IN THE MATTER OF A DISCIPLINARY HEARING PURSUANT TO SECTIONS 20 AND 24 OF BY-LAW NO. 1 OF THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA

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1 Notice of Hearing File No IN THE MATTER OF A DISCIPLINARY HEARING PURSUANT TO SECTIONS 20 AND 24 OF BY-LAW NO. 1 OF THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA Re: George William Popovich NOTICE OF HEARING NOTICE is hereby given that a first appearance will take place by teleconference before a hearing panel of the Central Regional Council (the Hearing Panel ) of the Mutual Fund Dealers Association of Canada (the MFDA ) in the hearing room located at 121 King Street West, Suite 1000, Toronto, Ontario on January 28, 2013 at 10:00 a.m. (Eastern), or as soon thereafter as the hearing can be held, concerning a disciplinary proceeding commenced by the MFDA against George William Popovich (the Respondent ). DATED this 30 th day of November, Jason D. Bennett Jason D. Bennett Corporate Secretary Mutual Fund Dealers Association of Canada 121 King Street West, Suite 1000 Toronto, Ontario M5H 3T9 Telephone: Facsimile: corporatesecretary@mfda.ca Page 1 of 20

2 NOTICE is further given that the MFDA alleges the following violations of the By-laws, Rules or Policies of the MFDA: Allegation #1: Between August 2004 and February 2009, the Respondent failed to use due diligence to learn the essential facts relative to clients SM, MH, WC and PC, GL, and SL and accurately record the essential facts on the clients New Account Application Forms, contrary to MFDA Rules 2.2.1(a) and Allegation #2: Between August 2004 and February 2009, the Respondent: a) recommended and facilitated the implementation of a leveraged investment strategy in the accounts of clients SM, MH, and WC and PC; and b) recommended and sold a return of capital mutual fund to clients GL and SL; without ensuring that the leveraged investment strategy and return of capital mutual fund was suitable for the clients, in keeping with the clients investment objectives and within the bounds of good business practice, contrary to MFDA Rules and Allegation #3: Between August 2004 and February 2009, the Respondent misrepresented or failed to adequately explain the risks, benefits, material assumptions and features of: a) the leveraged investment strategy that he recommended and implemented in the accounts of clients SM, MH, and WC and PC; and b) the return of capital mutual fund that he recommended and sold to clients SM, MH, WC and PC, GL, and SL; thereby failing to present the leveraged investment strategy and return of capital mutual fund to the clients in a fair and balanced manner, contrary to MFDA Rule and PARTICULARS NOTICE is further given that the following is a summary of the facts alleged and intended to be relied upon by the MFDA at the hearing: Page 2 of 20

3 Registration History 1. Between May 23, 1996 and February 26, 2009, the Respondent was registered in Ontario 1 as a mutual fund salesperson, as follows: (a) (b) (c) from June 30, 2006 to February 26, 2009, with Desjardins Financial Security Investments Inc.( Desjardins ), formerly known as Optifund Investments Inc.; from November 21, 2003 to June 30, 2006, with Performa Financial Group Limited ( Performa ), at which time Performa was acquired by Desjardins; and from May 23, 1996 to November 21, 2003, with Worldsource Financial Management Inc., formerly known as CMG-Worldsource Financial Services Inc. ( Worldsource ). 2. On February 26, 2009, the Respondent was terminated by Desjardins after it detected compliance deficiencies in connection with, among other things, the Respondent s dealings with the clients described herein. The Respondent is not currently registered in the securities industry in any capacity. 3. All of the mutual fund dealers at which the Respondent was registered during the material time described in the allegations (August 2004 to February 2009) were Members of the MFDA. 4. At the material time, the Respondent was located in Windsor, Ontario and conducted his financial services business using the approved trade name The Financial Investment Centre. Overview of the Allegations 5. Between August 2004 and February 2009, the Respondent recommended and facilitated a leveraged investment strategy in the accounts of four clients (client SM, client MH, and clients WC and PC) pursuant to which the clients borrowed monies to invest by placing mortgages on their homes and other real estate that they owned and then invested the mortgage proceeds in the Clarington Canadian Dividend Fund (the Dividend Fund ). 1 The Respondent was also registered in Alberta as a mutual fund salesperson from January 21, 2005 to February 26, All of the events described in this Notice of Hearing concern clients located in Ontario. Page 3 of 20

