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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: Geng (Marshal) Liu

Heard: Heard: June 16, 2022 by electronic hearing in Vancouver, British Columbia
Reasons For Decision: Decision: June 16, 2022

Reasons For Decision

Hearing Panel of the Pacific Regional Council:

  • Susan E. Ross, Chair
  • Elizabeth Chichka, Industry Representative

Appearances:

Zaid Sayeed, Enforcement Counsel for the Mutual Fund Dealers Association of Canada
Geng (Marshal) Liu, Respondent

  1. At the conclusion of an electronic hearing, the Hearing Panel accepted a settlement agreement dated April 13, 2022 (the “Settlement Agreement”), between staff of the Mutual Fund Dealers Association of Canada (the “MFDA”) and registered dealing representative Geng (Marshal) Liu (the “Respondent”). Under the Settlement Agreement, the Respondent agreed to pay a $20,000 fine and costs of $5,000 in respect of the following admitted contraventions:
    1. Between October 2017 and April 2019, the Respondent obtained and possessed 14 pre-signed account forms in respect of 8 clients, contrary to MFDA Rule 2.1.1; and
    2. Between October 2017 and November 2019, the Respondent altered and used to process 27 account forms in respect of 20 clients by altering information on the account forms without having the client initial the alterations, contrary to MFDA Rule 2.1.1.
  2. The Settlement Agreement is attached as Schedule “1” to these Reasons for Decision.
  3. The Respondent has been registered in the securities industry since 2011 and has been a dealing representative with Queen Financial Group Inc. (the “Member”) in Richmond, British Columbia, since 2017.
  4. An MFDA compliance examination and investigation identified pre-signed and altered accounts forms for some of the Respondent’s clients. The Respondent did not receive any financial benefits beyond ordinary fees and commissions he would have been entitled to if the transactions involved had been carried out in the proper manner. There were no client losses, complaints, or lack of authorization for the transactions. The Respondent has no prior disciplinary record.
  5. The Member issued a disciplinary letter respecting the Respondent’s misconduct, placed him on heightened supervision for six months, and required him to take an industry course. The Respondent cooperated fully with the MFDA investigation, has admitted the contraventions, and expressed remorse for his misconduct in the settlement hearing.
  6. The Hearing Panel’s authority is to either accept or reject the Settlement Agreement. In doing so, we consider whether the proposed penalty falls within a reasonable range of appropriateness having regard to the Respondent’s misconduct and the MFDA’s primary regulatory objective of protecting the investing public.
  7. Key considerations for determining the reasonableness of a settlement are:
    1. the seriousness of the Respondent’s conduct;
    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 for those who are permitted to participate in the capital markets; and
    11. previous decisions made in similar circumstances.
    1. Headley (Re), 2006 LNCMFDA 3, at pages 16-17
  8. It is well-established that obtaining or using pre-signed account forms (forms that were incomplete when they were signed) or altering information on account forms without having the client initial the alterations are contraventions of the standards of conduct in MFDA Rule 2.1.1. These practices adversely affect the integrity and reliability of account documents, lead to destruction of the audit trail, negatively impact member complaint handling, and have the potential to enable unauthorized trading, fraud, and misappropriation. The MFDA has issued warnings against the use pre-signed and altered forms since 2007.
    1. MFDA Notice #MSN-0066 dated October 31, 2007 (updated March 4, 2013, and January 26, 2017) and MFDA Bulletin #0661-E dated October 2, 2015
  9. Enforcement Counsel referred to cases demonstrating a range of typical sanctions for contraventions involving pre-signed or altered forms and that such contraventions are a long-standing and persistent form of misconduct in the industry. Other Hearing Panels have expressed concern about whether the sanctions being imposed have been sufficient to combat this problem. They have also observed that the danger of low fines being tantamount to a licensing fee for registrants to engage in this misconduct as a matter of convenience is an acknowledged consideration in the MFDA Sanction Guidelines.
    1. Gilchrist (Re), [2017] Hearing Panel of the Pacific Regional Council, MFDA File No. 2016100, Hearing Panel Decision dated May 29, 2017, at para. 16
    2. Armstrong (Re), [2021] Hearing Panel of the Pacific Regional Council, MFDA File No. 202161, Hearing Panel Decision dated November 30, 2021, at para. 8
    3. MFDA Sanction Guidelines dated November 5, 2018, at page 6
  10. Enforcement Counsel noted that the proposed fine of $20,000 is at the high end compared to other cases some, though not all, of which involved registrants whose member firms also charged them financial penalties for their misconduct.
  11. Other relevant factors in this case are that the Respondent has accepted responsibility for his misconduct, has no prior disciplinary record, and has saved the MFDA the time, resources and expenses associated with a full disciplinary hearing. There is no evidence of client losses, complaints or lack of authorization, or extra fees or commissions to the Respondent from his misconduct. In addition to the proposed sanctions, a disciplinary letter has been put on his file, he underwent a period of heightened supervision, and took a remedial course.
  12. The Hearing Panel concluded that the proposed sanctions are an appropriate reflection of the trend toward higher fines in this troublesome area of misconduct. Having regard to that and the factors of general and specific deterrence and protection of the integrity of the capital markets, we concluded that the settlement was within a reasonable range.
  13. The Settlement Agreement was therefore accepted.
  • Susan E. Ross
    Susan E. Ross
    Chair
  • Elizabeth Chichka
    Elizabeth Chichka
    Industry Representative

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