IN THE MATTER OF:

THE RULES OF THE INVESTMENT INDUSTRY REGULATORY

ORGANIZATION OF CANADA

AND

SHIRLEY LOCKE

STATEMENT OF ALLEGATIONS

Further to a Notice of Hearing dated July 3, 2019, Enforcement Staff of the Investment Industry

Regulatory Organization of Canada make the following allegations:

PART I REQUIREMENTS CONTRAVENED

Contravention 1 Between January 2010 and September 2014, the Respondent failed to use

due diligence to learn and remain informed of the essential facts relative to clients GR, JF, F

Limited and EH, contrary to Dealer Member Rule 1300.1(a).

Contravention 2 Between January 2010 and September 2014, the Respondent failed to use

due diligence to ensure that recommendations made for clients GR, JF and F Limited were

suitable for them, based on their investment objectives and risk tolerance, contrary to Dealer

Member Rule 1300.1(q).

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Contravention 3 Between January 2010 and September 2014, the Respondent effected trades

in the accounts of clients EH and AH that were not within the bounds of good business practice,

contrary to Dealer Member Rule 1300.1(o).

Contravention 4 Between January 2010 and September 2014, the Respondent conducted

unauthorized trades in the accounts of clients GR, JF, EH and RC, contrary to Dealer Member

Rule 29.1.

Contravention 5 Between January 2015 and December 2017, the Respondent failed to use due

diligence to learn and remain informed of the essential facts relative to client LG, contrary to

Dealer Member Rule 1300.1(a).

Contravention 6 Between January 2015 and December 2017, the Respondent failed to use due

diligence to ensure that recommendations made for client LG were suitable for her, based on

her investment objectives and risk tolerance, contrary to Dealer Member Rule 1300.1(q).

PART II RELEVANT FACTS AND CONCLUSIONS

Overview

1. Between January 2010 and September 2014 (the “First Material Period”), the

Respondent failed to know clients GR, JF, F Limited and EH, in that account opening

documentation and updates to that documentation did not reflect the clients’ true

investment objectives and risk tolerance.

2. During the First Material Period, a number of high risk securities were purchased and

held in clients GR, JF and F Limited’s accounts, that were not suitable for them, given

their true investment objectives and risk tolerance.

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3. The Respondent also effected trades in clients EH and AH’s accounts during the First

Material Period that were outside the bounds of good business practice, given the high

risk nature of the securities purchased and the excessive amount of margin used in

these accounts.

4. During the First Material Period, the Respondent effected various trades in the accounts

of clients GR, JF, EH and RC, without discussing the trades with the clients in advance.

5. In addition, the Respondent failed to know her client LG and made unsuitable

recommendations for this client, between January 2015 and December 2017 (the

“Second Material Period”).

6. Clients GR, JF, EH, AH, F Limited and LG all sustained unrealized losses in their accounts

as a result of the Respondent’s trading activity.

Background

7. The Respondent has been registered in the securities industry since October 1979. From

2009 until the fall of 2011 she was employed by Wellington West Capital Inc.

(“Wellington West”), as a Registered Representative (“RR”), as well as a Branch

Manager.

8. Wellington West was purchased by National Bank Financial Inc. (“NBF”) in October

2011. From October 2011 to October 30, 2014, the Respondent was employed as an RR

and Branch Manager with a NBF branch in Halifax, Nova Scotia.

9. After leaving NBF, the Respondent was employed by Industrial Alliance Securities Inc.

(“IAS”) in Halifax from October 31, 2014 to March 31, 2016 as an RR. She was also

registered as a Supervisor at IAS for part of this time period.

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10. The Respondent has been employed since April 1, 2016 as an RR with Aligned Capital

Partners Inc. (“Aligned Capital”) in Halifax, Nova Scotia.

Purchases of High Risk Securities

11. During the First Material Period, the Respondent purchased substantial amounts of two

high risk securities (as well as other high risk securities) in various clients’ accounts.

