Securities Law & Instruments

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IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
- and -
IN THE MATTER OF AN OPPORTUNITY TO BE HEARD
REQUESTED BY TREVOR ROSBOROUGH

DECISION OF THE DIRECTOR

 

Having reviewed and considered the settlement agreement signed by Trevor Rosborough ("Rosborough") on April 28, 2020, and by staff of the Ontario Securities Commission on April 29, 2020 (the "Settlement Agreement"), a copy of which is attached as Appendix "A" to this Decision, and on the basis of the Settlement Agreement, I, Pat Chaukos, in my capacity as Director under the Securities Act, R.S.O. 1990, c. S.5 (the "Act"), hereby make the following decision:

1. Effective immediately, the terms and conditions in Appendix "B" to this Decision shall be imposed on Rosborough's registration, and shall remain in place until his registration is suspended.

2. Effective June 1, 2020, Rosborough's registration shall be suspended, and he may not apply to reactivate his registration until after a period of five years from that date, at which time Staff will not recommend to the Director that his application be refused unless Staff becomes aware after the date of the Settlement Agreement of conduct impugning Rosborough's suitability for registration or rendering his registration objectionable, and provided that he meets all applicable criteria for registration at the time.

3. Before applying to reactivate his registration, Rosborough shall retake, and successfully complete, the Ethics and Professional Conduct Course.

4. If Rosborough's registration is reactivated, it shall be subject to terms and conditions requiring close supervision of his trading activities by his sponsor firm for a period of at least one year.

May 4, 2020

"Pat Chaukos"

Appendix "A"

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED -- and -- IN THE MATTER OF AN OPPORTUNITY TO BE HEARD REQUESTED BY TREVOR ROSBOROUGH

SETTLEMENT AGREEMENT

I. INTRODUCTION

1. Registration is a cornerstone of Ontario's securities regulatory regime. It is important that individuals who engage in the business of trading or advising in securities, or who hold themselves out as doing so, be properly registered. Unregistered individuals who engage in "stealth advising" arrangements will face serious regulatory consequences.

2. This settlement agreement (the "Settlement Agreement") relates to the opportunity to be heard (the "OTBH") under s. 31 of the Securities Act, R.S.O. 1990, c. S.5 (the "Act") that has been requested by Trevor Rosborough ("Rosborough"), a registered mutual fund dealing representative, regarding the recommendation by staff of the Compliance and Registrant Regulation Branch of the Ontario Securities Commission ("Staff") that his registration be revoked pursuant to s. 28 of the Act.

3. As more particularly described in this Settlement Agreement, during the period October 31, 2017 to July 29, 2018 (the "Material Time"), a time that he was not registered under the Act, Rosborough:

(a) misrepresented himself to certain former clients about his employment status and ability to provide them with investment services;

(b) participated in a stealth advising arrangement with ML;

(c) participated in a stealth advising arrangement with DG; and

(d) held himself out to prospective clients as engaging in the business of trading and advising in securities while not registered under the Act, as required.

4. Central to this matter is the concept of "stealth advising." In a stealth advising arrangement, a client account is maintained with a registered individual as the representative of record, and trading activity is processed using the registered individual's representative code. However, a non-registered individual engaging in stealth advising services the account by, among other things, providing investment advice and engaging in acts in furtherance of trades, such as having the client complete investment documentation for securities transactions. Essentially, the non-registered individual maintains a book of business without registration, by superficially relying on a registered individual's registration.

II. AGREED STATEMENT OF FACTS

5. The parties agree to the facts as stated below.

A. The Registrant

6. Rosborough has been registered under the Act as a mutual fund dealing representative with Sterling Mutuals Inc. ("Sterling") since July 30, 2018. Rosborough carries on business under the trade name "Masterpiece Financial." Before joining Sterling, Rosborough was registered as a mutual fund salesperson with Quadrus Investment Services Ltd. ("Quadrus") from September 5, 2006 to September 28, 2009, and then as a mutual fund dealing representative from September 28, 2009 to October 31, 2017.

B. Discipline and Termination by Quadrus

7. During his employment with Quadrus, Rosborough was the subject of three internal disciplinary events:

(a) In February 2015, Quadrus reprimanded Rosborough for failing to report to the firm a change in certain personal information relating to his registration that had to be disclosed on the National Registration Database.

