Reasons For Decision

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 (“Staff”) and Douglas Tuitakalai (the “Respondent”) signed January 8, 2021 (the “Settlement Agreement”).
2. After reviewing the proposed Settlement Agreement and the material filed by Staff and hearing the submissions of counsel for Staff and counsel for the Respondent, the Hearing Panel accepted the Settlement Agreement attached as Schedule “1” and signed an order reflecting our approval. These are the reasons for our decision:

II. CONTRAVENTIONS

3. The Respondent admits that:
   1. commencing in or about May 2017, he engaged in personal financial dealings with a client with respect to an arrangement to assign agreements of purchase and sale for two properties from the Respondent and his family members to the client, contrary to Investors Group Financial Services Inc.’s (the “Member’s”) policies and procedures and MFDA Rules 2.1.4, 2.1.1, 2.5.1, and 1.1.2.
   2. commencing on or about October 17, 2017, he had and continued in an outside activity with respect to the purchase and resale of real estate that was not disclosed to or approved by the Member, contrary to the Member’s policies and procedures and MFDA Rules 1.3.2, 2.1.1, 1.1.2, and 2.5.1.
   3. commencing on or about September 23, 2019, he failed to cooperate with MFDA Staff’s investigation into his conduct by withholding certain documentation and information relevant to Staff’s investigation, contrary to section 22.1 of MFDA By-law No. 1.

III. PROPOSED SANCTIONS

4. The Respondent agrees to the following sanctions:
   1. the Respondent shall be permanently prohibited from conducting securities related business in any capacity while in the employ of or associated with any MFDA Member upon acceptance of the Settlement Agreement, pursuant to section 24.1.1(e) of MFDA By-law No. 1.
   2. the Respondent shall pay a fine of $40,000 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.1.1(b) of MFDA By-law No. 1.
   3. the Respondent shall pay costs of $5,000 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.2 of MFDA By-law No. 1; and
   4. the Respondent will attend the Settlement Hearing in person or by videoconference.

IV. AGREED FACTS

Registration History

5. From September 17, 2013 to February 27, 2018, the Respondent was registered in Ontario as a dealing representative with the Member, a Member of the MFDA.
6. At all material times, the Respondent carried on business in the Brampton, Ontario area.
7. The Respondent is not currently registered in the securities industry in any capacity.

Personal Financial Dealings with a Client

8. At all material times, the Member’s policies and procedures prohibited its Approved Persons from engaging in personal dealings with clients.
9. In or around early 2017, the Respondent and members of his family entered into agreements of purchase and sale to purchase two condominium units in a building that was under construction.
10. In or around March 2017, the Respondent met with MR and conducted a personal financial review and gathered Know Your Client information about MR, with a view to MR opening investment accounts with the Member. At this time, MR did not open investment accounts with the Member.  During this meeting, the Respondent learned that MR had an interest in purchasing real estate.
11. Shortly after this meeting, MR told the Respondent that she was interested in purchasing a condominium unit in the same building where the Respondent and his family members had purchased their yet to be built units.
12. At this time, the Respondent and his family members were no longer interested in completing their purchase of the condominium units. The Respondent offered MR an opportunity where the Respondent and his family members would assign the agreements of purchase and sale for the two condominium units in exchange for a $17,000 payment from MR.  The Respondent explained to MR that the $17,000 was to pay the assignment and legal fees required to complete the transfers of the condominium units to MR.
13. MR agreed to the arrangement, but the assignments could not be done until a designated assignment period later in 2017.
14. Beginning in May 2017, MR opened accounts and became a client of the Member whose accounts were serviced by the Respondent.
15. In October 2017, MR obtained a $17,000 bank draft, which she gave to the Respondent in accordance with the arrangement for the assignment of the agreements of purchase and sale for the two condominium units described above.
16. On or about October 30, 2017, the Respondent deposited the $17,000 bank draft into his personal bank account.
17. In November 2017, MR complained to the Member that she had given her advisor $17,000 on a real estate deal that she no longer wished to proceed with. MR declined to identify her advisor, but from the information provided, the Member was able to identify that MR was describing the Respondent.
18. In or around January 2018, the Respondent returned the $17,000 to MR.
19. The Respondent’s activities gave rise to a conflict or a potential conflict of interest, which the Respondent did not disclose to the Member.