4 6. Between September 2006 and February 2009, the Respondent recommended and facilitated the transfer of GICs and other investments held at other financial institutions by two clients, client SL and client GL, to new accounts opened for the clients at Desjardins and then invested all (or substantially all) of the transferred-in monies in the Dividend Fund. 7. All of the aforementioned clients were vulnerable clients by virtue of their age (they were between 62 and 85), employment status (they were all retired) and their lack of investment knowledge and experience. None of the clients were in a position to sustain investment losses by virtue of their personal and financial circumstances. 8. The Dividend Fund declined in value significantly after the clients purchased it. For those clients who purchased it to implement the leveraged investment strategy, the remaining value of their investments was insufficient to fully repay their investment loans. Overview Return of capital mutual funds 9. The Dividend Fund was a return of capital mutual fund ( ROC fund ). ROC funds are structured to pay a consistent monthly distribution to investors. If the underlying investments generate a positive return for the ROC fund as a result of capital appreciation, dividends or interest income, then the monthly distribution are paid, in whole or in part, from such returns. Any shortfall between the promised monthly distribution amount and the returns generated by the underlying investments is typically made up by including in the distribution a portion of the capital that the investor originally invested in the ROC fund. In such circumstances, the value of the investor s holdings in the ROC fund is usually reduced because the unit value of the ROC fund declines as capital is paid out. 10. In the event of a change in market conditions which affects the ROC fund s ability to pay the promised monthly distributions to investors, then: (a) a substantial proportion (or all) of the monthly distributions paid to investors may consist of a return of capital (rather than proceeds from capital appreciation, dividends or interest generated by the underlying investments) and consequently, the value of the investor s holdings in the ROC fund may decline substantially; Page 4 of 20

5 (b) and/or the ROC fund may exercise its discretion to reduce, suspend or cancel altogether the amount of the monthly distributions paid to investors. Overview Features and Performance of the Dividend Fund 11. The Simplified Prospectus for the Dividend Fund provided that it was suitable for investors with a moderate risk tolerance seeking dividend income and capital appreciation in the medium to long term. 12. Between October 2006 and October 2007, the Dividend Fund generated a return of slightly more than 10% and the unit price of the fund was fairly stable. 13. Beginning in November 2007, the unit price of the Dividend Fund declined sharply by more than 40%, from a unit price of $ on October 31, 2007 to a unit price of $ on January 12, The Leveraged Investment Strategy (clients SM, MH, and WC and PC) Client SM 14. Client SM first met with the Respondent during the summer of 2004, after her husband had passed away in March Prior to his death, her husband had looked after all of the family s investments and other financial matters. As a consequence, she had no previous investment experience. 15. In 2004, client SM was 62 years old. She owned her home and two rental properties and operated a pizza restaurant. 16. The Respondent advised client SM to transfer the investments she and her husband had held prior to his death to accounts at Performa which the Respondent would open and service for her. He also referred client SM to a mortgage broker and recommended that she obtain a mortgage on one of her two rental properties and invest the mortgage proceeds. Page 5 of 20

6 17. In October, 2004, client SM transferred a small amount of the registered investments that she and her husband had held prior to his death to Performa. 18. Acting on the Respondent s advice, client SM took out a mortgage of $75,000 on one of the two rental properties that she owned and used the proceeds to purchase the Dividend Fund for her account at Performa. Client SM used the income from her rental properties to pay her borrowing costs on the mortgage. 19. Between 2005 and 2009, client SM transferred investments and the proceeds of GICs held at other financial institutions to her account at Performa (and later, at Desjardins) as the GICs matured, as well as the life insurance proceeds received following the death of her husband. 20. In August 2006, acting on the Respondent s advice, client SM took out a mortgage on the other rental property that she owned, this time in the amount of $112,500. In October 2006, again acting on the Respondent s advice, client SM used $100,000 of these mortgage proceeds to purchase the Dividend Fund for her account (which by then was held at Desjardins). 21. In July 2007, the Respondent advised client SM to take out a third mortgage, this one on her home, to supplement the amounts that she had already invested. The house was unencumbered at the time. 22. Client SM was concerned about mortgaging her home because she did not earn rental income from her home that could be relied upon to pay the borrowing costs of the mortgage. 23. The Respondent provided unqualified assurances to client SM that if she invested the mortgage proceeds her principal would be secure and she would receive sufficient distributions from the investments to cover her borrowing costs, plus provide her with an additional amount to supplement her income. The Respondent told her she would be set for life. 24. In November 2007, acting on the Respondent s advice, client SM invested an additional $125,000 in the Dividend Fund using the proceeds from a mortgage on her home. Page 6 of 20