(b) In June 2016, Quadrus reprimanded Rosborough for not responding to compliance requests in a timely manner.

(c) In June 2017, Quadrus reprimanded Rosborough for obtaining and using pre-signed forms.

8. Quadrus terminated Rosborough effective October 31, 2017. This termination had the effect of suspending Rosborough's registration, pursuant to s. 29(3) of the Act.

C. MFDA Proceedings

9. The pre-signed forms matter for which Rosborough was reprimanded by Quadrus was also referred to the Mutual Fund Dealers Association of Canada (the "MFDA").

10. On May 30, 2018, Rosborough entered into a settlement agreement with staff of the MFDA in which he admitted that, between September 2009 and November 2016, he obtained, possessed, and in at least 14 instances, used to process transactions, 23 pre-signed account forms in respect of 18 clients. In the settlement agreement, Rosborough agreed to a fine of $10,000 and to pay $2,500 in costs. The settlement agreement was approved, and the agreed-upon penalties imposed by the MFDA's hearing panel, on June 28, 2018.

D. Reactivation of Registration with Sterling

11. Following the approval of Rosborough's settlement agreement by the MFDA, his registration under the Act was reactivated with Sterling, effective July 30, 2018, subject to certain terms and conditions.

12. At the time Staff reviewed Rosborough's application to reactivate his registration and recommended to the Director that it be granted subject to terms and conditions, Staff was unaware that during Material Time, when Rosborough was not registered under the Act, and while his activities relating to pre-signed forms were under investigation by the MFDA, he engaged in the stealth advising and the related misconduct referred to herein.

E. Misrepresentations to Former Clients

13. When Rosborough was terminated by Quadrus, the firm gave him the opportunity to sell his future commission entitlement to an approved registrant, and he entered into a contract with ML for this purpose. At that time, ML was a registered mutual fund dealing representative with Quadrus.

14. Rosborough did not receive what he believed to be sufficient information from Quadrus as to what they would be communicating to clients about his departure from the firm. Accordingly, Rosborough undertook that process himself and contacted his former clients by phone and by email. In some emails Rosborough sent to former clients , he misrepresented the reason for his departure from Quadrus by telling the recipient that he left because of his own concerns about the firm's business practices. In other emails, Rosborough minimized ML's role as the recipient's new dealing representative by indicating that nothing would change as a result of the transfer, and that Rosborough would continue to provide the recipient with investment advice as before. Moreover, some of these emails came well after Rosborough's October 31, 2017 termination by Quadrus, and then only in response to inquiries from former clients asking who ML was, after the former client noticed ML's name on investment documents and account statements.

15. Rosborough's intent in including these misrepresentations in his emails was to try to retain the recipient's trust in order to regain them as a client upon the reactivation of his registration.

16. In addition, in a meeting and in email exchanges during the Material Time with TM, a former client, regarding TM's investment portfolio, Rosborough made statements that were misleading about the status of his registration. Specifically, he advised TM that he was sponsored by Sterling and that his registration with Sterling was complete. He never explained that while Sterling was in the process of sponsoring his registration and had submitted his registration application to the Ontario Securities Commission (the "Commission"), it had not yet been approved. Rosborough also mistakenly advised TM that he would be registered on a certain date when that was not correct.

F. Stealth Advising with ML

17. Throughout the Material Time, Rosborough would regularly provide advice to his former clients about buying or selling specific mutual funds. This advice was given in person or through emails. In addition, throughout the Material Time, Rosborough would receive unsolicited instructions from former clients to process securities transactions.

18. Upon giving advice to former clients or receiving unsolicited instructions from former clients, Rosborough would provide them with Quadrus investment documents to sign in order to carry out a mutual fund purchase or sale. These documents were given to the client by Rosborough or one of his three administrative assistants, and stated that ML was the registrant responsible for the transaction. The documents used ML's representative code.

19. Once investment documents had been signed by former clients, Rosborough would collect the documents at his office, where ML would attend to sign them. ML generally did not speak to any of Rosborough's former clients before he signed their investment documents.

