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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: Hui Chuan Lisa Hsu

Heard: September 16, 2022 by electronic hearing in Vancouver, British Columbia
Reasons For Decision: October 24, 2022

Reasons For Decision

Hearing Panel of the Pacific Regional Council:

  • Susan E. Ross, Chair
  • Nova Aitchison, Industry Representative
  • Barbara E. Fraser, Industry Representative

Appearances:

Zaid Sayeed, Enforcement Counsel for the Mutual Fund Dealers Association of Canada

Hui Chuan Lisa Hsu, Respondent

  1. At the conclusion of an electronic hearing, the Hearing Panel accepted a settlement agreement dated July 15, 2022 (the “Settlement Agreement”) between staff of the Mutual Fund Dealers Association of Canada (the “MFDA”) and the Respondent, Hui Chuan Lisa Hsu. Under the Settlement Agreement, the Respondent agreed:
    1. to a five-year prohibition from conducting securities related business in any capacity while employed by or associated with any MFDA member commencing on the date of acceptance of the Settlement Agreement;
    2. to pay a $20,000 fine, in instalments; and
    3. to pay costs of $5,000.
  2. In the Settlement Agreement, the Respondent admitted that between July 2017 and June 2019 she engaged in personal financial dealings with clients by borrowing monies from them. These dealings gave rise to conflicts or potential conflicts of interest. The Respondent failed to disclose the conflicts to the MFDA Member with which she was registered, CIBC Securities Inc. (the “Member”), or otherwise ensure that the conflicts were addressed by the exercise of responsible business judgment influenced only by the best interests of the clients. The Respondent admitted that her conduct was contrary to the Member’s policies and procedures and MFDA Rules 1.1.2, 2.1.1, 2.1.4[1] and 2.5.1.
  3. The Settlement Agreement is attached as Schedule “1” to these Reasons for Decision.
  4. The Respondent was registered as a dealing representative with the Member in Richmond, British Columbia, from October 2016 to May 2020.
  5. Between July 2017 and June 2019, the Respondent borrowed $20,000 and $30,000, respectively, from two clients. She obtained the loan of $20,000 from the first client in July 2017 and gave the client a post-dated cheque for repayment in full in June 2018. When that time neared, the Respondent replaced the first postdated cheque with two new postdated cheques by which she repaid the first client $10,000 in June 2018 and the remaining $10,000 in June 2019.
  6. The Respondent obtained the loan of $30,000 from the second client in June 2019 and gave the client a post-dated cheque for repayment in full in December 2019. The second client was repaid in full when the post-dated cheque was cashed in January 2020.
  7. The Respondent did not disclose her loans from clients to the Member and used the monies she borrowed to pay down a line of credit and other outstanding debts she owed to creditors.
  8. The Member’s policies and procedures prohibited its Approved Persons from borrowing from clients.
  9. The Member terminated the Respondent because of her misconduct. She was not registered in the securities industry in any capacity at the time of the settlement hearing.
  10. 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.
  11. 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
  12. Rule 2.1.4 prescribes the duties of Approved Persons when dealing with conflicts of interest. During the period of the Respondent’s personal financial dealings with the clients in this case, Rule 2.1.4 required the Respondent to be aware of the possibility of conflicts of interest arising between her own interests and the interests of clients. She was required to immediately disclose any such conflict or potential conflict of interest to the Member, and to ensure that the conflict was addressed by the exercise of responsible business judgment influenced only by the best interests of the client.
  13. The MFDA had issued a Staff Notice stating that, “[b]orrowing from a client by either the Member or Approved Person raises a significant and direct conflict that in almost all cases will be impossible to resolve in favour of the client.”
    1. MFDA Notice #MSN-0047 dated October 3, 2005
  14. MFDA Hearing Panels had also repeatedly held that:
    1. borrowing money from a client gives rise to a conflict of interest under Rule 2.1.4;
    2. failing to take proper actions to disclose and address a conflict of interest with a client contravenes the standard of conduct required of all registrants under Rule 2.1.1; and
    3. failing to comply with Member policies and procedures also contravenes the standard of conduct under Rule 2.1.1.
