Hearing Panel of the Central Regional Council:
- Frederick H. Webber, Chair
- Melody Potter, Industry Representative
Michael A.M. Mantle, Enforcement Counsel for the Mutual Fund Dealers Association of Canada
Zachary Pringle, Counsel for Respondent
Gregory Jan Myers, Respondent
I. SETTLEMENT AGREEMENT
- This was a settlement hearing pursuant to a settlement agreement dated October 26, 2021 between the Mutual Fund Dealers Association of Canada (the “MFDA”) and Gregory Jan Myers (the “Respondent”), a copy of which is attached hereto as Appendix “A” (the “SA”). The Panel received written and oral submissions from MFDA counsel that the Panel should accept the SA, and an oral statement from Respondent’s counsel that he concurred in the MFDA submissions.
- The relevant facts are set out in section III, paragraphs 7 to 23 of the SA.
- In the SA, the Respondent admits to the following contraventions:
- On April 24, 2014, the Respondent altered and used to process a transaction, 1 account form in respect of 1 client by altering information on the account form without having the client initial the alterations, contrary to MFDA Rule 2.1.1; and
- between January 21, 2013 and May 29, 2018, the Respondent obtained, possessed, and in some instances used to process transactions, 30 pre-signed account forms in respect of 18 clients, contrary to MFDA Rule 2.1.1.
IV. PROPOSED PENALTY
- In the SA, the following sanctions were agreed to:
- a fine in the amount of $12,000 upon acceptance by the Hearing Panel of the SA; and
- costs in the amount of $2,500 upon acceptance by the Hearing Panel of the SA.
MFDA Rule 2.1.1 – Standard of Conduct
- The standard of conduct codified by MFDA Rule 2.1.1 requires that Members and Approved Persons deal fairly, honestly, and in good faith with clients, observe high standards of ethics and conduct in the transaction of business and refrain from engaging in any business conduct or practice which is unbecoming or detrimental to the public interest. The Rule is central to the MFDA mandate of enhancing investor protection and strengthening public confidence in the Canadian mutual fund industry.
- When an Approved Person alters information on an account form without having the client initial the form to show that the client is aware of the change and has authorized it, the Approved Person engages in conduct that is contrary to MFDA Rule 2.1.1.
- Perron,  Hearing Panel of the Atlantic Regional Council, MFDA File No. 202041, Panel Decision dated May 20, 2021 at para 15.
- Wong (Re),  Hearing Panel of the Central Regional Council, MFDA File No. 201848, Panel Decision dated July 23, 2018 at para 5.
- The MFDA has previously warned Approved Persons against altering account forms without having the client initial the form to show that they are aware of the change.
- MFDA Notice #MSN-0066 dated October 31, 2007 (updated March 4, 2013 and January 26, 2017).
- MFDA Bulletin #0661-E dated October 2, 2015.
- The creation or use of altered forms is considered serious misconduct. The negative consequences which can result from the use of pre-signed forms, described below, also apply to altered account forms.
- In this case, the Respondent admits that he altered and used to process a transaction 1 account form in respect of 1 client by altering information on the account form without having the client initial the alterations, contrary to MFDA Rule 2.1.1.
- “Pre-signed forms” is a generic term that applies to account forms that were incomplete at the time they were signed by the client. Members and Approved Persons may only obtain, use and rely on forms that are executed by the client after all the information on the form has been properly completed.
- MFDA hearing panels have consistently held that obtaining or using pre-signed forms is a contravention of the standard of conduct under MFDA Rule 2.1.1.
- Lewis (Re),  Hearing Panel of the Prairie Regional Council, MFDA File No. 2017121, Panel Decision dated March 26, 2018 at paras 5(c), 24-25.
- Perron, supra, at paras 10, 26.
- The MFDA has previously warned Approved Persons against the use of pre-signed forms. The use of pre-signed forms is considered serious misconduct.
- MFDA Staff Notice #MSN-0066 dated October 31, 2007 (updated March 4, 2013 and January 26, 2017) and MFDA Bulletin #0661-E dated October 2, 2015.