20. When investment documents had been signed by both a former client and by ML, one of Rosborough's administrative assistants would send the documents to Quadrus for processing.

21. Staff has identified at least 33 securities transactions (purchases and sales) that appear to have been processed by Rosborough through his stealth advising arrangement with ML. These transactions account for approximately 55 individual trades for 31 different clients, and have a cumulative value of approximately $995,000.

G. Stealth Advising with DG

22. DG was registered with Quadrus from September 16, 2016 to October 20, 2017, where his registration overlapped with that of Rosborough.

23. After Rosborough was terminated by Quadrus, he arranged for DG to become registered with Sterling so he could process securities transactions for Rosborough. In this regard, Rosborough introduced DG to Sterling, negotiated DG's contract with Sterling, and paid all of DG's dealer costs. When DG joined Sterling, he had no clients of his own.

24. DG became registered with Sterling effective November 23, 2017, and occasionally worked out of an office in Rosborough's home. DG received administrative support from Rosborough's administrative assistants, but DG paid no part of their salaries.

25. Rosborough stealth-advised approximately 16 to 18 individuals through DG, and this arrangement was carried out in a manner similar to the arrangement with ML. Rosborough would provide investment advice to former clients or receive unsolicited directions from them to process mutual fund transactions, and would supply the former clients with Sterling investment documents bearing DG's name as the responsible registrant and his representative code. Once these documents had been signed by the client, Rosborough gave them to DG to sign, and they were then sent by one of Rosborough's assistants to Sterling for processing.

26. DG paid amounts to Rosborough which were purportedly monthly rental payments for office space and the use of Rosborough's Mercedes Benz SUV. However, these amounts were not in fact paid on a monthly basis, but were instead paid only when DG received commission payments from Sterling. DG would receive amounts from Sterling, and immediately transfer a corresponding amount to Rosborough. At least approximately $24,000 in commissions was flowed to Rosborough by DG in this manner.

H. Holding Out to Prospective Clients

27. During the Material Time, Rosborough held himself out to at least five prospective clients as being in the business of dealing and advising in securities for the purpose of trying to gain them as clients:

(a) AM -- On January 31, 2018, AM emailed Rosborough to say she would like to set up a meeting about switching her investments to him. Rosborough replied: "I would be happy to help you with this."

(b) WM -- On February 9, 2018, WM emailed Rosborough copies of her investment account statements with the message: "Here's my stuff for investing [...] Let me know what else you need to get started [...]". Rosborough replied that he and WM should meet, and a meeting was scheduled. Rosborough emailed WM to ask for her driver's license number and social insurance number in advance of their meeting.

(c) JS -- On March 10, 2018, Rosborough emailed DC to inform him that "I had a prospective client ask me for a reference. He lives nearby you [...] Would you mind if I shared your email and phone number with him [...]." DC agreed to Rosborough's request, and on March 13, 2018 Rosborough emailed DC to report that: "Just a short note to say thanks for talking to [JS] today. He let me know he talked to you and let me know he is transferring his accounts to me." On May 17, 2018, Rosborough emailed JS to advise that his "TD account has now settled under our administration [...] we can meet to begin to implement the portfolio recommendations". Thereafter, Rosborough and JS agreed to meet, and on June 12, 2018, Rosborough asked JS to come to his office to sign account opening forms.

(d) Riverbend Golf Community -- On April 5, 2018, Rosborough received by email a request for proposals ("RFP") from the Riverbend Golf Community for the management of two reserve funds belonging to it. The RFP asked bidders to describe, among other things, their "licensing", "portfolio management experience", and to provide "[c]onfirmation that you are approved for discretionary trading and a description of the oversight and compliance processes in place at your firm." Immediately upon receiving the RFP, Rosborough forwarded it to two individuals at different mutual fund companies to ask for their assistance in preparing a proposal. Rosborough wrote to these individuals that this was a "huge opportunity for me" that could be "huge for my business". On May 14, 2018, Rosborough submitted a 26-page proposal to the Riverbend Golf Community, in which he wrote: "We are managing approximately 140,000,000 in assets through a combination of mutual funds, exchange traded funds, and ETF's with many of the world's most respected asset managers."