      1. Tonnies (Re), [2005] Hearing Panel of the Prairie Regional Council, MFDA File No. 200503, Hearing Panel Decision dated June 27, 2005, at pp. 14-16, 18-19
      2. Davis (Re), [2016] Hearing Panel of the Prairie Regional Council, NFDA File No. 201615, Hearing Panel Decision dated November 16, 2016, at paras. 16, 25, 39
      3. Huang (Re), [2016] Hearing Panel of the Central Regional Council, MFDA File No. 201538, Hearing Panel Decision dated October 21, 2016, at paras. 12-16
  15. Enforcement Counsel referred us to decisions that demonstrate a range of sanctions imposed by MFDA hearing panels in other cases involving loans from clients.
    1. Tonnies (Re), supra
    2. Moerike (Re), [2010] Hearing Panel of the Prairie Regional Council, MFDA File No. 200912, Hearing Panel Decision dated July 28, 2010
    3. Phillips (Re), [2020] Hearing Panel of the Atlantic Regional Council, MFDA File No. 2018117, Hearing Panel Decision dated March 16, 2020
    4. Boker (Re), [2021] Hearing Panel of the Central Regional Council, MFDA File No. 202179, Hearing Panel Decision dated May 11, 2022
    5. Lipovetsky (Re), [2013] Hearing Panel of the Central Regional Council, MFDA File No. 201252, Hearing Panel Decision dated July 25, 2013
    6. Sukhdeo (Re), [2017] Hearing Panel of the Central Regional Council, MFDA File No. 2016103, Hearing Panel Decision dated October 6, 2017
    7. Smiechowski (Re), [2010] Hearing Panel of the Pacific Regional Council, MFDA File No. 201007, Hearing Panel Decision dated December 31, 2010
  16. In these decisions, the trading sanctions ranged from six-month to permanent prohibitions of authority to conduct securities related business. The fines ranged from $5,000 to $350,000. The monies borrowed from clients ranged from $20,000 to $250,000. The number of clients and transactions ranged from an isolated loan from a single client to repeated transactions with multiple clients. In some cases, the clients were particularly vulnerable.
  17. The respondent in Boker (Re) also breached their supervisory responsibilities as a branch manager. Tonnies (Re) and Lipovetsky (Re) were the result of contested hearings, not settlements, and the respondents also failed to cooperate with the MFDA investigation. These two cases drew the highest fines and permanent prohibitions. We also note that the decisions cited to us refer to further similar decisions, each with its own distinct fact pattern.
  18. In assessing the seriousness of the Respondent’s misconduct, we agree with Enforcement Counsel that the total amount borrowed is not a decisive factor and the number of clients affected, the number of times their monies were put at risk, and whether they were repaid may be more salient factors.
  19. The Respondent borrowed substantial amounts from two clients to pay down debts that she owed to third parties. The result was to put the clients’ monies at risk for the financial benefit of the Respondent. There is no indication the loans were secured by collateral and the Respondent failed to repay the first loan by the date she had originally promised. She also avoided scrutiny of the loan arrangements by failing to disclose the conflicts of interest to the Member.
  20. We must also consider mitigating factors. The Respondent has not previously been the subject of MFDA disciplinary proceedings. She acknowledged that her misconduct was a serious contravention of MFDA Rules, and she saved the MFDA the time, resources, and expenses associated with a contested disciplinary hearing. She repaid the loans in full, though past the originally agreed upon term for the first loan.
  21. The Respondent’s limited means to pay a financial penalty, hence the agreement to pay the proposed fine in instalments, and the absence of client complaints to the Member or the MFDA about her misconduct are also relevant factors.
  22. The Respondent’s conduct was clearly in breach of MFDA Rules and prejudicial to the best interests of the clients. The Hearing Panel concluded that the proposed sanctions were appropriate and within a reasonable range having regard to the relevant considerations including general and specific deterrence, protection of the integrity of the capital markets, and sanctions in other cases.
  23. The Settlement Agreement was therefore accepted.

[1] Rule 2.1.4 was amended on June 30, 2021. The Respondent’s contraventions concern the version of Rule 2.1.4 that was in effect between February 27, 2006, and June 21, 2021.

  • Susan E. Ross
    Susan E. Ross
    Chair
  • Nova Aitchison
    Nova Aitchison
    Industry Representative
  • Barbara E. Fraser
    Barbara E. Fraser
    Industry Representative

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