Outside Activity

20. At all material times, the Member’s policies and procedures required its Approved Persons to obtain prior approval from the Regional Director and the Vice-President, Financial Services responsible for their region before engaging in an outside business activity.
21. On or about March 15, 2017, the Respondent disclosed to his Division Director, SB, that he engaged in the purchase and resale of real estate. SB told the Respondent that he needed to complete an Outside Activity approval form and obtain approval from the Member to engage in this activity. 
22. On the same day, SB’s assistant emailed a copy of the Member’s Outside Activity approval form to the Respondent.
23. The Respondent did not complete and submit the Outside Activity approval form to the Member. The Respondent did not obtain approval for his real estate activities from the Regional Director and Vice President, Financial Services responsible for his region.
24. On or about September 19, 2017, the Respondent entered into a partnership agreement with a third party to purchase, renovate, and re-sell a real estate property. The purchase of the real estate property was completed on or about October 20, 2017.
25. The Respondent did not disclose his intention to purchase, renovate, and re-sell a real estate property with a third party to the Member or obtain the Member’s prior approval to engage in that outside activity in accordance with its policies and procedures.

Failure to Cooperate

26. On or about March 13, 2018, Staff commenced an investigation into the Respondent’s conduct concerning his personal financial dealings with client MR described above, and other matters.
27. On June 7, 2019, the Respondent attended an interview with Staff to answer questions concerning matters under investigation.
28. During the interview, the Respondent undertook to provide Staff with additional documents and answer questions concerning certain transactions that appeared in his banking records.
29. On June 7, 2019, following the interview, Staff sent a letter to the Respondent’s counsel, listing the requested documents and information that the Respondent had agreed to provide during the interview, and requested a response enclosing the requested materials by June 21, 2019.
30. On June 25, 2019, counsel for the Respondent provided a partial response to the documents and information requested by Staff. Counsel for the Respondent advised Staff that the Respondent was obtaining additional documentation to answer Staff’s requests.
31. On July 17, 2019, Staff sent an email to the Respondent’s counsel requesting the outstanding documents and information.
32. On September 3, 2019, Staff sent a follow up request for the outstanding documents and information to the Respondent’s counsel.
33. On September 11, 2019, counsel for the Respondent advised that she was no longer representing the Respondent.
34. On September 23, 2019, Staff sent a letter to the Respondent by process server, requesting that the Respondent provide the outstanding documents and information by October 7, 2019. The process server attempted to deliver the letter on September 28, 2019 at the address provided by the Respondent during his interview but was unable to locate the Respondent at the address.
35. On September 30, 2019, the process server attempted to serve a copy of the September 23, 2019 letter to the Respondent at the Respondent’s former address, where Staff had previously sent correspondence to the Respondent. The Respondent’s father accepted service of the letter.
36. The Respondent did not reply to Staff’s correspondence and did not provide the outstanding documents and information requested by Staff.
37. On October 25, 2019, Staff sent an email to the Respondent, asking him to contact Staff by telephone.
38. The Respondent did not reply to Staff’s email and did not contact Staff.
39. By failing to provide the documents and information requested by Staff in furtherance of its investigation of his conduct, the Respondent has undermined Staff’s ability to determine the full nature and extent of his activities in relation to the misconduct described herein, including the extent to which he engaged in personal financial dealings with clients other than MR.

Additional Factors

40. The Respondent has not previously been subject to MFDA disciplinary proceedings.
41. By entering into this Settlement Agreement, the Respondent has saved the MFDA the time, resources, and expenses associated with conducting a full hearing on the allegations.

V. ANALYSIS

A. Jurisdiction and Role of the Hearing Panel

42. A Hearing Panel is authorized to either accept or reject a settlement agreement.
    1. Section 24.4.3 of MFDA By-law No. 1
43. The role of a Hearing Panel in reviewing a settlement agreement is to determine whether the proposed penalties agreed to by Staff and the Respondent fall within a reasonable range of appropriateness – not to determine what is, in its view, the correct penalty. A Hearing 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.” Mílewski (Re), [1999] I.D.A.C.D. No. 17.
    1. Sterling Mutuals Inc. (Re), 2008 LNCMFDA 16 at para 37
44. Settlements are to be encouraged. They help the MFDA meet its primary objective of investor protection and provide a practical and efficient way of addressing misconduct in the mutual fund industry. Where the Respondent admits his misconduct and takes responsibility for it, it is more likely he will comply with the sanctions imposed. In addition, where the parties can agree upon appropriate sanctions, settlements can save time, conserve the MFDA’s limited resources and provide greater certainty.
    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.)

