Hearing Panel of the Central Regional Council:
- Frederick W. Chenoweth, Chair
- Samuel Mah, Industry Representative
Justin Dunphy, Senior Enforcement Counsel for the Mutual Fund Dealers Association of Canada
Kenneth Ray Clark, Respondent
- By Notice of Settlement Hearing dated January 7, 2021, 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 Panel should accept a settlement agreement dated January 5, 2021, (“Settlement Agreement”) entered into by the Staff of the MFDA (“Staff”) and the Respondent.
- At the outset of the proceeding, the Panel considered a joint motion by Staff and the Respondent to move the proceedings “in camera”. The Panel granted the motion. The Panel then considered the provisions of the Settlement Agreement, aided by submissions as to the applicable law, which should guide the Panel in determining whether or not to accept or reject the Settlement Agreement. The Panel unanimously accepted the Settlement Agreement and issued an Order accordingly. These are the Panel’s reasons for doing so.
II. THE CONTRAVENTIONS
- In the Settlement Agreement, the Respondent admits that:
- Between May 2014 and November 2018, the Respondent altered and used to process transactions, 37 account forms in respect of 31 clients by altering information on the account forms without having the clients initial the alterations, contrary to MFDA Rule 2.1.1.
III. THE FACTS
- 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 “1” to these Reasons.
- As set out in the Settlement Agreement, the Respondent, was registered in the securities industry since October 1992. From September 2002 to March 2020, the Respondent was registered in Ontario as a dealing representative with FundEX Investments Inc. (the “Member”), a member of the MFDA. At the time of the Hearing, the Respondent was not registered in the securities industry in any capacity. At all material times, the Respondent conducted business in Brooklin, Ontario.
- The Panel was aware that prior to accepting a Settlement Agreement, a Hearing Panel must be satisfied that:
- The facts admitted by the Respondent constitute misconduct in contravention of the By-law, MFDA Rules or policies, or provincial securities legislation; and
- 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.
- The 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):
- 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),  I.D.A.C.D. No. 17 at p. 12, Ontario District Council Decision dated July 28, 1999.
- The 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,  B.C.J. No. 225 at paras. 48-49 (S.C.), aff’d,  B.C.J. No. 2186 at para. 31 (C.A) [“British Columbia (Securities Commission)”].
- In the Settlement Agreement, the Respondent agreed with facts set out in Part III of the Settlement Agreement and admitted that he violated MFDA Rule 2.1.1, including the contravention alleged against him in the Notice of Settlement Hearing. Accordingly, the Panel concluded that the alleged contravention had been proven and that the Respondent had contravened MFDA Rule 2.1.1.
- The primary goal of securities regulation, whether in the context of a settlement hearing or a contested hearing, is protection of the investor.
- Pezim v. British Columbia (Superintendent of Brokers),  2 S.C.R. 557 (SCC) at paras. 59, 68.
- Breckenridge (Re), MFDA File No. 200718, Hearing Panel of the Central Regional Council, Decision and Reasons dated November 14, 2007 at para. 74.
- In addition to protection of the investor, the goals of securities regulation include fostering public confidence in the capital markets and the securities industry.
- Pezim v. British Columbia (Superintendent of Brokers), supra, at paras. 59, 68.
- Hearing Panels frequently consider the following factors when determining whether a penalty is appropriate:
- The seriousness of the allegations proved against the Respondent;
- The Respondent’s past conduct, including prior sanctions;
- The Respondent’s experience and level of activity in the capital markets;
- Whether the Respondent recognizes the seriousness of the improper activity;
- The harm suffered by investors as a result of the Respondent’s activity;
- The benefits received by the Respondent as a result of the improper activity;
- The risk to investors and the capital markets in the jurisdiction, were the Respondent to continue to operate in capital markets in the jurisdiction;
- The damage caused to the integrity of the capital markets in the jurisdiction by the Respondent’s improper activities;
- 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;
- The need to alert others to the consequences of inappropriate activity to those who are permitted to participate in the capital markets; and
- Previous decisions made in similar circumstances.
- Breckenridge, supra, at para. 77 and the decisions cited therein.
- The Respondent’s misconduct is serious: he altered and used to process transactions, 37 account forms in respect of 31 clients by altering information on the account forms without having the clients initial the alterations.
- The Panel considered the MFDA Sanction Guidelines which were drafted to assist Staff and Respondents in conducting disciplinary proceedings and negotiating settlement agreements, as well as Hearing Panels in the fair and efficient imposition of sanctions in settled or contested disciplinary proceedings. The MFDA Sanction Guidelines are not mandatory, but are intended to provide guidance to a Hearing Panel.
- The MFDA made it clear to Approved Persons since October 31, 2007, in both MFDA Staff Notices and Bulletins, that possessing and using either pre-signed and altered account forms is contrary to the obligations of Rule 2.1.1.
- Member Staff Notice 0066, Pre-Signed Forms dated October 31, 2007 (updated January 16, 2017).
- MFDA Bulletin #0661-E, Signature Falsification, dated October 2, 2015.
- On the basis of the foregoing, by obtaining and using altered account forms as described in Part III of the Settlement Agreement, the Respondent engaged in conduct prohibited by MFDA Rule 2.1.1 and therefore engaged in misconduct that should be regarded as serious.
- The Panel noted that in this matter, 18 account forms were obtained after the MFDA issued MFDA Bulletin #0661-E on October 2, 2015. The Hearing Panel considered this to be an aggravating factor.
- Owen (Re), MFDA File No. 201784, Hearing Panel of the Prairie Regional Council, Decision and Reasons dated December 7, 2017, at para 35.
- Lo (Re), MFDA File No. 201776, Hearing Panel of the Central Regional Council, Decision and Reasons dated February 7, 2018, at paras. 16, 18.
- The Hearing Panel is also mindful that:
- The Respondent had been registered in the securities industry for a significant period of time, commencing in October 1992 until March 2020;
- By entering into the Settlement Agreement, the Respondent had accepted responsibility for his misconduct and avoided the necessity of the MFDA incurring additional time and expense of a full contested hearing;
- The evidence did not reveal any evidence of unauthorized trades or client losses, nor was there any evidence to suggest that the Respondent received a financial or other benefit through his conduct. There had been no client complaints with respect to this matter;
- The Respondent had not been the subject of prior MFDA disciplinary proceedings.
- The Panel considered a fine of $13,500 and costs of $2,500 to be a serious penalty which will be sufficient to achieve the goals of specific and general deterrence, having regard to the factors described above.
- In coming to its decision, the Panel considered the unique facts of this case, the Sanction Guidelines and the substantial case law to which it was referred.
- For all the above reasons, the Panel concluded that the Settlement Agreement was reasonable and proportionate. Accordingly, the following penalties were imposed upon the Respondent:
- The Respondent shall pay a fine in the amount of $13,500 in certified funds upon acceptance of the Settlement Agreement, pursuant to s. 24.1.1(b) of MFDA By-law No.1.
- 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.
- The Respondent shall in the future comply with MFDA Rule 2.1.1.
Frederick W. ChenowethFrederick W. ChenowethChair
Samuel MahSamuel MahIndustry Representative