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Decision and Reasons

Re:

Decision and Reasons

Decision and Reasons
File No. 200814


IN THE MATTER OF A DISCIPLINARY HEARING
PURSUANT TO SECTIONS 20 AND 24 OF BY-LAW NO. 1
OF THE MUTUAL FUND DEARLERS ASSOCIATION OF CANADA

Re: Gary Alan Price

Motion Heard: October 13, 2009 in Toronto, Ontario
Panel Decision: October 30, 2009


DECISION AND REASONS

(Motion to Declare Decision on Misconduct Null and Void)


Hearing Panel of the Central Regional Council:

The Hon. Fred Kaufman, C.M., Q.C.,
Chair

Selwyn
Kossuth
Industry
Representative

Appearances:

Michelle Pong

)
For the Mutual Fund Dealers Association
) of
Canada

Gary A. Price

)
Attended Personally

)



Page 1 of 13

1.
We are seized of a motion, brought by the Mutual Funds Dealers Association of Canada
(the “MFDA”), for an Order that:

i.
The Decision and Reasons (Misconduct) In The Matter of Gary Alan Price dated
June 12, 2009 be declared and void and removed from the MFDA website;

ii.
The Hearing Panel be struck; and

iii.
The disciplinary proceedings against the Respondent be remitted for a new
hearing before a reconstituted Panel.

2.
Argument on the motion was heard on October 13, 2009 and the Panel took the matter
under advisement.

Background

3.
By Notice of Hearing (as amended), dated June 23, 2008, Gary Alan Price (the
“Respondent”) was charged by the MFDA that he violated the following By-laws, Rules or
Policies of the MFDA:

Allegation #1: Between April 2003 and May 2007, the Respondent failed to observe
high standards of ethics and engaged in business conduct or practice that was
unbecoming by obtaining and possessing pre-signed forms, contrary to MFDA Rules
2.1.1(b) and 2.1.1(c).

Allegation #2: Between April 2003 and May 2007, the Respondent failed to observe
high standards of ethics and conduct in the transaction of business by using pre-signed
forms to execute trades, contrary to MFDA Rule 2.1.1(b).

Allegation #3:
Between April 2003 and May 2007, the Respondent engaged in
discretionary trading by selecting mutual funds for purchase without the necessary
instructions from clients RH and LH and completing sections of pre-signed forms to
process such trades for clients RH and LH, contrary to MFDA Rule 2.3.4 and the terms of
his registration as a mutual fund salesperson.

Allegation #4: Between January 2004 and May 2007, the Respondent failed to comply
with the Member’s directives to destroy all pre-signed blank investment forms, contrary
to MFDA Rules 2.1.1(b), 1.1.2 and 2.5.1.

4.
The particulars, as given in the Notice of Hearing, are as follows:
Page 2 of 13


Registration History

1. The Respondent has been registered in Ontario as a mutual fund salesperson since
February 6, 1991 and as a Branch Manager since December 31, 2004 with Select
Financial Services Inc. (“Select”), a Member of the MFDA .

2. Select is registered as a mutual fund dealer, a limited market dealer and a scholarship
plan dealer in Ontario. Select has been a Member of the MFDA since July 11, 2002.

Pre-Signed Forms Found During Compliance Examination

3. Commencing April 2003, the MFDA conducted a compliance examination of Select
(the “First Examination”), the results of which were summarized and delivered to
Select in a report dated December 10, 2003. In the First Examination, the MFDA
found that the Respondent was in possession of blank investment instruction forms on
which the signatures of clients LA and RW had been completed, hereinafter referred
to generically as pre-signed forms. Select was asked to state what action it proposed
to take to address this contravention and to confirm that all pre-signed forms had been
destroyed.

4. On January 13, 2004, Select distributed an email to all of its Approved Persons,
which stated that “NO pre-signed, blank investment instruction forms are to be held
in client files. All such forms are to be destroyed immediately.” All Approved Persons
were required to confirm that they were going to abide with this rule by returning a
signed copy of the email to Select.

5. The Respondent signed and returned the email to Select on January 14, 2004.

6. Commencing September 2006, the MFDA conducted a second compliance
examination of Select (the “Second Examination”), the results of which were
summarized and delivered to Select in a report dated January 3, 2007. In the Second
Examination, the MFDA found that the Respondent was in possession of several
photocopies of a blank investment instruction form on which the signature of client
JS had been completed.

7. On May 4, 2007, Select distributed a memorandum to all of its Approved Persons,
which stated that “ALL pre-signed client forms are to be destroyed immediately.”

