INVESTMENT DEALERS ASSOCIATION IN THE MATTER OF: THE BY-LAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA AND DOREEN DEMPSEY SETTLEMENT AGREEMENT I. INTRODUCTION 1. The Enforcement Department Staff ( Staff ) of the Investment Dealers Association of Canada ( the Association ) has conducted an investigation ( the Investigation ) into the conduct of Doreen Dempsey ( the Respondent ). 2. The Investigation discloses matters for which the Respondent may be disciplined by a hearing panel appointed pursuant to Association By-law 20 Part 10 ( the Hearing Panel ). II. JOINT SETTLEMENT RECOMMENDATION 3. Staff and the Respondent consent and agree to the settlement of these matters by way of this settlement agreement ( the Settlement Agreement ) in accordance with By-laws 20.35 to 20.40, inclusive and Rule 15 of the Association Rules of Practice and Procedure. 4. The Settlement Agreement is subject to acceptance by the Hearing Panel. 5. The Settlement Agreement shall become effective and binding upon the Respondent and Staff as of the date of its acceptance by the Hearing Panel. 6. The Settlement Agreement will be presented to the Hearing Panel at a hearing ( the Settlement Hearing ) for approval. Following the conclusion of the Settlement Hearing, the Hearing Panel may either accept or reject the Settlement Agreement.
- 2-7. If the Hearing Panel accepts the Settlement Agreement, the Respondent waives her right under the Association By-laws and any applicable legislation to a disciplinary hearing, review or appeal. 8. If the Hearing Panel rejects the Settlement Agreement, Staff and the Respondent may enter into another settlement agreement; or Staff may proceed to a disciplinary hearing in relation to the matters disclosed in the Investigation. 9. The Settlement Agreement will become available to the public upon its acceptance by the Hearing Panel. 10. Staff and the Respondent agree that if the Hearing Panel accepts the Settlement Agreement, they, or anyone on their behalf, will not make any public statements inconsistent with the Settlement Agreement. 11. Staff and the Respondent jointly recommend that the Hearing Panel accept the Settlement Agreement. III. STATEMENT OF FACTS (i) Acknowledgment 12. Staff and the Respondent agree with the facts set out in this Section III and acknowledge that the terms of the settlement contained in this Settlement Agreement are based upon those specific facts. (ii) Factual Background The Respondent 13. The Respondent was a Registered Representative ( RR ) at the Moncton Branch of Merrill Lynch Canada Inc. ( Merrill Lynch ) from 1993 to 2001 when Merrill Lynch was purchased by CIBC World Markets Inc. ( CIBC World Markets ). The Respondent continued to work as a RR at the same Moncton Branch of CIBC World Markets from 2001 and continues to be employed in the same capacity as of the date of this Settlement Agreement. 14. The matters set out in this Settlement Agreement relate to the period from September 1, 1999 to March 30, 2000 when the Respondent was a RR at Merrill Lynch (the Relevant Period ). MAP 15. MAP was born in December 1943. Throughout the Relevant Period she lived by herself in Moncton. Throughout the Relevant Period MAP s family status was Divorced.
