Hearing Panel of the Central Regional Council:
- Martin L. Friedland, CC, QC, Chair
- Edward V. Jackson, Industry Representative
- Matthew Onyeaju, Industry Representative
David Babin, Counsel for the Mutual Fund Dealers Association of Canada
Rholyn St. George Hylton, Respondent, not in attendance or represented by counsel
- This is a hearing under sections 20 and 24 of By-law No. 1 of the Mutual Fund Dealers Association of Canada (“MFDA”). The hearing was held on September 13, 2018. Rholyn St. George Hylton (“Respondent”) was not in attendance or represented by counsel at the hearing.
- Between February 10, 2010 and February 16, 2016, the Respondent was registered in Ontario as a mutual fund salesperson, now known as a dealing representative with Sun life Financial Investment Services (Canada) Inc., (“Sun Life” or “the Member”) a Member of the MFDA. Between March 19, 2013 and February 16, 2016, the Respondent was also registered as dealing representative in Alberta with Sun Life. At all material times the Respondent conducted business in the Toronto, Ontario, area. The Respondent is not currently registered in the securities industry in any capacity.
- A Notice of Hearing involving the Respondent was issued by the MFDA on February 13, 2018. A first appearance by teleconference was held on April 17, 2018. The Respondent did not appear at that hearing in person or by counsel. A hearing date on the merits was set by the Chair of the Panel for September 11, 2018, but was later changed to September 13, 2018. Again the Respondent did not appear in person or by counsel.
- There was only one allegation made against the Respondent in the Notice of Hearing, dated February 13, 2018. It was:
- Allegation #1: commencing January 4, 2017, the Respondent has failed to cooperate with the MFDA’s investigation into his conduct, contrary to section 22.1 of MFDA By-law No. 1.
- As stated above, the Respondent did not appear at the present hearing. Nor did he file a Reply to the Notice of Hearing, as required under MFDA Rule 8 of the Rules of Procedure. In such a case, under Rule 8.4(1)(b), the Hearing Panel may “accept the facts alleged and conclusions drawn by the Corporation [i.e., the MFDA] in the Notice of Hearing as proven and impose any of the penalties and costs described in sections 24.1 and 24.2, respectively of MFDA By-law No. 1.”
Allegation #1 Proven
- The charge of failing to cooperate was clearly proven by the MFDA through an affidavit, sworn on September 7, 2018, by Lara Rowles, a Manager in the Investigations group of the Enforcement Department of the MFDA.
- There is no doubt that the respondent knew that an investigation was being undertaken by the MFDA. On March 24, 2018 the Respondent was personally served with a copy of the Notice of Hearing. Beginning on January 4, 2017, Staff attempted by various means of communication to schedule an interview with the Respondent at the MFDA offices in Toronto. On February 13, 2017 the Respondent called Staff to advise that he would be attending an interview to be held in Toronto and would provide copies of his bank statements. An interview was scheduled by staff for March 27, 2017, but the Respondent failed to attend.
- Since March 3, 2017, the Respondent has not replied to any of Staff’s communications regarding Staff’s investigation or in relation to this disciplinary proceeding.
- The Respondent contravened section 22.1 of MFDA By-law No. 1. Section 21 states that the MFDA has a duty to conduct examinations and investigations of Approved Persons relating to compliance with By-laws, Rules and Policies of the MFDA. Section 22 states that an Approved Person has an obligation to submit to the MFDA reports, records, etc. and to attend and give information to the MFDA.
- There are, of course, many cases that make it clear that an Approved Person must provide Staff with information and documentation when requested to do so. To hold otherwise would hinder the MFDA’s ability to investigate the conduct of registrants in the mutual fund industry and prevent the MFDA from fulfilling its regulatory mandate to protect the public.
- As stated by a Panel in Re Vitch (2011 LNCMFDA 63) at paragraph 55):
- “There can be no exceptions to that obligation. The fulfillment of that obligation is particularly important to the MFDA because it has no statutory power to search and seize or to compel the production of documents. Without the cooperation of Members and Approved Persons, the MFDA’s ability to investigate and discipline its Members and Approved Persons is gravely fettered.”
