Reasons For Decision

Background

1. On January 31, 2019, The Mutual Fund Dealers Association of Canada (the “MFDA”) issued a Notice of Hearing in respect of disciplinary proceedings commenced against Madrie Ann Secord (the “Respondent”). As appears from the Affidavit of Service of the Notice of Hearing, marked as Exhibit 2 in this proceeding, a copy of the Notice of Hearing was served on the Respondent. Thereafter, and on April 9, 2019, at a further appearance in these proceedings, the Chair of the Hearing Panel ordered that the Hearing proceed on August 7, 2019.
2. On June 10, 2019, the Respondent filed an Amended Reply in which she admitted Allegations 1 and 2 in the Notice of Hearing, and admitted and agreed to the facts set out in the Notice of Hearing.

The Contraventions

3. In the Notice of Hearing, it is alleged that:
   1. Allegation #1: Commencing in July 2015, the Respondent engaged in personal financial dealings by borrowing $7,000 from client DH, which gave rise to a conflict or potential conflict of interest that the Respondent failed to disclose to the Member or address by the exercise of responsible business judgment influenced only by the best interests of the clients, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.4, 1.1.2, 2.5.1, and 2.1.1.
   2. Allegation #2: In March 2016, the Respondent misled the Member by falsely denying that she had borrowed money from a client, thereby interfering with the ability of the Member to supervise the Respondent’s activities, failing to observe high standards and conduct in the transaction of business, and engaging in conduct that is unbecoming and detrimental to the public interest, contrary to MFDA Rules 2.1.1, 1.1.2 and 2.5.1.

The Facts

4. The relevant facts are those set out in paragraphs 1 to 19 of the Notice of Hearing, which is attached as Appendix “A” to these Reasons. Again, the Respondent, in her Amended Reply dated June 10, 2019, admitted the above facts.
5. In addition to the admissions set out above, the Hearing Panel had the benefit of the evidence set out in the Affidavit of Sheila Daneshvaziri, sworn August 6, 2019, which was marked as Exhibit 5 in this proceeding. The evidence set out in the above Affidavit confirmed the existence of the factual assertions particularized in the Notice of Hearing.

Discussion

6. From August 2008 to December 2016, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a dealing representative), with Investors Group Financial Services Inc. (“Investors Group”), a member of the MFDA.
7. Investors Group terminated the Respondent on December 13, 2016 for matters related to the allegations set out above. The Respondent has not been registered in the securities industry in any capacity since her termination.  At all material times, the Respondent conducted business in Huntsville, Ontario.
8. The standard of proof in administrative proceedings, such as those instituted pursuant to MFDA By-law No. 1, is the civil standard of balance of probabilities. Since 2008, it has been settled law in Canada that “there is only one civil standard of proof at common law and that is proof on a balance of probabilities.” The Supreme Court of Canada has rejected the notion that the seriousness of the allegations or consequences change the standard of proof. In all civil cases, the trial judge must scrutinize relevant evidence with care to determine whether it is more likely than not that an alleged event occurred. Evidence must always be sufficiently clear, convincing, and cogent to satisfy the balance of probabilities test, but there is no objective standard to measure sufficiency.
   1. Brauns (Re), supra at para. 15.
   2. Section 24.1.1 of MFDA By-law No. l.
9. As admitted by the Respondent, and confirmed by the Affidavit of Sheila Daneshvaziri, the Respondent engaged in personal financial dealings by borrowing $7,000.00 from client DH, which gave rise to a conflict or potential conflict of interest that the Respondent failed to disclose to the Member, contrary to the Member’s policies and procedures, and MFDA Rules 2.1.4, 1.1.2, 2.5.1, and 2.1.1.
10. Again, as further admitted by the Respondent and confirmed by the Affidavit of Sheila Daneshvaziri, the Respondent misled the Member by falsely denying that she had borrowed money from client DH, contrary to MFDA Rules 2.1.1, 1.1.2 and 2.5.1.
11. The Respondent’s conduct clearly contravened the MFDA Rules set out above.
12. The facts further disclosed that:
    1. Client DH was 71 years of age at the time that the account was opened with the Member and was a double amputee. Accordingly, the client was a vulnerable client given her advanced age and disabilities;
    2. In order to access the money that she agreed to lend the Respondent, the client DH redeemed investments that were held with the Member, thereby incurring deferred sales charges in an amount of $402.66 as a result of the redemption from her investment account;
    3. The loan agreement between the Respondent and the client DH was not documented in writing and no collateral to secure repayment of the loan was provided, nor did the loan make provision for the payment of interest on outstanding amounts;
    4. During the tenor of the loan, the client DH did not receive the benefits that she would have otherwise received had her money remained invested;
    5. Although the Respondent provided client DH with a post-dated cheque to repay the loan, the post-dated cheque was returned “no sufficient funds” and the loan was not repaid for a period of 17 months;
    6. The loan was only repaid after the daughter of client DH complained to the Member;
    7. The Respondent did not disclose the conflict of interest arising from the loan, to the Member.