- 3-16. In 1996 MAP was working as a Customer Service Representative earning an annual salary of approximately $40,000 when the company she worked for went through a down-sizing process. As a result of the down-sizing, MAP lost her job. For 2 ½ years from 1996 until December 1998 she was paid 2/3 of her salary to not work. By doing so she was eligible for a buy-out when she turned 55 in December 1998. 17. She received her buy-out in the amount of $64,000 in January 1999 (the Buy-Out ). 18. Prior to receiving the Buy-Out, MAP s only other investment experience was through an account at Regal Capital Planners worth approximately $13,000 and through a RSP loan and related account at Scotia Bank worth approximately $5,000. 19. In January 1999, a friend recommended the Respondent s services to MAP and she met with the Respondent at the Moncton Branch of Merrill Lynch. 20. On January 5, 1999 the Respondent wrote MAP a letter (MAP s Opening Letter) in which the Respondent acknowledged that MAP s account objectives were: i) sufficient income to meet living expenses ii) to have approximately $5,000 available for emergencies, and iii) investment of low to medium risk. 21. In MAP s Opening Letter the Respondent further acknowledged that MAP s entire investment portfolio consisted of the Buy-Out, the $13,000 from Regal Capital and the $5,000 from Scotia Bank and totaled $76,000. 22. In MAP s Opening Letter the Respondent recommended investing the $76,000 as follows: INVESTMENT NAME AMOUNT IN $ 90 Day Guaranteed Bond for emergencies can be rolled $5,000.00 over every 90 days MacKenzie Industrial Income Fund $36,000.00 Long Term Provincial Bond $9,600.00 Medium Term Provincial Bond $10,400.00 Merrill Lynch U.S. Basic Value Fund $7,500.00 Merrill Lynch Global Growth Fund $7,500.00 The $36,000.00 invested in the Industrial Income Fund will provide you with sufficient income of $400.00 per month. The $20,000.00 invested in bonds ($9,600.00 Long Term plus $10,400.00 Medium Term) will allow the portfolio to grow through capital gains as interest rates fall. The $15,000.00 invested in the two Merrill Lynch funds will provide exposure to the stock market while maintaining adequate diversification. 23. On January 6, 1999 MAP opened an RSP account at Merrill Lynch ( MAP s RSP Account ). The New Account Application Form ( NAAF ) for MAP s RSP Account was completed by the Respondent and signed by both MAP and the Respondent. The NAAF indicated: i) MAP was born in December 1943;
- 4 - ii) MAP was divorced; iii) MAP had limited investment knowledge; iv) The investment objectives for the account were 50% Income, 50% Capital Gains and 20% Speculation; v) MAP s estimated total net worth was $126,000; vi) MAP had no other accounts with other firms; and vii) MAP s annual income from all sources was $25,434. 24. The Respondent remained the RR responsible for MAP s RSP account throughout the Relevant Period. 25. On February 19, 1999 MAP opened an RIF account at Merrill Lynch ( MAP s RIF Account ). The NAAF for MAP s RIF Account was completed by the Respondent and signed by both MAP and the Respondent. The NAAF indicated: i) MAP was born in December 1943; ii) MAP was divorced; iii) MAP had limited investment knowledge; iv) The investment objectives for the account were 50% Income, 50% Capital Gains and 20% Speculation; v) MAP s estimated total net worth was $126,000; vi) MAP had no other accounts with other firms; and vii) MAP s annual income from all sources was $25,434. 26. The Respondent remained the RR responsible for MAP s RIF account throughout the Relevant Period. 27. The Funds from the Buy-Out and from Regal Capital were transferred into MAP s RSP Account and eventually transferred into MAP s RIF Account. The Funds were invested according to the recommendations in MAP s Opening Letter. 28. At the end of November 1999 MAP investment portfolio consisted of the following holdings in MAP s RIF Account: Income Cash Prov of NFLD Bond due 07Jan2015 Prov of BC Bond due 23Feb2023 Industrial Income Fund Growth SECURITY AMOUNT % OF ACCOUNT $115.51 $7,243.74 $6,644.52 $33,532.04 70.4% 29.6% Atlas American RSP index Fund $19,972.73 TOTAL $67,508.54 100.00% 29. On December 6, 1999, in MAP s RIF Account, the Respondent recommended and processed an order for the sale of $32,201 worth of units of the Mackenzie Industrial Income Fund and recommended and processed an order to use those proceeds to purchase $31,801 worth of units in the AIM RSP Global Technology Fund, on December 8, 1999 notwithstanding that she knew, or ought to have known that the completion of the
- 5 - transactions would result in MAP s RIF Account being over weighted in growth oriented mutual funds. 30. On December 10, 1999, in MAP s RIF Account, the Respondent recommended and processed an order to sell approximately $13,485.25 worth of units of provincial government bonds and to use those proceeds to purchase $13,485 worth of units in the CI Global Technology RSP Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in MAP s RIF Account being over weighted in growth oriented mutual funds. 31. The above noted transactions resulted in the income oriented securities in MAP s RIF Account being reduced to 0% of the account holdings and the growth oriented mutual funds being increased to 100% when the Investment objectives for the account indicated 50% Income, 50% Capital Gains and 20% Speculation. PC and RC 32. PC and RC were husband and wife. PC was a church minister who was born in March 1937. RC was a homemaker who was born in April 1941. 33. In May 1995 PC and RC opened a Canadian Margin account (the C Margin Account ) at Merrill Lynch. PC and RC s investment objectives for the C Margin Account were 50% Income and 50% Capital Gains. The NAAF for the C Margin Account, which was completed by the Respondent and signed by PC, RC and the Respondent, indicated the following: (i) PC was born in March 1937; (ii) RC was born in April 1941; (iii)investment Objectives were 50% Income and 50% Capital Gains; (iv) PC and RC had net liquid assets of $120,000 and net Fixed Assets of $180,000 for a Net Worth of $300,000; and (v) Approximate annual income from all sources was $30,000. 34. The Respondent remained the RR responsible for the C Margin Account throughout the Relevant Period. 35. In February 1995, RC opened an RSP account ( RC s RSP Account ) at Merrill Lynch. The NAAF for RC s RSP Account, which was completed by the Respondent and signed by both the Respondent and RC, indicated the following: i) RC s annual income was less than $25,000; ii) RC s net worth was $200,000 - $500,000; and iii) Investment Objectives were 50% income and 50% long term growth. 36. The Respondent remained the RR responsible for RC s RSP Account throughout the Relevant Period.