8. During an unscheduled inspection by the MFDA on May 3, 2007, the Respondent
was found to have in his possession 81 blank investment instruction forms on which
the signatures of the clients had been completed (the “Pre-signed Forms”):
Page 3 of 13

Client(s)
Form(s)
Date
1
JH & MM
Letter from the Respondent instructing clients to Not Dated
simply sign at each ‘X’.
(2) Pre-signed Select Redemption Forms
2
JH
(1) Pre-signed Select Redemption Form
Not Dated
3
JA
(2) Pre-signed Select Exchange Forms
Not Dated
(1) Pre-signed MRS Trade Ticket
4
SA
(1) Pre-signed Select Redemption Form
Feb. 6, 1998
(1) Pre-signed Select Redemption Form
Not Dated
5
LA
(1) Pre-signed Select Redemption Form
Not Dated
6
MB
(1) Pre-signed Select Order Form
Not Dated
7
SB
(5) Pre-signed Select Redemption Forms
Not Dated
8
NB
(1) Pre-signed Select Redemption Form
Not Dated
9
JB
(1) Pre-signed Select Redemption Form
Not Dated
11
WC
(2) Pre-signed MRS Trade Tickets
Not Dated
12
HD
Email from HD instructing the Respondent to use Feb. 3, 2006
the pre-signed redemption forms being held by the
Respondent to redeem money.
(1) Pre-signed Select Redemption Form
Feb. 6, 2006
(1) Pre-signed Select Redemption Form
Not Dated
(2) Pre-signed Select Exchange Forms
13
KD
(1) Pre-signed Select Exchange Form
Not Dated
14
JE
(1) Pre-signed MRS Trade Ticket
Not Dated
15
SE
(2) Pre-signed Select Redemption Forms
Not Dated
16
SE
(4) Pre-signed Select Redemption Forms
Not Dated
17
RE
(3) Pre-signed Select Financial Redemption Forms
Not Dated
18
EE
(3) Pre-signed Select Order Form
Not Dated
(1) Pre-signed Fidelity Application
(1) Pre-signed Fidelity Transfer Document
19
JF
(1) Pre-signed Select Exchange Form
Not Dated
20
PG
(1) Pre-signed MRS Trade Ticket
Not Dated
21
MG
(2) Pre-signed Select Order Forms
Not Dated
(2) Pre-signed MRS Trade Tickets
22
MG
(2) Pre-signed Select Redemption Forms
Not Dated
(2) Pre-signed Select Exchange Forms
23
WH
(3) Pre-signed Select Redemption Forms
Not Dated
24
LH
(1) Pre-signed Select Redemption Form
Not Dated

Page 4 of 13

Client(s)
Form(s)
Date
25
RH
(1) Pre-signed MRS Trade Ticket
Jan. 18, 2006

26
SB
(2) Pre-signed Select Order Forms
Not Dated
(2) Pre-signed Select Redemption Forms
27
JB
(1) Pre-signed Select Redemption Form
Not Dated
28
NLB
Note from the Respondent instructing NLB to sign Mar. 30, 2004
each form at the ‘X’ and return with a void cheque.
(2) Pre-signed Select Redemption Forms
Not Dated
29
RC
(1) Pre-signed Select Order Form
Not Dated
(3) Pre-signed Select Exchange Forms
30
GC
(1) Pre-signed Select Redemption Form
Not Dated
31
BC
(1) Pre-signed Select Redemption Form
Not Dated
32
LC
(1) Pre-signed Select Redemption Form
Not Dated
36
BJC
(1) Pre-signed MRS Systematic Instruction Form
Not Dated
37
SC
(2) Pre-signed Select Redemption Forms
Not Dated
38
DM
(1) Pre-signed Select Order Form
Not Dated
(1) Pre-signed BPI Application
39
MM
(2) Pre-signed Select Exchange Forms
Not Dated
40
LC
(1) Pre-signed Select Exchange Form
Not Dated
41
DC
(3) Pre-signed Select Redemption Forms
Not Dated
(2) Pre-signed Select Exchange Forms

9. By obtaining and possessing the Pre-signed Forms, the Respondent failed to observe
high standards of ethics and engaged in business conduct or practice that was
unbecoming, contrary to MFDA Rules 2.1.1(b) and 2.1.1(c).

10. By failing to comply with his Member’s directives to destroy all pre-signed blank
investment forms, the Respondent engaged in conduct contrary to MFDA Rules
2.1.1(b), 1.1.2 and 2.5.1.