7 25. In total, acting on the Respondent s advice, client SM borrowed $400,000, secured by mortgages on her home and two rental properties, and invested the proceeds entirely in the Dividend Fund. 26. In March 2009 (following the termination of the Respondent on February 26, 2009), client SM met with the branch manager of the Windsor branch of Desjardins to review her account. She was surprised to learn that the total value of her investments was only $253,425.24, which was substantially less than the outstanding balances of the three investment loans secured by the mortgages. 27. Client SM asked the branch manager to submit a complaint to Desjardins on her behalf. In April 2012, Desjardins and client SM reached a settlement of her complaint. Client MH 28. In 2007, client MH and her son contacted a mortgage broker to inquire about the possibility of obtaining a reverse mortgage on her home to supplement her pension. The mortgage broker recommended that client MH speak with the Respondent to consider other options before implementing a reverse mortgage. 29. In September 2007, when client MH began dealing with the Respondent, she was 67 years old and a retired nurse. Her only significant asset was her house, which she had inherited from her father and which had an estimated value of $144,000. Her income was limited to Canada Pension Plan and Old Age Security entitlements and a pension from the hospital she used to work at. She had an adult son but she had never been married. She had no previous investment experience. 30. The Respondent told client MH that if she obtained a mortgage on her home and invested the proceeds in the Dividend Fund, she could earn a return of 12-15% per year on her money, which would be sufficient to pay her borrowing costs and supplement her income. 31. In November 2007, acting on the advice of the Respondent, client MH opened an account Page 7 of 20

8 at Desjardins and obtained a mortgage on her previously unencumbered home in the amount of $112,900. Client MH used $95, of the mortgage proceeds to purchase the Dividend Fund for her account, in accordance with the Respondent s recommendation. (Client MH used the balance of the mortgage proceeds to pay for renovations to her home.) 32. The Respondent told client MH that her investment would provide her with $989 each month. Of this amount, the Respondent would require $602 to pay the borrowing costs on her mortgage (the Respondent was dependent on the monthly distributions to pay her borrowing costs). The Respondent told client MH that she could use the balance of the monthly distributions ($387) to pay living expenses. 33. By December 2008, the value of client MH s investment had declined from $95, (the amount originally invested in November 2007) to $54, As a consequence, client MH no longer had sufficient assets to repay the outstanding balance of the investment loan secured by the mortgage. 34. Following the Respondent s termination on February 26, 2009, client MH was informed of suitability concerns with respect to the leveraged investment strategy that the Respondent had recommended and implemented in her account. Client MH subsequently commenced a lawsuit against the Respondent and Desjardins seeking compensation for her losses, which was subsequently resolved between the parties. Clients WC and PC 35. WC and PC are spouses. In 2002, they were referred to the Respondent by their son. When they met the Respondent, WC was 65, PC was 63, and their estimated combined net worth was approximately $450, Client WC was earning approximately $50,000 per year working in sales for a tool and mold company and was approaching retirement (he would retire prior to 2005). He anticipated that his retirement income would be limited to his Canada Pension Plan and Old Age Security entitlements. Client PC had never worked outside of the home. Prior to meeting the Respondent, clients WC and PC had never purchased any kind of investment product other than guaranteed Page 8 of 20