- 6-37. In February, 1996 PC opened a RSP account ( PC s RSP Account ) at Merrill Lynch. The NAAF for PC s RSP Account, which was completed by the Respondent and signed by PC and the Respondent, indicated that the Investment objectives for PC s RSP Account were 100% Capital Gains and 20% Speculation. 38. The Respondent remained the RR responsible for the PC s RSP Account throughout the Relevant Period. 39. At the end of January 2000, approximately 54% of the C Margin Account was invested in income oriented securities. The complete account holdings at the end of January 2000, were as follows: SECURITY AMOUNT % OF ACCOUNT Margin Debt ($37,890.31) -18.03% INCOME $113,504.76 54.01% NFLD LB Hydro Bond 8.4% due 27 Feb2026 Industrial Income Fund $29,390.00 $84,114.76 GROWTH $48,286.80 22.98% Fidelity International Portfolio Fund Templeton Growth Fund Trimark Select Growth Fund $11,763.36 $17,160.52 $19,362.92 $86,259.68 $71,891.90 $14,367.78 AGGRESSIVE GROWTH 41.04% AIM Global Tech Fund Universal World Science & Tech Fund TOTAL $210,160.93 100.00% 40. On February 1, 2000, the Respondent in the C Margin Account recommended and processed an order switching $73,801.81 worth of units out of the Mackenzie Industrial Income Fund into the Mackenzie Universal Select Managers Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in the C Margin Account being over weighted in growth oriented mutual funds. Subsequently, on February 17, 2000 the Respondent in the C Margin Account recommended and processed an order switching an additional $10,467.45 worth of units out of the Mackenzie Industrial Income Fund into the Mackenzie Universal Select Managers Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in the C Margin Account being over weighted in growth oriented mutual funds. 41. The switches resulted in the income oriented securities in the C Margin Account being reduced to approximately 11% - 13% of the account holdings and the growth oriented securities being increased to approximately 87% when the NAAF indicated investment objectives were 50% Income and 50% Capital Gains. 42. At the end of September 1999 approximately 43% of the RC RSP Account was invested in income oriented securities. The complete account holdings at the end of September 1999 were as follows:
- 7 - SECURITY AMOUNT % OF ACCOUNT INCOME Cash Province of BC Bond due 23AUG2022 Nova Scotia Power Bond due 26AUG2024 AIM Canada Income Class GROWTH Atlas American RSP Index Fidelity European Growth Fidelity International Portfolio Fund Templeton Growth Fund $24,379.51 $0.28 $3,484.88 $2,022.22 $18,872.13 $32,825.72 $7,008.62 $4,506.80 $14,754.74 $6,555.56 42.6% 57.4% TOTAL $57,205.23 100.00% 43. On October 19, 1999, in the RC RSP Account, the Respondent recommended and processed an order switching $18,860.09 worth of units out of the AIM Canada Income Class Fund into the AIM RSP Global Theme Class Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in the RC RSP Account being over weighted in growth oriented mutual funds. The switches resulted in the income oriented securities in the RC RSP Account being reduced to approximately 9% of the account holdings and the growth oriented securities being increased to approximately 91%. 44. On February 2, 2000, in the RC RSP Account, the Respondent recommended and processed an order to sell a province of British Columbia bond maturing in the year 2022 for $3,161.19 and to use those proceeds to purchase $3,161.00 worth of units out of the AIM RSP Global Technology Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in the RC RSP Account being over weighted in growth oriented mutual funds. The transaction resulted in the income oriented securities in the RC RSP Account being reduced to approximately 5% of the account holdings and the growth oriented securities being increased to approximately 95%. 