Heard: April 14, 2010 in Toronto, Ontario
Reasons for Decision: April 28, 2010
REASONS FOR DECISION
Hearing Panel of the Central Regional Council:
The Hon. John B. Webber, Q.C.
For the Mutual Fund Dealers Association of
For the Respondent
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The Panel originally ordered a three-day hearing in this matter for April 12, 2010.
Later in the day, on April 7, 2010, the Panel was advised that the parties had agreed to a
Settlement Agreement. This Agreement would not be ready until April 14, 2010, with the
Panel and counsel for the parties, to confirm that the matter had been resolved. This
conference call also confirmed that the appropriate Settlement Agreement would be
available on April 14, 2010. On April 14, 2010, the Settlement Agreement was available
and the matter proceeded as a settlement hearing.
The Panel was required to consider whether, pursuant to sections 20 and 24.1.1 of
the MFDA By-law No.1, the Panel should accept this Settlement Agreement entered into
by Staff of the MFDA and the Respondent through his counsel Randy Bennett. At the
outset of the proceedings, we considered a joint motion by Staff and counsel for the
Respondent to move the proceedings “in camera”. We granted the motion. We then
considered, in detail, the provisions of the Settlement Agreement itself. We heard
submissions as to the acceptable law that should guide this Panel in determining whether
to accept or reject the Settlement Agreement. We next heard submissions as to why this
particular Settlement Agreement met the appropriate criteria. We then retired to consider
both the Settlement Agreement and the applicable legal principles. After deliberation, we
unanimously concluded that it was appropriate to accept the Settlement Agreement.
The allegations contained in the original Notice of Hearing are as follows:
Allegation #1: In or about June 2004, the Respondent engaged in securities
related business that was not carried on for the account of the Member and
through the facilities of the Member by recommending, selling or facilitating the
sale of Lighthouse Pointe Limited Partnership units (“Lighthouse LPs”) to 24
clients, contrary to MFDA Rule 1.1.1.
Allegation #2: In or about June 2004, the Respondent engaged in another gainful
occupation, which was not properly disclosed to and approved by the Member, by
recommending, selling or facilitating the sale of Lighthouse LPs to 24 clients,
contrary to MFDA Rule 1.2.1(d).
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Allegation #3: In or about June 2004, the Respondent recommended, sold or
facilitated the sale of Lighthouse LPs to 24 clients without ensuring that:
a) the clients qualified as accredited investors in accordance with Ontario
Securities Commission Rule 45-501 and subsequently National
Instrument 45-106, thereby engaging the jurisdiction of the Hearing
Panel to impose a penalty on the Respondent pursuant to s. 24.1.1.(h)
of MFDA By-law No. 1; and
b) the investments were suitable for the clients and in keeping with their
investment objectives, contrary to MFDA Rule 2.2.1.
Allegation #4: Between June 2004 and September 2005, the Respondent failed to
comply with the Member’s policies and procedures with respect to securities
related business, referral arrangements and the disclosure and approval of outside
business activities, contrary to MFDA Rules 1.1.2 and 2.5.1, and MFDA Rule
The Respondent admitted to the following contraventions of the By-laws, Rules
and Policies of the MFDA:
a) in or about June 2004, the Respondent engaged in securities related business
that was not carried on for the account of the Member and thorough the
facilities of the Member by making referrals in respect of the sale of
Lighthouse LPs to 24 clients, contrary to MFDA Rules 2.4.2 and 1.1.1; and
b) between June 2004 and September 2005, the Respondent failed to comply
with the Member’s policies and procedures with respect to securities related
business, referral arrangements, and the disclosure and approval of outside
business activities, contrary to MFDA Rules 1.1.2 and 2.5.1.
As a Panel, we are obviously concerned with the type of conduct which is
reflected in the Settlement Agreement, particularly when the Member had given notice on
previous occasions that the Respondent was not permitted to make referrals with
reference to securities. Not only did the Member distribute a policy on high risk
investment products in May 2001, but a further e-mail in 2004 clearly telling the
Respondent that referral arrangements were inappropriate. The Respondent did not
disclose the referral arrangements but he now acknowledged that he was required to
disclose such arrangements. We believe that the Settlement Agreement fairly addresses
the concerns that we have, including the public interest, reasonableness, specific and
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general deterrence and prevention of this type of conduct in the future. We believe that
the Settlement Agreement also will foster confidence in the integrity of the Canadian
capital markets, the MFDA and the regulatory process itself. We believe that each and
every one of these factors was dealt with in an appropriate fashion by the Settlement
In addition, we have carefully reviewed the MFDA Penalty Guidelines and the
effect of these Penalty Guidelines on this type of conduct. The proposed penalty in the
amount of $40,000.00 by way of a fine is entirely within a reasonable amount for matters
of this nature and should not be disturbed.
There is no evidence that the Respondent engaged in any other activities
involving the sale or referral of securities outside of the Member, or failed to comply with
other policies of the Member. The investigation by the MFDA did not reveal any client
complaint or harm. The Respondent continues in the securities industry with a different
company with the approval of the Ontario Securities Commission, subject to close
supervision for a period of one year. We are advised that the one year period of close
supervision was completed without incident. The Respondent has accepted his
responsibility for his misconduct and avoided the necessity of the MFDA incurring the
additional time and expense of a full hearing.
As noted above, we had set a period of three days for the hearing of this matter.
The resolution by way of a Settlement Agreement saved considerable time and expense
to all parties. As this is a long-standing matter, which commenced in 2004, it is our view
that, under all of the circumstances, it is in the public interest to accept the proposed
settlement. In that regard, we refer to the words of the District Council in the decision of
Re Milewski,  I.D.A.C.D. No 17, decided on July 28, 1999. In that case, the Panel
made these comments at page 9:
Although a settlement agreement must be accepted by a District Council
before it can become effective, the standards for acceptance are not
identical to those applied by a District Council when making a penalty
determination after a contested hearing. In a contested hearing, the District
Council attempts to determine the correct penalty. A District council
considering a settlement agreement will tend not to alter a penalty that it
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considers to be within a reasonable range, taking into account the
settlement process and the fact that the parties have agreed. It will not
reject a settlement unless it views the penalty as clearly falling outside a
reasonable range of appropriateness. Put another way, the District Council
will reflect the public interest benefits of the settlement process in its
consideration of specific settlement.
For all of the above reasons, we accepted the Settlement Agreement and signed
the appropriate Order as presented to us at the hearing.
DATED this 28th day of April, 2010.
“John B. Webber”
The Hon. John B. Webber, Q.C.,
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