11. The Respondent used the Pre-signed Forms to process trades for clients. To effect
these trades, the Respondent generally received verbal instructions by telephone from
the client and then proceeded to:

a. enter all necessary elements of the trade on a Pre-signed Form;
b. execute and date the form as the signature guarantee; and
c. submit the form for trade execution.

Page 5 of 13

12. By using the Pre-signed Forms to execute trades, the Respondent failed to observe
high standards of ethics and conduct in the transaction of business, contrary to MFDA
Rule 2.1.1(b).

13. On multiple occasions, the Respondent received cheques from clients RH and LH by
mail for the purpose of purchasing mutual funds for their accounts. RH and LH
provided the Respondent with instructions as to the accounts in which the investments
were to be held but the Respondent determined which mutual funds were to be
purchased. RH and LH were not informed of the mutual funds that the Respondent
purchased on their behalf until they received their trade confirmation forms.

14. By completing the section of the Pre-signed Form concerning which mutual funds
were to be purchased for the accounts of RH and LH without their instructions, the
Respondent engaged in discretionary trading, contrary to MFDA Rule 2.3.4 and the
terms of his registration as a mutual fund salesperson.

[It is relevant to point out that, at the time of the hearing, the Respondent no longer was a
branch manager.]

5.
The matter was heard on May 11-12, 2009 by a Panel constituted of three members
which, in addition to the two members now present, included John Armstrong, an Industry
Representative.

6.
By Decision and Reasons (Misconduct) given on June 12, 2009, the Panel held “that the
Association has not made out a case against the Respondent on Allegations 1 to 3, and that these
charges are hereby dismissed.” The Panel also held that the Respondent “failed to comply with
instructions given by the Member,” and that Allegation #4 has been proven.

7.
After consultation with the parties, the Panel ordered that argument on the penalty be
heard in Toronto, Ontario on July 23, 2009.

8.
On July 22, 2009 John Armstrong, a member of the Panel, sent the following message to
the Chair: “I would like to inform you I feel it necessary to withdraw from the case.”

9.
As a result, the Chair ruled that “The Hearing Panel shall proceed as a two-member
Hearing Panel, pursuant to section 19.9(b) of MFDA By-law No. 1.”
Page 6 of 13


10.
On July 23, 2009, rather than proceed to argument on the penalty, MFDA Staff moved to
adjourn the hearing to a later date, indicating that it had “received information in relation to a
member of the Hearing Panel that may raise issues related to conflict of interest,” and that Staff
required “time to fully consider the information and determine what position MFDA Staff will
take in relation to the hearing.” Staff added that this new information had come to its knowledge
only on July 16, 2009 and that it had therefore “acted expeditiously.”

11.
After hearing from both parties, the Panel granted the adjournment, and the matter was
put over to October 13, 2009.

12.
On October 8, 2009 (a Thursday before a long weekend and one business day before the
date fixed for the hearing) members of the Panel and the Respondent were served with the
present motion.

13.
Although offered more time by the Panel to respond to the motion, the Respondent
declared himself ready to proceed, and argument on the motion took place on October 13, 2009.

Grounds for Motion

14.
The grounds, as stated in the Motion, are as follows:

1. On July 23, 2009, Staff advised the Respondent and the Hearing Panel that a member
of the Hearing Panel was found by MFDA Compliance Staff to be in possession of 63
pre-signed forms on June 16, 2009.

2. On September 30, 2009, Staff advised the Respondent of Staff’s position in respect of
this motion.

3. The possession and use of pre-signed forms was the central issue before the Hearing
Panel in this matter and constituted the grounds for three of the four allegations
against the Respondent.

4. The fact that a member of the Hearing Panel was found in possession of pre-signed
forms has raised a reasonable apprehension that the member of the Hearing Panel was
biased in his determination of the allegations in the hearing of this matter.

Page 7 of 13

The Evidence

15.
Two Affidavits, sworn by Jeffrey Yewer, an MFDA investigator, on July 22, 2009 and
October 7, 2009 respectively, set out in detail what documents were found in Mr. Armstrong’s
office. Since no decision (insofar as we know) has yet been made with respect to these forms, we
see no purpose – indeed, it would be unfair – to reproduce the contents of these affidavits, save
to say that certain forms were pre-signed, although these forms were not necessarily of a similar
nature as the pre-signed forms found in the Respondent’s possession nor, necessarily, executed
during a similar period of time.

