Reasons For Decision

I. BACKGROUND

1. On December 2, 2022, at a settlement hearing under Section 24.4 of By-law No. 1 of the Mutual Fund Dealers Association of Canada (the “MFDA”) a Settlement Agreement between the MFDA and Mr. Majid Hassanshahi (the “Respondent”) dated September 12, 2022, was approved.
2. The Settlement Agreement is attached as Schedule “1” to these Reasons.
3. The Respondent appeared at the hearing electronically and was represented by counsel.
4. Following submissions from counsel for both parties, the Hearing Panel accepted the Settlement Agreement with these reasons to follow.
5. Attached at Schedule “2” is the Order of the Hearing Panel.

II. FACTS

6. The Respondent has been registered in the securities industry since 2011 and registered in British Columbia as a dealing representative with CIBC Securities Inc. (the “Member”), since 2014. At all material times, the Respondent carried on business in both Squamish and Whistler.
7. On January 31, 2020, the Respondent met with client XX (the “Client”) who authorized the Respondent to:
   1. open a Tax-Free Savings Account (“TFSA”) with the Member in the Client’s name;
   2. transfer the Client’s assets from another financial institution to the Member; and
   3. place those assets into a money market mutual fund within the newly created TFSA.
8. The Client was a client of the Member whose account was serviced by the Respondent. The Member’s policies and procedures required the Respondent to obtain a client’s explicit and prior approval for every transaction processed in a client’s account.
9. On February 14, 2020, the Client’s assets were transferred to the Member, placed into the Client’s TFSA and invested into a money market mutual fund as directed.
10. On February 18, 2020, without receiving instructions from the Client, the Respondent removed the Client’s assets from the money market mutual fund and distributed them into four Member mutual funds (the “Switches”). That same day, the Respondent created a note in the Member’s back-office system falsely indicating that he had received telephone instructions from the Client before processing the Switches.
11. On April 27, 2020, the Client complained to the Member that the Switches had been processed without authorization. The Member has since compensated the Client for a $960 decrease in portfolio value.
12. The Respondent admitted that on February 18, 2020, acting in his capacity as a dealing representative with the Member, he contravened MFDA Rules 2.1.1 and 1.1.2 as follows:
    1. he processed switches in the account of a client without obtaining the client’s authorization, contrary to the policies and procedures of the Member and MFDA Rules 2.1.1 and 1.1.2 (as it relates to MFDA Rule 2.5.1); and
    2. he created false notes purporting to record trade instructions from the client which had not in fact been received contrary to MFDA Rule 2.1.1.
13. There was no evidence before the Panel as to whether or not the Respondent received any financial benefit as a result of his misconduct.
14. The Respondent has not previously been the subject of MFDA disciplinary proceedings.

III. ISSUE

15. The only issue to be determined by a Hearing Panel at a settlement hearing is whether to accept or reject a settlement agreement.
    1. Section 24.4.3, MFDA By-law No. 1

IV. LAW

Role of Hearing Panel at Settlement Hearing

16. In determining whether a proposed penalty falls within a reasonable range, a hearing panel should consider the seriousness of the misconduct, aggravating and mitigating factors and the sentencing principles of general and specific deterrence.
    1. Badasha (Re), [2015] MFDA File No. 201424, Panel Decision dated June 9, 2015, at para. 44 (citing Breckenridge (Re))
    2. Arena (Re) [2020] MFDA File No. 202047, Panel Decision dated December 7, 2020, at paras. 32-33

MFDA By-law No. 1

17. Section 1 of the MFDA By-Law No. 1 (amended and consolidated to May 7, 2020) (the “By-Law”) provides the following relevant definitions:

…

“Approved Person” means an individual who is a partner, director, officer, compliance officer, branch manager, or alternate branch manager, employee or agent of the Member who (i) is registered or permitted, where required by applicable securities legislation, by the securities commission having jurisdiction, or (ii) submits to the jurisdiction of the Corporation.

