Skip to Main Content

MFDA Reasons For Decision

Re:

Reasons For Decision

Reasons for Decision
File No. 201219


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: Kenneth Rattenbury


Heard: October 17, 2012 in Edmonton, Alberta
Reasons for Decision: November 27, 2012

REASONS FOR DECISION

Hearing Panel of the Prairie Regional Council:

Garrett Wilson, Q.C.
Chair

Patricia M. Kloepfer
Industry Representative

Greg Wiebe
Industry Representative

Appearances:

Shari L. Boyd
)
For the Mutual Fund Dealers Association of

) Canada

Kenneth Rattenbury
)
In Person

)

Page 1 of 9


1.
The Hearing Panel of the Prairie Regional Council convened on October 17, 2012 in
Edmonton, Alberta, for the purpose of considering a Settlement Agreement between the Mutual
Fund Dealers Association of Canada (“MFDA”) and Kenneth Rattenbury pursuant to section
24.4 of MFDA By-law No. 1. Both Ms. Boyd for the MFDA and Mr. Rattenbury in person
agreed that the Panel was properly appointed and constituted and possessed full authority to
carry out its function.

2.
The Hearing Panel had met on August 17, 2012, minus Mr. Kloepfer who was unable to
participate that date, by teleconference as authorized by MFDA By-laws, with appearances by
Ms. Boyd and Mr. Rattenbury. On that first occasion also it was agreed that the Panel was
properly constituted and authorized. The Notice of Hearing with Proof of Service were received
in evidence, as was the Reply, completed and filed by Mr. Rattenbury in accordance with MFDA
By-laws. By consent of the Parties, the Hearing was adjourned to October 17, 2012, in
Edmonton, Alberta.

3.
At the continued Hearing on October 17, 2012, the Panel received in evidence the Notice
of Settlement Hearing and its Order of August 17, 2012 both fixing October 17, 2012 at
Edmonton, Alberta, as the date and place of consideration of the Settlement Agreement.

4.
As the original Notice of Hearing contained an extraneous sentence in paragraph 4, upon
motion by Ms. Boyd, consented to by Mr. Rattenbury, the Panel directed that the Notice of
Hearing be amended by removal of the last sentence of said paragraph 4.

5.
At the outset of the continued Hearing, upon motion by Ms. Boyd, again consented to by
Mr. Rattenbury, the Panel directed that the proceedings be conducted in camera and so ordered.
The Panel then received in evidence the Settlement Agreement entered into between the MFDA
and Mr. Rattenbury on September 15, 2012, which contained the following statement of agreed
facts.

Agreed Facts

6.
At all material times, the Respondent was the President and a shareholder of Rattenbury
Page 2 of 9

Financial Management Inc. (“RFM”), a Member of the MFDA located in Edmonton, Alberta.

7.
The Respondent was registered in Alberta as an Officer (Trading) of RFM from March
14, 2003, and as the Ultimate Designated Person, Chief Compliance Officer and a Director of
RFM from September 28, 2009 until October 28, 2011.

8.
RFM became a Member of the MFDA on February 8, 2002 and was registered in Alberta
and British Columbia. RFM resigned its membership in the MFDA effective October 28, 2011.

9.
Since November 1, 2011, following the resignation of RFM, the Respondent has been
registered as a mutual fund salesperson with FundEX Investments Inc., a Member of the MFDA.

MFDA Compliance Examination 2010

10.
Between November 22, 2010 and December 1, 2010, MFDA Compliance Staff attended
at RFM’s head office in Edmonton and a sub-branch located in Grande Prairie, Alberta to
conduct a compliance examination.

11.
During the on-site examination of RFM, MFDA Compliance Staff found a total of 63
pre-signed trade instruction forms in the files for the accounts of 10 clients serviced by the
Respondent. The pre-signed forms were photocopies of original blank trade instruction forms
that had been signed by the clients.

12.
The pre-signed forms consisted of Investment Order forms, which included a section to
allow for the updating of a client’s Know-Your-Client (“KYC”) information, and the
Redemption Request forms.

13.
MFDA Compliance Staff found evidence that the Respondent had used the photocopies
of the pre-signed forms to execute trades in the clients’ accounts.