9 investment certificates ( GICs ) from a bank. 37. Between 2002 and 2005, acting on the Respondent s advice, clients WC and PC transferred the proceeds of the GICs they held at other financial institutions to an account at Worldsource, and subsequently at Performa, as the GICs matured. Acting on the Respondent s advice, the clients invested the transferred-in monies entirely in the Dividend Fund. 38. In 2005, following client WC s retirement, client WC and PC s gross annual income was less than $25,000 per year, comprised substantially of Canada Pension Plan and Old Age Security entitlements. The Respondent recommended that clients WC and PC obtain a mortgage on their home and invest the proceeds in the Dividend Fund. Clients WC and PC learned from potential lenders that they would be eligible for a mortgage of approximately $142, The Respondent told clients WC and PC that if they invested $142,500 in the Dividend Fund, the investment would generate annual distribution proceeds of $16, The Respondent told clients WC and PC that after paying the borrowing costs on their mortgage and tax on the distribution proceeds, they would be left with more than $7,000 per year from the investment. 40. Client PC expressed concern about the risk of losing her home by borrowing against it to invest. The Respondent provided her with unqualified assurances that she would not lose her home and that her money was always going to be there. 41. Acting on the Respondent s recommendation, clients WC and PC obtained an interestonly mortgage on their home in the amount of $142,500 and used the proceeds to purchase the Dividend Fund for their account. 42. In total, including their transferred-in monies and the mortgage proceeds, clients WC and PC invested a total of approximately $430,000 invested in the Dividend Fund by In March 2009, following the Respondent s termination the previous month, clients WC and PC submitted a complaint to Desjardins concerning the suitability of the leveraged investment strategy implemented in their account. In August 2010, clients WC and PC Page 9 of 20

10 commenced an action against Desjardins and the Respondent, which was subsequently resolved between the parties in August Client SL (no leveraging) 44. In spring 2006, DM attended at the Respondent s office to consult with him about the financial affairs of her uncle, SL. (DM and her husband, KM, had been clients of the Respondent for close to 20 years.) 45. SL was 85 years old. He had recently been hospitalized and was suffering from dementia. DM and her father, GL (SL s brother) had been appointed as attorneys for SL s financial affairs. 46. Client SL s financial assets consisted entirely of GICs and cash held in bank accounts. Client SL had never previously owned an investment that was not principal protected (i.e. one where the value of the investment could fall below the amount invested). 47. The Respondent advised DM and GL to transfer client SL s assets to a new account at Desjardins that he would service. 48. On September 25, 2006, acting on the Respondent s advice, DM and GL opened an intrust account at Desjardins to hold client SL s assets. The Respondent advised DM and GL that if client SL s money was invested in the Dividend Fund, it would be as safe as money in a bank account and would generate returns that would substantially exceed the interest paid on money in a bank account. 49. Between October 2006 and November 2007, acting on the Respondent s advice, DM and GL transferred all of client SL s savings in bank accounts to the Desjardins in-trust account, as well as the proceeds of all of client SL s GICs held at other financial institutions, as those GICs matured. 50. In total, DM and GL arranged for approximately $481,000 to be transferred to the in-trust account for client SL. Acting on the Respondent s advice, DM and GL instructed the Respondent Page 10 of 20

11 to invest all of the monies in the Dividend Fund. 51. Between October 2006 and June 2008, DM and GL directed that all distributions paid by the Dividend Fund be reinvested in the Dividend Fund. 52. In spite of the fact that client SL s investment portfolio recovered to some extent in 2009 following the Respondent s termination on February 26, 2009, as of October 2009, client SL s portfolio had incurred losses totaling approximately $80,000 due to the decline in value of the Dividend Fund. 53. In March 2010, client SL commenced a claim against Desjardins and the Respondent, which was subsequently settled. Client SL died in December Client GL (no leveraging) 54. In spring 2006, client GL was 80 years old. GL had not completed high school. Prior to his retirement, he had been employed as a janitor at a high school. He lived a frugal lifestyle and was highly risk averse. GL s financial assets consisted entirely of GICs, Canada Savings Bonds and cash held in bank accounts. 55. The Respondent advised DM and GL to transfer all of GL s financial assets to a new joint account at Desjardins opened in the names of GL and DM that would be serviced by the Respondent. The Respondent told GL that there would be no costs associated with the account and that the investments held in the account would be secure. 56. On February 8, 2007, acting on the Respondent s advice, GL opened a joint account at Desjardins in the names of GL and DM. 57. Between March 2007 and March 2008, client GL transferred his savings in banks accounts to the Desjardins account, as well as the proceeds of all of his GICs and Canada Savings Bonds held at other financial institutions, as those investments matured. In total, client GL transferred approximately $375,000 into his new joint account at Desjardins. Page 11 of 20

