Hearing Panel of the Pacific Regional Council:
- Ian H. Pitfield, Chair
- Nova Aitchison, Industry Representative
Sakeb Nazim, Enforcement Counsel for the Mutual Fund Dealers Association of Canada
Hunter Parsons, Counsel for the Respondent
Laura Lynn Monteiro, Respondent
- At the conclusion of a virtual oral hearing, the Panel approved a settlement agreement dated October 13, 2021 (the “Settlement Agreement”) pursuant to which Laura Lynn Monteiro (the “Respondent”), a registered dealing representative, was fined $20,000, required to pay costs of $5,000 and suspended for a period of one month as a consequence of admitting the following contraventions of Mutual Fund Dealers Association (“MFDA”) Rules:
- In February 2017, the Respondent processed 13 unauthorized trades in the accounts of 3 clients, contrary to policies and procedures of the Member and MFDA Rules 2.1.1, 2.5.1 and 1.1.2;
- Between January 2017 and March 2017, the Respondent processed 34 switches in the accounts of 8 clients, without obtaining client instructions in respect of the timing of the switches, thereby engaging in discretionary trading, contrary to the policies and procedures of the Member and MFDA Rules 2.3.1(b), 2.1.1, 2.5.1 and 1.1.2;
- In February 2017, the Respondent made unauthorized changes to Know-Your-Client Information of 3 clients, thereby failing to use due diligence to learn and accurately record the essential facts relative to each client and to each order or account accepted, contrary to MFDA Rules 2.2.1 and 2.1.1; and
- Between January 2017 and March 2017, the Respondent failed to document and maintain records of Know-Your-Client information that she obtained with respect to the accounts of 9 clients contrary to the Member’s policies and procedures and MFDA Rules 2.1.1, 2.5.1 and 1.1.2.
- The contraventions arose in the course of the Respondent’s attempts to realign the accounts of several clients in conformity with the Member’s revised concentration risk policy. Particulars of the unauthorized transactions and unauthorized changes to Know-Your-Client information are set forth in the Settlement Agreement, annexed as Schedule “1” hereto.
- The Member discovered the contraventions in March 2019. On June 10, 2019, the Respondent was placed under close supervision for a period of six months. On July 8, 2019, the Member issued a warning letter to the Respondent.
- The Respondent has been registered as a dealing representative with Sun Life Financial Services Inc. since 2005. She carries on business in the Vancouver area of British Columbia. No client complained of the Respondent’s conduct. The Respondent did not earn any commissions in the course of processing the switches. She has not previously been disciplined by the MFDA. By executing the Settlement Agreement, she has admitted the contraventions.
- In accordance with established practice, the Panel has two options, namely, to accept or reject the Settlement Agreement. The Panel is not at liberty to substitute its opinion on the question of what is appropriate in the circumstances. Provided the settlement appears to fall within a reasonable range, the Panel must approve it.
- In this case, the contraventions arising from the processing of trades without direction from a client constitute discretionary trading which is prohibited in the mutual fund industry. The contraventions associated with unapproved alterations to Know-Your-Client information represent the unauthorized alteration of documentation previously approved by the client. Either action constitutes a contravention of the MFDA Rules.
- Enforcement Counsel states, and the Panel agrees, that the primary goals of securities regulation are protection of the investor and the fostering of public confidence in the capital markets and the securities industry.
- The relevant factors in assessing the reasonableness of the Settlement Agreement are well-defined:
- 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 activities;
- 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 activities to those who are permitted to participate in the capital markets; and
- Previous decisions made in similar circumstances.
- Breckenridge, MFDA File No. 200718, Hearing Panel of the Central Regional Council, Decision and Reasons dated November 14, 2007 at p. 21
- In this case, the predominant factors are deterrence and protection of the integrity of the capital markets.
- The prohibition against discretionary trading, and the prohibition against alteration of account information without the changes being approved as evidenced by the client’s signature or initials, are core tenets that apply to the mutual fund industry. In this case, the Respondent processed transactions without client approval, and made changes to account information without client approval.
- As noted by other Hearing Panels, conduct of the kind in which the Respondent engaged 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.
- As of November 15, 2018, the MFDA updated its Sanction Guidelines to promote consistency, fairness and transparency by providing a framework of applicable regulatory principles to guide the exercise of discretion in determining sanctions which tends to assist Staff, Respondents and Hearing Panels in reaching consensus about the fair and appropriate imposition of sanctions in disciplinary proceedings. The MFDA Sanction Guidelines are not mandatory or binding on Hearing Panels but are intended to provide guidance to Hearing Panels and parties to disciplinary proceedings about the key factors to be taken into account when determining the appropriate penalty to be imposed. Of note is the MFDA statement that the amount of the fine should be commensurate with the seriousness of the misconduct and should not be tantamount to a licensing fee to engage in the misconduct.
- Enforcement Counsel referred the Panel to a number of cases that placed the sanctions in this case within the reasonable range. The Respondent did not dispute the reasonableness of the sanctions. The Panel concluded that the combination of the fine and the requirement to pay costs, together with the immediate one-month suspension ending December 8, 2021, placed the settlement within the reasonable range and satisfy the objectives of specific and general deterrence.
- Accordingly, the Settlement Agreement is approved.
Ian H. PitfieldIan H. PitfieldChair
Nova AitchisonNova AitchisonIndustry Representative