R.S.O. 1990, C. S.5, AS AMENDED
IN THE MATTER OF
DAVID BARNSDALE, ROCH BEAULIEU, MARY DAWN
DAVY, AHSAN KHAN, MARK MILLER, JAMES SCHOFIELD,
ASHTON SO, WAYNE STEPHENSON,
IAN YEO and TD SECURITIES INC.
RE: TD SECURITIES INC.
1. By Notice of Hearing dated October 31, 1997, the Ontario Securities Commission (the "Commission") announced that it proposed to hold a hearing toconsider, inter alia:
(a) whether it is in the public interest to order, pursuant to clause 4 of subsection 127(1) of the Act, that TD Securities Inc. submit to a review of its practicesand procedures and institute such changes as may be ordered by the Commission;
(b) whether it is in the public interest to order, pursuant to clause 6 of subsection 127(1) of the Act, that TD Securities Inc. be reprimanded; and
(c) such further and other orders or directions as the Commission may consider to be in the public interest to make.
II JOINT SETTLEMENT RECOMMENDATION
2. The staff of the Enforcement Branch of the Commission ("Staff") agrees to recommend the settlement of the proceedings against TD Securities Inc. ("TDSI")commenced by Notice of Hearing dated October 31, 1997 in accordance with the terms and conditions set out hereinafter. TDSI agrees to the settlement on thebasis of the facts hereinafter set out.
3. Staff and TDSI agree that only if, as and when the settlement is approved by the Commission, may this settlement agreement be released to the public.
III STATEMENT OF FACTS
4. TDSI agrees with the facts set out in this section of the Settlement Agreement.
5. Staff acknowledges that the facts contained in this section of the Settlement Agreement are consistent with its investigation.
6. TDSI is registered with the Commission as, inter alia, an investment dealer and broker. Since October 1996, TDSI has employed Ian Yeo ("Yeo") as asalesperson registered with the Commission to sell securities. Prior to October 1996, Yeo was registered as a salesperson with another registrant.
7. Dean Albrecht ("Albrecht") is a financial marketing consultant who currently resides in the state of Florida in the United States of America.
(iii) "Financial Independence Through Superior Planning"
8. At all material times, TDSI had in place a policy in respect of advertising and marketing material which its salespersons were obligated to follow. The policydefined "advertisement" and "sales literature" and delineated those communications which were prohibited on various grounds including misrepresentation.
9. The policy set out procedures which salespersons employed by TDSI were obligated to follow in order to obtain approval to use advertising and marketingmaterial. The approval process set out the following steps:
(a) the material was to be provided first to the Compliance Department where it would be reviewed and signed off;
(b) the material would then be directed to the Marketing Department to be reviewed to ensure that the wording and form of the communication was appropriateand then signed off;
(c) the authorized material would then be faxed back to the salesperson to make any changes required by the Compliance and/or Marketing Departments;
(d) branch managers would ensure that a copy of all advertisements and sales literature was retained for two years from the date of issuance along with thenames of persons preparing and approving the material.
10. The policy emphasized that all marketing material must be submitted for approval according to the outlined procedure and failure to abide by the procedurewould violate internal policy and could expose the salesperson to external regulatory disciplinary action.
11. At the material time, TDSI had no specific policy in place to address the issue of authorship of publications by a salesperson.
12. From the time that Yeo joined the employment of TDSI until early December 1996, the Compliance Department received numerous materials from Yeo thathe was previously using or prepared to use. Among the materials that TDSI received from Yeo were project description materials containing portions of theproof of a book called "Financial Independence Through Superior Planning" including a page naming Yeo as the co-author. These materials included adescription of a proposed upcoming publication, the production and description of the authorship of which would be similar to that of "Financial IndependenceThrough Superior Planning". This material indicated that the book could, at the option of the purchaser, be produced so as to name the purchaser as the soleco-author of the book.
13. The TDSI Compliance Department reviewed the portions of the book attached to the project description materials but did not review the project descriptionmaterials. Of particular concern to TDSI's Compliance Department was whether the publication made unsuitable or inappropriate trading recommendations orpromoted Yeo's services or the services of TDSI in an inappropriate fashion. A representative of TDSI Compliance also asked Yeo whether he had made acontribution to the writing of the book to which Yeo replied that he had.
14. Although TDSI asked Yeo whether he had contributed to the writing of the book, TDSI compliance did not advert to the fact that others were named as thesole co-author of other versions of the publication. This is due to the fact that TDSI compliance did not review the project description materials attached to thedraft of the book. Also, at the relevant time
, TDSI did not have a specific policy on authorship. As a result, TDSI compliance staff failed to recognize that, ifgiven approval, Yeo would be distributing to clients a book naming him as the sole co-author along with Albrecht when in fact others had contributed to thepublication and would distribute the same book naming each of them as the sole co-author.