14.
MFDA Compliance Staff found email correspondence dated May 10, 2010 from the
Respondent to clients NH and PH requesting that the clients sign blank trade instruction forms
that the Respondent could use to process trades in their accounts at a later date.
Page 3 of 9


15.
On October 12, 2011, the Respondent was interviewed by MFDA Staff Investigators.
The Respondent admitted that he had used the photocopies of the blank pre-signed forms to
execute trades in the clients’ accounts. The Respondent stated that all of the trades were
processed pursuant to the clients’ instructions following discussions with the clients. In some
instances, the Respondent was able to produce copies of emails from the clients authorizing the
trades in their accounts that the Respondent had subsequently carried out using the pre-signed
forms.

16.
None of the clients have filed a complaint concerning the pre-signed forms or indicated to
MFDA Staff that trades were processed in their accounts without their knowledge or instructions.
MFDA Staff did not find any evidence of unauthorized or discretionary trading in the clients’
accounts.

17.
By engaging in the conduct described above, the Respondent failed to observe high
standards of ethics and conduct in the transaction of business, contrary to MFDA Rule 2.1.1(b).

Mitigating Factors

18.
The Respondent has not previously been subject to MFDA disciplinary proceedings.

19.
The Respondent has cooperated with MFDA Staff’s investigation into his conduct.

The Allegation

20.
Between August 26, 2004 and November 18, 2010, the Respondent maintained and used
63 photocopies of trade instruction form signed by clients in blank to process trades in the
accounts of 10 clients, thereby failing to observe high standards of ethics and conduct in the
transaction of business, contrary to MDA Rule 2.1.1(b).

21.
In response, Mr. Rattenbury admitted that he maintained the pre-signed forms and that it
was wrong for him to do so, but explained that he did so only as a convenience to his clients
themselves. This is confirmed by the fact that MFDA Staff did not discover any unauthorized
Page 4 of 9

trades or client complaints.

22.
On behalf of the MFDA, Ms. Boyd submitted that the terms of the Settlement
Agreement, particularly with respect to liability and penalty, were reasonable and appropriate to
the conduct and circumstances outlined. Mr. Rattenbury advised the Panel that he accepted the
submission as made, took no issue with any portion of it, and wished to make no further
submission on his own behalf. The Panel then retired to consider the Settlement Agreement as
required by section 24.4 of MFDA By-law No. 1.

23.
Upon reconvening, the Panel advised that it had accepted the Settlement Agreement as
provided in section 24.4.3(a) of MFDA By-law No. 1. Thereupon, upon motion by Ms. Boyd and
consented to by Mr. Rattenbury, it was ordered that the in camera direction be now set aside, that
the proceedings be continued in public, and that the Settlement Agreement be entered in
evidence as a full exhibit with the effect that it become available to the public.

24.
It is the usually governing principle that a settlement entered into by competing litigants
will seldom fail to be approved by a presiding tribunal. It is almost universally accepted that such
litigants are far more able to identify and protect their respective interests than a third party.
Usually, however, the litigants are represented by counsel and the tribunal can have confidence
that they were well advised and truly cognizant of the issues and thus need concern itself only
with the public interest.

25.
Here Mr. Rattenbury was without counsel which limits the application of the foregoing
principle. The Panel was careful to query Mr. Rattenbury whether he to any degree felt he had
been disadvantaged by the lack of counsel or had any concern that in his negotiations with
counsel for the MFDA his interests might have received less than due consideration. He assured
us that he had no such concerns, fully believed that he had been treated fairly and equitably by
counsel to the MFDA, and that he was entirely satisfied with the terms of the Settlement
Agreement. As Mr. Rattenbury is an experienced and sophisticated businessman and had been an
Approved Person of MFDA Members for some many years, the Panel accepted his position.

