3. Staff and the Respondent consent and agree to the settlement of this matter by way of this Settlement Agreement in accordance with By-law

Transcription

1 IN THE MATTER OF DISCIPLINE PURSUANT TO BY-LAW 20 OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA RE: RONALD H. KONG SETTLEMENT AGREEMENT I. INTRODUCTION 1. The staff ( Staff ) of the Investment Dealers Association of Canada ( the Association ) has conducted an investigation into the conduct of Ronald H. Kong ( the Respondent ). That investigation was initiated after the Association received and reviewed a Universal Termination Notice regarding Mr. Kong, as well as complaints from certain of his former clients. 2. The Investigation discloses matters for which the District Council of the Association may penalize the Respondent by imposing discipline penalties. II. JOINT SETTLEMENT RECOMMENDATION 3. Staff and the Respondent consent and agree to the settlement of this matter by way of this Settlement Agreement in accordance with By-law This Settlement Agreement is subject to its acceptance, or the imposition of a lesser penalty or less onerous terms, or the imposition, with the consent of the Respondent, of a penalty or terms more onerous, by the District Council in accordance with By-law Staff and the Respondent jointly recommend that the District Council accept this Settlement Agreement. 6. If at any time prior to the acceptance of this Settlement Agreement, or the imposition of a lesser penalty or less onerous terms, or the imposition, with the consent of the Respondent, of a penalty or terms more onerous, by the District Council, there are new facts or issues of substantial concern in the view of Staff regarding the facts or issues set out in Section III of this Settlement Agreement, Staff will be entitled to withdraw this Settlement Agreement from consideration by the District Council. III. STATEMENT OF FACTS (i) Acknowledgment 7. 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

2 - 2 - those specific facts. The Respondent s agreement is solely for the purpose of the within Settlement Agreement. (ii) Factual Background The Respondent 8. The Respondent has been employed as a Registered Representative (RR) with the firms, both members of the Association, and for the periods set out below: November 1996 to September 1997 RBC Dominion Securities October 1997 to February 2 nd, 2001 Merrill Lynch Canada Inc. ( MLC ) (formerly Midland Walwyn Capital Inc.) 9. The Respondent is not presently working in the securities industry. 10. The Respondent has no previous disciplinary history. The Y Accounts 11. AY was a retired grandfather living in Toronto when, in late 1999, he contacted one RC, author of ****************** with a view to moving investment funds offshore. RC in turn referred AY to the Respondent, who was then employed as a retail broker at MLC. The respondent met with AY. In fact, as regards the potential offshore activity, the Respondent was acting entirely outside of his employment with MLC. 12. With the Respondent s active participation, along with that of RC and a lawyer, an offshore investment program was implemented for AY through an offshore structure beneficially owned by him. AY s trading was carried out through an online brokerage service called OGF Online Ltd., registered in the British Virgin Islands. AY understood OGF to be owned by the wives of the Respondent and RC. 13. Over the next year AY provided to the Respondent approximately $112,000. These funds were for investment through OGF upon the specific recommendations of the Respondent, and the investment transactions were implemented by the Respondent. Various securities were purchased, sometimes by private placement or in anticipation of expected IPO activity. The investment methods and vehicles used would not, for the most part, have been in conformity with the requirements of the Ontario Securities Act. 14. In May 2000, the Ys, operating in TY s name, opened a margin account at MLC with the Respondent as their investment adviser. It was the Ys intention that the contents of this account (initially just under $20,000) would find their way into the OGF accounts of the Y offshore program.

3 Soon after his association with the Respondent began, AY agreed to contact clients on behalf of the Respondent and RC, with a view to selling their offshore tax haven structures to other individuals. AY made cold calls to prospects (including PS see below) whose names were provided to him by the respondent and RC, using a cell phone also provided by the Respondent. AY would tell prospects that they should open accounts with the Respondent at MLC pending the establishment of their individual offshore structures. (c) The S Accounts 16. PS, a resident of Fergus, Ontario, was contacted in February 2000 by AY, following up on an earlier request made by PS to RC for information about tax haven investing. 17. In March 2000, AY arranged a meeting between PS, himself, and the Respondent, who was introduced to PS as both a representative of MLC and as a financial expert from OGF, the offshore online brokerage. PS understood that there was a connection between MLC and OGF. 18. It was decided that PS s existing offshore holdings would be moved into an OGF account, to be managed by the Respondent. Further, PS s Registered Pension Plan (RPP) funds would be moved into an account at MLC pending arrangements to transfer them offshore as well. 19. Once PS s OGF account was set up, the Respondent actually carried out the online trades necessary to implement his recommended strategy for the PS investments, since the latter was unable to access OGF s online trading service. 20. PS attended upon the Respondent at MLC s Oakville office and made arrangements to transfer his RPP into a new account at MLC, from which he was led by the Respondent to believe that it would promptly be moved offshore. This was never done, as indeed it could not legally be. IV. CONTRAVENTIONS Count Conduct unbecoming and contrary to the public interest, contrary to By-Law 29.1, in that between November 1999 and December 2000, he dealt in securities outside of the normal business of his firm, Merrill Lynch Canada Inc., a member of the Investment Dealers Association of Canada, in particular by recommending and implementing offshore securities purchases for AY & TY of Toronto.

