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Decision and Reasons

Re:

Decision and Reasons

Decision and Reasons
File No. 200906



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: Donald James Cunningham


Heard: December 1, 2009 in Toronto, Ontario
Decision and Reasons: February 24, 2010

DECISION AND REASONS

Hearing Panel of the Central Regional Council:

Thomas J. Lockwood, Q.C.
Chair

Sandy Grant
Industry Representative

Anne Traczuk
Industry Representative

Appearances:

Shelly
Feld

)
For the Mutual Fund Dealers Association of

)
Canada

A. Benson Forrest
)
For the Respondent

)

Page 1 of 18


1.
By Notice of Hearing, dated March 3, 2009, the Mutual Fund Dealers Association
of Canada (“MFDA”), made the following Allegations against Donald James
Cunningham (the “Respondent”):

(a) Allegation #1: Between June 2003 and September 2005, the Respondent
failed to fulfill his supervisory responsibilities as branch manager of the
London, Ontario branch of Desjardins Financial Security Investments Inc.
(formerly known as “Optifund Investments Inc.”) (“Desjardins”), contrary to
MFDA Rules 2.5, 2.5.3 and 2.5.5 and MFDA Policy No. 2.
(b) Allegation #2: Between September 2003 and November 2004, the Respondent
failed to employ adequate supervision to prevent Anthony McPhail
(“McPhail”), an unregistered individual, from engaging in securities related
business with clients of Desjardins, contrary to MFDA Rules 2.5 and 2.1.1(c).
(c) Allegation #3: Between January 2004 and November 2004, the Respondent
failed to conduct reasonable supervisory investigations in response to
information that McPhail, an unregistered individual, was engaging in
securities related business with clients of Desjardins and to take such
supervisory and disciplinary measures as might be warranted by the results of
such investigations, contrary to MFDA Rules 1.1.1(c), 2.5 and 2.1.1(c).

2.
On March 6, 2009, on consent, the Respondent was served with the Notice of
Hearing, in accordance with Rule 4.2(1)(d) of the MFDA Rules of Procedure.

3.
On May 29, 2009, the First Appearance took place before a Hearing Panel of the
Central Regional Council, at which time a number of procedural Orders were made,
including that the Hearing on the Merits would take place at the offices of the MFDA at
121 King Street West, Suite 1000, Toronto, Ontario, from Monday, January 11, 2010, to
Friday, January 15, 2010.

4.
On June 30, 2009, the Respondent delivered his Reply.

Page 2 of 18

5.
On November 11, 2009, Staff and the Respondent entered into a Settlement
Agreement.

6.
By Notice of Settlement Hearing, dated November 20, 2009, the Hearing Panel
was convened on December 1, 2009, in Toronto, Ontario, to consider whether, pursuant
to Section 24.4.3 of MFDA By-law No. 1, the Hearing Panel should accept the
Settlement Agreement.

7.
At the outset of the proceedings, Staff advised that the Settlement Agreement had
been prepared in accordance with Section 24.4.2 of By-law No. 1. Staff further advised
that the Notice of Settlement Hearing had been publicized in accordance with Rule 15.2
of the MFDA Rules of Procedure.

8.
We also considered a joint Motion by Staff and the Respondent to move the
proceedings “in camera”. This Motion was brought pursuant to Rule 15.2(2) of the Rules
of Procedure, which provides as follows:

“15.2(2) A Hearing Panel may, on its own initiative or at the request of a party,
order that all or part of the settlement hearing be held in the absence of the public,
having regard to the principles set out in Rule 1.8.”

9.
Rule 1.8(2) of the Rules of Procedure provides as follows:

“(2)
A Panel may order that all or part of a hearing be heard in the absence of
the public where the Panel is of the opinion that intimate financial or personal
matters or other matters may be disclosed at the hearing which are of such a
nature, having regard to the circumstances, that the desirability of avoiding
disclosure thereof in the interests of any person affected or in the public interest
outweighs the desirability of adhering to the principle that hearings be open to the
public.”