B. The Seriousness of the Misconduct

45. In concluding that the proposed penalty falls within a reasonable range of appropriateness, we considered the seriousness of the misconduct, the mitigating factors that are present in this case and the sentencing principles of general and specific deterrence.
    1. Breckenridge (Re), MFDA File No. 200718, Hearing Panel of the Central Regional Council, Decision and Reasons dated November 14, 2007 at para. 71
46. The Respondent’s misconduct is very serious. He admitted to three related contraventions: personal financial dealings, failure to disclose outside activities and failure to cooperate with Staff.
47. The Respondent entered an arrangement with a client to assign to the client two properties from the Respondent and his family in exchange for a payment of $17,000. He accepted a $17,000 bank draft from his client and deposited it into his bank account. In addition, he engaged in an outside activity of purchasing, renovating, and selling real estate without disclosing the outside activity to the Member.
48. The mutual fund industry is not averse to Approved Persons engaging in other business activities. It requires them however to engage in other business activity responsibly and ethically. That means avoiding personal financial dealings which create a conflict of interest. It also means disclosing any personal financial dealings and outside activities to the Member to ensure that any real or potential conflicts are properly managed.
49. Conflicts of interest seriously undermine public confidence in the integrity of the market and its regulation.
    1. Financial dealings with a client create a conflict of interest and are permitted in limited situations and only where appropriate safeguards are in place. Even though the loan was repaid after demand was made, and the client suffered no loss, conflicts of interest seriously undermine public confidence in the integrity of the market and its regulation.
       1. Sarang (Re), 2016 LNCMFDA 22 at para. 11.

Failure to cooperate

50. The Respondent failed to cooperate with Staff ‘s investigation by failing to produce certain documents and information relevant to Staff’s investigation.
51. The Respondent’s conduct is inexplicable. He retained counsel. He submitted to an interview by the MFDA. He produced some of the documents and information requested by Staff at his interview.
52. On September 11, 2019, the Respondent’s relationship with his counsel ended. The Respondent stopped cooperating. He failed to produce outstanding documents requested by Staff. He failed to respond to Staff’s inquiries. He failed to contact Staff or communicate with Staff in anyway. On April 21, 2020, a Notice of Hearing was issued for July 7, 2020.
53. On July 7, 2020, the Respondent finally resurfaced with new counsel at the first appearance. The Respondent reached a settlement which agreement was signed on January 8, 2021.
54. Had the Respondent simply continued to cooperate with Staff, this case would very likely have ended with a different result.

Mitigating factors

55. There was no investor harm. The Respondent returned the client’s $17,000 after holding it for only two months.
56. The Respondent did not benefit from his misconduct.
57. The Respondent has not previously been the subject of an MFDA disciplinary proceeding.
58. The Respondent settled saving the MFDA the time and resources required to conduct a full hearing.

General and specific deterrence

59. Specific deterrence is achieved by the permanent prohibition agreed to by the Respondent.
60. In this case, the permanent prohibition and the $40,000 fine sends a clear message to the industry. Being an Approved Person is a privilege. That privilege comes with responsibilities which include communicating with the Member about any personal financial dealings or outside activities. It also includes a responsibility to comply with the MFDA rules, to be transparent and cooperate in any investigations.

VI. COSTS

61. The Costs award is consistent with other similar MFDA cases.

VII. CONCLUSION

62. Staff provided three MFDA decisions which addressed personal financial dealings and failure to cooperate. Taylor (Re), 2019 LNCMFDA 134 was a settlement which concerned similar misconduct to this case. The sanctions imposed in that case were the same as those proposed in this case. The other two cases were uncontested and attracted higher fines.
63. Based on a review of these cases, the circumstances of this case and the factors discussed above, we are satisfied the proposed sanctions fall within a reasonable range of appropriateness.
64. The proposed sanctions, including the permanent prohibition from conducting securities related business, the $40,000 fine and $5,000 costs will serve as a specific deterrence to the Respondent and as general deterrence to others in the industry who may contemplate engaging in similar misconduct in the future.
65. We therefore accepted the Settlement Agreement and made an order reflecting the agreed upon sanctions against the Respondent.