Reasons For Decision

 I. INTRODUCTION

1. By Notice of Settlement Hearing, a Hearing Panel of the Central Regional Council of the Mutual Fund Dealers Association of Canada (the “MFDA”) was convened to consider whether, pursuant to s. 24.4 of By-law No. 1 of the MFDA, the Hearing Panel should accept a settlement agreement dated February 3, 2020, (“Settlement Agreement”) entered into by the Staff of the MFDA (“Staff”) and Cho-Tak Albert Lok (the “Respondent”).
2. At the outset of the proceeding, the Hearing Panel considered a joint motion by Staff and the Respondent to move the proceedings “in camera”. The Hearing Panel granted the motion. The Hearing Panel then considered the provisions of the Settlement Agreement, aided by submissions as to the applicable law, which should guide the Hearing Panel in determining whether or not to accept or reject the Settlement Agreement. The Hearing Panel unanimously accepted the Settlement Agreement and issued an Order accordingly.  These are the Hearing Panel’s reasons for doing so.

II. THE CONTRAVENTIONS

3. In the Settlement Agreement, the Respondent admits that:
   1. Between January 2013 and January 2016, the Respondent altered and used to process transactions, 11 account forms in respect of 10 clients by altering information on the account forms without having the client initial the alterations, contrary to MFDA Rule 2.1.1; and
   2. Between January 2012 and May 2018, the Respondent obtained, processed and in some instances, used to process transactions, 8 pre-signed account forms in respect of 7 clients, contrary to MFDA Rule 2.1.1.

 III. THE FACTS

4. In the Settlement Agreement, Staff and the Respondent agreed to the existence of a series of facts, which are set out in Part III of the said Settlement Agreement. The Settlement Agreement is attached as Appendix “A” to these Reasons.
5. As set out in the Settlement Agreement, the Respondent, from March of 2002 has been registered in the securities industry in Ontario. Since January 2012, the Respondent has been registered as a dealing representative with Investia Financial Services Inc.  (the “Member “), a Member of the MFDA.  At all material times, the Respondent conducted business in Richmond Hill, Ontario.  The Respondent continues to be employed in the securities industry.

 IV. DISCUSSION

6. The Hearing Panel was aware that prior to accepting a Settlement Agreement, a Hearing Panel must be satisfied that:
   1. The facts admitted by the Respondent constitute misconduct in contravention of By-law No. 1 of the MFDA, MFDA Rules or policies, or provincial securities legislation; and
   2. The penalties contemplated in the Settlement Agreement fall within a reasonable range of appropriateness, bearing in mind the nature and extent of the misconduct and all the circumstances.
7. The Hearing Panel accepted that the role of a Hearing Panel at a settlement hearing is fundamentally different than its role at a contested hearing.  As stated by the MFDA Hearing Panel in Sterling Mutuals (Re), citing the I.D.A. Ontario District Council in Milewski (Re):

We also note that while in a contested hearing the Panel attempts to determine the correct penalty, in a settlement hearing the Panel “will tend not to alter a penalty that it 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.” [Emphasis added].

Sterling Mutual Inc. (Re), MFDA File No. 200820, Hearing Panel of the Central Regional Council, Decision and Reasons dated August 21, 2008 at para. 37.

Milewski (Re), [1999] I.D.A.C.D. No. 17 at p. 12, Ontario District Council Decision dated July 28, 1999.

8. The Hearing Panel also considered the principle that a Hearing Panel will not reject a settlement agreement unless the proposed penalty clearly falls outside the reasonable range of appropriateness. Settlements are necessary to assist the MFDA to fulfill its regulatory objective of protecting the public.  Settlements advance this regulatory objective by proscribing activities that are harmful to the public, while enabling the parties to reach a flexible remedy tailored to address the interests of both the regulator and a respondent.

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) [“British Columbia (Securities Commission)”], SBA

9. MFDA Hearing Panels have consistently held that obtaining or using pre-signed or altered forms is a contravention of the standard of conduct prescribed under MFDA Rule 2.1.1.

Donais (Re) [2020], Hearing Panel of the Pacific Regional Council, MFDA File No. 201945, Hearing Panel Decision dated January 20, 2020 at paras 10-11.

Smith (Re) [2019], Hearing Panel of the Central Regional Council, MFDA File No. 201960, Hearing Panel Decision dated December 17, 2019 at para. 14.