10.
We granted the Motion on the condition, which was agreeable to both Staff and
Page 3 of 18

the Respondent, that, should the Hearing Panel accept the Settlement Agreement, we
would provide Reasons for our Decision, which, along with the record of the Settlement
Hearing, would be available to the public. This is consistent with Rule 15.2(3) of the
Rules of Procedure.

11.
The Hearing Panel then considered the provisions of the Settlement Agreement,
the salient portions of which are as follows:

“IV. AGREED
FACTS

Registration History

6.
The Respondent was registered in Ontario as a mutual fund
salesperson with Desjardins from June 2003 to December 31, 2005, when
his registration expired. From June 2003 to September 2005, the
Respondent was also registered as the branch manager of the branch office
of Desjardins Financial Security Investments Inc. (formerly known as
“Optifund Investments Inc.”) (“Desjardins”) located in London, Ontario
(the “London Branch”).

7.
Previously, from January 1994 to May 2003, the Respondent was
registered as a mutual fund salesperson and branch manager with other
mutual fund dealers. The Respondent, however, did not perform any
supervisory functions with those previous dealers.

8.
Desjardins became a Member of the MFDA on November 15,
2002.

Failure to Fulfill Supervisory Responsibilities of a Branch Manager

9.
In June 2003, the Respondent purchased from Desjardins, the right
to open, own and operate the London Branch and was granted the title of
Managing Director of the London Branch (a non-registered position). In
accordance with MFDA Rule 2.5.3(a), Desjardins also designated the
Respondent as the branch manager of the London Branch (a registered
position).

10.
Due to his lack of skills, knowledge and experience with respect to
the sale of mutual funds and the regulatory responsibilities of a branch
manager, the Respondent recruited an individual whom he believed was
an experienced branch manager, Anthony McPhail (“McPhail”), to take
his place as the designated branch manager.

Page 4 of 18

11.
In August 2003, McPhail agreed to accept the position of branch
manager of the London Branch. Desjardins and McPhail submitted an
application to the Ontario Securities Commission (“OSC”) to transfer
McPhail’s registration from his former Member to Desjardins (the
“Application”). Although McPhail had agreed to become the branch
manager, the OSC ultimately did not approve the transfer of his
registration to Desjardins due to regulatory concerns arising from on-
going investigations into his conduct at his former Member.

Consequently, the Respondent continued as the designated branch
manager of the London Branch.

12.
The Respondent did not fulfill his supervisory obligations and
responsibilities as branch manager of the London Branch, contrary to
MFDA Rules 2.5.3, 2.5.5 and MFDA Policy No. 2. In particular, the
Respondent:

(a)
did not familiarize himself with the policies and procedures
of Desjardins and the regulatory obligations of a designated
branch manager;

(b) improperly delegated most of his supervisory
responsibilities for trade review and new account approval
to an unregistered office administrator at the London
Branch who had not fulfilled the proficiency requirements
for a branch manager set out in MFDA Rule 1.2.2, contrary
to MFDA Rule 2.5.5 and MFDA Policy No. 2; and

(c)
failed to ensure that an alternate branch manager had been
designated to perform and did perform his duties as branch
manager on the occasions when he was absent from the
office because of business commitments or vacations,
contrary to MFDA Rule 2.5.3(c).

Failure To Detect and Prevent Unregistered (“Stealth”) Advising

13.
In August 2003, McPhail was formally introduced to Approved Persons
and unregistered staff in the London Branch as the branch manager, even though
the Application had not yet been approved by the OSC.

14.
The Respondent (with the permission of Desjardins) authorized McPhail
to open a sub-branch of the London Branch in Chatham, Ontario (the “Chatham
sub-branch”).

15.
Pending the approval of the Application, the Respondent permitted
McPhail to access and regularly attend at the London Branch and Chatham sub-
branch. McPhail claimed that he would be working at the Chatham sub-branch for
the purpose of providing insurance and tax planning advice which he was
approved and licensed to do. No internal controls or supervisory procedures were
Page 5 of 18

established or implemented to prevent McPhail from engaging in securities
related business with clients of Desjardins.

16.
The OSC did not approve the Application and in May 2004, it was
withdrawn by Desjardins. Consequently, McPhail was never registered as an
Approved Person of Desjardins. Most of the Approved Persons and unregistered
staff of Desjardins were not aware and were not informed by the Respondent that
McPhail was not registered.