15. After satisfying itself that Yeo had made a contribution to the writing of the book and that he understood its contents, TDSI advised Yeo that it had noobjection to the content of the book as presented in the material he provided and did not object to Yeo distributing the book. Yeo distributed the book to300-400 existing and potential clients.
16. The version of the book distributed by Yeo named him as "the co-author" at page v. No other co-author was named in Yeo's version of the book. The namesof Albrecht and Yeo appeared on the cover of the book as authors. As described in the project description materials provided to TDSI, the same book had beenproduced naming other financial advisors as the sole co-author along with Albrecht.
17. TDSI received a letter from OSC Staff dated May 16, 1997 which advised the company that "Staff have some concerns that Mr. Yeo's role as a co-author of[the book] may amount to a misrepresentation and constitute conduct unbecoming a registrant with the Ontario Securities Commission. Furthermore, Staff haveconcerns that TD Securities Inc. failed to adequately supervise Mr. Yeo to prevent the creation of this publication. Staff invite you to meet to discuss thismatter". The specific nature of Staff's concerns regarding Yeo's indentification as the sole co-author of the publication was raised in a question posed to arepresentative of TDSI during his interview on June 16, 1997 and by letter from Staff to TDSI dated October 28, 1997, three days prior to the issuance of theNotice of Hearing herein.
18. TDSI was under the misimpression that Staff's concerns related to an allegation that Yeo had made no material contribution to the writing of the book.Satisfied that Yeo did, in fact, contribute to the writing of the book, TDSI did not instruct Yeo to cease distribution of the book to clients. In fact, Yeocontinued to distribute the book to existing and potential clients to the knowledge of TDSI. After the issuance of the Notice of Hearing herein when TDSIadverted to the specific nature of Staff's concerns, Yeo was instructed not to distribute any further copies of the book.
19. TDSI has, subsequent to these events, reviewed its practices and procedures and has developed, to the satisfaction of Staff, a supplement to its policy onadvertising and marketing materials (the "supplementary policy"). The supplementary policy addresses the issue of authorship by a salesperson of all marketingmaterials including advertisements, prospecting letters, seminar materials, brochures, fact sheets, posters, banners, newsletters, newspaper articles and books.The supplementary policy is appended hereto as Schedule "A".
20. The supplementary policy requires that the Compliance Department and Marketing Department of TDSI review all internally and externally preparedmaterials to ensure, among other things, that there are no misrepresentations as to authorship made by salespersons, intentionally or by omission.
21. The supplementary policy has been reviewed by the Investment Dealers' Association (the "IDA") and approved as an appropriate policy to be implemented byits members.
(iv) Mitigating Factors
22. TDSI has co-operated with Staff during this investigation.
23. At all times, TDSI's Compliance Department acted with bona fide in its attempt to assess the material provided to it by Yeo. It was never TDSI's intentionto permit Yeo to misrepresent his qualifications to his clients.
(v) Conduct Contrary to the Public Interest
24. TDSI did not have in place a policy relating to authorship of publications and marketing materials. As a result TDSI did not review the project descriptionmaterials or consider the issue of co-authorship in the circumstances of this case. As a result, therefore, TDSI did not object to Yeo distributing to existing andpotential clients a book that referred to him as the sole co-author when, in fact, others had contributed to the writing of the book, which thereby could havemisled clients as to the nature of his contribution to the subject manuscript.
IV TERMS OF SETTLEMENT
25. In consultation with the IDA and Staff, TDSI has developed and implemented the supplementary policy which is designed to prevent a reoccurrence of theoffending conduct described herein; and
26. DSI agrees to contribute $1,000 toward the costs of Staff's investigation.
V STAFF COMMITMENT
27. If this Settlement Agreement is approved by the Commission, Staff will not initiate any complaint to the Commission or request the Commission to hold ahearing or issue an order in respect of any conduct or alleged conduct of TDSI in relation to the facts set out in Part III of this Settlement Agreement in respectof which the Notice of Hearing was issued on October 31, 1997 against the Respondents.
VI PROCEDURE FOR APPROVAL OF SETTLEMENT
28. The approval of the Settlement Agreement shall be sought at a public hearing of the Commission scheduled for March 16, 1998.
29. Staff and TDSI agree that if the Settlement Agreement is approved by the Commission, it will constitute the entirety of the evidence to be submittedrespecting TDSI in this matter and it agrees to waive its rights to a full hearing and appeal of this matter under the Act.
