Reasons For Decision

Background

1. By Notice of Settlement Hearing, dated December 1, 2021, a Hearing Panel of the Central Regional Counsel of the Mutual Fund Dealers Association of Canada (the “MFDA”) was convened to consider whether, pursuant to s. 24.4 of By-law No. 1 of the MFDA, the Panel should accept a settlement agreement dated the 23rd day of November, 2021, (“Settlement Agreement”) entered into by the Staff of the MFDA (“Staff”) and the Respondent.
2. At the outset of the proceeding, the Panel considered a joint motion by Staff and the Respondent to move the proceedings “in camera”. The Panel granted the motion.  The Panel then considered the provisions of the Settlement Agreement, aided by submissions as to the applicable law, which should guide the Panel in determining whether or not to accept or reject the Settlement Agreement. The Panel unanimously accepted the Settlement Agreement and issued an Order accordingly.  These are the Panel’s reasons for doing so.  The Panel also made an Order at the end of the hearing, declaring the hearing open to the public.

The Contraventions

3. In the Settlement Agreement, the Respondent admits that:
   1. between January 8, 2014 and May 8, 2019, the Respondent altered, and used to process transactions, 39 account forms in respect of 25 clients by altering information on the account forms without having the client initial the alterations, contrary to MFDA Rule 2.1.1; and
   2. between January 12, 2015 and September 18, 2017, the Respondent obtained, possessed, and in some instances, used to process transactions, 8 pre-signed account forms in respect of 5 clients, contrary to MFDA Rule 2.1.1.

The Facts

4. In the Settlement Agreement, Staff and the Respondent agreed to a series of facts, which are set out in Part III of the said Settlement The Settlement Agreement is attached as Appendix “A” to these Reasons.
5. Commencing in 1997, the Respondent had been registered in the securities industry in Ontario. Since September 1, 2006, in Ontario and New Brunswick, and since April 10, 2014 in British Columbia, the Respondent had been registered as a dealing representative with FundEX Investments Inc. (the “Member”), a member of the MFDA. At all material times, the Respondent conducted business in the Oshawa, Ontario area.

Discussion

6. The Panel was aware that prior to accepting a Settlement Agreement, a Hearing Panel must be satisfied that:
   1. The facts admitted by the Respondent constitute misconduct in contravention of the By-laws, MFDA Rules or policies, or provincial securities legislation; and
   2. The penalties contemplated in the Settlement Agreement fall within a reasonable range of appropriateness, bearing in mind the nature and extent of the misconduct and all the circumstances.
7. The Panel accepted that the role of a Hearing Panel at a settlement hearing is fundamentally different than its role at a contested hearing.  As stated by the MFDA Hearing Panel in Sterling Mutuals (Re), citing the I.D.A. Ontario District Council in Milewski (Re):
   1. 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.” [Emphasis added].
      1. Sterling Mutual Inc. (Re), MFDA File No. 200820, Hearing Panel of the Central Regional Council, Decision and Reasons dated August 21, 2008 at para. 37.
      2. Milewski (Re), [1999] I.D.A.C.D. No. 17 at p. 12, Ontario District Council Decision dated July 28, 1999.
8. MFDA Hearing Panels have consistently held that both categories of improper account forms, their creation and their use, constitute a contravention of the standard of conduct under MFDA Rule 2.1.1.
   1. Price (Re), 2011 CanLII 72458 at paras. 115-138 (MFDA), SBA, Tab 6; Symes (Re), 2017 LNCMFDA 104 at paras. 15-16.
   2. Owen (Re), 2017 LNCMFDA 287 at paras. 31-34;
   3. Lewis (Re), 2018 LNCMFDA 59 at para. 29.
9. “Pre-Signed Forms” is a generic term that applies to account forms that were incomplete at the time they were signed. Members and Approved Persons are only permitted to obtain, use and rely upon forms that are executed by the client after all information on the form has been properly completed.
10. MFDA Hearing Panels have consistently held that obtaining or using pre-signed forms is a contravention of the standard of conduct prescribed under MFDA Rule 2.1.1.
    1. Mandic (Re), [2000] Hearing Panel of the Central Regional Council, MFDA Hearing No. 20031, Panel Decision dated August 19, 2000 at para. 16
    2. Dick (Re), [2018] Hearing Penal of the Central Regional Council, MFDA Hearing No. 201818, Panel Decision dated July 20, 2018 at para 5.
11. The MFDA has previously warned Approved Persons against the use of pre-signed forms. 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 tracking, fraud and misappropriation.
    1. MFDA Notice #MSN-0066 dated October 31, 2007 (updated March 4, 2013 and January 26, 2017), Staff’s Book of Authorities
    2. MFDA Bulletin #0661-E dated October 2, 2015, Staff’s Book of Authorities
12. The prohibition on the issue of pre-signed and altered account forms and their use, apply regardless of whether the client was aware, or authorized the use, of the pre-signed forms.
    1. Price (Re), supra at paras. 122-124, SBA, Tab 6; Symes (Re), supra at para. 18.
    2. Owen (Re), supra at para. 32, SBA, Tab 8; Lewis (Re), supra at para. 30.
13. The Panel considered in detail the agreed facts set out in the Settlement Agreement, and having done so, concluded that both allegations admitted by the Respondent had been proven and constitute misconduct in contravention of the MFDA By-laws, Rules or policies, or provincial securities legislation.