12 58. Acting on the Respondent s advice, client GL invested approximately 90% of the money in the joint account in the Dividend Fund and the remaining 10% in the Clarington Global Dividend Fund Series T6 (the Global Fund ). Like the Dividend Fund 2, the Global Fund declined nearly 40% between April 24, 2007 when it was initially purchased by GL and August 2008, when GL redeemed his investment in the Global Fund. 59. In August 2008, client GL learned that he had stage-4 cancer and was not likely to survive more than 6 weeks. He died in October The remaining investments in the joint account were redeemed between July and October 2009 and the proceeds distributed to the beneficiaries of client GL s estate. In spite of the fact that the investments in the joint account recovered to some extent in 2009 following the Respondent s termination on February 26, 2009, client GL incurred investment losses in the amount of approximately $93, In March 2010, the estate of client GL commenced a claim against Desjardins and the Respondent, which was subsequently settled. Allegation #1 Failure to learn essential facts relative to the clients 62. Clients SM, MH, WC and PC, and SL and GL were all over the age of 60 3, retired and risk averse investors. 63. None of the clients had investment experience beyond purchasing GICs and Canada Savings Bonds prior to their dealings with the Respondent. 64. All of the clients were new referrals to the Respondent. The Respondent had had no previous investment dealings with the clients prior to the events described in this Notice of Hearing. 65. In the course of opening accounts for each of the clients, the Respondent did not explain 2 See paragraphs 12 and The age of each client at the time that each began dealing with the Respondent was: SM = 62, MH = 67, WC and PC = 65 and 63, GL = 80, SL = 85. Page 12 of 20

13 to the clients the meaning of the know-your-client or KYC concepts such as risk tolerance, investment time horizon and investment objectives and he did not discuss or verify their KYC information with them prior to recording it on their New Account Application Forms or NAAFs and opening their accounts. 66. The Respondent did not use due diligence to learn the essential facts relative to the clients and accurately record the essential facts on the clients New Account Application Forms, in that: (a) although the Respondent knew or ought to have known that the clients had limited investment knowledge and experience beyond investing in GICs and Canada Savings Bonds, the Respondent indicated that five of the clients had a Fair level of investment knowledge on their NAAF, and that one client, client SM, had Good investment knowledge. The Respondent did not identify any of the clients as having a Novice level of investment knowledge, the lowest category of investment knowledge on the NAAF; (b) the Respondent indicated that each of the six clients had a medium risk tolerance even though: (i) he had not discussed the concept of risk tolerance with some of them and with others, it was or ought to have been apparent that they could not afford to sustain investment losses; (ii) they did not have experience with investments that were susceptible to market fluctuations and risks of loss; and (iii) the Respondent assured the clients that his investment and leveraging recommendations were low risk. (c) the Respondent indicated that each of the clients had an investment time horizon of more than 10 years even though client GL, who was 80, and client SL, who was 85, would likely require access to their investments to pay for ongoing care and Page 13 of 20

14 expenses By engaging in the conduct described above, the Respondent failed to use due diligence to learn the essential facts relative to the clients and accurately record the essential facts on the clients New Account Application Forms, contrary to MFDA Rules 2.2.1(a) and Allegation #2 Suitability (a) Leveraging Strategy 68. At all material times, the Respondent knew or ought to have known that the leveraged investment strategies that he recommended for clients SM, MH, and WC and PC were unsuitable for the clients having regard to, among other things, the clients KYC information and all of their personal and financial circumstances. In particular, the leveraged investment strategy was unsuitable for the clients having regard to the following considerations, among others: (a) (b) (c) (d) (e) (f) (g) the clients were unsophisticated investors with minimal investment knowledge and experience who did not understand the risks of using borrowed monies to invest; the clients all had low or very low investment risk tolerances, whereas the leveraged investment strategy was not low risk; the clients understood that they would not sustain investment losses based on the Respondent s assurances and elected to proceed with the leveraged investment strategy on that basis; client MH, and to a lesser extent client SM and clients WC and PC, depended on the monthly distribution proceeds paid by the investments to cover their borrowing costs; all of the clients were retired and had no ability to rely on employment income to pay their borrowing costs or withstand investment losses; the clients received income of less than $30,000 per year from other sources; the clients net worth was sufficiently low that they had no ready means to repay their mortgages if the value of their investments declined below the outstanding 4 Client GL died in October 2008 at the age of 81, less than two years after the Respondent opened his account in February 2007, after being diagnose with cancer in August Client SL died in December 2011 at the age of 90, approximately five years after the Respondent opened the in-trust account for client SL in September Page 14 of 20

