Decision and Reasons

I. INTRODUCTION

1. By Decision and Reasons dated May 26, 2016 the Hearing Panel found that Sherry L. McKenzie (“Respondent”) had violated the By-laws, Rules or Policies of the Mutual Fund Dealers Association of Canada (“MFDA”) as follows:
   1. The Respondent contravened MFDA Rule 2.1.1 by altering and reusing 26 original or photocopies of previously used account forms and that she obtained and maintained 7 blank or partially complete pre-signed account forms during the period between October 16, 2009 and June 15, 2012.
   2. The Respondent contravened Section 22.1 of MFDA By-law No. 1 by failing, despite many requests made by Staff in the exercise of their investigative powers, to attend as required for an interview and thereby failed to give Staff the required cooperation with their investigation.

2. The Respondent was registered as an approved person of the MFDA in August 2002. Until March 27, 2013, the Respondent was registered in Ontario as a mutual funds salesperson (now known as a dealing representative) with the Independent Planning Group Inc. (“IPG”), a member of MFDA. At all material times the Respondent conducted business from an IPG branch in the Cambridge, Ontario area.

3. The Respondent resigned from IPG during a telephone call held on March 27, 2013 with IPG and confirmed that resignation, effective March 29, 2013, in a letter to IPG dated March 29, 2013. The MFDA was notified of the resignation and the Respondent ceased to be registered as an approved person with the MFDA on April 8, 2013 and is not currently a registrant of the MFDA.

4. The Respondent defended herself and appeared at the misconduct hearing after having filed a Reply as required. She was not represented by counsel. In her Reply she denied the two allegations made against her. However, in fairness it must be said that as the hearing progressed the issue of whether or not she had committed the breaches for which she was charged was not in substantial issue. She acknowledged misusing the forms and did not deny her failure to cooperate with Staff of the MFDA (“Staff”).

5. It was also made clear that the Respondent’s clients had made no complaint about her conduct and no client appeared to have suffered any damage, certainly no such submission was made to the Hearing Panel.

6. Also relevant to the sanction determination is the following finding made by the Hearing Panel in the Decision and Reasons in the misconduct phase of this proceeding:
   20. Nowhere in the record is there any evidence of a denial by the Respondent that she carried out the practices alleged in the Forms Allegation within the period therein alleged. Indeed, the Respondent’s own submissions to the Panel are telling in that she excuses such practices as necessary on the basis of business expediency as follows:
       1. Q. How do you do something when you have no option with the compliance bulletin? How can they tell you that this is rule, this is law, but not be able to operate – it wasn’t possible to do what they were requesting. How do you solve that issue? I was damned if I do and I was damned if I don’t. I can’t – there was no middle ground. How do you make an MFDA rule that says 24 hours and then not be able to adhere to it? It was not a choice I had. But it’s in all the rules and –

II. PENALTY SUBMISSIONS OF STAFF

7. Staff proposes that the following penalties be imposed on the Respondent:
   1. Pursuant to section 24.1.1(e) of MFDA By-law No. 1, a permanent prohibition on the authority of the Respondent to conduct securities related business in any capacity;
   2. Pursuant to section 24.1.1(b) of MFDA By-law No. 1, a minimum fine of $15,000 for the maintenance of blank signed and altered forms;
   3. Pursuant to section 24.1.1(b) of MFDA By-law No. 1, a minimum fine of $50,000 for failing to cooperate with the MFDA contrary to section 22.1 of MFDA By-law No. 1; and
   4. Pursuant to section 24.2 of MFDA By-law No. 1, costs attributable to conducting the investigation and prosecution of this matter in the amount of $5,000.

   Sections 24 and 24.2 of MFDA By-law No. 1.

8. Staff submits that: “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 Members and dealing representatives. The proposed sanctions will prevent future 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.”

9. In particular, Staff notes that the Respondent had been previously discovered using blank signed forms. She had been found to be doing so in an audit in 2009 and despite promises made by her to cease, the practice continued and was rediscovered in an audit in 2012.

10. Staff also lays heavy emphasis on the Respondent’s total failure both to attend requested interviews with Staff and to otherwise cooperate with Staff in the performance of their duties to investigate apparent breaches of the relevant governing statutes, By-laws, rules and regulations and particularly Section 22.1 of MFDA By-law No. 1.