4 - 4 - Count Conduct unbecoming and contrary to the public interest, contrary to By-Law 29.1, in that between February 2000 and December 2000, he dealt in securities outside of the normal business of his firm, Merrill Lynch Canada Inc., a member of the Investment Dealers Association of Canada, in particular by recommending and implementing offshore securities purchases for PS of Fergus, Ontario. V. ADMISSION OF CONTRAVENTIONS AND FUTURE COMPLIANCE 23. The Respondent admits the contravention of the statutes or Regulations thereto, By-laws, Regulations, Rulings or Policies of the Association noted in Section IV of this Settlement Agreement. In the future, the Respondent shall comply with these and all By-laws, Regulations, Rulings and Policies of the Association. VI. DISCIPLINE PENALTIES 24. Pursuant to this Settlement Agreement, the Respondent accepts the imposition by the Association, as a discipline penalty for the contraventions set out in Section IV above, of the following sanctions: a fine in respect of each count of $10,000, for a total of $20,000; (c) (d) (d) a suspension from approval in any capacity with the Association for a period of one year; the imposition, as a pre-condition to any future approval of the Respondent for registration with the Association in any capacity, of a requirement for the payment of any amounts owing to the Association by reason of these proceedings and still unpaid; the imposition, as a pre-condition to any future approval of the Respondent for registration with the Association in any capacity, of a requirement for a successful re-write by the Respondent of the Conduct and Professional Handbook examination; and the imposition of a requirement that any future employment of the Respondent in any registered capacity with the Association be subject to one year of close supervision by the employer, with quarterly supervision reports to be filed with the Association by the employer.

5 - 5 - VII. ASSOCIATION COSTS 25. The Respondent shall pay the Association s costs of this proceeding in the amount of $15, VIII. EFFECTIVE DATE 26. This Settlement Agreement shall become effective and binding upon the Respondent and Staff in accordance with its terms as of the date of: (c) its acceptance; or the imposition of a lesser penalty or less onerous terms; or the imposition, with the consent of the Respondent, of a penalty or terms more onerous, by the District Council. IX. WAIVER 27. If this Settlement Agreement becomes effective and binding, the Respondent hereby waives his right to a hearing under the Association By-laws in respect of the matters described herein and further waives any right of appeal or review which may be available under such By-laws or any applicable legislation. X. STAFF COMMITMENT 28. If this Settlement Agreement becomes effective and binding, Staff will not proceed with disciplinary proceedings under Association By-laws in relation to the facts set out in Section III of the Settlement Agreement. XI. PUBLIC NOTICE OF DISCIPLINE PENALTY 29. If this Settlement Agreement becomes effective and binding: the Respondent shall be deemed to have been penalized by the District Council for the purpose of giving written notice to the public thereof by publication in an Association Bulletin and by delivery of the notice to the media, the securities regulators and such other persons, organizations or corporations, as required by Association By-laws and any applicable Securities Commission requirements; and,

6 - 6 - the Settlement Agreement and the Association Bulletin shall remain on file and shall be disclosed to members of the public upon request. XII. EFFECT OF REJECTION OF SETTLEMENT AGREEMENT 30. If the District Council rejects this Settlement Agreement: the provisions of By-laws to 20.24, inclusive, shall apply, provided that no member of the District Council rejecting this Settlement Agreement shall participate in any hearing conducted by the District Council with respect to the same matters which are the subject of the Settlement Agreement; and the negotiations relating thereto shall be without prejudice and may not be used as evidence or referred to in any hearing. AGREED TO by the Respondent at the City of Toronto in the Province of Ontario, this 31 st day of March, WITNESS RONALD KONG AGREED TO by Staff at the City of Toronto, in the Province of Ontario, this 29 th day of March, WITNESS C. FRED BLAIR Enforcement Counsel, on behalf of Staff of the Investment Dealers Association of Canada ACCEPTED by the Ontario District Council of the Investment Dealers Association of Canada, at the City of Toronto in the Province of Ontario, this 31 st day of March, INVESTMENT DEALERS ASSOCIATION OF CANADA(ONTARIO DISTRICT COUNCIL) Per: The Honorable Robert S. Montgomery, Q.C. Per: T. Hugh McNabney Per: F. Michael Walsh