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IN THE MATTER OF A SETTLEMENT HEARING
PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA

Re: Brian Colin MacDonald

Heard: February 25, 2021 by electronic hearing in Toronto, Ontario
Reasons For Decision: March 30, 2021

Reasons For Decision

Hearing Panel of the Central Regional Council:

  • Emily Cole, Chair
  • Linda Anderson, Industry Representative

Appearances:

Brendan Forbes, Enforcement Counsel for the Mutual Fund Dealers Association of Canada
Justin Papazian, Counsel for the Respondent
Brian Colin MacDonald, Respondent

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 dated January 25, 2021 (“Settlement Agreement”) between staff of the MFDA (“Staff”) and Brian Colin MacDonald (“Respondent”).
  2. After reviewing the Settlement Agreement and the materials filed by Staff and hearing the submissions of counsel for Staff, the Hearing Panel accepted the Settlement Agreement attached as Schedule “1” and signed an order reflecting our These are the reasons for our decision.

II. CONTRAVENTIONS

  1. The Respondent admits to the following violations of the By-laws, Rules or Policies of the Mutual Fund Dealers Association of Canada (“MFDA”):
    1. between October 2014 and July 2018, the Respondent altered and used to process transactions 20 account forms in respect of 17 clients by altering information on the account form without having the client initial the alterations, contrary to MFDA Rule 2.1.1; and
    2. in May 2014, the Respondent obtained and possessed 1 pre-signed account form in respect of 1 client, contrary to MFDA Rule 2.1.1.

III. PROPOSED SANCTIONS

  1. Staff and the Respondent agree and consent to the following proposed sanctions:
    1. the Respondent shall pay a fine in the amount of $14,000 in certified funds upon acceptance of the Settlement Agreement, 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 upon acceptance of the Settlement Agreement, pursuant to section 24.2 of MFDA By-law No. 1;
    3. the Respondent shall in the future comply with MFDA Rule 2.1.1; and
    4. the Respondent will attend in person, on the date set for the Settlement Hearing.

IV. AGREED FACTS

Registration History

  1. Since November 2008, the Respondent has been licensed in the securities industry.
  2. Since February 17, 2011, the Respondent has been registered in Ontario as a dealing representative with Desjardins Financial Security Investments Inc. (the “Member”), a Member of the MFDA.
  3. At all material times, the Respondent conducted business in the Kitchener, Ontario area.

Altered Account Forms

  1. Beginning in June 2016, the policies and procedures of the Member required clients to initial any changes on documents or otherwise provide written authorization for the changes to the document.
  2. Between October 2014 and July 2018, the Respondent altered and used to process transactions, 20 account forms in respect of 17 clients by altering information on the account forms without having the client initial the alterations.
  3. The altered account forms included: 9 Know-Your-Client (“KYC”) Update Forms, 4 New Account Application Forms, 4 Letters of Direction, 1 Transfer Form, 1 Non-Financial Change Form and 1 Transfer Authorization for Registered Investments.
  4. The alterations made by the Respondent consist of changes: to client risk tolerances, employer information, investment objectives, joint applicant information, client addresses, signature dates, investment time horizon, relinquishing institution information and fund codes.

Pre-Signed Account Forms

  1. At all material times, the Member’s policies and procedures prohibited its Approved Persons from retaining pre-signed or partially completed forms.
  2. In May 2014, the Respondent obtained and possessed 1 pre-signed account form in respect of 1 client. The pre-signed account form was a Reimbursement of Transfer Fees form which was not used to process a transaction.

The Member’s Investigation

  1. In April 2019, the Member conducted an audit of the client files maintained by the Respondent and identified the pre-signed form that is the subject of this Settlement Agreement.
  2. Upon further review of the Respondent’s client files, the Member identified the altered account forms that are the subject of this Settlement Agreement.
  3. As part of its investigation, the Member took steps to address the deficiencies in the account forms it identified to determine the accuracy of the information and that the alterations made to the account forms were authorized, including by: obtaining client initials on the altered forms; confirming that new updated KYC Update Forms had been obtained for the clients; or sending letters to the clients along with copies of altered forms and asking the clients to contact the Member if the changes made to the account forms were unauthorized. No clients contacted the Member to indicate that the alterations made to the altered account forms were unauthorized.
  4. On August 22, 2019, the Member imposed a period of close supervision on the Respondent and issued a warning letter to the Respondent with respect to the pre-signed and altered forms described above.
  5. On September 3, 2019, the Respondent signed an Undertaking to confirm, among other things, that he understands that obtaining pre-signed forms and altering forms without obtaining client initials is prohibited.
  6. The Respondent remains under close supervision by the Member.