17.
Commencing in the fall of 2003, McPhail arranged for the transfer of
client accounts from his former Member to Desjardins (the “Clients” and the
“Accounts”). As McPhail was not registered, the Accounts were assigned to
another Approved Person, AP#1 and any trades in the Accounts were processed
under AP#1’s representative code. The Respondent, McPhail and AP#1
anticipated that upon approval of the Application the Clients and the Accounts
would be reassigned to McPhail. Most of the Clients believed (incorrectly) that
McPhail was the Approved Person responsible for their Accounts. Most Clients
did not question AP#1’s involvement with their accounts because she had been
McPhail’s registered administrative assistant at his former Member and the
Clients were accustomed to dealing with her.

18.
In December 2003, AP#1 resigned from Desjardins. The Application still
had not been approved so the Accounts were re-assigned to another Approved
Person, CE. Again, it was anticipated that upon approval of the Application, the
Clients and the Accounts would be reassigned to McPhail. Most of the Clients
continued to believe that McPhail was the Approved Person responsible for their
Accounts.

19.
Between December 2003 and October 2005, McPhail and CE carried on a
“stealth advising” arrangement whereby CE permitted McPhail to process account
related activities under CE’s representative code, thereby permitting McPhail to
service the Accounts and engage in securities related business directly with the
Clients while he was not registered. Among other things, McPhail:

(a)
provided advice and made investment recommendations to Clients
at the Chatham sub-branch and elsewhere;

(b)
collected information required to open new accounts for the
Clients; and

(c)
received trading instructions from the Clients and arranged for
their trades to be processed by Desjardins.

Failure To Conduct A Reasonable Supervisory Investigation

20.
Between January and November 2004, information was communicated to
the Respondent on several occasions that alerted him or ought to have alerted him
to the fact that McPhail was engaging in securities related business with clients
Page 6 of 18

while unregistered. In particular:

(a)
In January 2004, the Respondent was informed about a complaint
from a Client who objected to the fact that his account statements
identified AP#1 as his Approved Person rather than McPhail;

(b)
In April 2004, following a visit to the Chatham sub-branch by the
branch administrator and the alternate branch manager from the
London Branch, the Respondent was informed that they had
observed McPhail meeting with people who appeared to be clients
of Desjardins;

(c)
On multiple occasions in April and May 2004, the Respondent was
advised that the receptionist at the Chatham sub-branch regularly
observed McPhail meeting with clients of Desjardins;

(d)
In April-May 2004, the branch administrator at the London Branch
reported to the Respondent that she had observed McPhail’s
handwriting on mutual fund transaction forms received from the
Chatham sub-branch;

(e)
On April 23, 2004, the Respondent received an e-mail from the
Chief Compliance Officer of Desjardins notifying the Respondent
that:
(i)
McPhail was the subject of an MFDA investigation;

(ii)
MFDA Staff were concerned that McPhail was
engaging in securities related business while
unregistered; and that

(iii)
Desjardins intended to withdraw the Application

(f)
On July 21, 2004, the Respondent received another e-mail from the
Chief Compliance Officer of Desjardins informing him that the
MFDA remained concerned that McPhail was engaging in
securities related business with clients;

(g)
By letter to Desjardins dated August 25, 2004, MFDA Staff
requested that the Respondent provide a written statement to the
MFDA disclosing whether he was aware of any way in which
McPhail had engaged in the process of providing investment
advice to clients of Desjardins, selling mutual fund products, or
receiving any financial benefit from mutual fund sales activity
while unregistered. On August 27, 2004, the Respondent signed a
statement which asserted that he was not aware of any such
conduct by McPhail and would report to Desjardins if he became
aware of McPhail’s involvement in any such conduct in the future;
and
Page 7 of 18


(h)
In the fall of 2004, the Respondent received complaints from two
individuals that appeared to indicate that McPhail was engaging in
securities related business with clients.