12. 01 Communique Laboratory Inc. (“01 Communique”) was incorporated under the

Business Corporations Act (Ontario) in 1992. Its business was the development and

marketing of mobile user products such as remote access and support. It was a high risk

security. The December 2013 Auditors’ Report to the Consolidated Financial Statements

indicated that 01 Communique had sustained a substantial loss in the year ended

October 31, 2013 and in recent years, and there was significant doubt in its ability to

continue as a going concern.

13. International Tower Hill Mines Ltd. (“Tower Hill”) was a mineral exploration company

with its head office in Vancouver, British Columbia. It was a speculative, high risk

security. Its Consolidated Financial Statements dated March 16, 2012 indicated that it

had no source of revenue.

Failure to Know GR

14. GR was born in 1938. His wife CR is retired. GR and CR had various accounts with the

Respondent, including GR’s RIF account. Most of the Respondent’s dealings regarding

GR’s RIF account were with CR.

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15. Initially GR opened an RSP account with the Respondent. On December 29, 2009, GR’s

RSP account was converted to a RIF account (“GR’s RIF Account”).

16. GR’s RIF KYC reflected 50% medium risk and 50% high risk, however, these percentages

did not accurately reflect GR’s goals or risk tolerance for this account. In actual fact, GR

did not want such a large portion of his holdings invested i n high risk securities. These

percentages remained unchanged in a 2012 KYC update for GR’s RIF Account.

17. Between January 2010 and September 2014, the Respondent failed to know GR in that

the KYC for his RIF Account did not accurately reflect his actual investment objectives

and risk tolerance.

Suitability of GR’s RIF Account

18. Between December 31, 2010 and September 30, 2014, the high risk holdings in GR’s RIF

Account (including 01 Communique and Tower Hill ), ranged between 22% and 61% of

the total Account holdings.

19. This percentage of high risk holdings was not suitable for GR, given his actual investment

objectives and true risk tolerance.

Unauthorized trading in GR’s RIF Account

20. The Respondent did not contact GR for instructions on any of his accounts. Any

discussions the Respondent had about their accounts were with CR, however, only

approximately 20% of the trades in GR’s RIF Account were discussed with CR in advance.

21. The Respondent effected 124 trades in GR’s RIF Account during the First Material

Period.

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Losses in GR’s RIF Account

22. GR’s RIF Account sustained a loss of $102,088 during the First Material Period.

Client JF

23. JF was born in 1916. She had a high school education, had been a homemaker and had

limited investment knowledge. JF had been a client of the Respondent for many years.

CR is JF’s daughter.

Failure to know JF

24. In 2004, JF opened a cash account (“JF’s Account”) with the Respondent. JF’s two

daughters were listed as co-account holders on JF’s Account for estate planning

purposes only. The 2004 KYC indicated 25% lower risk, income producing securities, 25%

moderate to higher risk, income producing securities, and 50% moderate risk, growth

oriented securities.

25. JF’s June 2009 KYC update (the “June 2009 KYC”) indicated 100% growth target mix as

well as risk tolerance levels of 50% medium and 50% high. There were no subsequent

updates to JF’s Account.

26. Between June 2009 and September 2014, the Respondent failed to know JF in that the

June 2009 KYC was not accurate, given JF’s circumstances, actual risk tolerance and

goals for her Account.

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Suitability of JF’s Account

27. JF relied on the Respondent for all her investment decisions. The Respondent did not

fully explain risk to JF.

28. JF’s Account held various medium and high risk securities (including 01 Communique

and Tower Hill), which were not suitable for her, given her actual investment objectives

and her actual risk tolerance. The percentage of medium and high risk holdings are set

out in the below chart:

As of Date % Medium Risk % High Risk

January 31, 2010 51 37

January 31, 2011 42 50

January 31, 2012 64 26

January 31, 2013 30 41

September 30, 2014 65 8

Unauthorized trading in JF’s Account

29. The Respondent effected 77 trades in JF’s Account during the First Material Period. The

Respondent did not discuss trades with JF in advance.

