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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: Sandra Rizovska-Spasik

Heard: September 22, 2022 by electronic hearing in Toronto, Ontario
Reasons For Decision: November 23, 2022

Reasons For Decision

Hearing Panel of the Central Regional Council:

  • Frederick H. Webber, Chair
  • Guenther W. K. Kleberg, Industry Representative
  • Kenneth P. Mann, Industry Representative

Appearances:

Molly McCarthy, Enforcement Counsel for the Mutual Fund Dealers Association of Canada

Sandra Rizovska-Spasik, Respondent

I. SETTLEMENT AGREEMENT

  1. This was a settlement hearing pursuant to a settlement agreement dated August 11, 2022 between the Mutual Fund Dealers Association of Canada (the “MFDA”) and Sandra Rizovska-Spasik (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 the Respondent that she concurred in the MFDA submissions.

II. FACTS

  1. The relevant facts are set out in section III of the SA.

III. CONTRAVENTION

  1. In the SA, the Respondent admitted to the following contravention:
    1. Between August 6, 2020 and November 9, 2020, the Respondent cut and pasted client signatures from copies of account forms previously signed by clients onto four new client forms, and submitted the account forms to the Member for processing, contrary to MFDA Rule 2.1.1.

IV. AGREED SANCTIONS

  1. In the SA, the Respondent agreed to the following sanctions:
    1. a fine in the amount of $13,000 upon acceptance by the Hearing Panel of the SA, to be paid in installments; and
    2. costs in the amount of $2,500 upon acceptance by the Hearing Panel of the SA.

V. MFDA RULE 2.1.1 – STANDARD OF CONDUCT

  1. 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.

VI. CUTTING AND PASTING SIGNATURES

  1. Based upon current case law, a number of which were cited by MFDA counsel and reviewed by the Hearing Panel, industry advisories and Member policies and procedures, the Hearing Panel agrees with MFDA submissions that an Approved Person has engaged in conduct contrary to MFDA Rule 2.1.1 when they cut and paste a client signature from a previously signed account form and apply the signature to a new account form.
  2. The MFDA has previously warned Approved Persons against cutting and pasting:
    1. MFDA Notice #MSN-0066 dated October 31, 2007 (updated March 4, 2013 and January 26, 2017).
    2. MFDA Bulletin #0661-E dated October 2, 2015.
  3. Cutting and pasting is considered serious misconduct, similar to other forms of document falsification described in said Notice and Bulletin and in cases cited to the Hearing Panel by MFDA counsel. Examples of signature falsification include, but are not limited to:
    1. having a client sign a form which is blank or only partially completed (a “Pre-Signed Form”);
    2. having a client sign multiple forms for use in future trading;
    3. signing a client’s name to a document;
    4. cutting and pasting, photocopying or using liquid paper on a document to “re-use” a previous signature;
    5. altering or correcting any information on a signed document, without the client initialing the document to show the change was approved;
    6. reproducing client initials beside changes made to a document where the client forgot to initial;
    7. using liquid paper to white out old instructions and write in new instructions on a signed client form;
    8. receiving client instructions over the phone or by e-mail and signing the client’s signature on an account form to carry out the instructions; and
    9. photocopying a previously-submitted account form and altering the trade details in order to process a new trade.
  4. Such misconduct is considered serious because it 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.
  5. Signature falsification including cutting and pasting is considered misconduct regardless of whether
    1. It is done for client convenience or whether the client was aware or authorized the use of their signature; or
    2. The forms were used by the Approved Person for discretionary trading or other improper purposes.
  6. However, following the principles stated in Lamontagne (Re), [2009] IIROC No. 6 and Bell (Re), [2005] L.D.A.D.C. No. 15, while document falsification is considered serious misconduct, “hearing panels may distinguish between more and less egregious examples…” The Hearing Panel will revisit this principle later in its reasons.

VII. ACCEPTANCE OF SETTLEMENT AGREEMENT

  1. 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.
  2. 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):
    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.
    2. Sterling Mutuals Inc. (Re), [2008] Hearing Panel of the Central Regional Council, MFDA File No. 200820, Panel Decision dated September 3, 2008 at para. 37.
    3. Milewski (Re), [1999] I.D.A.C.D. No. 17, Ontario District Council Decision dated July 28, 1999, at p. 10.

    The principle stated in this paragraph 13 has been followed in a number of cases, such as Re Jacobson, [2007] MFDA File No. 200712, cited to the Hearing Panel.

  3. 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 Seifert, 2007 BCCA 484 at para. 3l (C.A).

VIII. ACCEPTANCE OF SETTLEMENT AGREEMENTS, GENERAL CONSIDERATIONS

  1. When determining whether it would be appropriate to accept a proposed settlement, MFDA hearing panels have taken into account the following considerations:
    1. whether acceptance of the settlement agreement would be in the public interest and whether the penalty imposed will protect investors;
    2. whether the settlement agreement is reasonable and proportionate, having regard to the conduct of the respondent as set out in the settlement agreement;
    3. whether the settlement agreement addresses the issues of both specific and general deterrence;
    4. whether the proposed settlement will prevent the type of conduct described in the settlement agreement from occurring again in the future;
    5. whether the settlement agreement will foster confidence in the integrity of the Canadian capital markets;
    6. whether the settlement agreement will foster confidence in the integrity of the MFDA; and
    7. whether the settlement agreement will foster confidence in the regulatory process itself.
    1. Jacobson (Re), supra at para. 70.

