at Nesbitt. CFAN Holdings Inc. is unrelated to the N.B.O. 6. Two employees of Nesbitt confronted the Respondent about the deposit error on two separate occasions. On both occasions, the Respondent promised to correct the problem. However, the Respondent never made the necessary corrections.

3 After a review by one of Nesbitt s employees, it was discovered that the $150,000 deposit was used to pay for the purchase of trust units and stocks for the CFAN account. 8. The matter was brought to the attention of the manager at the Nesbitt office in Sudbury, Ontario. The manager looked into the matter further and found many irregularities in several of the Respondent s other client accounts. It was this discovery that led to the Respondent s termination and subsequent forensic examination by Price Waterhouse Coopers. 9. Some of the significant irregularities discovered by the forensic examiners are detailed in the following paragraphs of this Notice of Hearing. All of the accounts referred to below were held by clients of the Respondent. Joint Account of M.S. and E.S. 10. M.S. and E.S., husband and wife, held three accounts at Nesbitt: a RRSP account for each of them and a joint margin account. 11. On November 28, 1996, two cheques, each in the amount of $5,000, were issued from their joint account and made payable to M.S. and E.S., respectively. 12. Shortly thereafter, the two cheques were misappropriated and deposited into the Respondent s personal bank account at Canada Trust in North Bay, Ontario. 13. The withdrawal of these funds caused the margin account to be placed in a negative cash position thereby resulting in interest charges. 14. In order to facilitate the misappropriation, the Respondent forged the endorsements on behalf of his clients, M.S. and E.S. 15. On January 25, 1997, subsequent to his termination, the Respondent wrote a letter to the clients explaining that he had borrowed $10,000 from their account. In an attempt to repay the monies stolen plus interest, he provided a cheque in the amount of $10,500 to the clients. No attempts were made to cash the cheque. Estate Account of N.U. 16. On April 26, 1996, a cheque was issued from this account in the amount of $1,700 made payable to the estate of N.U. The cheque was subsequently deposited on July 2, 1996 in the Respondent s personal bank account at Canada Trust in North Bay, Ontario. 17. In order to facilitate the misappropriation, the Respondent forged the client s signature on the cheque.

4 On September 18, 1996, the Respondent issued a cheque in the amount of $15,000 from this account made payable to the account-holder. Approximately three months later, the cheque was re-deposited into the account. During the interim period, the estate account was in a negative cash position thereby incurring unnecessary interest charges for the client. Corporate Account of N.U. & Associates Ltd. 19. On September 29, 1995, a cheque in the amount of $10, 625 was drawn on this account and made payable to the account-holder. This cheque was misappropriated and deposited into the account of CFAN Holdings Ltd., another client of the Respondent. Account of C.C. 20. Between January 1, 1996 and January 15, 1997, twenty-five (25) cheques were drawn on C.C. s account held at Nesbitt and made payable to her. 21. Fifteen of the twenty-five cheques totaling $55,800 were not deposited to the benefit of the client. Instead, these cheques were either deposited to one of the Respondent s personal accounts or used to pay part of the Respondent s debt obligations. 22. In order to facilitate the fifteen deposits, the Respondent forged the client s signature on the back of all but two of these fifteen cheques. 23. Of the remaining ten cheques issued from C.C. s account, seven cheques were recovered and re-deposited into her account; and three were deposited into C.C. s other account at Canada Trust. 24. Sometime in January 1997, subsequent to the Respondent s termination, the Respondent attended C.C. s personal residence. At that time, he admitted to taking the money from the account but said that he was only borrowing it and promised to pay it back. Accounts of M.L. 25. Between May 1996 and January 1997, thirteen cheques totaling $47, were issued from M.L s accounts at Nesbitt and made payable to the client and/or the M.L. s wife, J.L. 26. Twelve of these cheques were deposited into the Respondent s personal account at Canada Trust in North Bay, Ontario. The thirteenth cheque was paid directly to Canada Trust and not to the benefit of the account holder, M.L. 27. Three additional cheques totaling $33,500 were issued in January 1997 but a stop payment had been placed on them prior to the cheques being negotiated.

5 In order to facilitate the thirteen cheque deposits, the Respondent forged M.L. s signature on the back of the cheques. 29. In an attempt to conceal his activities, sometime in late May 1996, the Respondent changed the mailing address for these accounts. The Respondent first changed the address to a post office box located in Sturgeon Falls, Ontario. He then changed Nesbitt s records so that the statements were mailed his own residential address in North Bay, Ontario. When asked by M.L. about the reason he was not receiving his monthly account statements, the Respondent lied to him and stated that the problem was due to Nesbitt s office move in North Bay. 30. In a telephone conversation, the Respondent told M.L. that he was fired because he cashed a cheque from his account and admitted that it involved quite a lot of money. 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) 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; (c) (d) (e) (f) 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.

6 - 6 - 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 Respondents have 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: Elsa Renzella, Enforcement Counsel A Reply may either: (i) (ii) specifically deny (with a summary of the facts alleged and intended to be relied upon by the Respondents, and the conclusions drawn by the Respondents 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 fail 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 10 th day of December, Alex Popovic Vice-President, Enforcement Department INVESTMENT DEALERS ASSOCIATION OF CANADA 121 King St. West, Suite 1600 Toronto, ON M5H 3T9