…

“Corporation” means Mutual Fund Dealers Association of Canada \ Association canadienne des courtiers de fonds mutuels, a corporation incorporated pursuant to the Act, and any reference in the By-laws, Rules and Policies to an act being or to be performed by the Corporation shall be deemed to be a reference to the Corporation acting through any duly authorized director, officer, employee or agent of the Corporation;

…

“Member” means a member of the Corporation.

18. Section 24.1.1(b)(i) of the By-Law empowers a Hearing panel to impose, among other things, a fine of up to $5,000,000 for each offence.
19. Section 24.2 of the By-Law gives a Hearing Panel the discretion to require a Member or Approved Person to pay costs:

MFDA Rules

20. The MFDA Rules (as amended July 7, 2022) (the “Rules”) include the following relevant sections:

1.1.2 Compliance by Members and Approved Persons

…

2. Each Approved Person who conducts or participates in any securities related business in respect of a Member in accordance with Rule 1.1.1(c)(i) or (ii) shall comply with:
   1. the Bylaws,
   2. the Rules, and
   3. applicable securities legislation relating to:
      1. the operations, standards of practice and business conduct of each Member; and
      2. such Approved Person’s operations, standards of practice and business conduct.

…

2.1.1 Standard of Conduct.

Each Member and each Approved Person of a Member shall:

1. deal fairly, honestly and in good faith with its clients;
2. observe high standards of ethics and conduct in the transaction of business;
3. not engage in any business conduct or practice which is unbecoming or detrimental to the public interest; and
4. be of such character and business repute and have such experience and training as is consistent with the standards described in this Rule 2.1.1, or as may be prescribed by the Corporation.

…

2.5.1 Member Responsibilities

Each Member is responsible for establishing, implementing and maintaining policies and procedures to ensure the handling of its business is in accordance with the By-laws, Rules and Policies and with applicable securities legislation.

Switches

21. Processing a Switch on behalf of a client without first obtaining their authorization is contrary to Rule 2.1.1, which requires Approved Persons to deal fairly, honestly and in good faith with clients; and Rules 1.1.2 and Rule 2.5.1 which require Approved Persons and Members to comply with the By-Law and Rules.

Martell (Re), [2018] Hearing Panel of the Pacific Regional Council, MFDA File No. 201782, Panel Decision dated October 29, 2018

Carney (Re), [2017] Hearing Panel of the Central Regional Counsel, MFDA File No. 201646, Panel Decision dated May 9, 2017, at para 12

Chiu (Re), [2017] Hearing Panel of the Central Regional Council, MFDA File No. 201757, Panel Decision dated October 20, 2017

Halloran (Re), [2019] Hearing Panel of the Central Regional Council, MFDA File No. 201905, Panel Decision dated May 30, 2019

Arena (Re) [2020] MFDA File No. 202047, Panel Decision dated December 7, 2020

False Records

22. Creating a false record indicating that a client had authorized a switch when no such authorization had been provided corrupts the audit trail and casts doubt on the reliability of the Member’s records and the credibility of Approved Persons generally.
    1. White (Re), [2019] Hearing Panel of the Atlantic Regional Council, MFDA File No. 2018120, Panel Decision dated July 5, 2019, at paras. 11-12
23. The conduct of creating a false record prejudices a client by making it appear as if he or she authorized a transaction when they did not. Creating a false record also misleads the Member’s supervisory capability and negatively affects the complaint process. Creating a false record is contrary to Rule 2.1.1.
    1. Davies (Re), [2020] Hearing Panel of the Central Regional Council, MFDA File No. 201968, Panel Decision dated June 16, 2020

V. ANALYSIS

Jurisdiction

24. Pursuant to sections 17 and 18 of the By-Law, the board of directors for the Corporation have designated British Columbia and the Yukon as a part of the Pacific Region and have established the Pacific Regional Council.
25. Section 1 of the By-Law defines “Regional Council” to include a Hearing Panel.
26. Section 24 of the By-Law gives a Hearing Panel of an applicable Regional Council the jurisdiction to impose a fine on an Approved Person (as defined by section 1 of the By-Law) and require an Approved Person to pay the whole or part of the costs of proceedings for a Hearing Panel.