15 (h) (i) balances on their mortgages without compromising the savings they were relying on to pay their future living expenses; all of the clients were over the age of 60 and as such had a limited time horizon in which they could recover from any investment losses associated with the leveraged investment strategy; and the clients did not understand the implications on their ability to pay their borrowing costs if the Dividend Fund reduced or stopped paying the monthly distributions on which the leveraged investment strategy depended. (b) Dividend Fund 69. At all material times, the Respondent knew or ought to have known that the Dividend Fund that he recommended and sold to clients GL and SL was unsuitable for them having regard to the following considerations: (a) (b) the clients had low or very low investment risk tolerances, whereas the Dividend Fund was rated as a moderate risk investment; and the Respondent sold the Dividend Fund to clients GL and SL on a deferred sales charge basis, despite the fact that they were 80 and 85 respectively at the time. 70. By engaging in the conduct described above, the Respondent recommended the leveraged investment strategy to clients SM, MH, and WC and PC and recommended the Dividend Fund to clients GL and SL without ensuring that the leveraged investment strategy and the Dividend Fund were suitable for the respective clients, in keeping with those clients investment objectives and within the bounds of good business practice, contrary to MFDA Rules and Allegation #3 Failure to Explain 71. The Respondent misrepresented or failed to adequately explain to the clients the benefits, risks, material assumptions and features of the Dividend Fund by advising clients that: (a) (b) the Dividend Fund was a low or no risk investment; the Dividend Fund generated consistent positive returns that could be applied Page 15 of 20

16 (c) (d) (e) (f) (g) towards living expenses or borrowing costs; the principal amount invested in the Dividend Fund was secure and would not decline in value; unrealistically projecting the returns to be generated by the Dividend Fund to be in the range of 12-15% to at least client MH; investors in the Dividend Fund would not lose money unless events so catastrophic as to cause Canadian banks to close and Canadian insurance and oil companies to declare bankruptcy occurred; the monthly distributions paid to investors consisted of interest, dividends and capital gains generated from the underlying investments held by the Dividend Fund, without explaining that the returns may include a portion of the capital originally invested by the investor; and in the event of deteriorating market conditions or poor performance of the underlying investments held by the Dividend Fund, there was a real and substantial risk that the Dividend Fund would be required to reduce, or possibly suspend or cancel, the monthly distributions paid to investors. 72. The Respondent failed or omitted to explain to clients GL and SL (or DM, as GL s joint account holder and attorney for SL) that they would be required to incur deferred sales charges ( DSC fees ) in the event they needed to redeem their investment in the Dividend Fund prior to the expiry of the DSC schedule. 73. The Respondent misrepresented or failed to adequately explain to clients SM, MH, and WC and PC the benefits, risks, material assumptions and features of the leveraged investment strategy that he recommended and implemented in their accounts by, among other things: (a) (b) (c) (d) leading the clients to believe that increased leveraging would increase their investment returns, without adequately explaining to them the risks of leveraging; leading at least client SM to believe that she would be set for life if she implemented the leveraged investment strategy; leading the clients to believe that the value of their investments would never decline below the outstanding balance of their investment loans; failing to explain to the clients that they were responsible for paying off their Page 16 of 20