Losses re JF

30. JF’s Account sustained a loss of $47,083 during the First Material Period.

Failure to Know F Limited

31. F Limited was a family owned forestry company. Company principals GB and NB were

born in 1944 and 1950 respectively. In September 2011, the Bs provided the

Respondent with $25,000 to invest.

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32. The September 6, 2011 KYC for F Limited (the “F Limited Account”) indicates 100% high

risk and investment objectives of 100% Aggressive Growth. Investment knowledge was

indicated as limited.

33. While the Bs wanted their investment to grow, the Respondent did not discuss risk in

sufficient detail with them, nor did she explain what aggressive growth meant. The

Respondent told the Bs that she would not let their investment deteriorate.

34. The Respondent did not explain to the Bs that they could lose all or some of their money

with a 100% high risk portfolio.

35. Between September 2011 and September 2014, the Respondent failed to know F

Limited as 100% high risk tolerance and 100% aggressive growth objectives did not

accurately reflect the actual objectives or actual risk tolerance for the F Limited Account.

Suitability of F Limited Account

36. High risk securities (including 01 Communique and Tower Hill) made up 70% to 99% of

the account holdings in the F Limited Account at various times between September 30,

2011 and September 30, 2014.

37. These high risk holdings were not suitable for the Bs ’ circumstances or their goals for

the F Limited Account.

Losses in F Limited Account

38. The F Limited account sustained a loss of $16,250 between September 2011 and

September 30, 2014.

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Client RC

39. RC was born in 1944. He opened an account with the Respondent in February 2011.

(“RC’s Account”).

Unauthorized trades in RC’s Account

40. In February 2011, the Respondent effected purchases of three securities in RC’s account

which were not discussed in advance with him. These securities were:

20,000 shares of 01 Communique at a cost of $43,434;

25,000 shares of Petro Uno Resources Ltd. at a cost of $20,890; and

6,000 shares of Tower Hill at a cost of $59,904.

41. When RC discovered that the above shares had been purchased, he called the

Respondent to complain.

Client EH

42. EH was born in 1943. He was a pharmacist. EH opened a cash account with the

Respondent in July 2010 (“Cash Account”), which account was transferred to a new

margin account in March 2011 (“Margin Account”). He also opened an RSP account in

March 2011 (“RSP Account”).

Failure to Know EH

43. In the summer of 2010, EH told the Respondent that he was planning to open an

account with her that would be funded with $900,000. He wanted $500,000 of this

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amount to be invested in low risk securities and the balance to be invested in higher risk

securities.

44. Subsequently, in October, 2010, $900,000 was deposited into EH’s Cash Account.

45. EH’s July 2010 and March 2011 Know Your Client Forms for his Cash/Margin Accounts

and his RSP Account all indicated that his investment objective was aggressive growth

and that his risk tolerance was 100% high risk.

46. Between March 2011 and September 2014, the Respondent failed to know EH as 100%

high risk tolerance and aggressive/maximum growth investment objectives did not

accurately reflect EH’s actual risk tolerance, nor did they reflect his objectives for the

Margin and RSP Accounts.

Transactions outside the bounds of good business practice in EH’s Margin Account

47. The Respondent did not adequately explain margin to EH. Nor did she give him

adequate advice about managing the level of debt which was occurring in his Margin

Account between March 2011 and September 2014.

48. The Respondent also failed to advise EH that continuing monthly withdrawals of funds

would encroach upon the capital which he wished to maintain for his retirement.

Excessive margin debt and interest paid by EH

49. EH’s margin debt was excessive, particularly between August 31, 2011 and September

30, 2014, when it ranged between $130,805 and $298,463 every month end during this

time period. The margin as a percentage of account value ranged between 21% and 46%

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every month between August 31, 2011 and September 30, 2014, as seen in the chart

attached as Schedule A to the Statement of Allegations.

50. EH paid $32,986 in interest on the margin debt between April 16, 2011 and September

16, 2014.

51. Between March 2011 and September 2014, the trading activity which resulted in high

debit balances and large interest payments in EH’s Margin Account was outside the

bounds of good business practice.