30. Staff and TDSI agree that if the Settlement Agreement is approved by the Commission. it will not make further statements which are inconsistent with theSettlement Agreement.
31. If, for any reason whatsoever, the Settlement Agreement is not approved by the Commission:
(a) Staff and TDSI will each be entitled to proceed with a hearing of the allegations in the Notice of Hearing, unaffected by the Settlement Agreement or thesettlement negotiations;
(b) the terms of the Settlement Agreement will not be raised in any other proceeding or disclosed to any person except with the written consent of TDSI andStaff or otherwise as may be required by law; and
(c) TDSI further agrees that it will not raise in any proceeding the Settlement Agreement or the negotiation or the process of approval thereof as the basis forany attack on the Commission's jurisdiction, alleged bias, alleged unfairness or any other challenge that may otherwise be available.
32. If, prior to the approval of this settlement by the Commission, there are new facts or issues of substantial concern to Staff regarding the facts set out in PartIII of the Settlement Agreement, Staff will be at liberty to withdraw from the Settlement Agreement. Notice of such intention will be provided to TDSI inwriting. In the event of such notice being given, the provisions of paragraph 31 of this part will apply as if the Settlement Agreement had not been approved inaccordance with the procedures set out herein.
VII DISCLOSURE OF SETTLEMENT AGREEMENT
33. The terms of the Settlement Agreement will be treated as confidential by both parties hereto until approved by the Commission, and forever if, for any reasonwhatsoever, the Settlement Agreement is not approved by the Commission.
34. Any obligation as to confidentiality shall terminate upon the approval of this Settlement Agreement by the Commission.
VIII EXECUTION OF SETTLEMENT AGREEMENT
35. The Settlement Agreement may be signed in one or more counterparts which shall constitute a binding agreement and a facsimile copy of any signature shallbe as effective as an original signature.
March 11th, 1998.
SIGNED IN THE PRESENCE OF:
"TD SECURITIES INC."
I have authority to bind the corporation.
Director of Enforcement on behalf of Staff of the Ontario Securities Commission
TD EVERGREEN INVESTMENT SERVICES
A division of TD Securities Inc.
POLICY ON AUTHORSHIP OF MATERIAL
The foregoing is written to set out TD Evergreen's policy on authorship and use by Investment Advisors of material that has been written by or contributed byindividuals other than the Investment Advisor whose name appears on the material. While this policy specifically addresses advertisements, prospecting letters,seminar materials, brochures, fact sheets, posters, banners, newsletters, newspaper articles and books, it also encompasses any other form of marketing material.This policy is a supplement to the existing TD Evergreen policy on approval of marketing material. All advertising and marketing material referred to in thispolicy MUST STILL BE SUBMITTED TO MARKETING AND COMPLIANCE DEPARTMENTS FOR APPROVAL in that it is a violation of InternalPolicy and Investment Dealer Association ("IDA") regulation to distribute or disseminate marketing material that has not been approved by the Marketing andCompliance Departments.
The intention of this policy is to eliminate the possibility of misrepresentation to the client as to the extent of an Investment Advisor's authorship of orcontribution to the material in question. Misrepresentation by Investment Advisors, either intentionally or by omission, is a violation of TD Evergreen internalpolicy, the by-laws of the IDA and Ontario securities law. The purpose of this policy is to ensure that the client is fully aware of the extent of the InvestmentAdvisor's contribution to the material as well as the contributions of others, if applicable.
This policy draws a distinction between INTERNALLY PREPARED MATERIAL (being defined as material prepared by Evergreen employees or by an outsidecontractor engaged by TD Evergreen to produce unique material for the exclusive use of TD Evergreen and such contractor has waived his rights of authorship)and EXTERNALLY PREPARED MATERIAL (being defined as material prepared by authors not employed by TD Evergreen such as written material preparedby representatives of mutual fund companies which is made available to Investment Advisors at various firms in an identical form).
INTERNALLY PREPARED MATERIAL comes within the following three categories:
1) General Marketing material includes advertisements, prospecting letters, seminar materials, brochures, fact sheets, posters and banners. These materials whichdo not ascribe authorship and are generic in nature may be used by Investment Advisors subject to our current standard disclaimers, limitations and approvalprocess.