21.
On October 24, 2004, the Respondent and Desjardins’ Vice-President
Sales met with an Approved Person and an unregistered employee from
the Chatham sub-branch who announced their resignations and reported to
the Respondent that:

(i)
McPhail was holding himself out to clients as an Approved Person;

(ii) McPhail was meeting with clients, arranging for trading
documentation to be signed by clients on the basis of advice that he
provided and then CE was signing the trading documentation as
the Approved Person responsible for the client account and
allowing it to be processed under CE’s representative code;

(iii)
Clients were complaining about McPhail;

(iv)
The Chatham sub-branch was in financial distress; and

(v)
McPhail and CE were rarely in the office and were not returning
client calls.

22.
The following day, on October 25, 2004, based on the first hand accounts
of the facts as described in the previous paragraph, the Respondent
presented CE and McPhail with the option to either resign or be
terminated. McPhail and CE elected to immediately resign.

23.
Between January and October 2004, the Respondent, as a result of his lack
of knowledge and experience in respect of his supervisory obligations,
disregarded and failed to take adequate supervisory and disciplinary action
in response to the information that he received that alerted, or should have
alerted him to the fact that McPhail was engaging in securities related
business with clients while unregistered. During this period, the
Respondent:

(a)
dismissed the reports that McPhail was engaging in securities
related business with clients as unsubstantiated rumours;

(b)
failed to conduct a reasonable supervisory investigation to
determine whether CE and McPhail were engaging in a stealth
advising arrangement and if so, the nature and extent of their
activity;

(c)
permitted McPhail to continue working from the Chatham sub-
branch office;
Page 8 of 18


(d)
did not inform the Approved Persons and unregistered staff in the
London Branch and the Chatham sub-branch that the Application
had not been approved and therefore McPhail was not authorized
to conduct securities related business;

(e)
did not send written notification to Clients clarifying that CE was
the Approved Person responsible for their Accounts;

(f)
failed to implement any internal controls to prevent McPhail from
engaging in securities related business with clients pending the
approval of the Application and following its withdrawal; and

(g)
did not subject CE to heightened supervision or take any
disciplinary action against him.

24.
On November 8, 2004, a complaint was submitted to the OSC concerning
the same allegations that had been communicated to the Respondent on
October 24, 2004.

25.
Desjardins was informed about the complaint by the OSC and commenced
an investigation. On February 18, 2005, Desjardins completed its
investigation and concluded that McPhail and CE had been carrying on a
stealth advising arrangement prior to CE’s resignation in October 2004.

26.
In November 2004, CE’s registration was transferred to another MFDA
Member where CE and McPhail continued their stealth advising
arrangement.

27.
In March 2005, the MFDA commenced disciplinary proceedings against
McPhail and thereafter the new Member with whom CE was registered
terminated McPhail’s access to the premises. On June 7, 2006, CE passed
away.

28.
Following the commencement of the MFDA investigation into his
conduct, the Respondent voluntarily resigned from his positions as an
Approved Person and Branch Manager. Since that time he has not
reapplied for registration in the securities industry. However, he remains
owner and Managing Director of the London Branch.

V. CONTRAVENTIONS

29.
The Respondent admits that between June 2003 and September 2005, the
Respondent failed to fulfill his supervisory responsibilities as branch
manager of the London Branch of Desjardins, contrary to MFDA Rules
2.5, 2.5.3 and 2.5.5 and MFDA Policy No. 2.

30.
The Respondent admits that between September 2003 and November
Page 9 of 18

2004, the Respondent failed to employ adequate supervision to prevent
McPhail, an unregistered individual, from engaging in securities related
business with clients of Desjardins, contrary to MFDA Rules 2.5 and
2.1.1(c).

31.
The Respondent admits between January 2004 and November 2004, the
Respondent failed to conduct reasonable supervisory investigations in
response to information that McPhail, an unregistered individual, was
engaging in securities related business with clients of Desjardins and to
take such supervisory and disciplinary measures as might be warranted by
the results of such investigations, contrary to MFDA Rules 1.1.1(c), 2.5
and 2.1.1(c).