Unauthorized trading in EH’s Accounts

52. Generally the Respondent effected trades in EH’s Accounts without discussing

particulars in advance with him. Other than an initial purchase of 8,000 shares of 01

Communique in July 2010 and a purchase of 3,000 shares of Crombie REIT Parts in

October 2010, most of the trades effected by the Respondent in EH’s Accounts were not

authorized by him in advance.

53. The Respondent effected over 200 trades between July 19, 2010 and October 15, 2014

in EH’s Accounts.

Losses in EH’s Accounts

54. Between February 25, 2011 and September 30, 2014, EH’s Margin Account and RSP

Account had sustained overall losses as follows, which include the 01 Communique and

Tower Hill losses:

EH Account Overall Loss 01 Communique Loss Tower Hill Loss

Margin $239,861 $65,571 $41,264

RSP $82,065 NA $57,546

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Client AH

55. AH was born in 1937. He was a commercial building developer and retired in 2001. In

June 2009 he opened three accounts with the Respondent: a margin account (“AH

Margin Account”), a RIF account (“RIF Account”) and a corporate margin account (“O

Limited Margin Account”).

56. The 2009 KYCs and subsequent updates for AH’s three Accounts all indicated investment

objectives of aggressive growth and 100% high risk tolerance. At the time the Accounts

were opened, AH transferred in approximately $2 million divided among the three

Accounts.

57. While AH was comfortable with some risk he did not want 100% high risk. The

Respondent assured him that he would be able to realize 8% return on his investments

while still making withdrawals from his Accounts.

Transactions outside the bounds of good business practice in AH’s Accounts

58. The transactions set out below were outside the bounds of good business practice.

59. Frequent trading by the Respondent of 01 Communique and Tower Hill (in particular)

between January 2010 and September 2014 in AH’s Margin Account resulted in a

substantial margin debit as indicated in detail below.

Debit balance in AH’s Margin Account

60. There was excessive use of margin in AH’s Margin Account. This Account was in a

substantial debit position every month from January 2010 to September 2014. With the

exception of one month, (December 2011 where the debit balance was almost

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$191,000), the debit balance in AH’s Margin Account was over $200,000 every month

from January 2010 to July 2014 inclusive.

61. The Respondent failed to take positive steps to reduce the margin. In January 2013,

shares valued at $51,300 were transferred from the RIF Account to AH’s Margin

Account. Moreover, up until February 2013, trading in AH’s Margin Account continued

as the debit increased.

Margin as a Percentage of Account Value

62. When the market value of securities held is compared to the margin debit balance, the

margin in AH’s Margin Account, as a percentage of account value, was at excessive

levels.

Concerns raised by the trading in AH Margin Account

63. Cross guarantees existed between the AH Margin Account and the O Limited Margin

Account, however, the existence or use/non use of cross guarantees is not

determinative of the issue as to whether or not there was excessive trading and/or a

high debit balance in the AH Margin Account.

64. Regardless of any cross guarantees, the trading in AH’s Margin Account was outside the

bounds of good business practice. The excessive high risk trading and high margin debit

in AH’s Margin Account should have been acted upon sooner and with more diligence

by the Respondent.

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Interest Paid in AH’s Margin Account

65. During the First Material Period, AH paid $90,245.00 in interest on the debit balance in

his Margin Account.

Concentration in AH’s RIF Account

66. AH’s RIF Account held 450,000 shares of 01 Communique between February 2013 and

June 2014. The share price declined significantly during this period.

AH RIF account Feb-13 Mar-13 Apr-13 Jun-14

Quantity 450,000 450,000 450,000 450,000

$ price 1.16 0.265 0.24 0.24

$ MV 522,000 119,250 108,000 108,000

% of MV 43% 20% 24% 28.1

The O Limited Margin Account

67. The margin as a percentage of account value ranged between 30% and 45% between

January 31, 2010 and July 31, 2010 in the O Limited Margin Account.

68. During the First Material Period, AH paid $20,775. in interest on the O Limited Account’s

debit balance.