26.
The Settlement Agreement provides the following terms by way of penalty:

Page 5 of 9

The Respondent agrees to the following terms of settlement:

(a) the Respondent shall pay a fine in the amount of $6,250, pursuant to s. 24.1.1(b) of
MFDA By-law No. 1;

(b) the Respondent shall write or re-write and pass an appropriate industry course
acceptable by MFDA Staff within 6 months of the date of the Order in this matter,
pursuant to s. 24.1.1(b) of MFDA By-law No. 1;

(c) the Respondent shall pay costs in the amount of $2,500, pursuant to s. 24.1.1(b) of
MFDA By-law No. 1;

(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

(e) the Respondent will attend in person on the date set for the Settlement Hearing

27.
Ms. Boyd for the MFDA referred us to a number of criteria which have been employed in
testing the appropriateness of the penalty terms of settlement agreements:

(a) the seriousness of the allegations proved against the Respondent;

(b) the Respondent’s past conduct, including proper 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;

Page 6 of 9

(g) the risk to investors and the capital markets in the jurisdiction were the Respondent to
continue to operate in the 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 consequences of inappropriate activities to those who are
permitted to participate in capital markets; and

(k) previous decisions made in similar circumstances.

28.
These criteria are similar to and, in this case at least, not materially different from criteria
somewhat differently phrased and also recognized by Hearing Panels considering settlement
agreements. We have no hesitation in adopting the criteria submitted to us as appropriate to the
Settlement Agreement before us and declaring that we find the said Agreement as meeting the
principles enunciated.

29.
The Panel was also referred to the MFDA Penalty Guidelines, a compilation of penalty
terms taken from the decisions of earlier Hearing Panels. The Guidelines carry no official
sanction but are useful in identifying the type and range of penalties that have been found to be
appropriate in other cases. The Panel notes that the penalties set out in the Settlement Agreement
are well within the range disclosed by the Guidelines and also that they provide some assurance
that Mr. Rattenbury, although unrepresented by counsel, has received fair and equitable
treatment in the circumstances.

30.
The Panel noted that no client had suffered loss as a result of Mr. Rattenbury’s
misconduct, or had complained, and that no particular financial benefit had been taken
therefrom. Also, Mr. Rattenbury had truly cooperated with the MFDA investigation, had
admitted his transgression, and was entirely contrite. Accordingly, the Panel concluded that the
Settlement Agreement is fair, reasonable and appropriate, and we accepted it.
Page 7 of 9


31.
At the conclusion of our hearing on October 17, 2012, we issued the following order:

ORDER

WHEREAS on September 26, 2012, the Mutual Fund Dealers Association of Canada
(the “MFDA”) issued a Notice of Settlement Hearing pursuant to section 24.4 of By-law No.
1 in respect of Kenneth Rattenbury (the “Respondent”):

AND WHEREAS the Respondent entered into a settlement agreement with Staff of the
MFDA, dated September 15, 2012, (the “Settlement Agreement”), in which the Respondent
agreed to a proposed settlement of matters for which the Respondent could be disciplined
pursuant to ss. 20 and 24.1 of By-law No. 1;

AND WHEREAS the Hearing Panel is of the opinion that between August 26, 2004 and
November 18, 2010, the Respondent maintained and used 63 photocopies of trade instruction
forms signed by clients in blank to process trades in the accounts of 10 clients, thereby
failing to observe high standards of ethics and conduct in the transaction of business,
contrary to MFDA Rule 2.1.1(b);

IT IS HEREBY ORDERED THAT the Settlement Agreement is accepted, as a
consequence of which:

1. If at any time a non-party to this proceeding requests production of, or access to, any
materials filed in, or the record of, this proceeding, including all exhibits and transcripts,
then the MFDA Corporate Secretary shall not provide copies of, or access to, the
requested documents to the non-party without first redacting from them any and all
intimate financial or personal information, pursuant to Rules 1.8(2) and (5) of the MFDA
Rules of Procedure;

2. The Respondent shall pay a fine in the amount of $6,250 pursuant to s. 24.1.1(b) of
MFDA By-law No. 1;

Page 8 of 9

3. The Respondent shall write or re-write and pass an appropriate industry course acceptable
to MFDA Staff within 6 months of the date of the Order in this matter, pursuant to s.
24.1.1(b) of MFDA By-law No. 1;

4. The Respondent shall pay costs in the amount of $2,500 pursuant to s. 24.1.1(b) of
MFDA By-law No. 1; and

5. 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.


DATED this 27th day of November, 2012.

“Garrett Wilson”
Garrett Wilson, Q.C.,

Chair

“Patricia M. Kloepfer”
Patricia M. Kloepfer,

Industry Representative

“Greg Wiebe”
Greg Wiebe,

Industry Representative

Doc 322884
Page 9 of 9