45. On March 8, 2000, in the RC RSP Account, the Respondent recommended and processed an order to sell a Nova Scotia Power bond maturing in the year 2024 for $1,965.00 and to use those proceeds and the cash balance in the account to purchase $2,852.00 worth of units out of the AIM RSP Global Technology Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in the RC RSP Account being over weighted in growth oriented mutual funds. The transaction resulted in the income oriented securities in the RC RSP Account being reduced to 0% of the account holdings and the growth oriented securities being increased to 100%. 46. Throughout the Relevant Period the PC RSP was weighted approximately 99.9% in growth oriented securities. C&S Joint Margin Account 47. In September 1997 RC and her brother BS, and their mother MS opened a Joint Canadian Margin account (the C&S Joint Margin Account ). The NAAF for the C&S Joint Margin
- 8 - Account, which was completed by the Respondent and signed by RC, BS, MS and the Respondent, indicated the following: i) MS was retired, was born in 1909 and resided in Nova Scotia; ii) BS was retired, was born in 1943 and resided in Nova Scotia; and iii) Investment Objectives were 50% Income, 50% Capital Gains, 20% Speculation. 48. The Respondent remained the RR responsible for the C&S Joint Margin Account throughout the Relevant Period. 49. At the end of January, 2000 approximately 57% of the C&S Joint Margin Account was invested in income oriented securities. The complete account holdings at the end of January, 2000 were as follows: INCOME Cash Industrial Income Fund GROWTH AIC Value Fund Universal Select Managers Fund SECURITY AMOUNT % OF ACCOUNT $70,723.88 $3.99 $70,723.88 $53,957.39 $21,250.62 $32,706.77 56.73% 43.27% TOTAL $124,685.26 100.00% 50. On February 1, 2000, in the C&S Joint Margin Account, the Respondent recommended and processed an order switching $70,754.94 worth of units out of the Mackenzie Industrial Income Fund into the Mackenzie Universal World Science and Technology Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in the C&S Joint Margin Account being over weighted in growth oriented mutual funds. The switches resulted in the income oriented securities in the C&S Joint Margin Account being reduced to virtually 0% of the account holdings except for the $3.99 held in cash and the equity oriented mutual funds being increased to 99.9%. SA 51. SA was a divorced woman who resided on her own. She was born in 1937. In 1988 she opened an account at Walwyn Stodgell Cochran Murray Limited, which Midland Walwyn was then known as. The Respondent assumed that account, ( SA s Cash Account ) in May 1994 after another RR left the firm. The NAAF was updated in November, 2001. 52. Prior to November 2001, the only NAAF for SA s Cash Account indicated: i) SA was a retired, divorced woman with limited investment knowledge; ii) SA had annual income less than $25,000; and iii) Client Objectives for the account was 90% income and 10% long term growth. 53. When the Respondent assumed SA s Cash Account, SA s objective for the account was to ensure the security of principal. SA preferred to have just the principal rather than any risky investments. 54. At the end of November, 1999 100% of SA s Cash Account valued at $118,885.49 was invested in income oriented securities.