VI.
TERMS OF SETTLEMENT

32.
The Respondent agrees to the following terms of settlement:

1. the Respondent shall pay a fine in the amount of $10,000;
2. the Respondent shall be permanently prohibited from being registered
or acting in any supervisory capacity for a Member of the MFDA;
3. the Respondent is permanently prohibited from being registered or
acting as a partner, director or senior officer of a Member of the
MFDA; and
4. the Respondent shall pay costs in the amount of $2,500.

IX. FAILURE
TO
HONOUR
SETTLEMENT AGREEMENT

38.
If this Settlement Agreement is accepted by the Hearing Panel and, at any
subsequent time, the Respondent fails to honour any of the Terms of Settlement
set out herein, Staff reserves the right to bring proceedings under the By-laws of
the MFDA against the Respondent based on, but not limited to, the facts set out in
Part IV of the Settlement Agreement, as well as the breach of the Settlement
Agreement. If such additional enforcement action is taken, the Respondent agrees
that the proceeding may be heard and determined by a hearing panel comprised of
all or some of the same members of the hearing panel that accepted the Settlement
Agreement, if available.”

12.
At the Settlement Hearing on December 1, 2009, counsel for both Staff and the
Respondent made extensive submissions as to why this Settlement Agreement should be
accepted by the Hearing Panel. Staff also provided Written Submissions.

13.
The parties agreed and relied upon the Supreme Court of Canada decision in
Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557, that the
Page 10 of 18

primary goal of securities regulation is the protection of the investor.

14.
Staff submitted that two cornerstones of the investor protection mandate are
raised by this case. They are:

(a) Firstly, all securities related business is required to be conducted by properly
registered individuals. Only those individuals who are registered, and thereby
authorized to conduct securities related business, have fulfilled the proficiency
requirements and satisfied securities regulators that they are otherwise fit to
provide investment advice and facilitate trading in the securities industry.
Where, as here, information is received which indicates that a formerly
registered individual may be continuing to conduct securities related business
with clients of the Member through one of the Member’s existing Approved
Persons – a practice referred to as “stealth advising” – appropriate steps must
be taken immediately to detect and prevent the continuation of such conduct.

(b) Secondly, an adequate supervisory environment must be established and
maintained to ensure that Member business is handled in accordance with the
regulatory requirements set out in the By-laws, Rules and Policies of the
MFDA and applicable securities legislation. Members designate branch
managers and entrust them with a significant amount of responsibility for
supervision. Branch managers essentially serve as the Member’s eyes on the
ground. Individuals who accept such responsibility must have the proficiency
and training necessary to fulfill their important supervisory role. In addition to
performing regular duties of supervision and review required in their
positions, branch managers must pro-actively follow-up on information that
comes to their attention which raises concerns that regulatory obligations or
the Member’s policies and procedures are being contravened or the interests
of clients and other individuals are not being protected.

15.
At the conclusion of the submissions, the Hearing Panel retired to consider
whether we were in a position to accept the Settlement Agreement in its current form.
Page 11 of 18


16.
We were aware that, in considering the Settlement Agreement, we were restricted
to the jointly agreed upon facts set out in the Settlement Agreement and that additional
facts could only be disclosed with the consent of the parties.

17.
We were, however, concerned with paragraph 28 of the Settlement Agreement,
which provided that the Respondent would remain as the “Managing Director” of the
London Branch of Desjardins, even though the joint recommendation was that he be
permanently prohibited from being registered or acting as a partner, director or senior
officer of a Member of the MFDA.

18.
We discussed our concern with counsel for the parties. They requested an
opportunity to consider the matter and, if thought appropriate, to file Supplementary
Submissions. We granted this request.

19.
On December 23, 2009, the Hearing Panel was provided with Joint
Supplementary Submissions, which stated, in part, as follows.

“2.
In order to address the Hearing Panel’s concerns, the parties have agreed
to add an additional paragraph to the draft Order attached as Schedule “A” to the
Settlement Agreement which will state as follows:

“The Respondent shall not hold himself out to members of the public as
the Managing Director of the London branch of Desjardins in respect of
mutual fund business, including, without limitation, by distributing
business cards or stationary to clients of Desjardins or members of the
public reflecting that title in respect of mutual fund business;”

3.
Further, to avoid any confusion to the public with respect to the nature of
the Respondent’s position and the scope of the Respondent’s authority, the parties
have made a joint request to Desjardins and Desjardins has agreed to consent to a
change in the title that will appear on the Respondent’s business card. The
Respondent’s new title will be “Recruitment Specialist”.”

