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According to the agreement, the company was found guilty of several misconducts and its control weaknesses were exposed.
In particular, the company found representatives who manually changed their annual sales results. who set up pre-authorized contribution plans (PACs) before the first contribution was made and immediately canceled them; and treated certain transactions as redemptions and new purchases rather than fund switches.
In some cases, these actions had legitimate reasons or resulted from an honest misunderstanding of company procedures. In other cases, however, the organization concluded that the representatives in question had engaged in “gross misconduct” that led to their termination.
According to the settlement, a total of 18 representatives were terminated for changing their sales results, 14 were fired for setting up fake PACs, and two were fired for improperly manipulating fund switches.
Several representatives resigned from the organization prior to the internal disciplinary process that led to their termination.
The firm was the main victim of mishandling their sales numbers and setting up fake PACs, but its customers were badly affected by the mishandling of fund switches. As a result, the company is paying about $3.75 million in restitution to customers affected by those transactions.
The settlement with the MFDA also covered several other matters against Scotia Securities.
Most significantly, SROs fail to prevent their clients from buying inappropriate funds for their non-registered accounts, with distributions treated as income and taxed more than capital gains.
As a result, the firm will pay at least $6 million in compensation to customers who overpaid taxes due to improper purchases between 2015 and 2021.
The company is paying another $1.1 million to resolve service issues — including customers who didn’t receive redemption checks “on time” after the company shifted to remote work during the pandemic.
The company is paying another $740,145 in compensation to customers who had to protect their money to cover the damages caused by these processing delays.
MFDA found that account transfer requests sent to one of the company’s fax servers between November 24, 2021 and February 9, 2022 were not processed in a timely manner. That case is expected to result in another $350,000 in damages to affected customers.
All told, Scotia will pay at least $10.8 million in restitution to customers, along with MFDA sanctions, for regulatory failures that allowed the breach to occur.
The company promised to comply with the law it admitted to breaking, and the settlement acknowledged changes to address the issues.
“Scotia is making extensive process and management improvements to ensure adequate training and to prevent incidents of the type identified in the settlement agreement in the future. [reps]He said.
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