Ontario District Hearing Committee:
- Paul M. Moore, K.C., Chair
- Michael-Murray Coulter, Industry Representative
- Brigitte Geisler, Industry Representative
Paul Blasiak, Senior Enforcement Counsel for the
New Self-Regulatory Organization of Canada (Mutual Fund Division)
Rowan LaCasse, Counsel for Respondent
Nazim Mohammed, Respondent.
- Effective January 1, 2023, the Mutual Fund Dealers Association of Canada (“MFDA”) and the Investment Industry Regulatory Organization of Canada consolidated to form the New Self-Regulatory Organization of Canada (“New SRO”).
- On October 19, 2022, the MFDA issued a Notice of Settlement Hearing commencing a disciplinary proceeding in respect of Nazim Mohammed (the “Respondent”).
- Pursuant to Rule 1A(5) of the Mutual Fund Dealer Rules of the New SRO, any enforcement proceeding commenced by the MFDA prior to January 1, 2023, shall proceed in accordance with the by-laws, decisions, directions, policies, regulations, rules, rulings and practice and procedure of the MFDA in effect and applicable to such a proceeding at the time it was commenced.
II. SETTLEMENT AGREEMENT
- We accepted the settlement agreement dated October 7, 2022 (“Settlement Agreement”) between the staff of the New SRO (“Staff”) and Nazim Mohammed (“Respondent”) at an electronic settlement hearing held in accordance with New SRO rules for an electronic hearing.
- A copy of the Settlement Agreement is attached to these Reasons as Schedule “1”. The agreed facts are set out in Part IV of the Settlement Agreement. Some capitalized terms used in these reasons are defined in the Settlement Agreement.
- The Respondent admits that:
- In July 2014, the Respondent failed to use due diligence to learn the essential facts relative to clients RM and LM and accurately record the essential facts on Know-Your-Client (“KYC”) information Forms, contrary to MFDA Rules 2.2.1 and 2.1.1.
- In July 2014, the Respondent recommended that clients RM and LM borrow monies from the cash values of their life insurance policies and that LM use the proceeds to purchase a mutual fund without using due diligence to ensure that the recommendation was suitable for the clients, contrary to MFDA Rules 2.2.1 and 2.1.1.
- In July 2014, the Respondent recommended that client LM purchase a mutual fund that was subject to a 7-year deferred sales charge schedule without using due diligence to ensure that the recommendation was suitable for client LM, contrary to MFDA Rules 2.2.1 and 2.1.1.
- The Settlement Agreement provides that the Respondent will:
- be suspended from conducting securities related business for a period of 2 years;
- pay a fine of $15,000; and
- pay costs of $5,000.
- We determined that we had to be satisfied regarding three considerations before we could accept the Settlement Agreement. First, the sanctions had to be within an acceptable range taking into account similar cases. Secondly, the sanctions had to be fair and reasonable (i.e. proportional to the seriousness of the contraventions taking into consideration relevant circumstances) and should appear to be so to members of the public and industry. Thirdly, the sanctions should serve as a deterrent to the Respondent and to industry. To be satisfied on these three considerations required an understanding of the particular facts of the case, the circumstances of the Respondent, and the impact on the Respondent of the sanctions.
- We determined that the Respondent’s conduct was in violation of MFDA Rules 2.2.1 and 2.1.1.
VII. OTHER CONSIDERATIONS
Nature of the Misconduct
- The Know-Your-Client and suitability obligations are essential to protecting the public and any failure to comply with these obligations is a serious matter.
- An aggravating factor is that clients RM and LM were vulnerable investors by virtue of their age (63 years old and 61 years old, respectively), employment status (retired), investor knowledge (unsophisticated) and reliance on their investments to meet their short term financial needs in retirement.
- The contraventions were serious; however, the Respondent’s misconduct was limited to two clients who are spouses.
- After client LM complained to the Member, clients RM and LM cancelled their life insurance policies because they could not afford to pay the interest charges owed on the amounts that they had borrowed from the policies in order to fund the Investment Strategy.
- Client LM also incurred DSC fees totalling $1,059.39 on the monthly SWP redemptions from the Mutual Fund.
- The Member paid compensation to clients RM and LM including in respect of the DSC fees incurred by client LM.
Benefits Received by the Respondent
- The Respondent received approximately $1,018 in compensation from the purchase of the Mutual Fund by client LM. The Member subsequently clawed back this amount from the Respondent.
No Prior Sanctions
- The Respondent has not previously been the subject of MFDA disciplinary proceedings.
The Respondent’s Recognition of the Seriousness of the Misconduct
- By entering into the Settlement Agreement, the Respondent has accepted responsibility for his misconduct and has saved the New SRO the time, resources, and expenses associated with conducting a contested hearing of the allegations.
- The sanctions will deter the Respondent from engaging in misconduct in the future. The sanctions will also demonstrate to other Approved Persons that a failure to comply with Know-Your-Client and suitability obligations will result in serious consequences. Accordingly, the sanction in this case will deter the Respondent and others from engaging in similar misconduct in the future, improve overall compliance with regulatory requirements by Approved Persons and foster confidence among investors and other stakeholders in the mutual fund industry as a whole.
- The sanctions are within the recommendations of the MFDA Sanction Guidelines and the reasonable range of appropriateness with regard to MFDA decisions submitted to us by Staff, made by MFDA Hearing Panels in similar circumstances. They are fair and reasonable and will serve as a specific and general deterrent.
- The costs award is reasonable.
Paul M. Moore, K.C.Paul M. Moore, K.C.Chair
Michael-Murray CoulterMichael-Murray CoulterIndustry Representative
Brigitte GeislerBrigitte GeislerIndustry Representative
On January 1, 2023, the Investment Industry Regulatory Organization of Canada (“IIROC”) and the Mutual Fund Dealers Association of Canada (the “MFDA”) were consolidated into a single self-regulatory organization recognized under applicable securities legislation. The New Self-Regulatory Organization of Canada (referred to herein as the “Corporation”) adopted interim rules that incorporate the pre-amalgamation regulatory requirements contained in the rules and policies of IIROC and the by-law, rules and policies of the MFDA (the “Interim Rules”). The Interim Rules include (i) the Investment Dealer and Partially Consolidated Rules, (ii) the UMIR and (iii) the Mutual Fund Dealer Rules. These rules are largely based on the rules of IIROC and certain by-laws, rules and policies of the MFDA that were in force immediately prior to amalgamation. Where the rules of IIROC and the by-laws, rules and policies of the MFDA that were in force immediately prior to amalgamation have been incorporated into the Interim Rules, Enforcement Staff have referenced the relevant section of the Interim Rules. Pursuant to Mutual Fund Dealer Rule 1A and s.14.6 of By-Law No.1 of the Corporation, contraventions of former MFDA regulatory requirements may be enforced by the Corporation.