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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: Kyle Norman Kidnie

Heard: September 27, 2019 in Toronto, Ontario
Reasons For Decision: October 22, 2019

Reasons For Decision

Hearing Panel of the Central Regional Council:

  • Emily Cole, Chair
  • Matthew Prew, Industry Representative

Appearances:

Jacklyn Neborak, Enforcement Counsel for the Mutual Fund Dealers Association of Canada
Chris Kostopolous, Counsel for the Respondent
Kyle Norman Kidnie, Respondent, in person

I. INTRODUCTION

  1. This was a hearing pursuant to section 24.4 of By-Law No.1 of the Mutual Fund Dealers Association of Canada (“MFDA”) to consider a settlement agreement between Staff of the MFDA and Kyle Norman Kidnie (the “Respondent”).
  2. After reviewing the proposed settlement agreement dated September 27, 2019 (“Settlement Agreement”) and the material filed by Staff of the MFDA and hearing the submissions of counsel for Staff, the hearing panel accepted the Settlement Agreement attached as Appendix “A”. Here are the reasons for our decision:

II. CONTRAVENTIONS

  1. The Respondent admits to the following violations of the By-laws, Rules or Policies of the MFDA:
    1. on October 25, 2017, the Respondent signed a client’s signature on three account forms and submitted the forms to the Member for processing, contrary to MFDA Rule 2.1.1; and
    2. on November 22, 2017, the Respondent misled the Member in its investigation into his conduct when he falsely represented to the Member that a client had signed three account forms when the Respondent had signed the client’s signature on the account forms, contrary to MFDA Rule 2.1.1.

III. TERMS OF SETTLEMENT

  1. Staff and the Respondent agree and consent to the following terms of settlement:
    1. the Respondent shall pay a fine in the amount of $2,500 pursuant to section 24.1.1(b) of MFDA By-law No. 1, in instalments as follows:
      1. $500, in certified funds, upon acceptance of this Settlement Agreement;
      2. $500, in certified funds, on or before October 31, 2019;
      3. $500, in certified funds, on or before November 29, 2019;
      4. $500, in certified funds, on or before December 31, 2019;
      5. $500, in certified funds, on or before January 31, 2020.
    2. the Respondent shall pay costs in the amount of $2,500 in certified funds upon acceptance of the Settlement Agreement, pursuant to s. 24.2 of MFDA By-law No. 1;
    3. the Respondent shall be prohibited from conducting securities related business in any capacity while in the employ of or associated with a Member of the MFDA for a period of six months, commencing from the date the Settlement Agreement is accepted by the Hearing Panel, pursuant to s. 24.1.1(e) of MFDA By-law No. 1;
    4. the Respondent shall in the future comply with MFDA Rule 2.1.1; and
    5. the Respondent will attend in person or by teleconference on the date set for the Settlement Hearing.

IV. AGREED FACTS

Registration History

  1. From November 2013 to 2017, the Respondent was registered in Ontario as a mutual fund salesperson (now known as a Dealing Representative), with Royal Mutual Funds Inc. (the “Member”), a Member of the MFDA.
  2. At all material times, the Respondent conducted business in the Elmira, Ontario area.
  3. On November 29, 2017, the Member terminated the registration of the Respondent, as a result of the conduct described herein.
  4. The Respondent is no longer registered in the securities industry in any capacity.

The Respondent Signed Client Signatures

  1. At all material times, the Member had policies and procedures that prohibited its Approved Persons from signing a client’s signature.
  2. At all material times, client X was a client of the Member whose accounts were serviced by the Respondent.
  3. On or about October 25, 2017, client X authorized the Respondent to open a Registered Retirement Savings Plan (“RRSP”) and process a transfer of monies into the RRSP.
  4. On October 25, 2017, the Respondent signed the signature of client X on three client account forms and submitted the forms to the Member for processing.
  5. The account forms consisted of a Retirement Savings Plan Application, an Account Opening Information (Know Your Client) form and a Contribution Acknowledgement form.

Misleading the Member

  1. In or about November 2017, during a trade review, the Member identified irregularities with client X’s signature on a Know Your Client form that the Respondent submitted to the Member. As a result, the Member commenced an investigation into the Respondent’s conduct.
  2. On November 22, 2017, the Member conducted an interview of the Respondent, during which the Respondent stated that on October 25, 2017, he had met with client X who signed the three account forms described above.
  3. The Member advised the Respondent during the interview that it had obtained a statement from client X who denied signing the account forms, as the Respondent stated had occurred. The Respondent then admitted to the Member that he did not meet with client X to obtain her signature.
  4. On November 29, 2017, the Member terminated the registration of the Respondent.