2) Newsletters prepared by our firm or outside contractors employed by our firm may display the name and picture of the Investment Advisor but must clearlyshow that they were written on behalf of the Investment Advisor. These materials may not therefore state or suggest that they were authored "by" theInvestment Advisor. Accordingly, from the date of the adoption of this policy, the newsletter must contain the following addition to the second sentence of ourcurrent disclaimer (noted in italics and bold) to ensure that clients are not left a mistaken impression as to the authorship of the materials:
"The statements and statistics contained herein are based on material believed to be reliable but we cannot guarantee they are accurate or complete. Thisnewsletter is prepared for and published on behalf of (insert name of the TD Evergreen Investment Advisor) and is for information purposes only. Particularinvestments or trading strategies should be evaluated relative to each individual's objectives in consultation with the Investment Advisor. TD Securities Inc.and/or its affiliated persons or companies may participate in an underwriting of, hold a position in, or make a market in, the securities mentioned, includingoptions, futures and other derivative instruments thereof, and may, as principal or agent, buy or sell such securities. TD Evergreen Investment Services is adivision of TD Securities Inc. which is a subsidiary of the Toronto-Dominion Bank. TDSI - Member CIPF."
3) Newspaper articles prepared by our firm or outside contractors employed by our firm may display the name of the Investment Advisor but may not state orimply that they are written "by" the Investment Advisor or refer to the Investment Advisor as the "author" of the material. Authorship for the article must beattributed in the following manner so as to ensure that no confusion as to the Investment Advisor's contribution may result:
"The article was prepared for (name of Investment Advisor) who is an Investment Advisor with TD Evergreen Investment Services, a division of TD SecuritiesInc. (TDSI) which is a subsidiary of The Toronto Dominion Bank. TDSI - Member CIPF."
EXTERNALLY PREPARED MATERIAL
Externally prepared materials are authored by individuals not employed by TD Evergreen and made available generally for use by persons in the investmentindustry either for free or for a fee/charge. Identical materials are generally distributed to all users of these products. The most common sources of this type ofwritten material are mutual fund companies and distributors of packaged marketing systems.
1) General Marketing Material received from mutual fund companies is generally specific to the product sold (i.e. fact sheets on specific mutual funds) or genericin nature (i.e. pre-formatted ads for specific mutual funds). The approval of these items will be handled through the existing process for obtaining approval ofmarketing or advertising materials. Where, however, the author of the material is known, the author's name must be identified immediately beneath the mainheading of the article or marketing material. The investment advisor cannot state or imply that he or she is the author of general marketing materials.
2) Newsletters received from external sources may display the name and picture of the Investment Advisor but must clearly show that they were written onbehalf of the Investment Advisor and may not state that they were written "by" the Investment Advisor. In order to accomplish this the newsletter must discloseon the first page immediately below the main heading who wrote the material ("i.e. a publication for investors by ABC Mutual Fund Company"). In addition itmust bear a disclaimer similar to the following to ensure that the reader is not confused as to the authorship of the material:
"The statements and statistics contained herein are based on material believed to be reliable but we cannot guarantee they are accurate or complete. Thisnewsletter was written, designed and produced by (name of author or fund company) and is for information purposes only. Particular investments or tradingstrategies should be evaluated relative to each individual's objectives in consultation with their Investment Advisor."
3) Newspaper articles prepared by external sources may display the name of the Investment Advisor but may not state that they are written "by" the InvestmentAdvisor or refer to the Investment Advisor as the "author" of the article. In order to accomplish this, credit for the article must be given in the following manner:
"The article was prepared by (author's name) for (Investment Advisor's name) who is an Investment Advisor with TD Evergreen Investment Services, a divisionof TD Securities Inc. (TDSI) which is a subsidiary of The Toronto Dominion Bank. TDSI - Member CIPF."
In addition the name of the author of the article must appear immediately below the main heading or title of the article.
Books deserve special consideration because of copyright issues and the credibility that authorship of a text establishes with the reader. Any Investment Advisorcontributing to the writing of a book must contact Compliance and National Sales for approval of the project. This encompasses books of any nature whetherthey are for sale in a bookstore, by mail or distributed on a complimentary basis to customers as a business promotion. While each case is different and will bejudged on the facts, the following general principles will apply:
a) an Investment Advisor must make a significant contribution to the book in order to claim authorship;
b) the Investment Advisor must be familiar with and able to work with all concepts, strategies and ideas contained in the book. Where the book deals withoptions and/or commodity futures, the Investment Advisor will be required to be registered to trade in those products;
c) disclosure must be made in each copy of the book of the names of all persons who will be claiming authorship or co-authorship of the book. The distributionof identical books with different authors listed or only a partial list of authors is prohibited; and
d) Compliance must read and review the contents of all books prior to publication.
The intention of this policy is to provide Investment Advisors with guidance as to the proper disclosure required to avoid the possibility of misrepresentation asto authorship. Please contact the Compliance Department should you require any further clarification or interpretation of this policy.