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MFDA Reasons for Decision

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Home › Reason for Decision 201536 - RE: Richardson, William



Reasons for Decision
File No. 201536


IN THE MATTER OF A SETTLEMENT HEARING
PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA


Re: William Richardson

Heard: September 24, 2015 in Toronto, Ontario
Reasons for Decision: October 2, 2015


REASONS FOR DECISION

Hearing Panel of the Central Regional Council:

Martin L. Friedland, C.C., Q.C.
Chair

Brigitte J. Geisler
Industry Representative

Kenneth P. Mann
Industry Representative

Appearances:

Sarah Glickman
)
For the Mutual Fund Dealers Association of

)
Canada
)

William Richardson
)
Mr. Richardson in attendance in person and his
)
counsel by teleconference

)

Sean Shore
)

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Background

1.
This is a Settlement Hearing under Section 24.4 of By-law No. 1 of the Mutual Fund
Dealers Association of Canada (the “MFDA”). The hearing was held on Thursday, September
24, 2015. The full Settlement Agreement, dated September 3, 2015, entered into between Staff of
the MFDA and William Richardson (“Mr. Richardson” or the “Respondent”) is available on the
MFDA website and will not be set out in detail here. Mr. Richardson appeared at the Settlement
Hearing and was represented by counsel by teleconference.

2.
The hearing was one of three hearings relating to pre-signed account forms heard by the
present Panel on September 24, 2015 under a recent MFDA procedure called the “Bulk Track
Hearing Process.” The Bulk Track process, instituted a few years ago by the MFDA, is described
as follows in the Staff Submission to the Panel: the Bulk Track Hearing Process “is intended to
promote the efficient use of time and resources by MFDA Staff, Hearing Panels and
Respondents by allowing for the processing of multiple cases of a similar nature or type before a
single Hearing Panel at a single sitting.” Each case is, however, considered in a separate
proceeding and in the case of a Settlement Hearing in a separate in camera proceeding.

3.
The Panel accepted the proposed Settlement Agreement in the Richardson case at the
September 24, 2015 hearing, with reasons to follow. These are our reasons for the Richardson
decision.

4.
The Respondent has been registered in the mutual fund industry since 1994. From
September 1994 to August 2014 he was registered in Ontario as a mutual fund salesperson (now
known as a Dealing Representative) with Investors Group Financial Services Inc. (“Investors
Group”), a Member of the MFDA. From March 8, 2011 to August 16, 2012 he was registered as
a Branch Manager. He resigned from Investors Group on August 25, 2014 and since October
2014 has been registered in Ontario as an IIROC Registered Representative with Harbourfront
Wealth Management Inc.


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Allegations

5.
Proceedings against the Respondent were commenced by a Notice of Settlement Hearing,
dated September 3, 2015. In the Settlement Agreement the Respondent admits that he

a) obtained and possessed 13 blank pre-signed account forms in respect of 10 clients
contrary to MFDA Rule 2.1.1; and

b) failed to accurately respond to Investors Group’s Annual Attestations by incorrectly
affirming that he did not obtain or possess any pre-signed forms contrary to MFDA
Rule 2.1.1.

Pre-Signed Account Forms

6.
“Pre-signed account forms” is a generic term which is applied to a variety of situations
where an Approved Person seeks to rely on a client’s signature on a document when the
signature was not provided by the client at the time the document was completed.

7.
Mr. Richardson admits that he obtained and maintained 13 blank pre-signed forms in
respect of 10 clients, contrary to Rule 2.1.1. The account forms consisted of order entry forms,
know-your-client forms and bank account authorization forms.

8.
Hearing Panels have held that obtaining or using pre-signed account forms is a
contravention of the standard of conduct under MFDA Rule 2.1.1. (See Re Byce File No.
201311; and Re Price File No. 200814.) The Panel in Re Price sets out in detail a number of
MFDA Staff Notices relating to the prohibition of such forms. MFDA Staff Notice MSN-0066,
issued in 2007, states, in part, under the heading “PROHIBITION ON USE OF PRE-SIGNED
FORMS”:

“The purpose of this Notice is to emphasize that it is contrary to MFDA
requirements for Members and Approved Persons to obtain pre-signed forms from
their clients. Members may only use forms that are duly executed by the client
after information on the form has been properly completed. As indicated in
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[earlier Bulletins] where MFDA staff find pre-signed forms in the course of
completing compliance reviews, these deficiencies may be referred directly to the
MFDA Enforcement Department.”

