QUESTION #1 (Violation of MFDA Rules? Yes/No and explain why?) (12 Marks)

For this question students are required to answer the question at the end of each case below. The cases are not related to each other.

CASE #1 (4 Marks)

Sam, a dealing representative with Smith Financial, has a cottage in Haliburton, Ontario. John, one of Sams wealthier clients, mentioned at their last meeting that he wanted to take a quiet, relaxing vacation this summer with his family.

Sam usually rents out the cottage in the summer when he is not using it. However, hoping to get some business referrals from John, Sam offers John use of his cottage, at a 25% discount from the usual rental cost, for 2 weeks in August. John is thrilled with Sams offer and accepts it.

Over the next two months Sam received referral business from several of Johns business colleagues. The total amount of fees earned by Sam over these two months from the new referrals far exceeded the rent discount to John.

Sam did not see the need to inform his employer, the mutual fund dealer, about this arrangement with John, since the cottage is Johns personal property. Also, for liability reasons, ownership of the cottage is actual in Sams wife name, not Sams.

Required:

Has Sam violated any MFDA rule(s)? Explain your response please.

CASE #2 (4 Marks)

Jan, a new dealing rep for ABC Financial is determined to show her boss that she can bring in a significant number of new clients to the firm within the next 4 months. The firm is particularly interested in increasing sales of their International Equity Fund, which pays high commissions to the Mutual Fund Advisor and the Dealer Firm. As part of her strategy to increase sales of this fund, Jan posts a message on her Linked-in account that provides her followers with a marketing message related to this fund.

In the message Jan included a summary the funds performance from 2017 to 2020. The funds performance over that time period was above the Index average. In addition, Jan told her readers that this particular fund was guaranteed to earn a better rate of return in 2021 than in prior years, since International Equity Fund values were now nearing their highest values in several years.

Required:

Has Jan violated any MFDA rule? Explain your response please.

CASE #3 (4 Marks)

Sharon is a client of XYZ Financial Services, a mutual fund dealer. She owns a large portfolio of mutual funds and she is one of your best clients.

This summer Sharon plans to spend 4 months travelling through various counties in the Far East. Communicating with her Mutual Fund Advisor (Anne) may be difficult and so her advisor suggests to her that she complete and sign a Power of Attorney over to him. The law permits the person named in the Power of Attorney (Anne in this case) to act on behalf of the client. Sharon completes the Power of Attorney with her lawyer and provides Anne with a signed and dated copy for her file.

Required:

If Anne goes ahead and makes trades in Sharons account while Sharon is away, has she violated any MFDA rule(s)? Explain your response please.