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Former dealer rep fined $2 million over hedge fund scheme

Date: Wednesday, July 2, 2014
Author: James Langton, Investment Executive

An MFDA panel emphasized the problems caused by the former repís refusal to cooperate with the investigation By James Langton | June 26, 2014 18:10 A former fund dealer rep has been fined $2 million after a hearing panel of the Mutual Fund Dealers Association of Canada (MFDA) found that she directed a scheme that may have caused investor losses of approximately $20 million. The MFDA panel ordered that former fund dealer rep, Ellen Batac, be hit with the hefty penalty after it concluded that she was the driving force behind a scheme to sell a hedge fund outside her dealer that apparently caused millions in investor losses. She also refused to cooperate with the MFDA's investigation, and prevented others from cooperating, effectively thwarting the inquiry. According to the decision, Batac did not deny the MFDA's allegations, but refused to cooperate with its investigation after it became clear that the regulator could share the information with police. "The lack of cooperation from Batac, combined with the fear that she and her business practices instilled in the other respondents, should they break their imposed secrecy, garnered a similar lack of cooperation from all but [one of her co-accused in the case]. When the public's right to protection is factored in, this all but frustrated the MFDA's ability to conduct any sort of a meaningful or even adequate investigation," it says. The panel also found that Batac was largely behind the scheme, saying that it, "... accepts that Batac was the driving force, using fear of the loss of their investments to prevent the other respondents from disclosing material information and facts [to their dealers, and the MFDA]. This particular tactic of Batac is responsible for arresting the information gathering that was needed to conduct a full investigation: to uncover or discover the extent of the harm to the public." Nevertheless, the MFDA estimates that the losses were likely in the range of $20 million. "The MFDA was not able to determine either the global losses to investors, attributable to the activity of the respondents collectively, or the losses caused by each individual respondent to investors. It did however, from the information it was able to gather from its investigation, estimate that the global losses may be in the range of $20,000,000," the decision notes. MFDA staff sought a fine of $700,000 against Batac in the case, which she opposed. However, the hearing panel came down much harder, ordering a $2 million fine (the maximum penalty it can impose is $5 million per offence), along with a permanent industry ban and costs of $10,000. As for the other reps that were involved, it also ordered a $250,000 fine and permanent ban against Lilibeth Ocampo; fines of $150,000 and seven year bans against both Dandy Macareag and Cesar Martin; and, a one year ban against the one rep that did cooperate with the MFDA, Hazel Gaminde. "Ms. Gaminde was the only respondent who cooperated, immediately and fully, with the MFDA investigation. She did not hide behind the confidentiality agreement Batac had her sign. Gaminde understood her obligation to cooperate with her regulator and she acted upon it," the panel said, adding, "Gaminde gained the least and may well have lost the most of all of the respondents." She has since gone through personal bankruptcy. Batac and four other accused in the case were licensed with WFG Securities of Canada Inc. and/or W.H. Stuart Mutuals Ltd. The MFDA hearing panel found that neither firm knew anything about the illicit investments, and that their policies specifically prohibited this sort of activity.