IX. APPROPRIATENESS OF SANCTIONS, RELEVANT FACTORS

  1. Hearing panels have taken into account the following factors when evaluating whether the penalties proposed should be accepted:
    1. the seriousness of the allegations proven 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 who are permitted to participate in the capital markets of the consequences of inappropriate activities; and
    11. previous decisions made in similar circumstances.
    1. Headley (Re), [2006] Hearing Panel of the Pacific Regional Council, MFDA File No. 200509, Panel Decision dated February 21, 2006 at para. 85.
  2. The hearing panel may also refer to the MFDA’s 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.

X. FACTORS IN THIS CASE

  1. 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
  1. As stated in paragraphs 6-10 above, cutting and pasting the signatures of clients from an account form previously signed by the client onto new account forms is considered a serious breach of MFDA Rule 2.1.1.
  2. The conduct is further aggravated because a portion of the forms were obtained after the MFDA issued MFDA Bulletin #0661-E on October 2, 2015.
  3. However, in order to better determine how egregious the Respondent’s conduct actually was, following the cases of Re Lamontagne and Re Bell referred to in paragraph 11 above, this Hearing Panel discussed the Respondent’s conduct with the Respondent and with MFDA counsel at the hearing. The Respondent advised the Panel that she had received the clients consent to cut and paste the signatures. The MFDA submissions stated that “There is no evidence of any lack of authorization…” and this was confirmed by MFDA counsel at the hearing. Therefore the “misconduct” was the Respondent’s failure to get the clients actual signatures on the new account forms, and not the failure to get the clients’ consent to the new account forms.
  4. All of the cases involving cutting and pasting of client signatures, signing for a client, forgery of clients’ signatures, pre-signed forms and the like, are concerned with the concept of “falsification”. It is this Hearing Panel’s view that having the client’s prior consent to such actions by the Respondent, makes that conduct much less egregious than doing so without the client’s consent. Even MFDA Notice # 0066 and MFDA Bulletin # 0661-E acknowledged that an Approved Person need not obtain the client’s signature on all forms such as where the client had previously signed a Limited Trading Authority (“LTA”) form. However, given the current state of the case law, industry instructions, and Member Policies, cutting and pasting is still misconduct, albeit of a less egregious nature when consented to by the client.
  5. While having the client sign a document in person may be the best evidence of its authenticity, there are many ways to get a client’s consent to a document other than signing it themselves in person, as already recognized by the MFDA in its discussion of LTAs, and has provided guidance to the industry and specifically identified the use of electronic signatures as a way to address forms issues in MFDA Bulletin #0825-P, released on June 8, 2020 (https://mfda.ca/policy-and-regulation/bulletins/bulletin-0825-p/) and MSN-0016, updated on June 8, 2020 (https://mfda.ca/policy-and-regulation/notices/msn-0016/). Electronic signature systems such as Docusign have become accepted in recent years in place of signing in person.
(b) The Recognition of the Misconduct
  1. The Respondent has acknowledged that her misconduct is a serious breach of MFDA Rules. By entering into the SA, the Respondent has accepted responsibility for her actions and avoided the time and expense of a full disciplinary hearing.
(c) Client Harm
  1. There is no evidence of client loss, client complaints or lack of authorization.
(d) Benefits Received by the Respondent
  1. 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 she 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
  1. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
(f) Deterrence
  1. 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:
    1. 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.
  2. 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 cutting and pasting client signatures from copies of account forms previously signed by clients onto new client forms without client signatures will not be tolerated in the mutual fund industry.
  3. This Panel wishes to emphasize the importance of general deterrence. Notwithstanding this Panel’s conclusion that the Respondent’s misconduct is of a less egregious nature, industry participants must refrain from the conduct engaged in by the Respondent in this case given the current state of the law.
(g) Previous Decisions
  1. MFDA counsel reviewed with the Panel several cases which were similar to this case, viz.:
    1. Ajin (Re), [2022] decision not yet released, Order dated February 17, 2022;
    2. Castelino (Re), [2020] Hearing Panel of the Central Regional Council, MFDA File No. 202019, Panel decision dated June 30, 2020;
    3. Kwak (Re), [2022] Hearing Panel of the Pacific Regional Council, MFDA File No. 202204, Panel decision dated April 26, 2022;
    4. Armstrong (Re), [2021] Hearing Panel of the Pacific Regional Council, MFDA File No. 202161, Panel decision dated November 30, 2021; and
    5. Yu (Re), [2021] Hearing Panel of the Prairie Regional Council, MFDA File No. 202170, Panel decision dated May 12, 2022.
  2. 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.

XI. CONCLUSION

  1. 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 her 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. Webber
    Frederick H. Webber
    Chair
  • Guenther W. K. Kleberg
    Guenther W. K. Kleberg
    Industry Representative
  • Kenneth P. Mann
    Kenneth P. Mann
    Industry Representative

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