- 9-55. On December 7, 1999, in SA s Cash Account, the Respondent recommended and processed an order switching $60,949.83 worth of units out of the Mackenzie Industrial Income Fund into the Mackenzie Universal Select Managers Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in SA s Margin Account being over weighted in growth oriented mutual funds. The switches resulted in the income oriented securities in SA s Cash Account being reduced to approximately 50% of the account holdings and the growth oriented mutual funds being increased to approximately 50% when the Investment objectives for the account indicated 90% Income and 10% Growth. 56. When the NAAF for SA s Cash Account was updated by the Respondent in November, 2001 the Investment Objectives for the Account were recorded as 65% Income and 35% Capital Gains. 57. SA was also named on a Joint Cash Account ( SA & MB s Joint Account ) with her widow mother, MB who was born in 1907. The account was opened in 1995. The money in the account came from MB. The money was held jointly with SA to reduce potential probate fees on the estate of MB. The NAAF for SA & MB s Joint Account was completed by the Respondent and signed by SA, MB and the Respondent. The Respondent remained the RR responsible for the accounts throughout the Relevant Period. The NAAF for SA & MB s Joint Account recorded the Investment Objectives for the account as 90% Income and 10% Capital Gains. 58. SA & MB s Joint Account was also over-weighted in growth oriented securities. On October 27, 1999, in SA & MB s Joint Account, the Respondent recommended and processed an order switching $45,540.31 worth of units out of the Mackenzie Industrial Income Fund into the Mackenzie Universal Select Managers Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in SA & MB s Joint Account being over weighted in growth oriented mutual funds. The switches resulted in the income oriented securities in SA & MB s Joint Account being reduced to approximately 55% of the account holdings and the growth oriented securities being increased to approximately 45% when the Investment objectives for the account indicated 90% Income and 10% Growth. 59. When the NAAF for SA & MB s Joint Account was updated by the Respondent in November, 2001 the Investment Objectives for the Account were recorded twice. First as being 100% Income and 20% Capital Gains for MB and secondly as being 65% Income and 35% Capital Gains for SA. HJ 60. HJ was born in 1921. She was a widow whose husband passed away in 1993. She had poor investment knowledge. 61. Prior to becoming a client of the Respondent, HJ and her husband invested primarily in GICs. Shortly after her husband s death a number of those GICs were coming due and a
- 10 - friend of HJ s recommended the Respondent s services. As the GICs came due the monies were invested through the Respondent. 62. In October, 1994 HJ opened a Margin account ( HJ s Margin Account ) and a RIF account ( HJ s RIF Account ) at Merrill Lynch. The NAAF ( NAAF ) for both accounts was completed by the Respondent and signed by both HJ and the Respondent. The Respondent remained the RR responsible for both accounts throughout the Relevant Period. 63. HJ s expectation for both accounts was to earn interest in the accounts without taking away from the principal amount invested. 64. The NAAF for both accounts indicated that HJ s: i) investment knowledge was Fair ; ii) annual income was $25,000 - $30,000; and iii) net worth was $200,000 - $500,000 65. The NAAF for HJ s Margin Account indicated that Investment Objectives were 75% Income and 25% Long-Term Growth 66. The NAAF for HJ s RIF Account indicated that Investment Objectives were 100% Income. 67. At the end of August, 1999 approximately 89% of HJ s Margin Account was invested in income oriented securities. The complete account holdings at the end of August, 1999 were as follows: Security Amount % of Account Cash $6,305.36 2% Industrial Income Fund $187,855.33 69% AIM Canada Income Class $49,132.01 18% AIM Global Technology $21,486.93 8% AIM Global Theme Class $7,609.14 3% Total $272,388.77 100% 68. On September 9, 1999, in HJ s Margin Account, the Respondent recommended and processed an order switching $100,000.00 worth of units out of the Mackenzie Industrial Income Fund into the Mackenzie Universal Select Managers Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in HJ s Margin Account being over weighted in growth oriented mutual funds. 69. On September 13, 1999, in HJ s Margin Account, the Respondent recommended and processed an order to use $5,000 from the $6,623.88 cash balance in the account to purchase $5,000 worth of units in the AIM Global Theme Class Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in HJ s Margin Account being over weighted in growth oriented mutual funds.