- In the present case, the evidence establishes that the Respondent has failed to submit information and documents requested by Staff during the course of the investigation into his conduct and did not enter a Reply or participate in any way in the Hearing.
- The Respondent’s conduct in this case has prevented MFDA Investigation Staff from determining the full nature and extent of his activities. The conduct being investigated involved borrowing funds from clients of the Respondent. Borrowing from clients creates a serious conflict of interest and is not permitted by the MFDA rules and regulations. Because the Respondent did not produce any documents or attend an interview the extent of his borrowing is not known.
- Counsel for the MFDA proposed the following penalties against the Respondent:
- A permanent prohibition on the authority of the Respondent to conduct securities related business while in the employ of or associated with any Member of the MFDA, pursuant to s. 24.1.1(e) of MFDA By-law No. 1;
- A fine of between $50,000 and $75,000, pursuant to s. 24.1.1(b) of MFDA By-law No. 1; and
- Costs of $7,500, pursuant to s. 24.2 of MFDA By-law No. 1.
- A permanent prohibition is clearly required in this case. A failure to cooperate with an investigation by Staff ranks among the most serious forms of misconduct that an Approved Person can engage in. Hearing Panels have consistently found that an Approved Person who fails to cooperate with Staff engages in very serious misconduct. As argued by counsel for the MFDA: “The seriousness arises from an Approved Person’s failure to cooperate, preventing the MFDA from performing its regulatory function. It prevents the regulatory body from fully investigating a matter and determining all of the relevant facts, as well as the full extent, and implications of the underlying events.”
- In all the cases cited to us by counsel, a permanent prohibition was ordered. See Re Dixon (2017 LNCMFDA 247); Re Armani (2017 LNCMFDA 185); Re McBurney (201522); Re Vitch (2011 LNCMFDA 63); Re Gizzo (2011 LNCMFDA 49); Re Desbois (200822); and Re Headley (2006) LNCMFDA 3). Except for Re Headley, these are all cases where the only allegation was failure to cooperate.
- It is also the penalty set out as the suggested minimum in the MFDA Penalty Guidelines.
- An award of costs of $7,500 is reasonable under the circumstances to recover a portion of the costs attributable to conducting the investigation and hearing of this matter. It is also consistent with the amounts awarded by the MFDA Hearing Panels in the decisions cited to us.
- Determining what the monetary penalty should be is more difficult. In four of the cases it was $50,000, in two it was $75,000 and in still another it was $85,000.
- We have decided that the appropriate penalty in this case should be $50,000. Although we have been prevented by the Respondent’s failure to cooperate from determining how extensive the borrowing was in the present case, it appears to have been at the lower range of seriousness and less serious than the two most recent cases, both from 2017: Re Dixon case, where the fine was $50,000, and Re Armani where the fine was 75,000. It was also less serious than the $50,000 fine in Re Headley.
- As far as can be determined, there may not have been extensive borrowing by the Respondent. One borrowing took place in 2014 and an investigation was undertaken by the MFDA. The sum loaned in that case was $2,200. The MFDA did not, however, proceed with a hearing, but gave the Respondent a warning in May 2016. Sun Life contacted the Respondent’s other clients to determine whether other similar conduct would come to light.
- That is when another client orally told another Sun Life Approved Person that she had loaned money to the Respondent. That is the borrowing by the Respondent that is the subject of the present proceeding. We do not know, however, the extent of the borrowing in the current case because the client did not cooperate. All that is known is that it took place about four years ago. The MFDA and Sun Life do not know the amount involved, but it seems reasonable to conclude that if the sum had been substantial and had been misappropriated, the client who loaned the money would likely have sought some compensation from Sun Life and there is no evidence that such a claim was made.
- We were able to determine that the conduct that is the subject of the present hearing took place prior to the warning letter of May 2016. Had the conduct taken place after the warning letter, the monetary penalty we are proposing would have been higher.
- A permanent prohibition and a $50,000 fine in the present case provides the necessary deterrence concerning the conduct that likely occurred.
Martin L. Friedland, CC, QCMartin L. Friedland, CC, QCChair
Edward V. JacksonEdward V. JacksonIndustry Representative
Matthew OnyeajuMatthew OnyeajuIndustry Representative