The Mutual Fund Dealers Association of Canada (MFDA) said Friday that it has launched a disciplinary proceeding against bankrupt fund dealer firm, W.H. Stuart Mutuals Ltd., and its principals.
Last year, the MFDA suspended the firm, and transferred its clients to another dealer. It was subsequently put into bankruptcy.
Earlier this year, the industry contingency fund, the MFDA Investor Protection Corp., announced that the WHS insolvency is expected to cost the fund about $8 million; which will be recovered from the industry in additional assessments over the next six years.
On Friday, the MFDA announced a series of enforcement allegations against the respondents. Those allegations have not been proven. The first appearance in the case is slated for Jan. 6, 2015, by teleconference before a hearing panel of the MFDA’s central regional council, to schedule a hearing into the regulator’s allegations.
The MFDA makes six allegations in the case. First, it says that for 10 years (between March 2003 and May 2013), WHS solicited approximately $6 million from more than 180 clients “purportedly to be invested on their behalf”; which the MFDA alleges was instead used for other purposes. It also alleges that another $800,000 in client assets was misappropriated, or is unaccounted for, affecting more than 30 clients.
Among other things, the MFDA also alleges that they “actively concealed the activity” that led to the client losses from others at the firm, external auditors, and the regulators by maintaining separate records; and, by “falsifying, altering, concealing and withholding documents, information and records” on its back office system. Additionally, the regulator alleges that they failed to: maintain required capital, properly segregate client assets, implement adequate internal controls, and to keep accurate financial records.