- 11-70. On September 30, 1999, in HJ s Margin Account, the Respondent recommended and processed an order to use all of the $3,527.57 cash balance in the account and to incur a $1,472.43 debit in the account to purchase $5,000 worth of units in the AIM Global Technology Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in HJ s Margin Account being over weighted in growth oriented mutual funds. 71. The above noted switches and purchases resulted in the income oriented securities in HJ s Margin Account being reduced to approximately 46% of the account holdings and the growth oriented mutual funds being increased to approximately 54% when the Investment Objectives for the account indicated 75% Income and 25% Growth. 72. On October 29, 1999, in HJ s Margin Account, the Respondent recommended and processed an order switching $47,080.91 worth of units out of the AIM Canada Income Class Fund into the AIM Global Technology Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in HJ s Margin Account being over weighted in growth oriented mutual funds. The switch resulted in the income oriented securities in HJ s Margin Account being reduced to approximately 27% of the account holdings and the growth oriented mutual funds being increased to approximately 73% when the Investment objectives for the account indicated 75% Income and 25% Growth. 73. On November 30, 1999, in HJ s Margin Account, the Respondent recommended and processed an order switching $70,808.32 worth of units out of the Mackenzie Industrial Income Class Fund into the Mackenzie Universal World Science and Technology Fund notwithstanding that she knew, or ought to have known that the completion of the transactions would result in HJ s Margin Account being over weighted in growth oriented mutual funds. The switch resulted in the income oriented securities in HJ s Margin Account being reduced to less than 1% of the account holdings and the growth oriented mutual funds being increased to more than 99% when the Investment objectives for the account indicated 75% income and 25% Growth. 74. HJ s RIF Account was also over weighted in growth oriented securities. At or around the end of October 1999 approximately 86% of HJ s RIF Account was invested in income oriented securities. The complete account holdings at the end of October 1999 were as follows. Security Amount % of Account Cash $291.49 2.3% Industrial Income Fund $10,507.67 84.0% AIM Global Tech Fund $1,709.16 13.7% Total $12,508.32 100.0% 75. On November 15, 1999, in HJ s RIF Account, the Respondent recommended and processed an order to sell $10,623.59 worth of units of the Mackenzie Industrial Income Fund and to use the proceeds to, on November 18, 1999 purchase $10,623.00 worth of units in the Mackenzie Universal Select Managers Fund notwithstanding that she knew, or
- 12 - ought to have known that the completion of the transactions would result in HJ s RIF Account being over weighted in growth oriented mutual funds. The transactions resulted in the income oriented securities in HJ s RIF Account being reduced to approximately 2% of the account holdings and consisting only of the $293.09 cash balance and the growth oriented mutual funds being increased to approximately 98% when the investment objectives for the account indicated 100% Income. Losses in Client Accounts 76. The investment objective and performance of the AIM RSP Global Theme Fund is linked to the corresponding underlying fund, the AIM Global Theme Class Fund. The AIM Global Theme Class Fund seeks to generate long-term capital growth by investing mainly in equities of companies throughout the world in any or all of the following sectors: consumer products, financial services, health sciences, infrastructure, natural resources, technology and telecommunications. It is fully invested (95% 100%) in equities at all times. From its inception on October 5, 1999 to August 31, 2004 its rate of return was - 4.44%. The 5 year rate of return for the AIM Global Theme Class from August 31, 1999 to August 31, 2004 was -4.16%. 77. The investment objective and performance of the AIM RSP Global Technology Fund is linked to the corresponding underlying fund, the AIM Global Technology Fund. The AIM Global Technology Fund seeks to generate long-term capital growth by investing mainly in equities of companies throughout the world that develop, produce or distribute innovative technology, such as media communications, telecommunications, biotechnology, computer hardware and software, information technology services, data storage and semiconductors. The Fund may also invest in companies that may benefit from developments in the technology industry. It is fully invested (95% 100%) in equities at all times. From its inception in November, 1999 to August 31, 2004 its rate of return was -25.94%. The 5 year rate of return for the AIM Global Technology Fund from August 31, 1999 to August 31, 2004 was -18.35%. 78. The investment objective and performance of the CI Global Technology RSP Fund is linked to the corresponding underlying fund CI Global Technology Fund. That fund's objective is to obtain maximum long-term capital growth. It invests primarily in equity and equity-related securities of companies around the world that have developed or are developing technological products, processes or services. It is fully invested (95% 100%) in equities at all times. The rate of return for the CI Global Technology RSP Fund in the calendar year 2000 was -38%. In 2001 its rate of return was -37.3%. In 2002 its rate of return was -37.1%. In 2003 its rate of return was 26.2%. Its 5 year rate of return from August 31, 1999 to August 31, 2004 was -7.7%. 79. The Mackenzie Universal Select Managers Fund combines the ideas of six investment teams, who each select approximately 10 securities to comprise a globally diversified portfolio of about 60 securities. In the calendar year 2000 its rate of return was -24.4%. In 2001 its rate of return was -11.7%. In 2002 its rate of return was -24.6%. In 2003 its rate