10. The MFDA has warned Approved Persons against the use of pre-signed account forms for a number of years.

MFDA Staff Notice #MSN-0066 dated October 31, 2007

MFDA Bulletin #0661-E dated October 2, 2015

11. In the present case, as reflected in the Settlement Agreement, the Respondent admits the contraventions described in paragraph 3 of these Reasons. The Hearing Panel accordingly concluded that the Respondent’s conduct constituted misconduct in contravention of the by-laws, MFDA Rules or policies or provincial securities legislation.
12. The Hearing Panel then proceeded to consider the appropriateness of the proposed penalty as set out in the Settlement Agreement.  In doing so, the Hearing Panel considered the submissions of Staff and the Respondent, the MFDA Sanction Guidelines and the substantial case law to which it was referred.
13. The Hearing Panel was mindful that the primary goal of securities regulation is the protection of the investor. The Hearing Panel was further mindful that in addition to protection of the public, the goals of securities regulation also include fostering public confidence in the capital markets and the securities industry.

Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557.

Breckenridge (Re), MFDA File No. 200718, Hearing Panel of the Central Regional Council, Decision and Reasons dated November 14, 2007 at para. 71.

14. The Hearing Panel accepted the submissions of Staff that the following factors are frequently considered by Hearing Panels when determining whether a penalty 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 activity;
    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 activity in the capital markets; and
    11. Previous decisions made in similar circumstances.

Breckenridge, supra.

15. In this respect, the Hearing Panel was mindful that, the nature of the contraventions that had been admitted by the Respondent were serious and warranted significant penalties. In particular, the use of pre-signed and altered account forms was a serious breach of MFDA Rule 2.1.1.

Balani (Re), MFDA File No. 201402, Hearing Panel of the Central Regional Council, Decision and Reasons dated January 15, 2015

16. The Hearing Panel noted that in this matter, the account forms were obtained after the MFDA issued a Bulletin warning against the use of pre-signed or altered forms or the use of same to facilitate transactions. Staff considered this to be an aggravating factor which has been discussed by Hearing Panels in MFDA decisions.

Techer (Re), [2016] Hearing Panel of the Prairie Regional Council, MFDA File No. 201662, Panel Decision dated December 5, 2016, at para. 44, SBA

Ackerman (Re), Hearing Panel of the Prairie Regional Council, MFDA File No. 201734, Panel Decision dated September 13, 2017, at para. 29, SBA.

17. With respect to the particular factors which were considered by the Hearing Panel when assessing the appropriateness of the penalties agreed to in this matter, the Hearing Panel was mindful that:
    1. The use of pre-signed forms and altered forms were serious breaches of MFDA Rule 2.1.1;
    2. The Respondent had previously been placed under close supervision by his employer in August of 2007, for the Respondent’s previous use of pre-signed account forms. The Panel was cognizant that all of the account forms that were the subject of the present Settlement Agreement were obtained or possessed by the Respondent in a period after the Member placed the Respondent under close supervision in August of 2007.  The prior sanctions were specifically described in paragraph 20 and 21 of the Settlement Agreement;
    3. The Respondent had acknowledged that his conduct constitutes a serious contravention of MFDA Rules. By entering into the Settlement Agreement, the Respondent had accepted responsibility for his misconduct and had saved the MFDA the time, resources and expenses associated with a full disciplinary hearing;
    4. There was no evidence of any lack of authorization, client loss or client complaints resulting from the Respondent’s conduct as described within the Settlement Agreement;
    5. There was no evidence that the Respondent received any financial benefit from his misconduct beyond any commissions and fees that he would ordinarily be entitled to receive had the transaction been carried out in the proper manner;
    6. The proposed penalties will act as a general deterrent to reinforce the message that the use of pre-signed and altered forms will not be tolerated within the mutual fund industry. In addition, the proposed penalty will demonstrate to the industry that the repeated use of pre-signed forms will result in substantial penalties beyond those normally levied for similar contraventions; and
    7. The proposed penalties will also specifically deter the Respondent from engaging in similar activities by imposing a meaningful sanction which reflects the nature and frequency of his misconduct.
18. Staff proposed that costs in the amount of $2,500 be imposed against the Respondent. In its Submissions, Staff made it clear to the Hearing Panel that the costs incurred more than justified the imposition of the above costs award.  The Respondent, in the Settlement Agreement, consented to same.

V. RESULT

19. For all the above reasons, the Hearing Panel concluded that the Settlement Agreement was reasonable and proportionate. Accordingly, the following penalties were imposed upon the Respondent:
    1. The Respondent shall pay a fine in the amount of $15,000, pursuant to s. 24.1.1(b) of MFDA By-law No.1, in instalments as follows:
       1. $6,250 payable in certified funds on the date of this Order;
       2. $8,750 payable in certified funds on August 7, 2020,
    2. The Respondent shall pay costs in the amount of $2,500 in certified funds on the date of this Order, pursuant to s. 24.2 of MFDA By-law No. 1;
    3. The Respondent shall in the future comply with MFDA Rule 2.1.1; 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.