Additional Factors

  1. There is no evidence that the Respondent received any financial benefit from engaging in the misconduct described above beyond any commissions and fees that he would ordinarily be entitled to receive had the transactions been carried out in the proper manner.
  2. There is no evidence of client loss or lack of authorization.
  3. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
  4. By entering into this Settlement Agreement, the Respondent has saved the MFDA the time, resources and expenses associated with conducting a full hearing of the allegations.

V. ANALYSIS

Jurisdiction of the Hearing Panel

  1. A Hearing Panel is authorized to either accept or reject a settlement
    1. Section 24.4.3 of MFDA By-law No. 1
  2. 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, considering 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.” This is particularly so when the settlement agreement has been negotiated by counsel.
    1. Mílewski (Re), [1999] I.D.A.C.D. No. 17.
    2. Sterling Mutuals Inc. (Re), 2008 LNCMFDA 16 at para 37
  3. Settlements are to be encouraged. They make a significant contribution to meeting the MFDA’s primary objective of investor protection by providing a practical and efficient way of addressing misconduct in the securities industry. Where the Respondent takes responsibility and admits his misconduct and the parties can agree upon appropriate sanctions, settlements can save time and conserve the regulator’s limited resources. Settlements also provide certainty and are likely to result in greater compliance with the sanctions
    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.)

The Seriousness of the Misconduct

  1. The Respondent admitted to two contraventions involving:
    1. pre-signed account forms; and
    2. altered account forms.

Pre-signed Account Forms

  1. The Respondent obtained, possessed one pre-signed account form in respect of one client. The pre-signed account form was a Reimbursement of Transfer Fees form which was not used to process a transaction

Altered Account Forms

  1. The Respondent altered and used to process transactions 20 forms in respect of 17 clients by altering information on the account forms.
  2. Significantly, none of the alterations were account details and all the alterations were to correct errors the Respondent had made.
  3. There was no evidence of client harm or a lack of
  4. Nonetheless the Respondent’s altering of account forms and obtaining and using one pre-signed form is a serious breach of the standard of conduct expected of an Approved Person under Rule 2.1.1. This type of misconduct adversely affects the integrity and reliability of account documents, destroys the audit trail, and prevents the Member from effectively supervising its Dealing Representatives and protecting clients.
    1. Rambarran (Re), [2017] Hearing Panel of the Central Regional Council, MFDA File No. 201629, Panel Decision dated January 13, 2017, at para. 8.

Mitigating Factors

  1. We considered the following mitigating factors:
    1. The Respondent did not cause any financial harm to investors;
    2. The Respondent did not benefit from his misconduct;
    3. The Respondent has not previously been the subject of any MFDA disciplinary proceedings; and
    4. The Respondent recognizes the seriousness of his misconduct and settled this matter.
  2. At the hearing and in response to our inquiry, the Respondent advised that the Member lifted the close supervision approximately three weeks before the hearing. We infer the Member has renewed confidence in the Respondent’s competence and conduct and we interpreted this as a positive sign.

Costs

  1. The costs award is appropriate and consistent with previous MFDA

VI. CONCLUSION

  1. We are satisfied that the proposed sanctions, the $14,000 fine will serve as a specific deterrence to the Respondent and a general deterrence to others in the industry who may contemplate engaging in similar misconduct in the
  2. Staff provided five MFDA decisions which addressed similar misconduct: Ho (Re), [2018] Hearing Panel of the Central Regional Council, MFDA File No. 201862, Reasons for Decision dated December 7, 2018, Boassaly (Re), [2019] Hearing Panel of the Central Regional Council, MFDA File No. 201918, Reasons for Decision dated May 15, 2019, Oh (Re), [2018] Hearing Panel of the Central Regional Council, MFDA File No. 201853, Reasons for Decision October 26, 2018, Lok (Re), [2020] Hearing Panel of the Central Regional Council, MFDA File No. 202011, Hearing Panel Decision dated May 11, 2020 and Warr (Re), [2020] Hearing Panel of the Atlantic Regional Council, MFDA File No. 202037, Hearing Panel Decision dated September 25, 2020.
  3. Based on a review of these cases and taking into consideration the factors discussed above, we are satisfied the proposed sanctions fall within a reasonable range of appropriateness.
  4. We therefore accepted the Settlement Agreement and made an order reflecting the agreed upon sanctions against the Respondent.
  • Emily Cole
    Emily Cole
    Chair
  • Linda Anderson
    Linda Anderson
    Industry Representative

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