- Among other things, the use of pre-signed forms 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 the hearing panel explained in Price (Re):
- Pre-signed forms present a legitimate risk that they may be used by an Approved Person to engage in discretionary trading….At its worst, pre-signed forms create a mechanism for an Approved Person to engage in acts of fraud, theft or other forms of harmful conduct towards a client… Pre-signed forms also subvert the ability of a Member to properly supervise trading activity. They destroy the audit trail. The presence of the client’s signature on a trade form can no longer be taken as confirmation that the client authorized a particular trade. It also compromises the ability of the Member to subsequently investigate and respond to a client complaint concerning the propriety of trading activity in his or her account.
- Price (Re)  Hearing Panel of the Central Regional Council, MFDA File No. 200814, (Misconduct) dated April 18, 2011 at paras.122-124.
- The prohibition on the use of pre-signed account forms applies regardless of whether:
- the client was aware, or authorized the use, of the pre-signed account forms; and/or
- the forms were used by the Approved Person for discretionary trading or other improper purposes.
- In the present case, the Respondent admits that he obtained and possessed 30 pre-signed account forms in respect of 18 clients, contrary to MFDA Rule No. 2.1.1.
Acceptance of Settlement Agreement
- Under Section 24.4.3 of MFDA By-law No. 1, a hearing panel has only two options regarding a settlement agreement; it may either accept the settlement agreement or reject it.
- The role of a hearing panel at a settlement hearing is fundamentally different than its role at a contested hearing. As was stated by the MFDA hearing panel in Sterling Mutuals Inc. (Re), quoting 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.
- Sterling Mutuals Inc. (Re),  Hearing Panel of the Central Regional Council, MFDA File No. 200820, Panel Decision dated September 3, 2008 at para. 37.
- Milewski (Re),  I.D.A.C.D. No. 17, Ontario District Council Decision dated July 28, 1999, at p. 10.
- Settlements play an important and necessary role in facilitating the MFDA’s principal goal of protecting the investing public. Settlements provide an efficient and effective way for the MFDA to proscribe conduct that is harmful to the public, while providing a flexible remedy that can be tailored to address the interests of the MFDA and respondents. This principle has been stated in a number of cases, e.g. British Columbia Securities Commission v. Seifert, 2007 BCCA 484 at para. 3l (C.A).
Acceptance of Settlement Agreements, General Considerations
- Accordingly, it is generally accepted that hearing panels will not lightly interfere in a settlement agreement reached between the MFDA and a respondent unless the proposed penalty clearly falls outside the reasonable range of appropriateness for the MFDA to fulfill its regulatory objective of protecting the public.
- Jacobson (Re),  Hearing Panel of the Prairie Regional Council, MFDA File No. 200712, Panel Decision dated July 13, 2007, at para. 68
- When determining whether it would be appropriate to accept a proposed settlement, MFDA hearing panels have taken into account the following considerations:
- whether acceptance of the settlement agreement would be in the public interest and whether the penalty imposed will protect investors;
- whether the settlement agreement is reasonable and proportionate, having regard to the conduct of the respondent as set out in the settlement agreement;
- whether the settlement agreement addresses the issues of both specific and general deterrence;
- whether the proposed settlement will prevent the type of conduct described in the settlement agreement from occurring again in the future;
- whether the settlement agreement will foster confidence in the integrity of the Canadian capital markets;
- whether the settlement agreement will foster confidence in the integrity of the MFDA; and
- whether the settlement agreement will foster confidence in the regulatory process itself.
- Jacobson (Re), supra at para.70.
Appropriateness of Sanction, Specific Factors
- Hearing panels have taken into account the following factors when evaluating whether the penalties proposed should be accepted:
- the seriousness of the allegations proven 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 who are permitted to participate in the capital markets of the consequences of inappropriate activities; and
- previous decisions made in similar circumstances.
- Headley (Re),  Hearing Panel of the Pacific Regional Council, MFDA File No. 200509, Panel Decision dated February 21, 2006 at para.85.
- The hearing panel may also refer to the MFDA’s new Sanction Guidelines, which came into effect on November 15, 2018. The Guidelines are not mandatory or binding on the hearing panel, but provide a summary of the key factors upon which discretion can be exercised consistently and fairly. Many of the same factors that are listed above, which have been considered in previous decisions of MFDA hearing panels, are also reflected and described in the Guidelines.
