Reasons For Decision

I. BACKGROUND

1. By Notice of Settlement Hearing dated July 21, 2020, 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 July 20, 2020, (“Settlement Agreement”) entered into by the Staff of the MFDA (“Staff”) and Mary Elizabeth Innes (the “Respondent”), assisted by her counsel. On acceptance of the Settlement Agreement, the proceedings were again made public.
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.

The Contravention

3. In the Settlement Agreement, the Respondent admits that:
   1. Between January 2013 and October 2018, the Respondent, acting in her capacity as branch manager, reviewed and approved the use of a total of 113 pre-signed and altered account forms, contrary to MFDA Rule 2.5.5 (f) and 2.1.1.

The Facts

4. In the Settlement Agreement, Staff of the MFDA and the Respondent agreed to the existence of a series of facts, which are set out in Part III of the said Agreement. The Settlement Agreement is attached as Appendix “A” to these Reasons.
5. As set out in the Settlement Agreement, the Respondent, had been registered in the securities industry since September 1992. Since October 2002, the Respondent had been registered in Ontario as a dealing representative with Investia Financial Services Inc. (“the Member”), a member of the MFDA.  Between January 2011 and May 2019, the Member designated the Respondent as a branch manager at a branch of the Member located in Belleville, Ontario (“the Branch”).  On May 10, 2019, the Respondent resigned from her position as branch manager.

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 the By-laws, 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 Inc. (Re), citing the I.D.A. Ontario District Council in Milewski (Re):
   1. 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].
      1. 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.
      2. 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. Settlement agreements 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.
   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) [“British Columbia (Securities Commission)”], SBA.
9. MFDA Rule 2.5.5(f) (formerly MFDA Rule 2.5.5(d)) states that: “The branch manager must:  (i) supervise the activities of the Member at a branch or sub-branch that are directed toward ensuring compliance with the By-laws, Rules and Policies and with applicable securities legislation by the Member and its Approved Persons; and (ii) supervise the opening of new accounts and trading activity at the branch office.”
   1. MFDA Rule 2.5.5(f)
10. The MFDA prohibits Approved Persons from obtaining pre-signed account forms or altering account forms without obtaining client initials to indicate that the alteration was approved by the client. The MFDA has warned Approved Persons against obtaining pre-signed account forms or altered account forms for a number of years.
    1. MFDA Notice #MSN-0066 dated October 31, 2007 (updated March 4, 2013 and January 26, 2017).
    2. MFDA Bulletin #0661-E dated October 2, 2015.
11. Hearing Panels have held that the review and approval of pre-signed account forms and altered account forms without obtaining client initials by a branch manager is a violation of MFDA Rules 2.1.1 and 2.5.5(f) (formerly Rule 2.5.5(d)).
    1. Gocool (Re), [2016] Hearing Panel of the Central Regional Council, MFDA File No. 201628, Panel Decision dated August 10, 2016.
    2. Ghose (Re), [2017] Hearing Panel of the Central Regional Council, MFDA File No. 201671, Panel Decision dated January 19, 2017.
    3. Blake (Re), [2018] Hearing Panel of the Central Regional Council, MFDA File No. 201873, Panel Decision dated December 8, 2017.
12. With the above principles in mind, the Hearing Panel considered in detail the agreed facts set out in the Settlement Agreement, and having done so, concluded that the allegation admitted by the Respondent had been proven and constitutes misconduct in contravention of the bylaws, MFDA rules and policies or provincial securities legislation.
13. 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’s counsel, MFDA Sanction Guidelines and the substantial case law to which it was referred.
14. In doing so, 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.
    1. Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557.
    2. Breckenridge (Re), MFDA File No. 200718, Hearing Panel of the Central Regional Council, Decision and Reasons dated November 14, 2007, at paragraph 71.
15. The Hearing Panel also 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 to those who are permitted to participate in the capital markets; and
    11. Previous decisions made in similar circumstances.
    1. Breckenridge, supra.
16. With respect to those considerations, the Hearing Panel was mindful that:
    1. 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 account forms is a serious breach of MFDA Rule 2.1.1.
       1. Balani (Re), MFDA File No. 201402, Hearing Panel of the Central Regional Council, Decision and Reasons dated January 15, 2015
    2. Branch managers are required to lead by example and should act as standard-bearers of conduct for the industry.
       1. Gocool (Re), supra at para 10
    3. The Respondent has acknowledged that her conduct constitutes a serious contravention of MFDA rules. By entering into the Settlement Agreement, the Respondent has accepted responsibility for her misconduct and saved the MFDA the time, resources and expenses associated with a full discipline hearing.
    4. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
    5. There is no evidence of client loss or lack of authorization, resulting from the Respondent’s conduct as described in the Settlement Agreement.
    6. At the time of the subject offence, the Respondent was a salaried employee and accordingly, there is no evidence that the Respondent received a financial benefit from her misconduct.
    7. The proposed penalty will ensure deterrence to both the Respondent and to the mutual fund industry.
17. Staff proposed that costs in the amount $2,500.00 be imposed against the Respondent. The Respondent acknowledged her agreement with the proposed costs in the Settlement Agreement.  The Hearing Panel was satisfied that the costs proposed were proportionate to the actual costs incurred in the prosecution of this matter.

Result

18. 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 $9,000 in certified funds, pursuant to section 24.1.1(b) of MFDA By-law No. 1;
    2. The Respondent shall pay costs in the amount of $2,500 in certified funds, pursuant to section 24.2 of MFDA By-law No. 1;
    3. The Respondent shall be prohibited from acting as a branch manager or in any supervisory capacity for a Member of the MFDA for a period of 6 months commencing upon the date the Settlement Agreement is accepted by the Hearing Panel, pursuant to section 24.1.1(f) of MFDA By-law No. 1;
    4. The Respondent shall successfully complete the branch manager’s course offered by either the Canadian Securities Institute of the Investment Funds Institute of Canada prior to acting as a branch manager in the future, pursuant to section 24.1.1(f) of MFDA By-law No. 1;
    5. The Respondent shall in the future comply with MFDA Rules 2.5.5(f) and 2.1.1; and
    6. 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.