Reasons For Decision

I. SETTLEMENT AGREEMENT

1. The Mutual Fund Dealers Association of Canada (the “MFDA”) entered into a settlement agreement dated September 3, 2020 (the “Settlement Agreement”), a copy of which is attached hereto as Appendix “A”, with Marilyn Audrey Kennedy (the “Respondent”), in which the Respondent admitted the following:
   1. between August 2017 and September 2018, the Respondent obtained, possessed, 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; and
   2. between August 2017 and October 2018, the Respondent altered and used to process transactions, 38 account forms in respect of 31 clients, by altering information on the account forms without having the client initial the alterations, contrary to MFDA Rule 2.1.1.
2. In the proposed Settlement Agreement, the Respondent agreed to the following sanctions:
   1. a fine in the amount of $15,000 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.1.1(b) of MFDA By-law No. 1;
   2. costs in the amount of $2,500 in certified funds upon acceptance of the Settlement Agreement by the Hearing Panel, pursuant to section 24.2 of MFDA By-law No. 1; and
   3. the Respondent shall in the future comply with MFDA Rule 2.1.1.
3. MFDA Staff submitted that the Hearing Panel ought to accept the Settlement Agreement as the proposed terms of settlement fall inside the reasonable range of appropriateness having regard to the nature of the conduct admitted by the Respondent and the MFDA’s regulatory objective of protecting the public.

II. FACTS

4. The relevant facts are set out in section III of the Settlement Agreement.

III. MFDA RULE 2.1.1

5. MFDA Rule 2.1.1 prescribes the standard of conduct applicable to Approved Persons (“APs”). It is designed to protect the public interest by requiring APs to adhere to a high standard of ethical conduct. The Rule is central to the MFDA mandate of enhancing investor protection and strengthening public confidence in the Canadian mutual fund industry.
   1. Re Breckenridge, 2007 LNCMFDA 38, para. 71

IV. PRE-SIGNED ACCOUNT FORMS

6. The Respondent admitted to obtaining, possessing and in some instances, using 8 pre-signed forms in respect of 7 clients to process transactions. “Pre-signed forms” is a generic term referring to account forms that are incomplete when they are signed. Members and APs are only permitted to obtain, use and rely on forms that the client signs after all the information on the form has been properly completed.
7. The prohibition on the use of pre-signed account forms applies regardless of whether the client was aware of or authorized the use of the pre-signed forms.
8. Hearing panels have consistently found that obtaining or using pre-signed account forms is serious misconduct and contravenes MFDA Rule 2.1.1.
9. In Price (Re), 2011 CanLII 72458, at paras. 122-124, the Hearing Panel explained:
   1. Pre-signed forms present a legitimate risk that they may be used by an Approved Person to engage in discretionary trading….At its worst, pre-signed forms create a mechanism for an Approved Person to engage in acts of fraud, theft or other forms of harmful conduct towards a client…Pre-signed forms also subvert the ability of a Member to properly supervise trading activity. They destroy the audit trail. The presence of the client’s signature on a trade form can no longer be taken as confirmation that the client authorized a particular trade. It also compromises the ability of the Member to subsequently investigate and respond to a client complaint concerning the propriety of trading activity in his or her account.
10. In addition to the findings of previous hearing panels on the issue of pre-signed and altered forms, the MFDA has warned APs against the use of pre-signed forms.
    1. MFDA Staff Notice #MSN-0066 dated October 31, 2007 (updated January 26, 2017)
    2. MFDA Bulletin #0661-E dated October 2, 2015

V. ALTERED ACCOUNT FORMS

11. The Respondent admitted to contravening Rule 2.1.1 by altering information on 38 account forms in respect of 31 clients without having the client initial the alterations.
12. “Altered account forms” applies where information on account forms is altered or deleted by an AP without the client initialing the change.
    1. Member Staff Notice 0066: Signature Falsification, supra
    2. MFDA Bulletin #0661-E: Signature Falsification, supra
13. Hearing panels have consistently held that altering account forms is serious misconduct, contravening Rule 2.1.1.
    1. Re Owens, 2017 LNCNFDA 287 at paras. 32-33
    2. Re Lewis, 2018 CanLII 43822 at paras. 29-30
14. Altered forms present a risk that they may be used by an AP to: (a) engage in discretionary trading; (b) engage in fraud, theft or other misconduct; (c) subvert the Member’s ability to properly supervise trading activity; and (d) make changes to the forms without the clients knowledge or consent.
15. The prohibition on altered account forms applies regardless of whether the client was aware or authorized the use of the proscribed form.

