Reasons For Decision

Background

1. On November 1^st, 2021 Alim Kassam (the “Respondent”) and the Mutual Fund Dealers Association of Canada (the “MFDA”) entered into a settlement agreement (the “Settlement Agreement”) in which the Respondent admitted that between November 8^th and December 2018 in his capacity as a branch manager, he did not adequately query or report certain information that had been given to him to his employer Sun Life Financial Investment Services (Canada), a member of the MFDA (the “Member”).
2. The information that had been given to him was that an Approved Person for whom he was responsible for supervising, had solicited an individual to invest in a project that was not approved for sale by the Member or carried on for the account of the Member or through the facilities of the Member contrary to the Member’s policies and procedures. The Settlement Agreement is attached hereto as Appendix “A”.
3. The purpose of the present hearing is to determine whether the Settlement Agreement ought to be approved by this Panel.

Facts

4. At all relevant times to this matter the Respondent conducted business in the city of Abbotsford and was registered in British Columbia as a dealing representative with the Member. From November 4^th, 2010 until July 22^nd, 2020, the Respondent was a branch manager of the Member.
5. The Member terminated the services of the Respondent on October 22^nd, 2020 and he is no longer registered in any capacity in the securities industry.

Related Proceeding

6. In a separate proceeding the MFDA issued a Notice of Hearing to Matthew Elliott de Haan (“de Haan”) on January 18^th 2021 ( the “de Haan Proceeding”). De Haan was an Approved Person subject to the supervision of the Respondent at the branch of the Member.
7. On August 10^th 2021 a hearing panel of the Pacific Regional Council of the MFDA ( File No. 202101) found that de Haan had engaged in misconduct by inter alia soliciting a client and others to invest in a bond guaranteeing a 100% return in a wind mill farm in Wyoming ( the “ Unapproved Investment”). The panel found that the Unapproved Investment was not approved for sale by the Member, was solicited by de Haan while acting for a third party company outside the Member, and that as a result de Haan had contravened the policies and procedures of the MFDA.
8. As a result, de Haan was prohibited from conducting securities related business while employed by or associated with an MFDA Member for a period of 5 years and was fined $15,000. Not surprisingly the hearing panel classified the investment as an “extremely risky proposition” which “exposed prospective investors to a truly severe risk of harm”.

Respondent’s Failure to Adequately Query and Report Potential Misconduct

9. The Member’s policies and procedures (“PPM”) provided that branch managers were responsible for supervising advisors to ensure their compliance with regulatory requirements and the PPM of the Member.
10. The PPM also prohibited the sale of investment products not approved for sale by the Member, sold for the account of the Member and processed through its facilities. Furthermore, they prohibited Approved Persons from engaging in outside business activities without the prior approval of the Member.
11. The PPM required branch managers to report to the Member all complaints alleging Approved Persons may be involved in securities related business outside the business of the Member.
12. On November 8^th 2018 individual x advised the Respondent that one of the advisors for whom he was responsible had solicited individual x to invest in the Unapproved Investment. At that time individual x did not mention the name of the investment advisor.
13. On November 16^th 2018 prior to taking any further steps relating to the matter the Respondent asked individual x to reveal the name of the advisor and on November 28^th he was provided sufficient information to allow him to identify de Haan as the advisor. De Haan was an Approved Person registered as a dealing representative with the Member.
14. However, the Respondent did not take any further steps to investigate the matter or report the information he received from individual x to the Member. On November 27^th de Haan resigned from the Member effective December 31^st, 2018. The Respondent says he did not approach de Haan about what he had been told or report de Haan’s activities to the Member because de Haan had already submitted his resignation on November 27^th the day before his identity had been revealed to the Respondent. However, the Respondent admits that he was required to report to the Member the information he had received on November 8^th from individual x. He further acknowledges that this obligation continued even after de Haan had submitted his resignation.
15. The subject matter of the disciplinary hearing of de Haan was the Unapproved Investment. At least one of de Haan’s solicitations occurred after the Respondent learned but failed to report to the Member that de Haan was soliciting investments in securities outside of the Member.

Contraventions

16. The Respondent admits that between November 8^th, 2018 and December 2018, while acting as a branch manager of the Member he did not adequately query or report to the Member information that he had received that an Approved Person under his supervision had solicited an individual to purchase the Unapproved Investment.

