INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA ON BEHALF OF INVESTMENT DEALERS ASSOCIATION OF CANADA IN THE MATTER OF: THE DEALER MEMBER RULES OF THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA AND DAVID HOANG 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 of Canada ( IIROC ), a hearing will be held before a hearing panel of IIROC ( the Hearing Panel ) on March 13, 2012, at Reportex Agencies, 925 West Georgia Street, Suite 1010, Vancouver, BC at 10:00 am, or as soon thereafter as the hearing can be heard. TAKE FURTHER NOTICE that pursuant to Rule 6.2 of IIROC s Rules of Practice and Procedure, that the hearing shall be designated on the: The Standard Track The Complex Track THE PURPOSE OF THE HEARING is to determine whether David Hoang ( Hoang ) committed the following contraventions alleged by IIROC Staff ( Staff ): COUNT 1 Between February 23, 2009 and August 14, 2009 (the Relevant Period ), Hoang while employed as a Registered Representative ( RR ) at First Canada Capital Partners Inc. ( FCCP ), failed to comply with British Columbia Interpretation Note 33-705 made under the Securities Act ( 33-705 ), contrary to Dealer Member Rule 29.1.
- 2 - COUNT 2 On or about June 16, 2010, Hoang did not respond truthfully or completely to questions posed to him during the course of Staff s investigation into the circumstances relating to Count 1, thereby concealing information reasonably required for Staff s investigation, contrary to Dealer Member Rule 19.6 and engaging in conduct unbecoming and detrimental to the public interest, contrary to Dealer Member Rule 29.1. COUNT 3 On or about March 30, 2011, Hoang failed to attend and give additional information in respect of an investigation being conducted by Staff, contrary to Dealer Member Rule 19.5. PARTICULARS TAKE FURTHER NOTICE that the following is a summary of the facts alleged and to be relied upon by the Staff at the hearing: OVERVIEW 1. On June 13, 2008, the British Columbia Securities Commission, through 33-705, imposed conditions of registration for all BC investment dealers that traded in securities of Over The Counter Bulletin Board ( OTCBB ) issuers through an office in BC. It required, inter alia, registrants who receive orders in BC to sell OTCBB securities ( Orders ) deposited into an account at their firm to make reasonable efforts to determine the beneficial owner of those securities and the beneficial owner s relationship with the issuer. 2. During the Relevant Period Hoang was employed as Mark Wiltshire s ( Wiltshire ) registered assistant and at all material times worked in FCCP s office in either Vancouver or Cloverdale, BC. 3. Wiltshire s business consisted of offshore institutional clients trading in OTCBB securities. Notwithstanding the requirements of 33-705, Hoang accepted Orders from Wiltshire s clients without making any effort to determine the beneficial owner of those securities. Instead, in order to circumvent the requirements of 33-705, Hoang contacted the registrants in FCCP s Calgary or Leamington office to have them write up and time stamp the trade tickets for the Orders he had accepted. 4. On June 16, 2010, Hoang attended an interview with Staff. At that interview, Hoang advised Staff that while he had sometimes received Orders from Wiltshire s clients, he did not accept or place those Orders. Rather he passed the Orders to someone in either the Calgary or Leamington office to place or would have his Calgary or Leamington colleagues contact the client directly. This
- 3 - evidence was clearly contradicted by subsequent direct evidence obtained by Staff. 5. Upon receipt of the new evidence, Hoang agreed to attend an interview on February 23, 2011 and was subsequently compelled by Staff to attend an interview on March 30, 2011. Hoang failed to attend both those interviews. THE RESPONDENT 33-705 6. Hoang became employed with FCCP as a back office administrative assistant in October 2005. He became registered as an Investment Representative at FCCP on December 13, 2005. His registration changed to RR on February 13, 2009. He remained employed with FCCP until January 1, 2011 (although he transferred to Alberta in May 2010) when the firm was sold to Global Maxfin. Hoang s registration was transferred to Global Maxfin on January 3, 2011 where he remained until he voluntarily resigned on February 23, 2011. He is not currently employed in a registered capacity in the securities industry. 7. In approximately September 2008 Hoang began to work as an assistant to Wiltshire. 8. Hoang does not have a disciplinary history. 9. Effective June 13, 2008, 33-705 imposed conditions of registration for all British Columbia investment dealers that trade in securities of OTCBB issuers through an office in British Columbia. Reasonable and reliable methods were required to be used to determine beneficial ownership and the relationship between the beneficial owner and the OTCBB issuer. 10. FCCP s Chief Compliance Officer ( CCO ) at the time issued an internal FCCP notice dated June 4, 2008 regarding 33-705 which outlined the requirements thereof. 11. Hoang was aware that he was unable to receive Orders in BC without first making a determination of the beneficial owner. Wiltshire s Business 12. Much of Wiltshire s business was subject to the requirements 33-705. 13. Wiltshire was the broker of record for the following six off-shore institutional accounts (collectively Off-Shore Accounts ): BSO; CB;
- 4 - BS; DGM; VPB; and BSI. 14. During the Relevant Period, there were 282 electronic receipts of OTCBB shares into the Off-Shore Accounts and there were approximately 107 Orders received. FCCP Calgary and Leamington Offices 15. FCCP established an office in Calgary, Alberta in June 2008 and in Leamington, Ontario in March 2009. Mike Ponsford ( Ponsford ) was hired in February 2009 to work as an RR in the Calgary office and Karen Dick ( Dick ) was hired to work as Wiltshire s registered assistant in the Leamington office. 16. During the Relevant Period, Hoang worked primarily in FCCP s Cloverdale, BC office except in February 2009 when he went to the Calgary office for one or two weeks to help set up computers and to deal with other administrative matters. 17. Notwithstanding the implementation of 33-705, during the Relevant Period, Hoang received Orders from the Off-Shore Accounts. However, in order to avoid the requirements of 33-705, he contacted Ponsford and Dick through BlackBerry Instant Messages ( IMs ) and gave them the information to write up and/or time stamp trade tickets for the Orders that he had received. 18. Ponsford and Dick both confirmed that Hoang would ask them to write out the trade tickets in order to make it appear that the Order had been accepted in Alberta and Ontario respectively. They had not received the Orders for which Hoang asked them to complete the tickets nor did they place Orders with the US market makers. 19. A July 17, 2009 Leamington trade ticket for an order to sell shares of OTCBB issuer Mannas Petrolium for one of the Off-Shore Accounts has the initials KD thereon. The records and the trader at Market Maker BTIG for this order indicate that the order was placed by David from FCCP. 20. Ponsford advised Staff that he disagreed with the foregoing process and in March or April 2009 advised Hoang that he no longer wanted to participate in same. 21. FCCP s CCO discovered that Dick had not actually received the Orders for which she wrote up and time stamped trade tickets on a routine audit of the Leamington office on August 4, 2009. The CCO concluded that 33-705 had been violated. 22. Upon her return to BC, the CCO met with Hoang who told her that Off-Shore Account clients were unable to contact Dick because she was away or busy so he took it upon himself to accept the Orders and have Dick write up the tickets.