Date

27. Section 6 of British Columbia’s Limitation Act, S.B.C. 2012, c. 13, explains that the basic limitation period for commencing a claim is two years. Section 1 of the Act defines
    “limitation period” and limits the Act to court proceedings.
28. The Switches and creation of the false note in this matter both took place on February 18, 2020. The Client complained to the Member on April 27, 2020. It is not known when the MFDA became involved, however both the Notice of Settlement Hearing and the Settlement Agreement are dated September 12, 2022.
    1. Hassanshahi (Re), [2022] Notice of Settlement Hearing, MFDA File No. 202243
29. In a traditional setting, the above timeline might have raised a limitation concern, however MFDAdisciplinary proceedings are not Court proceedings, they are intended to address regulatory contraventions referenced in the By-law and Rules and accordingly the Limitations Act does not apply.
    1. Brown (Re), [2010] Hearing Panel of the Central Regional Council, MFDA File No. 200808, Panel Decision dated December 8, 2010 at para. 35
30. We also note that every mandatory limitation period in an enactment or law of British Columbia within which a civil or family action, proceeding, claim, or appeal must be commenced was suspended for a one-year period from March 26, 2020 to March 25, 2021, due to Covid-19. As such, even if the Limitations Act did apply, the Notice of Settlement Hearing in this matter would not have run afoul of any limitation period.
    1. Covid-19 Related Measures Act – Limitation Periods, amended December 21, 2020

Approved Person

31. As mentioned above, Hearing Panels are empowered to impose penalties on Approved Persons.
32. Section 1 of the By-law defines an “Approved Person” as an individual who is a partner, director, officer, compliance officer, branch manager, or alternate branch manager, employee or agent of the Member who (i) is registered or permitted, where required by applicable securities legislation, by the securities commission having jurisdiction, or (ii) submits to the jurisdiction of the Corporation.
33. While not specifically addressed by the Settlement Agreement, we are satisfied that the Respondent is an Approved Person as defined by section 1 of the By-Law. He has been registered in the securities industry since October 2011 and has been a dealing representative with the Member since March 2014.
34. At all relevant times the Respondent was an employee or agent of the Member, has submitted to the jurisdiction of the Corporation, and is an Approved Person.

Similar Sanctions

35. The Hearing Panel reviewed cases demonstrating a range of sanctions for similar contraventions. The proposed fine and costs in this matter are within the range for this type of misconduct. In Arruda (Re), there was a $12,000 fine, in Wallace (Re), a $10,500 fine.
    1. Arruda (Re), [2021] Hearing Panel of the Pacific Regional Council, MFDA File No. 202110, Hearing Panel Decision dated August 24, 2021
    2. Wallace (Re), [2016] Hearing Panel of the Atlantic Regional Council, MFDA File No. 201683, Hearing Panel Decision dated January 13, 2017
36. Other relevant factors in assessing the reasonableness of the penalty are the Respondent accepted responsibility for his misconduct, has no prior disciplinary record and by entering into the Settlement Agreement he has saved the MFDA the time, resources and expenses associated with a full disciplinary hearing.

VI. CONCLUSION

37. By processing the Switch without first obtaining the Client’s authorization, the Respondent did not act fairly, honestly or in good faith. This was a serious contravention of Rule 2.1.1 and was also contrary to the policies and procedures of the Member.
38. Creating a false note to try to cover up the unauthorized Switch was an even more serious contravention of Rule 2.1.1.
39. The $10,000 fine proposed in the Settlement Agreement is an appropriate reflection of the seriousness of this case and area of misconduct. The proposed costs of $5,000 are in line with Hearing Panel decisions referenced above.
40. Having regard to the relevant considerations including general and specific deterrence and protection of the integrity of the capital markets, the settlement is within a reasonable range and is accepted.