Application to this Case
- This Panel took into account the factors and principles stated above in determining whether to consent to the SA. Set out below are the factors that are particularly pertinent to this case.
(a) Nature of the Misconduct
- Obtaining pre-signed forms and altering forms without obtaining client initials are serious breaches of MFDA Rule 2.1.1. The Respondent obtained and used a total of 31pre-signed or altered forms, a significant number. The conduct is further aggravated because a portion of the forms were obtained after the MFDA issued MFDA Bulletin #0661 on October 2, 2015.
(b) The Recognition of the Misconduct
- The Respondent has acknowledged that his misconduct is a serious breach of MFDA Rules. By entering into the SA, the Respondent has accepted responsibility for his actions and avoided the time and expense of a full disciplinary hearing.
(c) Client Harm
- There is no evidence of client loss, client complaints or lack of authorization.
(d) Benefits Received by the Respondent
- There is no evidence that the Respondent received any financial benefit from engaging in the misconduct at issue in this proceeding, beyond any commissions and fees that he would ordinarily be entitled to receive had the transactions been carried out in the proper manner.
(e) The Respondent’s Past Conduct including Prior Sanctions
- The Respondent has not previously been the subject of MFDA disciplinary proceedings.
- Deterrence is intended to capture both specific deterrence of the wrongdoer as well as general deterrence of other participants in the capital markets in order to protect investors. As stated by the Supreme Court of Canada in Cartaway Resources Corp. (Re), 2004 SCC 26 at para. 61:
- The Oxford English Dictionary (2nd ed. 1989), vol. XII, defines “preventive” as “[t]hat anticipates in order to ward against; precautionary; that keeps from coming or taking place; that acts as a hindrance or obstacle”. A penalty that is meant to deter generally is a penalty that is designed to keep an occurrence from happening; It discourages similar wrongdoing in others. In a word, a general deterrent is preventative. It is therefore reasonable to consider general deterrence as a factor, albeit not the only one, in imposing a sanction under s.162. The respective importance of general deterrence as a factor will vary according to the breach of the Act and the circumstances of the person charged with breaching the Act.
- The Panel accepts the statement of the MFDA in its written submissions to the Panel, that it is satisfied that the sanctions agreed to by the Respondent will be a sufficient deterrent to Respondent engaging in similar activity in the future, and a general deterrence to other industry members by emphasizing that altering account forms without client initials and obtaining pre-signed forms will not be tolerated in the mutual fund industry.
- This Panel wishes to emphasize the importance of general deterrence. Industry participants must refrain from the conduct engaged in by the Respondent in this case.
(g) Previous Decisions
- MFDA counsel reviewed with the Panel several cases which were similar to this case, viz.:
- Beausoliel (Re),  MFDA Hearing Panel of the Central Regional Council, MFDA File No. 201913, Panel decision dated June 10, 2019;
- Warr (Re),  MFDA Hearing Panel of the Atlantic Regional Council, MFDA File No. 202037, Panel decision dated September 25, 2020;
- Baksh (Re),  MFDA Hearing Panel of the Central Regional Council, MFDA File No. 201939, Panel decision dated September 20, 2019;
- Morra (Re),  MFDA Hearing Panel of the Central Regional Council, MFDA File No. 202048, Panel decision dated March 19, 2021;
- Tse (Re),  Hearing Panel of the Central Regional Council, MFDA File No. 202112, Panel decision dated June 21, 2021; and
- Nash (Re),  Hearing Panel of the Atlantic Regional Council, MFDA File No. 2018113, Panel decision dated February 7, 2019.
- The Panel agrees that the proposed resolution is within the reasonable range of appropriateness with regard to these other decisions made by MFDA hearing panels in similar circumstances.
- For the reasons set out above, the Panel has concluded that acceptance of the SA would advance the public interest. The Respondent has admitted to his misconduct, and the penalties proposed are reasonable and proportionate having regard to the nature and extent of the Respondent’s misconduct and all of the circumstances and are in keeping with the MFDA’s mandate to enhance investor protection and strengthen public confidence in the Canadian mutual fund industry by ensuring high standards of conduct. Accordingly, the Panel accepted the SA.
Frederick H. WebberFrederick H. WebberChair
Melody PotterMelody PotterIndustry Representative