Skip to Main Content

Reasons For Decision

Re:

Reasons For Decision

Reasons for Decision
File No. 200922



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

Re: Douglas St. Arnault


Heard: October 14, 2009 in Vancouver, British Columbia
Reasons for Decision: November 27, 2009


REASONS FOR DECISION


Hearing Panel of the Pacific Regional Council:

The Hon. H. Benjamin Casson, Q.C.
Chair
Martha Kane, CFP

Industry Representative
Wayne L. Brown

Industry Representative

Appearances:

Maria L. Abate

)

For the Mutual Fund Dealers Association
) of
Canada

Douglas St. Arnault
)

Did Not Attend

)

Page 1 of 8

link to page 2 1.
By Notice of Settlement Hearing dated August 7, 2009, the Mutual Fund Dealers
Association of Canada (the “MFDA”) announced that a hearing would be held before a Hearing
Panel of the Pacific Regional Council (the “Panel”), in Vancouver, British Columbia, on October
14, 2009. The purpose of the Hearing was to review and consider the terms of a Settlement
Agreement which had been entered into by Douglas R. St. Arnault (the “Respondent”) and Mark
T. Gordon, Executive Vice-President of the MFDA, on July 17, 2009. The Hearing proceeded as
scheduled and, after hearing the submissions of Maria L. Abate, Enforcement Counsel for
MFDA (“Enforcement Counsel”), the Panel approved the Settlement Agreement.

2.
Enforcement Counsel informed the Panel that MFDA Staff (“Staff”) had conducted an
investigation of the Respondent’s activities in the course of a compliance examination which had
commenced on March 17, 2008. The investigation disclosed the following set of facts which
were agreed to by the Respondent:

• Douglas R. St. Arnault (the “Respondent”) has been registered in British
Columbia as a mutual fund salesperson with ARTECH Asset Advisory Services
Inc. (“ARTECH”) since May 10, 1982.
• At all material times, the Respondent was a Director and the Chief Compliance
Officer of ARTECH.1
• ARTECH is located in Burnaby, British Columbia and has been a Member of the
MFDA since February 8, 2002.
• By letter dated February 12, 2008, Staff notified the Respondent that a
compliance examination would be conducted at the ARTECH offices beginning
on March 17, 2008.
• On March 11, 2008, a teleconference was held between Staff and the Respondent
to confirm the dates of the compliance examination and the preparation required
to be undertaken by ARTECH prior to Staff’s arrival.

1 The Respondent is also the founder and past president of ARTECH.
Page 2 of 8

• On March 17, 2008, Staff arrived at the ARTECH premises to begin the
compliance examination. Staff in attendance was BO, PR and BH. Shortly before
the end of the business day on March 17, 2008, the Respondent began using racist
and sexist remarks to refer to the Staff conducting the compliance examination.
• On March 18, 2008, Staff returned to the ARTECH premises to continue the
compliance examination. Staff in attendance was BO, PR and BH. Shortly after
Staff recommenced their work, the Respondent again began using racist and sexist
remarks to refer to the Staff conducting the compliance examination.
• At the end of the day, one of the Staff members, BO, advised her supervisor, JM,
that the Respondent made numerous racist and sexist remarks to and in the
presence of Staff during the compliance examination.
• Shortly thereafter, JM contacted the Respondent by telephone. JM advised the
Respondent that he had been made aware of the comments directed towards Staff
as they were conducting their compliance examination. JM advised the
Respondent that he considered these comments inappropriate and requested that
the Respondent refrain from making further comments while Staff attempted to
complete the compliance examination.
• On March 19, 2008, Staff returned to the ARTECH premises to continue with the
compliance examination. Staff in attendance was JL and PR.
• Shortly after Staff’s arrival, the Respondent ordered JL and PR to leave the
ARTECH premises. The Respondent indicated that he was upset by the telephone
call he had received from JM. The Respondent then left the ARTECH premises.
• After the Respondent’s departure, the Respondent’s son arrived at the ARTECH
premises. The Respondent’s son met with Staff and attempted to determine a way
in which Staff could complete the compliance examination. Staff advised the
Respondent’s son that they would need to speak with their supervisor about the
events that had transpired.
Page 3 of 8

• As a result of being ejected from the ARTECH premises by the Respondent, Staff
was denied free access to the premises and documents of ARTECH required for
the field work portion of the compliance examination. Staff was thereby impeded
and delayed from completing the compliance examination in accordance with its
usual procedures and to its usual standards.
• The field work portion of the compliance examination was eventually completed
by Staff working from the MFDA offices and not the ARTECH premises on or
about April 18, 2008, approximately one month after it was scheduled to be
completed. In order to complete the field work portion of the compliance
examination, Staff requested the documents it required through the Respondent’s
son. As the Respondent’s son was not the Chief Compliance Officer and not very
familiar with the documents required for the completion of the compliance
examination, Staff would identify the required documents for the Respondent’s
son and he would gather the materials for delivery to the MFDA offices.
Documents were also provided to Staff by facsimile or email.
• By letter dated June 26, 2008, Staff required the Respondent attend an interview
at the offices of the MFDA concerning his conduct during the compliance
examination.
3.
As a result of the investigation, Staff concluded that the Respondent had failed to observe
high standards of ethics and engaged in conduct unbecoming by making racist and sexist remarks
to Staff while they were conducting a sales and financial compliance examination and had,
therefore, contravened MFDA Rule 2.1.1(b) and (c) which provides:
2.1.1 Standard of Conduct. Each Member and each Approved Person of a
Member shall . . . :

(b)
observe high standards of ethics and conduct in the transaction of
business;

(c)
not engage in any business conduct or practice which is
unbecoming or detrimental to the public interest….