V. ANALYSIS

Jurisdiction and Role of the Hearing Panel

  1. Settlements are to be encouraged. They make a significant contribution to meeting the primary objective of investor protection by providing a practical and efficient way of addressing misconduct in the securities industry. Where the Respondent takes responsibility and admits his misconduct and the parties can agree upon appropriate sanctions, settlements can save time and conserve the regulator’s limited resources. Settlements also provide certainty and are likely to result in greater compliance with the sanctions imposed.
    1. British Columbia (Securities Commission v. Seifert, [2006] B.C.J. No 225 at paras. 48-49 (S.C.), aff’d [2007] B.C.J. No 2186 at para. 31 (C.A.)
  2. A Hearing Panel is authorized to either accept or reject a settlement agreement. The role of a hearing panel is to determine whether the proposed sanctions agreed to by Staff and the Respondent are within a reasonable range of appropriateness. A Hearing Panel must consider a settlement agreement on its face particularly where, as in this case, the parties are both represented by qualified counsel.
    1. Sterling Mutuals Inc. (Re), 2008 LNCMFDA 16 at para. 37

VI. AGGRAVATING AND MITIGATING FACTORS

The Seriousness of the Misconduct
  1. This is a serious case of forgery. The Respondent intentionally signed three account forms including an RRSP application, an account opening (KYC) form and a contribution acknowledgment form. The Respondent elevated the seriousness of his initial misconduct by misleading the Member in its investigation into his conduct when he falsely represented to the Member that the client had signed the account forms. Only when confronted with evidence from the client to the contrary did the Respondent admit to his misconduct.
    1. Muhima (Re), 2019 LNCMFDA 2 at para. 9
    2. Barnai (Re), 2015 LNCMFDA 17 at para.6
    3. Khanna (Re), 2018 LNCMFDA 4 at para.5
  2. Another aggravating factor is that the Respondent signed the signature of a client on three account forms after the publication of MFDA Bulletin # 0661- E (the “Bulletin”). The Bulletin and MFDA Staff Notice MSN-0066 put the Respondent on notice that Staff would seek enhanced penalties at MFDA disciplinary proceedings for conduct that occurred after publication of the Bulletin. Other hearing panels have accepted that such misconduct is now an established aggravating factor.
    1. Owen (Re), 2017 LNCMFDA 287, at para.44
  3. The Respondent was subsequently terminated by the Member as a result of his misconduct.
  4. Mitigating factors include that there is no evidence that the client lost any money and the Respondent did not receive any benefit from his misconduct other that what he would have been entitled to had he not forged the client’s signature.
  5. The Respondent has not been the subject of any prior MFDA disciplinary proceedings.
Ability to Pay
  1. The Respondent’s misconduct would ordinarily warrant a greater financial penalty, however the MFDA Sanction Guidelines provide that a Respondent’s ability to pay a fine may be taken into consideration in determining the appropriate monetary sanction to be imposed.
    1. MFDA Sanction Guidelines, p.5 para. 11
    2. Bott (Re), 2019 LNCMFDA 36, at paras. 21-22
  2. Paragraph 10 of the Settlement Agreement states that the Respondent is no longer in the securities industry in any capacity. We were asked to infer from this that the Respondent had limited financial resources and was unable to pay a fine greater than $2500. This was only evidence to support a finding by the panel that the proposed settlement was ‘within a reasonable range of appropriateness’ based, in part, on the ground that the Respondent was unable to pay.
  3. At the hearing, Respondent’s counsel advised the panel that he had provided some information and documents about the Respondent’s financial circumstances to Staff and Staff confirmed they were satisfied based on this information that the Respondent had demonstrated that he was unable to pay a fine greater than the proposed $2500.
  4. We accept that a fine of $2,500 is appropriate given the Respondent’s bona fide inability to pay.

VII. CONCLUSION

  1. We are satisfied that the proposed penalties, including the six month prohibition of the Respondent’s authority to work in the industry, the $2,500 fine and $2,500 in costs in circumstances where the Respondent has limited financial resources will serve as a specific deterrence to Mr. Kidnie and a general deterrence to others in the industry who may contemplate engaging in similar misconduct in the future.
  2. Staff provided several previous MFDA decisions which addressed similar misconduct. Based on a review of these cases and taking into consideration that Mr. Kidnie has a limited ability to pay a fine and costs we are satisfied the proposed settlement falls within a reasonable range of appropriateness.
  3. We therefore accepted the settlement agreement and made an order reflecting the agreed upon penalties against Mr. Kidnie.
  • Emily Cole
    Emily Cole
    Chair
  • Matthew Prew
    Matthew Prew
    Industry Representative

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