III. PENALTY SUBMISSIONS OF THE RESPONDENT

11. The Respondent made the following written submissions which relate to penalty:

1. CONSIDERATIONS IN THE PRESENT CASE:
   1. No clients were affected financially or otherwise by whited out forms.
   2. I had a 29 year exemplary service with the MFDA
   3. I in no way personally benefited from any of this!

1. RECOMMENDATIONS:
   1. Allow room for professional judgment.
   2. A greater clarity of definitions by regulators.
   3. There was no place for the compliance officer at IPG to register white out. There was no rule at MFDA for this either. The MFDA automatically inherited the rules of IPG. I had no choice in the matter.
   4. Damage has been done with the social media access to my name.

12. Other than the foregoing, the Respondent made no submission as to what would be an appropriate penalty in this case. When asked what she thought would be an appropriate penalty the Respondent stated “that she has been already penalized enough and that no further penalty is warranted”.

IV. ANALYSIS AND DECISION

13. Staff began its submissions on the process that should be followed by a Hearing Panel when determining an appropriate penalty by a reminder that the MFDA Penalty Guidelines are just that, simply guidelines. They are not mandatory. They are intended to provide a basis upon which a discretion can be exercised consistently and fairly.

14. Staff submits that the case presently before the Hearing Panel is one which merits the imposition of a penalty higher than usually imposed. For the reasons which will be developed in what follows, the Hearing Panel agrees.

15. The primary goal of securities regulation is the protection of the investor. Sanctions imposed in the securities regulatory context should be protective and preventative, intended to be exercised to prevent likely future harm to the capital markets.
    1. Pezim v. British Columbia (Superintendent of Brokers) [1994], S.C.J. 58, Iacobucci, J. at paragraphs 59 and 68.
    2. Re: Arnold Tonnies, [2005] Hearing Panel of the Prairie Regional Council, MFDA File No. 200503 at p. 21 – 22.

16. General deterrence is an appropriate consideration in making orders that are both protective and preventative. A penalty must re-affirm public confidence in the regulatory system and ensure that the misconduct is not repeated by others in the industry.
    1. Tonnies, supra at p. 22.

17. In exercising its discretion to impose a penalty, the Hearing Panel should take into account the following considerations:
    1. The protection of the investing public;
    2. The integrity of the capital markets;
    3. Specific and general deterrence;
    4. The protection of the MFDA’s membership; and
    5. The protection of the integrity of the MFDA’s enforcement processes.
    1. Tonnies, supra at p. 22.

18. The Hearing Panel agrees that other factors that are frequently considered when determining an appropriate penalty include the following:
    1. The seriousness of the allegations proved against the Respondent;
    2. The Respondent’s past conduct, including prior sanctions;
    3. The Respondent’s experience in capital markets;
    4. The level of the Respondent’s activity in the capital markets;
    5. Whether the Respondent recognizes the seriousness of the improper activity;
    6. The harm suffered by investors as a result of the Respondent’s activities;
    7. The benefits received by the Respondent as a result of the improper activity; and
    8. Previous decisions made in similar circumstances.
    1. Tonnies, supra at p. 23.

19. In the present case, Staff is seeking the most severe sanction available, a prohibition against participating in a securities related business. In the Asbestos Minority Shareholders case, Iacobucci J., speaking for the Court, explained as follows:
    1. The administrative sanctions are the most frequently used sanctions and are grouped together in s. 127 as “orders in the public interest”. Such orders are not punitive: Re Albino (1991), 14 O.S.C.B. 365. Rather, the purpose of an order under s. 127 is to restrain future conduct that is likely to be prejudicial to the public interest in fair and efficient capital markets. The role of the OSC under s. 127 is to protect the public interest by removing from the capital markets those whose past conduct is so abusive as to warrant apprehension of future conduct detrimental to the integrity of the capital markets: Re Mithras Management Ltd. (1990), 13 O.S.C.B. 1600.
    2. Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario Securities Commission, [2001] 2 S.C.R. 132, 2001 SCC 37.

    This principle has been found to apply to regulators such as the MFDA.

20. Therefore, the task for the Hearing Panel when considering whether a permanent prohibition is an appropriate sanction is to determine whether the Respondent’s past conduct is such that it warrants a justifiable apprehension of future conduct detrimental to the integrity of the capital markets.

21. When one joins the securities industry and is granted the right to participate in the Canadian capital markets as a dealing representative, one assumes the obligation to adhere to the rules which govern such registrants. As has been stated many times, the integrity of the capital markets depends on the applicable rules being followed and being seen by others, market participants and the public alike, as having been followed.