20.
The Hearing Panel is grateful to the parties for this clarification.

Page 12 of 18

FACTORS CONCERNING ACCEPTANCE OF A SETTLEMENT AGREEMENT

21.
Previous MFDA Hearing Panels have taken into account the following
considerations when determining whether a proposed Settlement Agreement should be
accepted:

(a) whether acceptance of the Settlement Agreement would be in the public
interest and whether the penalty imposed will protect investors;

(b) whether the Settlement Agreement is reasonable and proportionate, having
regard to the conduct of the Respondent as set out in the Settlement
Agreement;

(c) whether the Settlement Agreement addresses the issues of both specific and
general deterrence;

(d) whether the proposed settlement will prevent the type of conduct described in
the Settlement Agreement from occurring again in the future;

(e) whether the Settlement Agreement will foster confidence in the integrity of the
Canadian capital markets;

(f) whether the Settlement Agreement will foster confidence in the integrity of the
MFDA; and

(g) whether the Settlement Agreement will foster confidence in the regulatory
process itself.
Re: Professional Investments (Kingston) Inc. (Re), [2009] MFDA Central Regional Council,
Hearing Panel Decision dated March 24, 2009, File No. 200836, at page 9.

Re: Investors Group Financial Services (Re), [2004] MFDA Ontario Regional Council, Hearing
Panel Decision dated December 16, 2004, File No. 200401, at pages 2 to 3.

Re: Desjardins Financial Security Investments Inc. (Re), [2009] MFDA Central Regional Council,
Hearing Panel Decision dated May 11, 2009, File No. 200908, at pages 2 to 3.
Page 13 of 18

FACTORS CONCERNING THE APPROPRIATE PENALTY

22.
We also reviewed the factors which previous Hearing Panels have indicated
should be considered when determining the appropriate penalty. These include the
following:
(a) the seriousness of the allegations proved against the Respondent;
(b) the Respondent’s past conduct, including prior sanctions;
(c) the Respondent’s experience and level of activity in the capital markets;
(d) whether the Respondent recognizes the seriousness of the improper activity;
(e) the harm suffered by investors as a result of the Respondent’s activities;
(f) the benefits received by the Respondent as a result of the improper activity;
(g) the risk to investors and the capital markets in the jurisdiction, were the
Respondent to continue to operate in capital markets in the jurisdiction;
(h) the damage caused to the integrity of the capital markets in the jurisdiction by
the Respondent’s improper activities;
(i) the need to deter not only those involved in the case being considered, but also
any others who participate in the capital markets, from engaging in similar
improper activity;
(j) the need to alert others to the consequences of inappropriate activities to those
who are permitted to participate in the capital markets; and
(k) previous decisions made in similar circumstances.

Re: Professional Investments (Kingston) Inc., supra, at page 11.
Re: Investors Group Financial Services, supra, at pages 2 and 3.
Re: Desjardins Financial Security Investments Inc., supra, at pages 2 and 3.

CONSIDERATIONS IN THE PRESENT CASE

23.
It was submitted to us that we should accept the Settlement Agreement and the
proposed penalties, as amended, for, inter alia, the following reasons:
Page 14 of 18

(a) The Respondent:

i.) lacked sufficient knowledge, ability and training to fulfill his
supervisory obligations and responsibilities as required by MFDA Rules
and Policies;
ii.) improperly delegated many of his supervisory responsibilities to an
individual who had not fulfilled the minimum proficiency requirements
required of a branch manager; and
iii.) did not take adequate steps to obtain the additional training and support
that he required to serve as an effective branch manager;

(b) The Respondent failed to adequately respond to information from multiple
sources including the MFDA that suggested that Anthony McPhail, a former
Approved Person of a different Member, was continuing to conduct securities
related business with clients of Desjardins.

(c) The conduct of the Respondent was serious.

(d) It was not an isolated incident but rather a series of incidents which took place
over a lengthy period of time.

