Canada’s regulator of mutual fund dealers has made a “reasonable inference” that a now-banned Vancouver dealer was part of a money laundering or tax evasion scheme.
Last month, former CIBC Securities Inc. mutual fund dealer Meng Xi Li was fined $100,000 and banned from further work in the securities industry after being found to have broken a number of trading rules.
A February 6 Reason for Decision posted to the Mutual Fund Dealers Association (MFDA) website said, “The evidence presented to the Hearing Panel allows us to draw a reasonable inference that [Li] was part of a scheme to launder money or permit tax evasion and in so doing was guilty of misconduct.”
Furthermore, Li, a junior dealer at the time, lied about the scheme to the bank and the regulator, according to the decision.
Between her August 2015 to January 2017 employment stint at CIBC, it was determined by MFDA that Li violated several trading rules while improperly managing funds for her future husband and his nephew, who Li claims to have never met during the time of the infractions.
According to the MFDA ruling, Li opened a CIBC unregistered investment account in the nephew’s name and completed multiple transfers between the nephew and uncle, whom Li married in June 2017, after she was fired by the bank earlier that year.
Li facilitated 33 purchases for the nephew’s account during 2016, ranging from $50,000 to $250,000. She then redeemed all the mutual funds by January 9, 2017.
The MFDA panel said that, on January 10, 2017, Li “attempted to transfer approximately $1.36 million from [the nephew’s] CIBC Bank account to [Li’s future husband] in January 2017, and subsequently closed both [nephew’s] CIBC Bank account and mutual fund account,” according to the ruling.
The ruling further said, “On January 23, 2017, a person identifying himself as [the nephew] attended [Li’s] CIBC Bank branch, denied that he knew [Li], was unaware of any Bank or mutual fund accounts in his name, and claimed that [Li’s future husband] was his uncle and that the monies in his name belonged to [his uncle],” the ruling stated.
To facilitate the scheme, Li admitted to falsifying bank records to make it seem as though she had met her future nephew.
Along the way, it was determined Li transferred $100,000 through her personal account. Li told MFDA investigators that her soon-to-be husband had agreed to lend her the $100,000 to fund a down payment for the purchase of an apartment in Vancouver. Li, according to the notice of hearing, did not purchase the apartment and retained the money in her account.
Some of the MFDA investigator’s evidence was based on hearsay; however, it was admitted, as the test for evidence before the regulatory body is less than that of a criminal case. Nevertheless, “the allegations of misconduct of [Li] are extremely serious,” stated the hearing panel decision signed by chair Michael Carroll and panellists Michelle Leung and Holly Millar.
Li’s actions and subsequent punishment is significant relative to recent MFDA hearings. Typical fines for infractions range from about $2,500 to $10,000 and, in rare instances, up to $30,000. In 2019, the largest MFDA Pacific Region fine issued was $25,000. Earlier this month mutual fund dealer Kindle Blythe was fined $30,000.
But whether Li – who is no longer registered in the securities industry in any capacity – actually pays the fine will be a significant test of new, legislated collection powers bestowed upon the MFDA in June 2018.
“Given that this is a recent development, it is too early to tell what effect the new collection power is having on collection rates,” MFDA Pacific Region vice-president Jeff Mount told Glacier Media in January.
Since the commencement of MFDA disciplinary activity in 2004, MFDA hearing panels have imposed total fines of $88,147,242, of which $12,186,233 (approximately 14%) has been collected.
A small sample size indicates some progress on collection may have started, as MFDA’s 2019 annual report claims that in the 132 hearings in 2018, hearing panels imposed fines of $6,080,031, of which 48% – or $2,942,096 – has been collected.
Following preliminary technical hearings and public consultation in late 2019, the Cullen Commission of Inquiry into Money Laundering commences in earnest February 24 with a week of hearings.