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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: Lucia Arruda

Heard: July 12, 2021 by electronic hearing in Vancouver, British Columbia
Reasons For Decision: August 24, 2021

Reasons For Decision

Hearing Panel of the Pacific Regional Council:

  • Ian H. Pitfield, Chair
  • Susan Monk, Industry Representative

Appearances:

Zaid Sayeed, Enforcement Counsel for the Mutual Funds Dealers Association of Canada
Laurie Smith, Counsel for the Respondent
Lucia Arruda, Respondent

  1. At the conclusion of an oral hearing, held by electronic hearing, the Hearing Panel approved a settlement agreement dated March 16, 2021 (“Settlement Agreement”) pursuant to which Lucia Arruda (the “Respondent”), a registered dealing representative, was fined $12,000 and ordered to pay costs of $2,500 as a consequence of processing a trade in the account of a client without discussing all the elements of the trade with the client; and altering cheques received from a client for investment by signing the initials of the clients next to alterations made by the Respondent and submitting the cheques to the Member, Investors Group Financial Services Inc., for processing. The Settlement Agreement is annexed as Schedule “A”.
  2. In brief, the Respondent is registered as a dealing representative with Investors Group Financial Services Inc. (“Investors Group”), working in Vancouver, British Columbia. She met with a client, AT, who was married to JT, to discuss proposed transactions with respect to AT’s RRSP and JT’s tax free savings account (“TFSA”). JT was not present at the meeting.
  3. AT gave the Respondent a cheque for $30,000 to be deposited to his RRSP and a cheque for $15,000 signed by JT. The cheques were payable to “IG Wealth Management” and were to be deposited to AT’s RRSP and JT’s TFSA.  AT instructed the Respondent to apply the TFSA funds to the purchase of a mutual fund the Respondent recommended. AT told the Respondent that he was acting on behalf of JT.  The Respondent did not speak to JT to obtain specific instructions with respect to the purchase. The Respondent applied the funds to the purchase of the mutual fund as directed by AT. The Respondent’s actions contravened the Investors Group prohibition against discretionary trading and MFDA rules 2.3.1(b), 1.1.2, 2.5.1, and 2.1.1.
  4. As noted, both cheques were made payable to “IG Wealth Management”. The Respondent understood that cheques were to be payable to “Investors Group”. To avoid any delay in processing the cheques, the Respondent changed the name of the payee to “Investors Group” and signed the initials of AT and JT on their respective cheques, contrary to MFDA Rule 2.1.1.
  5. The Respondent admits the contraventions of the rules regarding discretionary trading and the alteration of documents.
  6. Enforcement Counsel rightly states that:
    1. The prohibition on discretionary trading advances investor protection in two principal respects. First, it guards against potential abuses by ensuring that a client must first give clear and complete directions to an Approved Person prior to a trade being executed in a client’s account. Second, it seeks to prevent clients from being victimized by poor investment decisions being made on their behalf by those who do not possess the necessary proficiencies, training and experience to exercise discretionary trading authority over a client’s investments.
  7. In relation to the alteration of the cheques which the Hearing Panel considers to be the more serious of the contraventions, Enforcement Counsel submitted the following:
    1. “The MFDA has been warning Approved Persons against signing client signatures for a number of years.
    2. MFDA Staff Notice #MSN-0035 dated December 10, 2004, SBA, Tab 18
    3. MFDA Staff Notice #MSN-0066 dated October 31, 2007, (updated March 4, 2013 and January 26, 2017), SBA, Tab 19
    4. MFDA Bulletin #0661-E dated October 2, 2015, SBA, Tab 20
    5. Hearing Panels have held that when an Approved Person signs a client signature he or she contravenes the standard of conduct as set out in MFDA Rule 2.1.1.
    6. Markus (Re), [2018] Hearing Panel of the Central Regional Council, MFDA File No. 201774, Panel Decision dated February 7, 2018, SBA, Tab 21, para 15
    7. In its Bulletin #0661-E dated October 2, 2015 (the “Bulletin”), the MFDA provided examples of the negative consequences that can arise when an Approved Person engages in Signature Falsification (a term that includes conduct like pre-signed account forms, altered account forms and the falsification of a client signature):
      1. there is an adverse effect on the integrity and reliability of the documents
      2. the audit trail is destroyed
      3. the Approved Person’s ability to produce valid documentation to support transactions that come into question is impacted
      4. the client is prejudiced by making it appear as if the client has executed a particular document when this is not the case
      5. the Member’s supervisory personnel are misled as to the circumstances as to how the document was obtained
      6. the Approved Person’s credibility is negatively affected
      7. Member complaint handling is negatively affected
      8. The Approved Person uses the forms to facilitate further misconduct like unauthorized trading, fraud and misappropriation of monies
    8. MFDA Bulletin #0661-E dated October 2, 2015, SBA, Tab 20
    9. In summary, the Respondent’s conduct adversely affects the integrity and reliability of account documents, leads to the destruction of the audit trail, has a negative impact on Member complaint handling, and has the potential for misuse in the form of unauthorized trading, fraud, and misappropriation.”
  8. While the MFDA regards the change in the name of the payee and the Respondent’s insertion of a client’s initials as signature falsification, the Hearing Panel notes that in other contexts, those actions are regarded as forgery.
  9. Enforcement Counsel referred the Hearing Panel to a number of cases that placed the penalty proposed by the Settlement Agreement within a reasonable range. The Respondent did not dispute the reasonableness of the proposed penalty. The Hearing Panel concluded that the combination of penalty and the requirement to pay costs placed the settlement within a reasonable range and approved the Settlement Agreement accordingly.
  • Ian H. Pitfield
    Ian H. Pitfield
    Chair
  • Susan Monk
    Susan Monk
    Industry Representative

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