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Reasons For Decision

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:

Reasons For Decision


Reasons for Decision (Penalty)
File No. 201412



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: Paolo Abate



Heard: June 25, 2015 in Toronto, Ontario
Reasons for Decision (Penalty): September 4, 2015


REASONS FOR DECISION
(PENALTY)
Hearing Panel of the Central Regional Council:

Paul M. Moore Q.C.
Chair

Mike Elliott
Industry Representative

Robert C. White
Industry Representative

Appearances:

David Babin

(For the Mutual Fund Dealers Association of Canada)

Kevin Richard

(For the Respondent)

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1.
We have come to a decision on penalty. As I mentioned at the beginning of this morning,
we will tell you what our decision is, we will highlight the reasons, and then we will get a
transcript of the reasons and we will expand them into a full written set of reasons [this
document].

2.
We determine the appropriate penalty to be a fine of $15,000, a prohibition from
participating in the industry for six (6) months, and a cost award of $5,000.

3.
Staff of the MFDA (“Staff”) requested a fine of $100,000, costs in the amount of
$10,000, and a permanent prohibition.

4.
The Respondent suggested a fine of $10,000, no cost award, and no prohibition.

5.
In arriving at our decision, we took into account, first and foremost, that the principal,
and more serious, allegations in this matter, which related to whether or the Respondent was
engaged in securities business, were not proved. We found that the activities of the Respondent
did not constitute securities related business, did not involve any soliciting or sales of securities,
and did not involve advising.

6.
Secondly, we noticed that there was no client involvement and no evidence of harm to
clients of the Respondent or his Member or anyone else, and that the Respondent was not
involved in holding himself out as a representative of Quadrus or Brownstone or as a mutual
fund representative.

7.
His other business activities in issue did not relate to that. They related to managing and
participating in the selection of investments of Private Wealth, a private company.

8.
There was no evidence that the Respondent’s activities, apart from his failure to report to
and seek approval of his Member, involved any kind of impropriety, such as an illegal
distribution of securities, or borrowing from clients, or getting clients into things that were not
suitable for them. As we mentioned in our Decision and Reasons (Misconduct), the principal
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allegations related to the Respondent’s alleged involvement in what was a private placement of
securities done by an exempt market dealer, with no evidence that anybody did anything
improper.

9.
We listened closely to the submission of Staff that the activities that constituted the other
business activity, was related to investments (of Private Wealth), but nothing really turns on that.

10.
We also took into account Staff’s emphasis on the importance of supervision and
disclosure by a respondent or a representative so that the employer Member can do its duty in
supervising and protecting clients. It may well have been that the kind of activity that the
Respondent was involved in would have been of great interest to Quadrus, and whether they
would have approved it or not we do not know. They were not given that opportunity. We took
this into account in determining the penalties.

11.
We did not see any conflict of interest on the part of the Respondent that was improper.
There was no evidence to lead us to doubt the Respondent’s assertion that he told Cajubi about
his involvement in his activities with Private Wealth. This was not in issue before us.

12.
The failure of the Respondent to disclose to his Member his office and directorship with
Private Wealth and his involvement with the investing of funds of Private Wealth was wrong. It
is now admitted by the Respondent that ignorance is no excuse, and there has to be consequence
from this failure.

13.
We took into account the fact that the Respondent omitted to mention the directorship of,
and office with, Private Wealth in responding to his Member through a questionnaire as to
whether there were any other offices and directorships held by him. We have no reason to
conclude that deliberate fraud was involved, but he was negligent, and had no excuse for his mis-
disclosure in the questionnaire.

14.
While deterrence is important, every deterrent does not have to amount to a death
sentence, in the financial sense. A permanent prohibition from participation in the industry
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would be equivalent to an occupational death sentence for the Respondent. Putting someone out
of the business forever should not be imposed lightly.

15.
Staff submitted that the Respondent might violate these kinds of rules in the future
because the Respondent might be ungovernable. We were not satisfied, when we look at the
nature of the other business activity, and all the circumstances of this case, that the Respondent is
ungovernable.

16.
We did not impose a term of strict or close supervision on the Respondent because the
nature of the wrongdoing in this case was not trading or doing the kinds of things that the
compliance department of a Member would monitor.

17.
We did not require the Respondent to retake a course of study of the industry. The
Respondent’s problem in this case stemmed from negligence or lack of care in making
disclosure. Requiring the Respondent to take a course would really not address that question.

18.
We know that when the Respondent goes back into the industry his employer will
obviously be aware of this case and will understand the necessity of making sure that the
Respondent is fully aware of and agrees to comply with all of its policies and procedures, which
will be similar to the policies and procedures that Quadrus had.

19.
We reviewed with counsel at the hearing the various cases referred to us as precedents
regarding penalty. Unlike in our case, most of them involved situations where clients were
involved or there were losses by a client, or where the respondent in those cases was taking
advantage of the fact he or she was with a registrant and that the persons involved went to the
respondent because of, perhaps, or with the knowledge that it was important that the person
involved was involved with a Member or registrant, or that securities related businesses were
involved. Our case is different.

20.
We deliberated over an appropriate fine, cost award, and suspension.

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21.
As far as a fine is concerned, we believe that the minimum suggested in the MFDA’s
Penalty Guidelines is $10,000 and not $15,000 as suggested by Staff.

22.
We feel it is necessary to go above that minimum in the circumstances before us, and we
believe a $15,000 fine is the appropriate amount.

23.
With respect to costs, we have to take into account that the major allegation was not
proved, and, therefore, a cost award of $5,000 in this situation is appropriate.

24.
The toughest question is suspension. We easily agreed that a permanent suspension was
not appropriate, and we finally decided that under all the circumstances of sending the right
message, providing the right deterrence, and acknowledging that the Respondent has been out of
the industry for the last three years, a six-month suspension is appropriate.

25.
These Reasons for Decision (Penalty) should be read with our Decision and Reason
(Misconduct) where various terms used herein are defined.


DATED this 4th day of September, 2015.

“Paul M. Moore”
Paul M. Moore Q.C.

Chair

“Mike Elliott”
Mike Elliott

Industry Representative

“Robert C. White”
Robert C. White

Industry Representative

DM 439594 v2

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