22. In the case of this Respondent, after much consideration, the Hearing Panel has unanimously come to the conclusion that there are good reasons to apprehend future conduct detrimental to the integrity of the capital markets by the Respondent should she return as a dealing representative. There are several reasons for reaching this conclusion.

23. First, the Respondent had been observed using blank signed forms in 2009. She acknowledged the activity and promised, in writing, not to repeat the misconduct. In breach of that promise, she was discovered to have not ceased the practice, which led to the present proceeding.

24. In this case, at no time has the Respondent expressly acknowledged her misconduct. Instead, she has constantly taken the position that the rules against the use of blank forms prevented her from performing her functions as a dealing representative. Even in her submission in respect of penalty, reproduced at paragraph 12 above, the Respondent blames the rules rather than undertaking to operate within them in future.

25. Secondly, the Respondent totally failed to cooperate with Staff in the investigation of her conduct. This failure occurred over a period of several years and, as a result, the Respondent never was interviewed by Staff. There is no reason to think the Respondent’s conduct would be any different should she rejoin the securities industry.

26. Staff has submitted that a balancing of aggravating factors against mitigating factors should be carried out when determining sanctions for past misconduct. That is, those facts which are favourable to the Respondent should be weighed against those which are unfavourable to arrive at an appropriate sanction. We agree and we have attempted to do so in fixing the penalties for the misconduct we have previously found to have been established.

27. On the positive side for the Respondent is that she had no disciplinary history with the MFDA prior to this proceeding in the 11 years she was a dealing representative. Further there was no client harm as a result of the Respondent’s actions and no complaints were made. Finally, Staff acknowledged at the hearing that there is no evidence and no suggestion that the Respondent benefited personally.

28. The Hearing Panel agrees with Staff’s submissions that the foregoing mitigating factors have little weight when considering a permanent ban as discussed above. On the other hand, the Hearing Panel thinks they do have some weight when considering the specific acts of misconduct with a view to fixing an appropriate sanction.

29. The appropriate penalty for employing blank and pre-signed forms must be one which serves to deter others in the industry from engaging in such practices. Having regard to the penalties levied in previous cases, the Hearing Panel has concluded that the appropriate penalty is a fine of $10,000.00. As already stated, the Hearing Panel has concluded that a permanent ban is an additional appropriate sanction in light of the unwillingness of the Respondent to acknowledge her obligation to respect the rules with respect to blank and pre-signed forms.

30. With respect to the penalty for failure to cooperate, Staff made the following submission:
    1. However, as previously stated, Staff submits that the severity of the Respondent’s failure to cooperate; the Respondent’s lack of understanding of the role of the MFDA and her duties as a dealing representative as well as the effect of her failure to cooperate in impeding an investigation merits a fine of $50,000 or larger. Indeed, previous Hearing Panels have awarded fines in excess of $50,000 in similar situations.
       1. Re: Sergio Peter Gizzo [2011] Hearing Panel of the Central Regional Council, MFDA File No. 201024, Decision dated March 16, 2011 (“Gizzo”).
       2. Re: Conrad Arthur Nunweiler [2012] Hearing Panel of the Pacific Regional Council, MFDA File No. 201030, Decision dated May 28, 2012 (“Nunweiler”).
       3. Re: Diedre Ann Ferguson [2013] Hearing Panel of the Central Regional Council, MFDA File No. 201233, Decision dated April 17, 2013 (“Ferguson”).

31. The Respondent was not convicted of the other matters raised in the above quoted paragraph; only failure to cooperate. These other matters cannot form part of the determination of an appropriate penalty. In considering only the failure to cooperate, the Hearing Panel was unanimously of the view that in the circumstances of this case, a fine of $50,000 was the appropriate penalty.

32. Staff has requested an order for costs in the amount of $5,000 which the Hearing Panel is prepared to grant.

V. CONCLUSION

33. The Hearing Panel orders the following sanctions:
    1. a permanent prohibition on the authority of the Respondent to conduct securities related business in any capacity;
    2. a fine in the amount of $10,000 for the maintenance of blank, pre-signed and altered forms;
    3. a fine in the amount of $50,000 for failing to cooperate with the MFDA; and
    4. $5,000 on account of the costs of the investigation and prosecution of this matter.