Penalty

14. The Panel then proceeded to consider the appropriateness of the proposed penalty as set out in the Settlement Agreement.  In doing so, the Panel considered the submissions of Staff, the submissions of the Respondent, the MFDA Sanction Guidelines and the substantial case law to which it was referred.
15. The Panel was mindful that the primary goal of securities regulation is the protection of the investor. The Panel was further mindful that in addition to protection of the public, the goals of securities regulation also include fostering public confidence in the capital markets and the securities industry.
    1. Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557.
    2. Breckenridge (Re), MFDA File No. 200718, Hearing Panel of the Central Regional Council, Decision and Reasons dated November 14, 2007 at para. 71.
16. Factors which Hearing Panels frequently consider when determining whether a penalty is appropriate, include the following:
    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 activity;
    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 activity in the capital markets; and
    11. Previous decisions made in similar circumstances.
    1. Headley (Re), [2006] Hearing Panel of the Pacific Regional Council, MFDA File No. 200509, Reasons for Decision dated February 21, 2006, at para. 85.
17. The Panel also referred to the MFDA’s Sanction Guidelines which came into effect on November 15, 2018. The Guidelines are not mandatory or binding on the Hearing Panels, but provide a summary of the key factors upon which discretion can be exercised consistently and fairly.  The Guidelines recommend consideration of many of the same factors that have been applied in previous cases and are listed and applied above.
    1. MFDA Sanction Guidelines.
18. The Panel agreed with Staff’s submissions that emphasis should be placed upon the following factors:
    1. The use of pre-signed forms and altered forms are serious breaches of the MFDA Rule 2.1.1. The conduct is further aggravated by the fact that some of the account forms were obtained after the MFDA issued bulletins warning about the use of pre-signed and altered forms.
    2. The Respondent has acknowledged that his conduct constitutes a serious contravention of the MFDA rules. By entering into the Settlement Agreement, the Respondent has accepted responsibility for his misconduct and has saved the MFDA the time, resources and expenses associated with a full discipline hearing.
    3. The Respondent has not previously been the subject of an MFDA discipline proceeding.
    4. There is no evidence of client loss, complaint or lack of authorization resulting from the Respondent’s conduct described in the Settlement Agreement.
    5. There is no evidence that the Respondent received any financial benefits from his misconduct beyond any commissions and fees that he would ordinarily be entitled to receive had the transaction been carried out in the proper manner.
    6. The proposed penalties are significant enough to act as both a general and specific deterrent warning that the use of pre-signed and altered forms will not be tolerated within the mutual fund industry.

Result

19. For the above reasons, the Panel concluded that the Settlement Agreement was reasonable and proportionate. Accordingly, the following penalties were imposed upon the Respondent:
    1. The Respondent shall pay a fine in the amount of $12,000 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.1.1(b) of MFDA By-law No. 1;
    2. The Respondent shall pay costs in the amount of $2,500 in certified funds, upon acceptance of the Settlement Agreement, pursuant to section 24.2 of MFDA By-law No.1;
    3. The Respondent shall, in the future, comply with MFDA Rule 2.1.1; and
    4. If at any time a non-party to this proceeding, with the exception of the bodies set out in section 23 of MFDA By-law No. 1, requests production of or access to exhibits in this proceeding that contain personal information as defined by the MFDA Privacy Policy, then the MFDA Corporate Secretary shall not provide copies of or access to the requested exhibits to the non-party without first redacting from them any and all personal information, pursuant to Rules 1.8(2) and (5) of the MFDA Rules of Procedure.