Penalty

13. Pursuant to s. 24.1.1(i) of MFDA By-law No. 1, if, in the opinion of a Hearing Panel, an Approved Person has failed to comply with the provisions of any by-law, rule, or policy of the MFDA, a Hearing Panel can impose any of the penalties set out in s. 24.l.l(a)-(t), including a permanent prohibition of the authority of the Approved Person to conduct securities related business and a fine, not exceeding $5,000,000.
    1. MFDA By-law No. l, s, 24.1.1.
14. Pursuant to s. 24.2 of MFDA By-law No. 1, the Hearing Panel has the discretion to require a Member or Approved Person to pay the whole or part of the costs of the proceeding before the Hearing Panel and any investigations relating to that proceeding.
    1. MFDA By-law No. 1, s. 24.2
15. The Hearing Panel considered that the primary goal of securities regulation is the protection of investors and fostering public confidence in the capital markets and the securities industry. In Tonnies (Re), the Hearing Panel recognized that its role when imposing sanctions is not the punishment of the Respondent, but rather restraining future misconduct in furtherance of these goals. The Hearing Panel stated:
    1. The Ontario Securities Commission has set out succinctly its role, not dissimilar to the role of this Panel, in determining penalty.  In Re Mithras Management Ltd. et al. (1990), 13 O.S.C.B. 1600. The Commission stated at 1610:
    2. … [T]he role of this Commission is to protect the public interest by removing from the capital markets – wholly or partially, permanently or temporarily as the circumstances may warrant – those whose conduct in the past leads us to conclude that their conduct in the future may well be detrimental to the integrity of those capital markets. We are not here to punish past conduct; that is the role of the courts, particularly under section 118 of the Act. We are here to restrain, as best we can future conduct that is likely to be prejudicial to the public interest in having capital markets that are both fair and efficient.
       1. Tonnies (Re), 2005 LNCMFDA 7 at para.45.
       2. Pezim v. British Columbia (Superintendent of Brokers), [1994] 12 S.C.R. 557 at paras. 59, 68.
       3. Breckenridge (Re), supra at para. 74.
16. The Hearing Panel agreed with Staff’s Submissions that sanctions imposed should therefore be protective and preventative to prevent likely future harm to the markets. To determine whether a sanction is appropriate, the Hearing Panel should consider:
    1. the protection of the investing public;
    2. the integrity of the securities 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;
    6. the sanction guidelines of the MFDA.
    1. Tonnies (Re), supra at paras. 44, 46.
    2. Breckenridge (Re), supra at para.74.
17. Hearing Panels have also previously considered the following factors when determining whether a sanction is appropriate:
    1. the seriousness of the allegations proved against the Respondent;
    2. the Respondent’s past conduct, including prior sanctions;
    3. the Respondent’s experience and level of activity in the capital markets;
    4. whether the Respondent recognizes the seriousness of the improper activity;
    5. the harm suffered by investors as a result of the Respondent’s activities;
    6. the benefits received by the Respondent as a result of the improper activity;
    7. the risk to investors and the capital markets in the jurisdiction, were the Respondent to continue to operate in capital markets in the jurisdiction;
    8. the damage caused to the integrity of the capital markets in the jurisdiction by the Respondent’s improper activities;
    9. 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;
    10. the need to alert others to the consequences of inappropriate activities to those who are permitted to participate in the capital markets; and
