allegations

INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA
ON BEHALF OF THE
INVESTMENT DEALERS ASSOCIATION OF CANADA
In the matter of:
THE BY-LAWS OF THE
INVESTMENT DEALERS ASSOCIATION OF CANADA
AND
THE DEALER MEMBER RULES OF THE
INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA
AND
CHRISTOS ORESTES ILIAS
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
Canada (“IIROC”), a hearing will be held before a hearing panel of the IIROC (“Hearing Panel”)
on Tuesday, April 19, 2011 at JPR Meeting Rooms, 390 Bay Street, 3rd Floor, at 10:00 AM or as
soon thereafter as the hearing can be heard.
TAKE FURTHER NOTICE that pursuant to Rule 6.2 of the Dealer Member Rules of Practice
and Procedure, that the hearing shall be designated on the:
The Standard Track
The Complex Track
TAKE FURTHER NOTICE that on June 1, 2008, IIROC consolidated the regulatory and
enforcement functions of the Investment Dealers Association of Canada (“IDA”) and Market
Regulation Services Inc. Pursuant to the Administrative and Regulatory Services Agreement
-2between IDA and IIROC, effective June 1, 2008, the IDA has retained IIROC to provide services
for IDA to carry out its regulatory functions.
THE PURPOSE OF THE HEARING is to determine whether Christos Orestes Ilias (or the
“Respondent”) has committed the following contravention that is alleged by the Staff of the
IIROC:
Count 1
In or about July 2007 the Respondent failed to fully disclose fees associated with certain
investments that he recommended to his clients, contrary to IDA By-law 29.1, (now IIROC
Dealer Member Rule 29.1).
PARTICULARS
TAKE FURTHER NOTICE that the following is a summary of the facts alleged and to be
relied upon by Staff at the hearing:
A. Overview
1. The Respondent failed to fully advise his clients, Mr. BC and Mrs. BC, as to the fees
associated with certain investments he recommended. When the clients wished to sell the
investments, they were subject to certain unanticipated early redemption fees which had
not been clearly disclosed before the purchase.
B. The Respondent’s Registration History
2. At all material times, the Respondent was employed by Edward Jones as an investment
advisor. He commenced his employment with Edward Jones in March 1998 and is
currently employed there.
3. On June 1, 2008, the Respondent became a regulated person of IIROC.
-3-
C. The Clients Mr. BC and Mrs. BC
4. The clients Mr. BC and Mrs. BC are husband and wife. They opened a joint account with
Edward Jones on or about July 17, 2007. The Respondent was the Investment Advisor
responsible for the joint account.
5. At the time of account opening Mr. BC was 69 years old and Mrs. BC was 68 years old.
They were both real estate agents and mortgage brokers. As they were nearing retirement
age, they wanted professional advice regarding investing in the markets.
6. Mr. BC had some prior experience investing in the markets in and around 2000, when he
traded equity securities based on advice he received from contacts, friends and family
members. Mr. BC had an investment account with the Respondent through which he
would place buy and sell orders on an unsolicited basis.
7. The account opening documentation for Mr. BC and Mrs. BC’s joint account includes the
following information:
a) Net liquid assets
$550,000
b) Net worth
$750,000
c) Annual income
$40,000
d) Investment knowledge
moderate experience
e) Account Objectives
50% Growth & Income, 50 % Growth
f) Risk tolerance
100% Medium
8. Mr. BC and Mrs. BC made a total initial investment of $250,000 which was distributed
and invested in 6 different mutual funds, all of which were within the account objectives.
9. At the time of making the recommendations, the Respondent did not properly disclose the
fees associated with deferred sales charges which applied to the investments made in the
account.
-4D. The Clients Learn of the Fees Associated with Early Redemption
10. By the end of 2007 and early in 2008, the Respondent and Mr. BC had entered into an
informal referral arrangement whereby Mr. BC would refer mortgage business clients to
the Respondent.
11. Also in late 2007 Mr. BC referred his son, MC, to the Respondent. MC made similar
deferred sales charge mutual fund investments with the Respondent at that time. In
January 2008 MC required access to the funds he had invested and sought to liquidate the
investments. MC was required to pay early redemption fees upon the liquidation of the
investments.
12. When Mr. BC learned of the early redemption fees paid by MC he became concerned that
the investments made in his joint account would be subject to the same type of fees. In
February 2008, Mr. BC sought an explanation from the Respondent as to the exact fees
which would apply to a sale of the mutual fund investments from his joint account.
Throughout February and March 2008, Mr. BC sought clarification from the Respondent
regarding the fees relating to the investments.
13. Ultimately, it was not until May 2008 when Mr. BC advised that he and Mrs. BC were
considering alternate investments and requested a specific calculation of the proceeds
from a potential sale of their investment that the actual cost of an early redemption fee
was clearly disclosed to them by the Respondent.
14. In failing to fully and properly disclose the early redemption fees which applied to his
investment recommendations, the Respondent deprived his clients Mr. BC and Mrs. BC
from making a fully informed investment decision. As a result, the clients incurred
unanticipated expenses relating to their investments.
-5-
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.
RESPONSE TO NOTICE OF HEARING
TAKE FURTHER NOTICE that the Respondent must serve upon the Staff of the 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.
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.
-6-
PENALTIES & COSTS
TAKE FURTHER NOTICE that if the Hearing Panel concludes that the Respondent did
commit any or all of the contraventions alleged by 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)
a reprimand;
(b)
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)
suspension of approval for any period of time and upon any conditions or terms;
(d)
terms and conditions of continued approval;
(e)
prohibition of approval in any capacity for any period of time;
(f)
termination of the rights and privileges of approval;
(g)
revocation of approval;
(h)
a permanent bar from approval with the IIROC; or
(i)
any other fit remedy or penalty.
Where the Respondent is/was a Dealer Member:
(a)
a reprimand;
-7(b)
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 Dealer
Member by reason of the contravention;
(c)
suspension of the rights and privileges of the Dealer Member (and such suspension
may include a direction to the Dealer Member to cease dealing with the public) for
any period of time and upon any conditions or terms;
(d)
terms and conditions of continued Membership;
(e)
termination of the rights and privileges of Membership;
(f)
expulsion of the Dealer Member from membership in the IIROC; or
(g)
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 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 Toronto, this 20th day of January 2011.
JEFFREY KEHOE
INVESTMENT DEALERS ASSOCIATION OF CANADA
SUITE 1600
121 KING STREET WEST
TORONTO, ONTARIO
M5H 3T9