(e) KD -- On May 20, 2018, KG emailed Rosborough to say she needed assistance with her money. Rosborough responded the following day as follows: "I would be happy to help you make some decisions about your investments [...] Let me know if you want to discuss and I can show you some accounts I have been managing so you can get an idea of what I would do with the money."

III. ADMISSIONS BY ROSBOROUGH

28. Rosborough admits that by stealth advising through ML and DG, and by holding himself out to prospective clients as engaging in the business of trading and advising in securities, he failed to comply with s. 25(1) and (3) of the Act.

29. Rosborough admits that he made statements to TM about his registration during the Material Time that were misleading, and in so doing he failed to comply with s. 44(1) of the Act.

30. Rosborough admits that by engaging in all of the conduct as described in this Settlement Agreement, he failed to demonstrate the integrity required of a registered individual.

IV. CONSENT TO REGULATORY ACTION

31. To settle the OTBH requested by Rosborough, Staff recommends, and Rosborough consents to, the following regulatory action by the Director, pursuant to s. 28 of the Act:

(a) Effective immediately, the terms and conditions in Schedule "A" to this Settlement Agreement shall be imposed on Rosborough's registration, and shall remain in place until his registration is suspended.

(b) Effective June 1, 2020, Rosborough's registration shall be suspended, and he may not apply to reactivate his registration until after a period of five years from that date, at which time Staff will not recommend to the Director that his application be refused unless Staff becomes aware after the date of the Settlement Agreement of conduct impugning Rosborough's suitability for registration or rendering his registration objectionable, and provided that he meets all applicable criteria for registration at the time.

(c) Before applying to reactivate his registration, Rosborough shall retake, and successfully complete, the Ethics and Professional Conduct Course.

(d) If Rosborough's registration is reactivated, it shall be subject to terms and conditions requiring close supervision of his trading activities by his sponsor firm for a period of at least one year.

32. The parties submit that the recommended regulatory action is appropriate based on the following:

(a) Rosborough engaged in a pattern of serious misconduct over a period of approximately nine months;

(b) Rosborough has cooperated with Staff's investigation into his conduct by voluntarily providing access to his records, including his emails, and by voluntarily attending an interview with Staff;

(c) There is no evidence that any transaction conducted during the Material Time was unauthorized by the client at issue;

(d) Rosborough is fully cooperating with Staff and Sterling to ensure that his clients are transferred to a duly registered dealing representative in an orderly manner; and

(e) By agreeing to settle this matter, Rosborough has accepted responsibility for his misconduct, and has saved Staff and the Director the resources required to conduct an OTBH.

33. The parties acknowledge that if the Director does not accept this Settlement Agreement, this Settlement Agreement and all negotiations between the parties shall be without prejudice, and Rosborough shall be entitled to the OTBH he has requested.

"Trevor Rosborough"

April 28, 2020

"Elizabeth King"
Deputy Director
Compliance and Registrant Regulation

April 29, 2020

Schedule "A"

Terms and Conditions of the Registration of Trevor Rosborough

The registration of Trevor Rosborough (the "Registrant") under the Securities Act, R.S.O. 1990, c. S. 5 (the "Act") is subject to the following terms and conditions, which were imposed by the Director pursuant to s. 28 of the Act. These terms and conditions are in addition to the terms and conditions that were imposed by the Director on July 30, 2018.

1. The Registrant shall not open any new client accounts.

These terms and conditions of registration constitute Ontario securities law, and a failure by the Registrant to comply with these terms and conditions may result in further regulatory action against him, including a suspension of his registration.

Appendix "B"

Terms and Conditions of the Registration of Trevor Rosborough

The registration of Trevor Rosborough (the "Registrant") under the Securities Act, R.S.O. 1990, c. S. 5 (the "Act") is subject to the following terms and conditions, which were imposed by the Director pursuant to s. 28 of the Act. These terms and conditions are in addition to the terms and conditions that were imposed by the Director on July 30, 2018.

2. The Registrant shall not open any new client accounts.

These terms and conditions of registration constitute Ontario securities law, and a failure by the Registrant to comply with these terms and conditions may result in further regulatory action against him, including a suspension of his registration.