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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: Ronald Richard Armstrong

Heard: November 8, 2021 by electronic hearing in Vancouver, British Columbia
Reasons For Decision: November 30, 2021

Reasons For Decision

Hearing Panel of the Pacific Regional Council:

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

Appearances:

Brendan Forbes, Enforcement Counsel for the Mutual Fund Dealers Association of Canada
Ronald Richard Armstrong, Respondent

  1. At the conclusion of an oral hearing, the Hearing Panel approved a settlement agreement dated October 1, 2021 (the “Settlement Agreement”) pursuant to which Ronald Richard Armstrong (the “Respondent”), a registered dealing representative, was fined $12,000 and ordered to pay costs of $2,500 as a consequence of photocopying signature pages from account forms that had previously been signed by clients and re-using the signature pages to complete 5 new account forms in respect of 4 clients; and altering information on the account form of 1 client without having the client initial the alteration and using the altered form to process a transaction. The foregoing practices contravene MFDA Rule 2.1.1. The Settlement Agreement is annexed as Schedule “1”.
  2. The Respondent has been registered in the securities industry since March 2002. He has been registered as a dealing representative with PFSL Investments Canada Ltd. in British Columbia since 2003, and in Alberta since 2007. He conducted business in the Kamloops, B.C. area. The Respondent admits that between March 2017 and January 2019, he improperly photocopied and used the photocopies to process transactions. He admits that on June 15, 2018, he altered the client signature date on a Subsequent Contribution Form without having the client initial the change and used the altered form to process a transaction. The Respondent did not profit from the improper transactions beyond the commissions he would have derived had the transactions been properly carried out.
  3. Following detection of the improper practices, the Member firm issued a warning letter to the Respondent requiring him to review the Member’s policies and procedures and compliance bulletins, including those related to signature falsification and pre-signed forms.
  4. The improper use of altered, pre-signed, and photocopied forms is an ongoing problem for the MFDA which has regularly warned the industry against the use of such forms. Hearing panels have supported the MFDA by imposing sanctions for such improper use in contravention of MFDA Rules.
    1. See MFDA Notice #MSN-0066 dated October 31, 2007 (updated March 4, 3013 and January 26, 2017)
  5. As in every case of this kind, the sole question to be answered by the Panel is whether the penalty fixed by the Settlement Agreement falls with a reasonable range. The Panel is not at liberty to alter the penalty. In its assessment, the Panel must have regard for the factors which Hearing Panels frequently consider when determining an appropriate penalty:
    1. the seriousness of the allegations proved against the Respondent;
    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 investors as a result of the Respondent’s activities;
    6. the benefits received by the Respondent as a result of the improper activity;
    7. the risk to investors and the capital markets in the jurisdiction, were the Respondent to continue to operate in capital markets in the jurisdiction;
    8. the damage caused to the integrity of the capital markets in the jurisdiction by the Respondent’s improper activities;
    9. 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;
    10. the need to alert others to the consequences of inappropriate activities to those who are permitted to participate in the capital markets; and
    11. previous decisions made in similar circumstances.
    1. See Headley (Re), [2006] Hearing Panel of the Pacific Regional Council, MFDA File No. 200509, Reasons for Decision dated February 21, 2006, at para. 85.
  6. In this instance, the Panel’s primary concern is deterrence, both specific and general. The Panel is mindful of the fact that core tenets in the mutual fund industry are the prohibition against the use of photocopies of signatures, or the alteration of any particulars in documents without the alteration having been initialled by the client. The purpose of the prohibitions is to protect investors by ensuring that they have approved a transaction or the contents of a form, to prevent the possibility of discretionary trading which is prohibited, and to inspire public confidence in the industry. The tenets are breached whenever an altered or photocopied form that does not bear the client’s approval, evidenced by initials or a signature, is used to process a transaction.
  7. In its Sanction Guidelines issued November 15, 2018, the MFDA said this of fines:
    1. A fine is a monetary sanction imposed on a Member or an Approved Person found to be in contravention of MFDA By-laws, Rules and Policies. Fines are frequently imposed in disciplinary proceedings, but are not required in all cases. Generally, the amount of a fine should, at a minimum, have the effect of disgorging the amount of the financial benefit received by the Respondent as a result of the misconduct.
    2. The amount of a fine should be commensurate with the seriousness of the misconduct. In the most egregious cases, Hearing Panels may consider the maximum fines permitted under s. 24 of MFDA By-law No. 1. A fine should not be tantamount to a licensing fee to engage in the misconduct.
  8. Without knowledge of the size and profitability of the Respondent’s business, it is not possible to know whether the amount of the fine in this case is tantamount to a licensing fee prompting one to engage in impugned conduct as a matter of convenience. While the Panel is prepared to accept that the fine imposed in this instance and agreed to by the Respondent is within a reasonable range, it wishes to state its opinion that the penalty is at the very low end of the appropriate range for this kind of misconduct.
  9. The Settlement Agreement is approved.
  • The Honourable Ian H. Pitfield
    The Honourable Ian H. Pitfield
    Chair
  • Susan Monk
    Susan Monk
    Industry Representative

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