9.
The use of pre-signed account forms adversely affects the integrity and reliability of
account documents, leads to the destruction of the audit trail, has a negative impact on Member
complaint handling, and has the potential for misuse in the form of unauthorized trading, fraud
and misappropriation. As the Hearing Panel explained in Re Price (at paragraphs 122-124):

“Pre-signed forms present a legitimate risk that they may be used by an Approved
Person to engage in discretionary trading….At its worst, pre-signed forms create a
mechanism for an Approved Person to engage in acts of fraud, theft or other
forms of harmful conduct towards a client….Pre-signed forms also subvert the
ability of a Member to properly supervise trading activity. They destroy the audit
trail. The presence of the client’s signature on a trade form can no longer be taken
as confirmation that the client authorized a particular trade. It also compromises
the ability of the Member to subsequently investigate and respond to a client
complaint concerning the propriety of trading activity in his or her account.”

Failure to Accurately Respond to Compliance Survey

10.
The Respondent admits that between January 2010 and December 2014 he failed to
accurately respond to the Member’s Annual Attestations by incorrectly affirming that he did not
obtain or possess any pre-signed account forms.

11.
Hearing Panels have held that providing the Member with incorrect information is a
violation of MFDA Rule 2.1.1. See Re Li (File No. 201527); Re Peters (File No. 201120); and
Re Ruemper (File No. 200941).

Terms of Settlement

12.
The Respondent agreed to the following terms of settlement:

a) the Respondent shall pay a fine in the amount of $8,750 pursuant to s. 24.1.1(b) of
MFDA By-law No. 1;

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b) the Respondent shall pay costs in the amount of $2,500 pursuant to s. 24.2 of MFDA
By-law No. 1; and

c) the Respondent shall in the future comply with MFDA Rule 2.1.1.

Acceptance of Settlement Agreement

13.
As stated above, the Panel accepted the terms of the Settlement Agreement. A Panel can
either accept or reject a Settlement Agreement. It cannot modify it. We found that the proposed
penalty was reasonable and proportionate in the circumstances of this case. It provides specific
deterrence to the Respondent and general deterrence to others in the industry.

14.
No harm was suffered by investors in this case. None of the forms were used. Further, by
entering into a Settlement Agreement the Respondent has accepted responsibility for his
misconduct and recognizes its seriousness.

15.
A fine of $8,750 (plus costs of $2,500) is not an insignificant amount. The fine is in line
with the MFDA Penalty Guidelines, where the suggested minimum fine for breach of MFDA
2.1.1 (Standard of Conduct) is $5,000.

16.
The amount of the fine reflects the fact that Mr. Richardson was an experienced
salesperson and for over a year was a branch manager.

17.
The penalty imposed is not out of line with the cases cited by counsel. See, with respect
to pre-signed account forms: Re Byce (File No. 201311); Re Moro (File No. 200714); Re Kahlon
(File No. 201438); Re Kant (File No. 201337); Re Sowunmi (File No. 201338); and Re Ewart
(File No. 201528).

18.
The Respondent has never been the subject of a disciplinary proceeding by the MFDA
and cooperated with Staff during its investigation into his conduct. By entering into the
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Agreement, the Respondent saved the MFDA the time, resources, and expense associated with
conducting a full hearing of the allegations.

19.
Settlements can be important and useful in achieving outcomes which further the goals of
the securities regulatory context. The British Columbia Court of Appeal stated with respect to a
settlement by the B.C. Securities Commission (B.C. Securities Commission v. Seifert [2007]
B.C.J. No. 2186, para. 49 (B.C.C.A.)):

“Settlements assist the Commission to ensure that its overriding objective, the
protection of the public, is met. Settlements proscribe activities that are harmful to
the public. In so doing, they are effective in accomplishing the purposes of the
statute. They provide means of reaching a flexible remedy that is tailored to
address the interests of both the Commission and the person under investigation.”

20.
Hearing Panels should respect settlements worked out by the parties. A Panel does not
know what led to a settlement, what was given up by one party or the other in the course of the
negotiations, and what interest each party has in agreeing to resolve the matter.

21.
As a recent Panel stated (Re Keshet, September 3, 2014, File No. 201419 at paragraph 7)
“It is well established that hearing panels should not interfere lightly in negotiated settlements
and should not reject a settlement agreement unless it views the proposed penalty clearly falling
outside a reasonable range of appropriateness.” There are many similar statements by MFDA
Panels.

22.
The penalty agreed to in this case falls within “a reasonable range of appropriateness.”

23.
For the above reasons we accepted the Settlement Agreement.
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DATED this 2nd day of October, 2015.

“Martin L. Friedland”
Martin L. Friedland, C.C., Q.C.

Chair

“Brigitte J. Geisler”
Brigitte J. Geisler

Industry Representative

“Kenneth P. Mann”
Kenneth P. Mann

Industry Representative
DM 446813 v3

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