VI. ACCEPTANCE OF SETTLEMENT AGREEMENTS

16. Pursuant to section 24.4.3 of MFDA By-law No.1, a hearing panel has two options with respect to a settlement agreement. It may either accept the settlement agreement or reject it.
17. The role of a hearing panel at a settlement hearing is fundamentally different than its role at a contested hearing. As was stated by the MFDA Hearing Panel in Sterling Mutuals Inc. (Re), citing the reasoning in the I.D.A matter of Milewski (Re):
    1. 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.
       1. Sterling Mutuals Inc. (Re), 2008 LNCMFDA 16, at para. 37
       2. Milewski (Re), [1999] I.D.A.C.D. No. 17
18. The primary goal of securities regulation is the protection of the investor.
    1. Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557 (S.C.C.) at para. 59
19. The British Columbia courts have approved of settlements as a practical and efficient method of addressing misconduct, stating:
    1. Settlements assist the Commission to ensure that its overriding objective, the protection of the public, is met. Settlements proscribe activities that are harmful to the public. In doing so, they are effective in accomplishing the purposes of the statute. They [enable] a flexible remedy…tailored… to the interests of both the Commission and the person under investigation. Enforcement is rarely a concern because the settlement is voluntary. A person [under] investigation [may] refuse to settle and proceed to a hearing. Settlements are also efficient. Both parties can forego the time and expense of a hearing…
       1. British Columbia Securities Commission v. Seifert, [2006] B.C.J. No.225 at para. 49 (S.C.), aff’d  [2007] B.C.J. No. 2186 at para. 31 (C.A.)
20. MFDA hearing panels have taken into account the following considerations when determining whether a proposed settlement should be accepted:
    1. whether acceptance of the settlement agreement would be in the public interest and whether the penalty imposed will protect investors;
    2. whether the settlement agreement is reasonable and proportionate, having regard to the conduct of the Respondent as set out in the settlement agreement;
    3. whether the settlement agreement addresses the issues of both specific and general deterrence;
    4. whether the proposed settlement will prevent the type of conduct described in the settlement agreement from occurring again in the future;
    5. whether the settlement agreement will foster confidence in the integrity of the Canadian capital markets;
    6. whether the settlement agreement will foster confidence in the integrity of the MFDA; and
    7. whether the settlement agreement will foster confidence in the regulatory process itself.
    1. Sterling Mutual Funds Inc. (Re) 2016  LNCMFDA 77 at para. 13
21. This Hearing Panel agrees with the principles stated above and has followed them in making its decision in this case.

VII. FACTORS REGARDING APPROPRIATENESS OF PENALTY

22. Factors that hearing panels frequently consider when determining whether a penalty is appropriate include the following:
    1. the seriousness of the contraventions admitted to by the Respondent;
    2. the Respondent’s past conduct, experience in the capital markets and disciplinary history;
    3. whether the Respondent recognizes the seriousness of the improper activity and has demonstrated remorse;
    4. the harm suffered by investors as a result of the Respondent’s activities;
    5. whether the settlement addresses both specific and general deterrence , the need to deter both the Respondent and any others who participate in the capital markets, from engaging in similar improper activity;
    6. whether the settlement would be in the public interest as the penalties will protect investors and are reasonable and proportionate having regard to the Respondents conduct;
    7. whether the settlement will foster confidence in the integrity of the Canadian capital markets, the MFDA and the regulatory process; and
    8. previous decisions made in similar circumstances.
    1. Sterling Mutual Funds (Re) 2016 supra, at para.14
23. The MFDA Sanction Guidelines (the “Guidelines”) are an additional source of factors to be taken into account with regards to penalty. The Guidelines are not mandatory but are intended to assist hearing panels, the MFDA and Respondents in considering the appropriate penalties in MFDA disciplinary proceedings.

VIII. CONSIDERATIONS IN THIS CASE

24. Of the factors set out above, the following factors are particularly relevant to the Settlement Agreement and to the Hearing Panel’s decision in this case.

a) Seriousness of the misconduct

25. The Hearing Panel considers that the Respondent’s actions constitute a serious breach of MFDA Rule 2.1.1 for the reasons set out above in paragraphs 6-15. The Respondent’s misconduct is aggravated because it occurred after the issuance of MFDA Bulletin #0661-E.

b) Client harm

26. There is no evidence of client complaints, client loss or lack of authorization for the underlying transactions. This is a mitigating factor.

c) Benefits received by the Respondent

27. Another mitigating factor is that there is no evidence that the Respondent received any financial benefit from engaging in the misconduct at issue in this proceeding beyond any commissions and fees to which she would ordinarily be entitled.

d) Respondent’s experience and level of activity in the capital markets

28. The Respondent is an experienced AP and ought to have known and respected the Member’s compliance requirements and those of the MFDA.

e) Deterrence

29. The proposed penalty is significant and helps the MFDA send a message to the Respondent and others in the capital markets about the seriousness of the misconduct at issue.

f) Respondent’s past conduct

30. The Respondent has not previously been subject to MFDA disciplinary proceedings.

g) Respondent’s recognition of the seriousness of her misconduct

31. The Respondent cooperated with the MFDA’s investigation. By entering into this Settlement Agreement, the Respondent has accepted responsibility for her misconduct and avoided the necessity of the MFDA incurring the time and expense of conducting a full disciplinary hearing.

h) Previous Decisions Made in Similar Circumstances

32. While no two cases are exactly alike, the proposed resolution is within the reasonable range of appropriateness with regard to other decisions in similar circumstances which were reviewed by the Hearing Panel:

IX. DECISION

33. Having regard to all of the above considerations, this Hearing Panel concluded that the proposed penalties are reasonable and proportionate having regard to the conduct of the Respondent and the circumstances of this case and the Hearing Panel’s decision was to accept the Settlement Agreement.