Losses in AH’s Margin, RIF and O Limited Accounts

69. AH’s Margin Account had losses as follows (which include the 01 Communique and

Tower Hill losses:

AH Margin Account Date Losses

Overall January 1, 2010 to September 30, 2014 $371,633

01 Communique January 1, 2010 to September 30, 2014 $84,695

Tower Hill January 1, 2010 to September 30, 2014 $150,100

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70. AH’s RIF Account had unrealized losses as follows which includes the 01 Communique

and Tower Hill losses:

AH RIF Account Date Losses

Overall January 1, 2010 to September 30, 2014 $525,434

01 Communique August 20, 2009 to September 30, 2014 $313,489

Tower Hill January 1, 2010 to September 30, 2014 $190,799

71. The O Limited Margin Account had a loss of $128,767 during the First Material Period.

Commission

72. Gross commission for the February 2011 trades discussed above re RC was $1,140.

Gross commission for trades during the First Material Period in the accounts of clients

AH, EH, GR RIF and JF was approximately as follows:

AH Margin $59,000

AH RIF $67,000

AH O Limited $19,000

EH cash

EH margin

EH RSP

$18,000

$41,000

$3,000

GR RIF $34,000

JF $17,000

Client LG

73. LG was a client of the Respondent at NBF, IAS and Aligned Capital . LG operated a B & B

in New Brunswick until December 2017.

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Failure to Know LG

74. The Respondent never met LG in person. The Respondent sent account opening

documentation and any updates to LG for signature after telephone discussions.

75. LG opened a cash account at IAS (“IAS Account”). LG’s November 21, 2014 KYC at IAS

indicated one investment objective: growth/high risk. Although this categorization is

initialed on the form, LG did not initial it.

76. LG opened a cash account at Aligned Capital (“Aligned Capital Account”). LG’s April 23,

2016 KYC at Aligned Capital indicated investment objectives of growth and risk

tolerance of 50% medium, 30% medium high and 20% high.

77. The Respondent failed to know LG at both IAS and Aligned Capital during the Second

Material Period as the above KYC documentation did not reflect LG’s actual investment

objectives and risk tolerance.

Suitability of LG’s Accounts

78. During the Second Material Period, the Respondent made unsuitable recommendations

for LG, including various high risk securities. These high risk securities were not sui table

for LG, given her actual investment objectives and risk tolerance.

Losses in LG’s Accounts

79. When LG’s IAS Account was transferred to IAS from NBF in January 2015, it was valued

at $53,376. Just over a year later, as of March 31, 2016, it was valued at $37,214. There

were no withdrawals. Between January 16, 2015 and March 31, 2016, LG’s IAS Account

sustained a loss of $16,161.

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80. When LG’s Aligned Capital Account was transferred to Aligned Capital, it was valued at

$39,177. When it was closed approximately 1.5 years later, it had a value of $18,225.

There were no withdrawals. Between May 4, 2016 and December 31, 2017, LG’s Aligned

Capital Account sustained a loss of $20,964.

DATED at Toronto, Ontario this 3rd day of July, 2019.

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Schedule A

EH Margin Account Chart-quarterly basis

Date

EH Market Value

of Securities ($

CDN)

EH Margin Debit

Balance ($ CDN)

EH Margin as % of

account Market

Value

30-Apr-11 802,638.45 (15,082.23) 1%

31-Jul-11 712,883.53 (106,218.00) 14%

31-Oct-11 683,959.21 (195,115.73) 28%

31-Jan-12 839,749.82 (291,678.71) 34%

30-Apr-12 777,730.59 (233,984.12) 30%

31-Jul-12 679,021.80 (188,349.91) 27%

31-Oct-12 680,038.53 (211,445.25) 31%

31-Jan-13 730,568.15 (236,674.83) 32%

30-Apr-13 601,789.25 (245,539.32) 40%

31-Jul-13 566,832.91 (240,247.28) 42%

31-Oct-13 598,765.63 (236,723.91) 39%

31-Jan-14 632,070.18 (259,573.76) 41%

30-Apr-14 673,010.41 (298,463.30) 44%

31-Jul-14 622,513.15 (290,667.05) 46%

Notice of HearingStatement of Allegations