Page 4 of 8

4.
Staff also concluded that the Respondent, on March 19, 2008 and thereafter, denied Staff
free access to the premises and documents of the Member and thereby impeded and delayed the
completion of a compliance examination in contravention of Section 22.2 of MFDA By-Law No.
1 which provides:

22.2
For the purpose of any examination or investigation pursuant to this By-
law, the Corporation shall be entitled to free access to, and to make and retain copies
of, all books of account, securities, cash, documents, bank accounts, vouchers,
correspondence and records of every description of the Member or person concerned,
and no such Member or person shall withhold, destroy or conceal any information,
documents or thing reasonably required for the purpose of such examination or
investigation.
5.
The Panel requested of Enforcement Counsel some additional information to support the
allegation that the Respondent had made racist and sexist remarks to Staff during their
compliance examination. Enforcement Counsel provided sufficient additional information to
satisfy the Panel as provided for by Section 15.3(2) of MFDA Rules of Procedures, i.e.:
15.3

(2)
If a Respondent is not present at the settlement hearing, Staff may disclose
additional relevant facts, at the request of the Hearing Panel.
6.
The additional information was extracted from the transcript of an interview of the
Respondent by an MFDA investigator on July 21, 2008 [Exhibit 4] and referred to by
Enforcement Counsel at pages 25 to 34 of the October 14, 2009 Transcript of Proceedings.

7.
The Respondent admitted to the conduct which contravened MFDA Rule 2.1.1(b) and (c)
and Section 22.2 of MFDA By-law No. 1.

8.
In reviewing and considering the Settlement Agreement, Enforcement Counsel urged the
Panel to take into account the following factors:

Page 5 of 8

• Whether acceptance of the Settlement Agreement would be in the public interest
and whether the penalty imposed will protect investors;
• Whether the Settlement Agreement is reasonable and proportionate, having regard
to the conduct of the Respondent as set out in the Settlement Agreement;
• Whether the Settlement Agreement addresses the issues of both specific and
general deterrence;
• Whether the proposed settlement will prevent the type of conduct described in the
Settlement Agreement from occurring again in the future;
• Whether the Settlement Agreement will foster confidence in the integrity of the
Canadian capital markets;
• Whether the Settlement Agreement will foster confidence in the integrity of the
MFDA; and
• Whether the Settlement Agreement will foster confidence in the regulatory
process itself.
9.
In the proposed Settlement Agreement, the Respondent has agreed to the following
penalty:
a) a reprimand;
b) a fine in the amount of $5,000;
c) legal costs in the amount of $2,500; and
d) the Respondent shall in the future comply with all MFDA By-laws, Rules and
Policies, and all applicable securities legislation and regulations made thereunder,
including MFDA Rule 2.1.1 and Section 22.2 of MFDA By-law No. 1.
10.
As to the appropriateness of the penalty, Enforcement Counsel submitted that the
following considerations should apply:
Page 6 of 8

• The seriousness of the allegations proved against the Respondent;
• The Respondent’s past conduct, including prior sanctions;
• The Respondent’s experience and level of activity in the capital markets;
• Whether the Respondent recognizes the seriousness of the improper activity;
• The harm suffered by investors as a result of the Respondent’s activities;
• The benefits received by the Respondent as a result of the improper activity;
• The risk to investors and the capital markets in the jurisdiction, were the
Respondent to continue to operate in capital markets in the jurisdiction;
• The damage caused to the integrity of the capital markets in the jurisdiction by the
Respondent’s improper activities;
• 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;
• The need to alert others to the consequences of inappropriate activities to those
who are permitted to participate in the capital markets; and
• Previous decisions made in similar circumstances.

11.
The Panel accepts the argument, advanced by Enforcement Counsel, that a Hearing Panel
should not interfere lightly in a negotiated settlement so long as the penalties agreed upon are
within the reasonable range of appropriateness given the conduct of the Respondent.

12.
The Panel also recognizes the importance and usefulness of settlements in achieving
MFDA objectives.

13.
The Panel has carefully considered the factors as set out in paragraphs 8 and 10 of this
Reasons for Decision and finds that the Settlement Agreement is an appropriate and reasonable
resolution of this matter between MFDA and the Respondent.

14.
The Order is signed, accordingly

Page 7 of 8

DATED at Vancouver, British Columbia this 27th day of November, 2009.

“H. Benjamin Casson”

The
Hon.
H.
Benjamin
Casson,
Q.C.

Chair

“Martha Kane”

Martha Kane, CFP
Industry Representative

“Wayne L. Brown”

Wayne
L.
Brown

Industry Representative

Doc 193833

Page 8 of 8