Approved Person Reporting

17. MFDA Rule 1.4(b) states as follows:
    1. “Every Approved Person must report to the Member such information, in a manner and within such period of time, as may be prescribed by the Corporation from time to time relating to complaints, criminal, civil and other legal proceedings, regulatory proceedings, arbitrations, contraventions and potential contraventions of legal and regulatory requirements, disciplinary action by regulatory bodies, settlements and compensation paid to clients, registration or licensing by any regulatory body, bankruptcies, insolvencies, garnishments and related events.”
18. In addition section 4.1(b) of MFDA Policy No. 6 states as follows:
    1. “ An Approved Person shall report the following events to his or her current Member in such detail as required by the Member, within 2 business days:
       2. the Approved Person is aware of a complaint from any person, whether in writing or any other form, and with respect to him or himself, or any other Approved Person, involving allegations of …
          3. engaging in securities related business outside of the Member;”

Branch Manager Responsibilities

19. MFDA Rule 2.5.5(f) states that:
    1. “The branch manager must
       1. supervise the activities of the Member at a branch or sub-branch that are directed towards ensuring compliance with the By-Laws, Rules and Policies and with applicable securities legislation by the Member and its Approved Persons; and
       2. supervise the opening of new accounts and trading activity at the branch office.”

Requirement to Comply with Member Policies and Procedures

20. MFDA Rule 2.5.1 requires Members to establish, implement and maintain policies and procedures to ensure the handling of its business in accordance with the By-Laws, Rules and Policies and with applicable securities legislation.
21. MFDA Rule 1.1.2 places a corresponding obligation on an Approved Person who participates in any securities related business of the Member to comply with the By-Laws and Rules as they relate to the Member or the Approved Person.

Failure to Report de Haan’s Conduct

22. The failure to report de Haan’s conduct and to obtain direction from the Member concerning additional steps to be taken to investigate it and to prevent the continuation of such conduct was a contravention of MFDA Rules 1.4(b), 2.5.5(f),section 4.1 of MFDA Policy No.6, as well as the Member’s PPM and MFDA Rules 1.1.2 and 2.5.1.
    1. Gabrysz (Re) [2019] Hearing Panel of the Central Regional Council, MFDA File No.201816, Decision dated December 18, 2019
    2. Dunlop (Re) [2019] Hearing Panel of the Central Regional Council, MFDA File No.201759, Decision dated January 18, 2019
23. Previous panels have held that where an Approved Person has failed to report to the Member when they are aware of a complaint from any person with respect to themselves or another Approved Person involving allegations of engaging in securities related business outside of the Member they have contravened section 4.1(b)(iii) of MFDA Policy No. 6.
    1. Qi (Re) [2014] Hearing Panel of the Central Regional Council, MFDA File No. 201253, Decision on Misconduct dated July 8, 2018
24. Prior MFDA hearing panels have found that when a branch manager fails to report alleged misconduct by a person under their supervision the branch manager has contravened MFDA Rule 2.5.5.
    1. Rihawi et al (Re), [2018] Hearing Panel of the Central Regional Council, MFDA File No.201727, Decision dated November 27, 2018 at para. 125
    2. Bihis (Re), [2018] Hearing Panel of the Central Regional Council, MFDA File No.201760, Decision dated October 26^th, 2018 at paras. 5 & 8
25. Previous panels have also found that when a branch manager fails to report allegations related to securities related business outside of the member, the manager has contravened MFDA Rule 2.5.5.
    1. Dibbley (Re) [2018] Hearing Panel of the Central Regional Council, MFDA File No.201655, Decision dated September 12^th,2018 at paras.19&20
26. As a result the Panel finds that the Respondent has contravened MFDA Rules 1.1.2, 2.5.1, 1.4(b), 2.5.5(f), and section 4(1)(b)(iii) of MFDA Policy No. 6.

Terms of Settlement

27. The Respondent agrees to the following terms of settlement:
    1. He 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, effective from the date of the Order approving the Settlement Agreement, pursuant to section 24.1.1(f) of MFDA By-Law No.1;
    2. He shall successfully complete the branch manager’s course offered by the Investment Funds Institute of Canada or another course offered by the Canadian Securities Institute or the Investment Funds Institute of Canada that is acceptable to the Staff of the MFDA prior to acting as a branch manager in the future, pursuant to section 24.1.1(f) of MFDA By-Law No.1;
    3. He shall pay a fine of $5,000 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.1.1(b) of MFDA By-Law No. 1;
    4. He shall pay costs in the amount of $5,000 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.2 of MFDA By-Law No.1;
    5. He shall in future comply with MFDA Rules 1.1.2, 2.5.1, 1.4(b), 2.5.5(f), and MFDA Policy No. 6; and
    6. He will attend in person on the date set for the Settlement Hearing.