    11. previous decisions made in similar circumstances.
    1. Tonnies (Re), supra at para.48.
    2. Breckenridge (Re), supra at para.77.
18. In respect of the factors considered in this particular case, the Panel was mindful that:
    1. Engaging in personal financial dealings by borrowing money from a client was a serious misconduct, which exploited the position of trust that the Respondent had with the client;
    2. The serious misconduct described above was further aggravated by the Respondent’s failure to advise the Member of the loan she had taken from the client and the conflict of interest that arose as a result. The Respondent’s actions in this respect robbed the Member of its opportunity to deal with the contravention in a timely way;
    3. The sanction guidelines and MFDA Hearing Panels have identified the involvement of “vulnerable investors” as an aggravating factor. In this particular case, client DH was of advanced years and was disabled;
    4. The Respondent has not previously been the subject of an MFDA disciplinary proceeding. However, given the seriousness of the Respondent’s misconduct, this is not a significant mitigating factor;
    5. The Hearing Panel was satisfied that the Respondent recognized the seriousness of her misconduct and admitted her misconduct in her Amended Reply, therefore avoiding the necessity of a full hearing on the facts;
    6. The Respondent benefited from the receipt of the loan from client DH while repayment of the loan was not made in a timely way and was only made after a complaint to the Member.
19. Staff proposed that costs in the amount of $7,500.00 be imposed against the Respondent, and provided the Hearing Panel with a Bill of Costs which reflected total costs incurred of $15,562.50.
20. At the Hearing it was submitted by the Respondent that she was impecunious. Evidence provided by the Respondent at the Hearing and marked as Exhibit 6, confirmed that the Respondent had a net worth of approximately -$65,000.00, an extremely limited income and substantial debts.  In addition, at the time of the Hearing, the Respondents income was subject to a garnishee by the Canadian Revenue Agency.  The Hearing Panel acknowledged and agreed with Staff’s Submission that even if the Respondent was impecunious, that this was only one of many factors to be weighed by the Hearing Panel in assessing penalty.  Having acknowledged the above, the Hearing Panel was of the view that the Respondent’s impecuniosity should be given more weight as a factor than was submitted by Staff.

Result

21. For all the above reasons, the Hearing Panel concluded that the contraventions to which the Respondent had admitted were serious and required the imposition of the following penalty:
    1. The Respondent shall be prohibited from conducting securities related business in any capacity while in the employ of or associated with any Member of the MFDA for a period of 18 months commencing from the date of this Order, pursuant to s. 24.1.1(e) of MFDA By-law No. 1;
    2. The Respondent shall pay a fine to the MFDA in the amount of $7,500, pursuant to s. 24.1.1(b) of MFDA By-law No. 1, no later than August 7, 2021;
    3. The Respondent shall pay costs to the MFDA in the amount of $5,000, pursuant to s. 24.2 of MFDA By-law No. 1, no later than August 7, 2021; and
    4. If at any time a non-party to this proceeding, with the exception of the bodies set out in section 23 of MFDA By-law No. 1, requests production of or access to exhibits in this proceeding that contain personal information as defined by the MFDA Privacy Policy, then the MFDA Corporate Secretary shall not provide copies of or access to the requested exhibits to the non-party without first redacting from them any and all personal information, pursuant to Rules 1.8(2) and (5) of the MFDA Rules of Procedure.