- 13 - of return was 16%. Its 5 year rate of return from August 31, 1999 to August 31, 2004 was -6.3%. 80. The Mackenzie Universal Science and Technology Fund invested in companies from around the world that operate in the rapidly growing fields of science or technology. The fund was for long-term investors who wished to participate in those rapidly growing fields. In the calendar year 2000 its rate of return was -18.9%. In 2001 its rate of return was - 18.9%. In 2002 it became known as the Mackenzie Universal Science and Technology Capital Class. 81. As a result of the foregoing transactions, the value of all of the clients accounts, except SA&MB s Joint Account, declined in value. 82. From January 1, 2000 to June 30, 2002 MAP s RIF Account had a rate of return of -70% and the value of the account declined by $38,589.53. 83. From January 1, 2000 to August 31, 2001 the C Margin Account had a rate of return of - 48% and the value of the account declined by $97,627.93 and RC s RSP Account had a rate of return of -29% and the value of the account declined by $20,040.39. 84. From January 1, 2000 to June 30, 2001 the C&S Joint Margin Account had a rate of return of -31% and the value of the account declined by $39,060.42. 85. From January 1, 2000 to December 31, 2001 SA s Cash Account had a rate of return of - 7% and the value of the account declined by $10,592.69. SA&MB s Joint Account had a rate of return of 4.3% and the value of the account increased by $6,693.50. 86. From January 1, 2000 to May 31, 2001 HJ s Margin Account had a rate of return of -28% and the value of the account declined by $44,114.80 and HJ s RIF Account had a rate of return of -27% and the value of the account declined by $3,643.09. Mitigating Factor 87. Association Staff accepts that the Respondent did not earn commissions on the mutual fund switches set out in this Settlement Agreement and therefore was not motivated by personal financial gain when making those recommendations. Association Staff have therefore concluded that a suspension, which would otherwise have been required, is not required in this case. IV. CONTRAVENTIONS 88. The Respondent admits that from October 1999 to April 2000, while employed as a RR at the Moncton Branch of Merrill Lynch, she recommended and processed transactions in the accounts of clients, MAP, RC, PC, RC-BS&MS, SA, SA&MB and HJ, without first using due diligence to ensure that the recommendations or transactions was suitable for those
- 14 - clients based on their financial situation, investment knowledge, investment objectives and risk tolerance contrary to Association Regulations 1300.1. (p) and (q) [then 1300.1. (c) and (d)]. VI. TERMS OF SETTLEMENT 89. The Respondent agrees to the following terms of settlement: Penalties i) The Respondent shall pay a global fine of $35,000 (thirty-five thousand dollars); ii) the Respondent s continued approval in any registered capacity shall be subject to the condition that she successfully complete a 1 year period of close supervision by her Member firm running from May 1, 2005 - May 1, 2006; iii) the Respondent s continued approval in any registered capacity shall be subject to the condition that she re-write and pass the examination based on the Conduct & Practices Handbook Course within 6 months from the date of this Settlement Agreement; and iv) the Respondent s continued approval in any registered capacity shall be subject to the condition that the fine and costs set out in herein are paid in full. Costs v) The Respondent shall pay $5,000 (five thousand dollars) towards the costs incurred by the Association investigating this matter and conducting this hearing. 90. Unless otherwise stated, any monetary penalties and costs imposed upon the Respondent are payable immediately upon the effective date of the Settlement Agreement. 91. Unless otherwise stated, any suspensions, bars, expulsions, restrictions or other terms of the Settlement Agreement shall commence on the effective date of the Settlement Agreement. AGREED TO by the Respondent at the city of Moncton in the Province of New Brunswick, this 14 day of April, 2005. Bob Cormier Witness Doreen Dempsey Doreen Dempsey
- 15 - AGREED TO by Staff at the City of Vancouver in the Province of British Columbia, this 18 th day of April, 2005. Amy Hothi Witness Paul Smith Paul Smith Enforcement Counsel on behalf of Staff of the Investment Dealers Association of Canada ACCEPTED this 30 th day of April May 2005, by the following Hearing Panel: Per: Len Hoyt Len Hoyt, Panel Chair Per: Edward Cleather Edward Cleather, Panel Member Per: Roland Coffill Roland Coffill, Panel Member