Discussion

16.
Much has been written about reasonable apprehension of bias. To exist, it must be, as Mr.
Justice de Grandprė said in Committee for Justice and Liberty v. Canada (National Energy
Board), [1978] 1 S.C.R. 369, “a reasonable [apprehension], held by reasonable and right-minded
persons, applying themselves to the question and obtaining thereon the required information.”
Or, as was held by the Federal Court of Appeal in the same case, the test is “what would an
informed person, viewing the matter realistically and practically – and having thought the matter
through – conclude. Would he think that it is more likely than not that [the decision-maker],
whether consciously or unconsciously, would not decide fairly?”

17.
Although Mr. Justice de Grandpré observation was written in dissent, it has since been
accepted as a correct statement of the law. (See, for instance, R. v. R.D.S., [1997] 3 S.C.R. 484,
per Cory J.: “This test has been adopted and applied for the past two decades.”) The stress is on
the words “reasonable apprehension.” It is not, as the Ontario Securities Commission (“OSC”)
recently re-iterated in Re: Norshield Asset Management (Canada) Ltd., (2009) 32 OSCB 1249, a
matter of deciding “whether actual bias exists,” but rather of “whether or not a reasonable
apprehension of bias exists.”

18.
It is also worth noting, as the Court of Appeal for Ontario did in E.A. Manning Ltd. v.
OSC, (1995) 23 O.R. (3d), that

Page 8 of 13

Securities Commissions, by their very nature, are expert tribunals, the members of which
are expected to have special knowledge of matters within their jurisdiction. They may
have repeated dealings with the same parties in carrying out their statutory duties and
obligations. It must be presumed, in the absence of any evidence to the contrary, that the
Commissioners will act fairly and impartially in discharging their adjudicative
responsibilities and will consider the particular facts and circumstances of each case.

19.
The same might well be said about MFDA Hearing Panels, consisting, as they do, of an
independent, legally-trained chair and at least one industry representative.

20.
We accept, in light of the evidence presented, that a reasonable and well-informed person,
with knowledge of all the relevant circumstances, viewing the matter realistically and practically,
might well conclude that a reasonable apprehension exists that the member of the Panel who has
since resigned may, consciously or unconsciously, have been biased. While we, the remaining
two members of the Panel, do not harbour such an apprehension, that is not the test. The test is
how a member of the public (and that includes the parties) may view the matter.

21.
But that is not the end of the story and a broader question must be asked: did the presence
of the third member “infect” (if we may use that word) the other members of the Panel. Again,
the test must be what a reasonable and well-informed person would think.

22.
In this connection, it is well to recall that Hearing Panels are collegial in nature, and
while each member must reach his or her decision based on the evidence and arguments
presented, judgment is generally given after the Panel has deliberated, be the deliberation short
or long. And so it was in this case.

23.
We therefore believe that a reasonable and well-informed person might have a legitimate
apprehension that the process was tainted, and that the result offended the principles of natural
justice.

24.
But, once again, that is not the end of the matter: even though we are prepared to say that
the proceedings were tainted, do we have jurisdiction to rescind the Decision rendered on June
12, 2009? MFDA Staff submits that we do, because “sanctions have not been dealt with and no
formal order has been issued and entered yet.”
Page 9 of 13


25.
While the Decision rendered on June 12, 2009 was widely publicized, the file remained
open because the penalty phase had not yet taken place. No formal order had, therefore, been
entered.

26.
Yet, despite the lack of formal closure, an interesting question remains: can the three
allegations which we had found not proven be severed from the fourth allegation, which we
upheld? In other words, are the three acquittals (using that word by analogy to criminal and
quasi-criminal proceedings) an acquired right on the part of the Respondent?

27. In
Regina v. Lessard, (1976) 30 C.C.C. (2d) 70, the Court of Appeal for Ontario held, per
Martin J.A. (in the words of the headnote), that “A Judge sitting without a jury is not functus
officio following a finding of guilt until he has imposed sentence or otherwise finally disposed of
the case. Accordingly, he may in his discretion, following a finding of guilt, reopen the case, and
permit the accused to tender further evidence.” The Court went on to say, however, that while
“this power should be exercised only in exceptional circumstances and where its exercise is
clearly called for”, “a Judge has no power to reopen a case following an acquittal since the
proceeding has been terminated by such a verdict.”

28.
The question therefore arises whether the dismissal of the first three allegations is final
and not subject to any further order by this Panel.