Appropriateness of the Proposed Penalty

28. We are well aware of the fact that pursuant to section 24.4.3 of MFDA By-Law No.1 we must either accept or reject the Settlement Agreement. We agree hearing panels should not interfere lightly in a negotiated settlement as long as the penalties agreed upon are within the reasonable range of appropriateness having regard to the conduct of a Respondent
    1. Jacobson (Re), Hearing Panel of the Prairie Regional Council, MFDA File No. 200712, Decision dated July 13^th, 2007

General Considerations

29. The following are some of the general considerations taken into account by previous hearing panels in considering the appropriateness of penalties proposed in a settlement agreement:
    1. whether acceptance of the settlement agreement would be in the public interest and protect investors;
    2. whether it is reasonable and proportionate having regard to the conduct of the Respondent;
    3. whether it addresses the issues of both specific and general deterrence;
    4. whether it will prevent the type of conduct described in the settlement agreement from occurring again in the future;
    5. whether it will foster confidence in the Canadian capital markets;
    6. whether it will foster confidence in the integrity of the MFDA; and
    7. whether it will foster confidence in the regulatory process itself.
    1. Jacobson (Re) supra, at para. 70

Specific Considerations

30. Some of the specific factors relevant to the present case to be taken into account in determining whether the penalties proposed in the Settlement Agreement are appropriate are:
    1. the seriousness of the allegations proved;
    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 the investors as a result of the Respondent’s activities;
    6. the benefits received by the Respondent as a result of his or her activities;
    7. the need to deter others as well as those involved in the case under consideration from engaging in similar improper activities; and
    8. previous decisions made in similar circumstances.
    1. Headley (Re) [2006], Hearing Panel of the Pacific Regional Council, MFDA File No. 200509, Decision dated February 21^st, 2006 at para. 85

Application of General and Specific Considerations to the Present Case

Seriousness of the Misconduct

31. It is a fundamental duty of a branch manager to ensure compliance. They are expected to be “a standard bearer for compliance”.
    1. Durotoye (Re) [2014], Hearing Panel of the Central Regional Council, MFDA File No. 201328, Decision dated May 20^th, 2014 at para. 3
32. “The branch manager must be alert to ensure that the Member is made aware of anything transpiring at the branch that could give cause for concern and report it to the Member. When in doubt, the branch manager should report to the Member”.
    1. Dibbley (Re) supra at para. 18
33. The Panel is satisfied that the Respondent’s conduct as branch manager of the Member in the circumstances of this case is serious. Although the Respondent made an inquiry to individual x to try to identify the advisor who was soliciting money for the Unapproved Investment he waited for 6 days before doing so. Furthermore, he failed to receive a response to his inquiry for a further 12 days and did not investigate further or convey that information to the Member in the interim. His stated reason was that de Haan had already tendered his resignation. This however did not diminish the importance of conducting a more thorough and timely investigation.

Past Conduct

34. The Respondent has not been the subject of previous disciplinary proceedings.

Respondent’s Experience and Level of Activity in the Capital Markets

35. The Respondent was registered in British Columbia as a dealing representative with the Member and was designated by the Member as a branch manager on November 4^th, 2010. At the time of his contraventions there can be no doubt that he was experienced in the capital markets.

Respondent’s Recognition of the Seriousness of his Misconduct

36. The Panel accepts the submissions of counsel for the MFDA that the Respondent has acknowledged the seriousness of his conduct and has demonstrated remorse. By entering into the Settlement Agreement he has also saved the MFDA the time, resources and expenses associated with a contested hearing.

Harm Caused by the Respondent’s Conduct

37. There is no evidence of any client financial losses resulting from the lack of supervision of de Haan or the latter’s conduct. De Haan was unsuccessful in getting individuals to purchase the Unapproved Investment.

Benefits Received by the Respondent

38. The Respondent did not receive any financial benefit resulting from his misconduct.

Deterrence

39. The Panel is satisfied that the proposed penalties will deter the Respondent from engaging in similar conduct in the future and ensure general deterrence in the industry by reinforcing the message that branch managers who do not meet their oversight obligations over Approved Persons under their supervision will receive meaningful sanctions.

Previous Decisions in Similar Circumstances

40. Counsel referred the Panel to the following decisions where the penalties imposed were similar to those in the Settlement Agreement.
    1. Dibbley (Re) supra
    2. Gentile & Brinson (Re) [2016] Hearing Panel of the Atlantic Regional Council, MFDA File Nos. 201042 and 201344, Decision on Penalty dated March 22^nd, 2016 at para. 206
    3. Bihis (Re), supra
    4. Cunningham (Re) Hearing Panel of the Central Regional Council, MFDA File No. 200906, Decision dated February 24^th, 2010
41. Although in all of the above cases hearing panels imposed penalties within the range of those in the Settlement Agreement the one most similar is There the branch manager failed to employ adequate supervision to prevent an unregistered individual from engaging in securities related business with clients of the Member. The penalties imposed were a permanent prohibition from acting as a branch manager, a fine of $10,000 and costs of $2,500. However, unlike the present case the Respondent was warned by multiple sources including the MFDA that the unregistered individual was conducting securities related business with clients of the Member and the conduct took place over a long period of time.
42. In the end having regard to the legal principles and the factors described above the Panel finds that the penalties set out in the Settlement Agreement are reasonable and it is hereby approved.