17 (e) (f) (g) investment loans even if the value of their investments declined; advising the clients that the monthly distribution proceeds paid by the Dividend Fund would always be sufficient to cover the borrowing costs of their investment loans; failing to discuss, or provide the clients with, projections or scenarios in which the leveraged investment strategy did not generate sufficient returns to cover the clients borrowing costs or the Dividend Fund declined in value; and failing to ensure that the clients understood they were at risk of losing their homes in the event the value of their investments declined below the outstanding balances of their mortgages and they were unable to make their mortgage payments. 74. In response to the concerns expressed by clients SM, MH and PC prior to implementing the leveraged investment strategy, the Respondent reassured them that they would not lose their home as a consequence of participating in a leveraged investment strategy that required them to mortgage their home. 75. By engaging in the conduct described above, the Respondent misrepresented or failed to adequately explain the benefits, risks, material assumptions and features of the Dividend Fund and the leveraged investment strategies, thereby failing to present the Dividend Fund and the leveraged investment strategies to the clients in a fair and balanced manner, contrary to MFDA Rules and NOTICE is further given that the Respondent shall be entitled to appear and be heard and be represented by counsel or agent at the hearing and to make submissions, present evidence and call, examine and cross-examine witnesses. NOTICE is further given that MFDA By-laws provide that if, in the opinion of the Hearing Panel, the Respondent: has failed to carry out any agreement with the MFDA; has failed to comply with or carry out the provisions of any federal or provincial statute relating to the business of the Member or of any regulation or policy made pursuant Page 17 of 20

18 thereto; has failed to comply with the provisions of any By-law, Rule or Policy of the MFDA; has engaged in any business conduct or practice which such Regional 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 Hearing Panel has the power to impose any one or more of the following penalties: (a) a reprimand; (b) a fine not exceeding the greater of: (i) (ii) $5,000, per offence; and an amount equal to three times the profit obtained or loss avoided by such person as a result of committing the violation; (c) suspension of the authority of the person to conduct securities related business for such specified period and upon such terms as the Hearing Panel may determine; (d) revocation of the authority of such person to conduct securities related business; (e) prohibition of the authority of the person to conduct securities related business in any capacity for any period of time; (f) such conditions of authority to conduct securities related business as may be considered appropriate by the Hearing Panel; NOTICE is further given that the Hearing Panel may, in its discretion, require that the Respondent pay the whole or any portion of the costs of the proceedings before the Hearing Panel and any investigation relating thereto. Page 18 of 20

19 NOTICE is further given that the Respondent must serve a Reply on Enforcement Counsel and file a Reply with the Corporate Secretary within twenty (20) days from the date of service of this Notice of Hearing. A Reply shall be served upon Enforcement Counsel at: Mutual Fund Dealers Association of Canada 121 King Street West Suite 1000 Toronto, ON M5H 3T9 Attention: Shelly Feld Fax: sfeld@mfda.ca A Reply shall be filed by: (a) providing 4 copies of the Reply to the Corporate Secretary by personal delivery, mail or courier to: The Mutual Fund Dealers Association of Canada 121 King Street West Suite 1000 Toronto, ON M5H 3T9 Attention: Office of the Corporate Secretary; or (b) transmitting 1 copy of the Reply to the Corporate Secretary by fax to fax number , provided that the Reply does not exceed 16 pages, inclusive of the covering page, unless the Corporate Secretary permits otherwise; or (c) transmitting 1 electronic copy of the Reply to the Corporate Secretary by at CorporateSecretary@mfda.ca. A Reply may either: (i) specifically deny (with a summary of the facts alleged and intended to be relied upon by the Respondent, and the conclusions drawn by the Respondent based on the alleged facts) any or all of the facts alleged or the conclusions drawn by the MFDA in the Notice of Hearing; or (ii) admit the facts alleged and conclusions drawn by the MFDA in the Notice of Hearing Page 19 of 20

20 and plead circumstances in mitigation of any penalty to be assessed. NOTICE is further given that the Hearing Panel may accept as having been proven any facts alleged or conclusions drawn by the MFDA in the Notice of Hearing that are not specifically denied in the Reply. NOTICE is further given that if the Respondent fails: (a) to serve and file a Reply; or (b) attend at the hearing specified in the Notice of Hearing, notwithstanding that a Reply may have been served, the Hearing Panel may proceed with the hearing of the matter on the date and the time and place set out in the Notice of Hearing (or on any subsequent date, at any time and place), without any further notice to and in the absence of the Respondent, and the Hearing Panel may accept the facts alleged or the conclusions drawn by the MFDA in the Notice of Hearing as having been proven and may impose any of the penalties described in the By-laws. END. Doc Page 20 of 20