29.
In this connection, it is interesting to consider the position taken by the Divisional Court
of the Ontario Superior Court of Justice in SOS-Save Our St. Clair Inc. v. City of Toronto et al.,
78 O.R. (3d) 331. The case involved an application for judicial review of a decision made by the
City of Toronto, which was granted, reasons to follow. However, before the reasons were issued
and a formal order entered, the respondent moved that the presiding judge disqualify himself
because of apprehended bias, that the judgment given be set aside, and that the application for
judicial review be remitted to be heard by a different panel of the Court.

30.
While the motion was heard by all three members of the panel, it is the practice in the
Divisional Court that only the judge whose disqualification is sought (who happened to be the
Page 10 of 13

presiding judge in the case) rule on the matter. He did and dismissed the motion. His two
colleagues, however, while accepting the presiding judge’s right to decide, strongly disagreed
with his decision, and held that to proceed further would be in breach of the principles of natural
justice. They added that while it was not for the rest of them to say what the presiding judge
ought to have done, a perception of bias existed, and the appropriate course was for them to step
down, which they did. The panel was accordingly struck and a new panel was ordered to be
constituted to hear the entire matter de novo. It is important to bear in mind, however, that these
proceedings were civil in nature.

31.
That is similar to what MFDA Staff asks as to do: vacate the proceedings and order that a
new hearing be held before a differently constituted Panel.

32.
So what to do. On the one hand, we agree, as stated above, that the Decision rendered by
the Panel may be considered tainted by reason of apprehended bias. On the other hand, the
Respondent was cleared on three of four allegations, and on those three allegations nothing
further remains to be done. Yet the case is not complete.

33.
We are faced with two competing notions: let the dismissals stand, but vacate the finding
on allegation #4 or, as submitted by Enforcement Counsel, strike the entire decision.

34.
In the final analysis, we opt for the latter course. All four allegations were contained in
one document, and it is not for us to sever them ex post facto. That being so, the four allegations
must stand or fall together. This is not a criminal case, where stricter procedural rules may apply.
Rather, we adopt the course of action taken by the Divisional Court in the SOS-Save Our St.
Clair Inc. case, cited above, and set aside the Decision rendered on June 12, 2009

35.
There is another, more practical, reason why it is opportune to do so. As stated before, we
are of the view that apprehended bias exists. Should we adopt the first alternative and declare
ourselves functus vis-à-vis the first three allegations, the practical outcome would be that the
MFDA would be forced to appeal the decision, with the likely result that the original Decision
would be set aside by an appellate tribunal which, unlike this Panel, would have the competence
to do so. This would entail additional costs and inconvenience, particularly for the Respondent,
Page 11 of 13

who has a right to have this matter determined as speedily as possible.

36.
Two final matters must be dealt with. The first concerns the request of MFDA counsel
that the motion be heard in camera, which it was. This was done in order to meet the privacy
concerns of the third member of the Panel as first constituted.

37.
We agree that this is a real concern, particularly since the allegations set out in the motion
(and greatly expanded in the affidavits filed) have not been proven. It is, therefore, reasonable,
that the exhibits be placed under seal and not be accessible to the general public, and we so order.
However, the decision now rendered shall be a public document. Furthermore, should the
Respondent need access to the documentation placed under seal, he shall be given such access,
provided, however, that he undertakes to discuss the contents only with persons whom he
consults in connection with this case.

38.
The second matter concerns costs. The Respondent asks that costs be assessed against the
MFDA. It is not an unreasonable request because, through no fault of his own, he found himself
involved in proceedings which put in question the Decision made in the case against him.
Regrettably, we are unable to do so. Section 24.2 of By-law No. 1 (as amended) permits a
Hearing Panel to order that a Member or Approved Person “pay the whole or part of the costs of
the proceedings.” But it is silent about costs against the MFDA, and this precludes us from
considering the request.

Disposition

39.
For the reasons set out above, the Decision and Reasons filed by this Panel (as then
constituted) on June 12, 2009, is hereby set aside. It is not for us to decree what further action
may be taken.

40.
The two affidavits referred to in paragraph 15 shall be placed under seal and not be
accessible to the general public. Should the Respondent need access to these documents, they
shall be made available to him on his undertaking not to discuss the contents with persons other
than those he consults in connection with the proceedings against him.
Page 12 of 13

Dated this 30th day of October, 2009.

“Fred Kaufman”

The Hon. Fred Kaufmann, C.M., Q. C., Chair

“Selwyn Kossuth”

Selwyn Kossuth, Industry Representative

Doc 190114

Page 13 of 13