- 5 - MISLEADING STAFF 23. Hoang was interviewed as a witness by Staff on June 16, 2010 (the Interview ) during which he was represented by counsel. This interview was conducted before Staff was aware of the content of the IMs referred to earlier herein. 24. In the Interview, Hoang confirmed that he attended at the CCO s residence upon her return from the Leamington office in August 2009. She explained what she discovered in the Leamington office to which he replied that she would have to speak to Wiltshire. 25. Hoang acknowledged in the Interview that while he did sometimes receive Orders, he would ask the client to contact either the Leamington or Calgary office or he would contact those offices and have either Dick or Ponsford contact the client to take the Order because he was aware that he was unable to accept Orders in BC. 26. Hoang denied accepting any Orders and contacting the US Market Makers. He stated that he did send out trade confirmations to clients in respect of the Orders because that was part of his role as an assistant. 27. Hoang stated in the Interview that he did not determine who the beneficial owner of the securities was in respect of the Orders. 28. The statements made by Hoang in the Interview are directly contradicted by the information subsequently obtained by Staff, namely IMs, the interview of Ponsford, telephone records and trade tickets. Hoang s statement that he did not contact US Market Makers was contradicted by the records from the market makers and in particular in respect of the above-mentioned July 17, 2009 transaction. 29. Hoang s conduct in the Interview was designed to mislead Staff, to hide the fact that he accepted Orders in contravention of 33-705 and that he asked his colleagues in Calgary and Leamington to write up and time stamp trade tickets in order to make it appear as though the Orders were accepted outside BC. FAILURE TO COOPERATE 30. Hoang was advised by letter dated July 28, 2011 that Staff commenced an investigation into his conduct. 31. An interview of Hoang as an investigation subject was scheduled for February 23, 2011. His counsel attended at IIROC s office to review documents in advance of that interview. These documents included copies of the IMs and trade tickets relating to the Calgary and Leamington offices.
- 6-32. After business hours on February 22, 2011, Hoang s counsel sent an e-mail to Staff which advised that Hoang was unable to attend the interview the following day and that Staff was free to contact Hoang directly as he no longer represented him. 33. Early on February 23, 2011, Staff called Hoang who stated that he was unable to attend the interview scheduled for that day. He stated further that he would have his counsel contact Staff although he had not yet retained new counsel. 34. Hoang did not attend the interview as scheduled on February 23, 2011. 35. Staff subsequently made numerous attempts to contact Hoang to no avail. A March 14, 2011 registered letter was sent to Hoang which required him to attend an interview at 9 am on March 30, 2011 and advised that failure to attend may result in the initiation of disciplinary proceedings against him. 36. Hoang did not attend the interview scheduled for March 30, 2011, nor has there been any contact from him since Staff s February 23, 2011 telephone conversation with him. 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. TAKE FURTHER NOTICE that on June 1, 2008, IIROC consolidated the regulatory and enforcement functions of the 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 Association to carry out its regulatory functions with respect to the conduct of IDA Members and registrants occurring before June 1, 2008. RESPONSE TO NOTICE OF HEARING TAKE FURTHER NOTICE that the Respondent must serve upon the Staff of IIROC 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.
- 7 - 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: (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 Staff in the Notice of Hearing; and (c) order penalties and costs against the Respondent pursuant to Dealer Member Rules 20.33, 20.34 and 20.49. 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 Staff in the Notice of Hearing, the Hearing Panel may, pursuant to Dealer Member Rules 20.33 and 20.34, impose any one or more of the following penalties: Where the Respondent is/was an Approved Person: (a) (b) 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. (c) (d) (e) (f) (g) (h) 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
- 8 - (i) any other fit remedy or penalty. Where the Respondent is/was a Member firm: (a) (b) 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; (c) (d) (e) (f) (g) 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; 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. 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 Dealer Member Rule 20.49 assess and order any investigation and prosecution costs determined to be appropriate and reasonable in the circumstances. DATED at Vancouver, this 9 th day of January, 2012. Warren Funt Warren Funt Vice President, Western Canada INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA Suite 2800, 1055 West Georgia Street Vancouver, BC V6E 3R5
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