(e) On the other hand, there were a number of mitigating factors, including the
following:
i.) the Respondent has no previous disciplinary history with the MFDA;
ii.) the Respondent co-operated with Staff throughout the investigation of
this matter;
iii.) the Respondent voluntarily resigned from his positions as an Approved
Person and Branch Manager shortly after the commencement of the
MFDA investigation into his conduct and since that time he has not
reapplied for registration in the securities industry;
iv.) the Respondent’s admissions to the misconduct described in the
Page 15 of 18

Settlement Agreement reflect acceptance of responsibility for his
misconduct and demonstrate remorse; and
v.) by entering into a Settlement Agreement, the Respondent has avoided
the need for a potentially lengthy hearing that would have entailed
additional effort, time and expense to the MFDA.

24.
We also considered the MFDA Penalty Guidelines (“Guidelines”), recognizing
that:
Range Is Guideline Only
The penalty types and ranges stated in the Guidelines are not
mandatory. The Guidelines suggest the types and ranges of
penalties that would be appropriate for particular case types. The
Guidelines are intended to provide a basis upon which discretion
can be exercised consistently and fairly in like circumstances but
are not binding on a Hearing Panel.”

25.
In cases that address contraventions of an Approved Person’s supervisory
obligations, the Guidelines recommend a minimum fine of $10,000 and in appropriate
cases, conditions, suspensions or prohibitions on the Approved Person’s authority to be
registered or act in particular supervisory roles for Members of the MFDA. The minimum
recommended fine in cases involving a contravention of the standard of conduct by an
Approved Person is $5,000. The fine agreed upon in the present case meets the minimum
fine threshold.

26.
This is a companion case to the proceeding that was brought against the Member,
Desjardins, concerning the Member’s role with respect to the subject matter of this
proceeding. On May 6, 2009, a Settlement Agreement between MFDA Staff and the
Member was accepted by a Hearing Panel, as a consequence of which the Member paid a
fine of $75,000 and costs in the amount of $15,000.

27.
In our view, it is important that the Settlement Agreement and the proposed
penalties are in keeping with the purpose of the MFDA to enhance investor protection
and strengthen public confidence in the Canadian mutual fund industry by ensuring high
standards of conduct by its Members and Approved Persons.
Page 16 of 18

28.
We believe that the proposed penalties will deter misconduct by the Respondent,
deter others from engaging in similar misconduct, improve overall compliance by mutual
fund industry participants and foster public confidence in the mutual fund industry.

29.
We noted the nature of these proceedings, the fact that they are public and the
effect that this has had, and will have, on the Respondent.

30.
Finally, we also considered that this was a Settlement Agreement that was
reached by the parties after significant discussions and negotiations. It represents what
they feel, with their knowledge and experience, is an appropriate resolution.

31.
After careful consideration of all of the above factors, we unanimously concluded
that the Settlement Agreement was reasonable and in the public interest and should be
accepted by this Hearing Panel.

PENALTIES IMPOSED

32.
In summary, the penalties, which we impose on the Respondent, are the
following:
(a) A permanent prohibition from being registered or acting in any supervisory
capacity for a Member of the MFDA, pursuant to s. 24.1.1(f) of MFDA By-
law No. 1;
(b) A permanent prohibition from being registered or acting as a partner, director
or senior officer of a Member of the MFDA, pursuant to s. 24.1.1(f) of MFDA
By-law No. 1;
(c) The Respondent shall not hold himself out to members of the public as the
“Managing Director” of the London branch of Desjardins in respect of mutual
fund business, including, without limitation, by distributing business cards or
stationary to clients of Desjardins or members of the public reflecting that title
in respect of mutual fund business;
(d) A fine in the amount of $10,000.00, pursuant to s. 24.1.1(b) of MFDA By-law
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No. 1;
(e) Costs in the amount of $2,500.00, pursuant to s. 24.2 of MFDA By-law No. 1.

DATED this 24th day of February, 2010.

“Thomas J. Lockwood”
Thomas J. Lockwood, Q.C.

Chair

“Sandy Grant”
Sandy Grant

Industry Representative

“Anne Traczuk”
Anne Traczuk

Industry Representative

Doc 202083
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