Simpson (Re)

Decision
IN THE MATTER OF Gordon Simpson
AND IN THE MATTER OF the Investment Dealers Association
of Canada
AND IN THE MATTER OF an Appeal to the Alberta
Securities Commission
Sections 36 and 73 of the Securities Act,
R.S.A. 2000, c. S-4

2005 LNABASC 804
[2005] A.S.C.D. No. 1016
2005 ABASC 724
Docket: E/00330

Alberta Securities Commission
G.A. Campbell, Q.C., Vice-Chair; S.R. Murison,
Vice-Chair

Heard: July 7, 2005.
Decision: August 22, 2005.
(70 paras.)

Appearances:

Matthew Epp, For Commission Staff.

Darren J. Gross and Charlene L. McLaughlin, For the Investment Dealers Association of Canada.

Gordon Simpson, On his own behalf.


I.   THE APPLICATION

 1      This application arose from an 11 May 2005 notice of appeal filed by Gordon Simpson (Simpson) pursuant to which Simpson:

appeal[s] ... from and request[s] a review of the whole of the decision of the Investment Dealers Association of Canada (the 'IDA') dated May 7, 2004 that it will not or cannot conduct an investigation of the complaint of the Appellant filed with the IDA on April 26, 2004.

 2      In respect of that notice of appeal, the Investment Dealers Association of Canada (the IDA) filed a notice of application dated 23 June 2005 (the IDA Application) requesting:

1.

An order directing that the appeal of Mr. Gordon   Simpson be dismissed;

2.

Further, and in the alternative, if the appeal is allowed to proceed, that the panel order all parties and the Alberta Securities Commission, to disclose all records relating to Mr. Simpson's appeal including any communication between the ASC and Mr.   Simpson regarding his complaint and his Notice of Appeal; and

3.

Costs in any event of the cause.

 3      The IDA Application was heard on 7 July 2005, at which time we heard from Simpson (who was not represented by counsel) and from counsel for the IDA. We also considered an affidavit of Susan Farrell (Farrell), Manager of Case Assessment for the IDA, and supplementary materials submitted by staff of the IDA ("IDA Staff"). The IDA stated it would not pursue costs.

 4      Our decision and reasons follow.

II.

BACKGROUND

A.

The Parties

 5      Simpson is a retired firefighter resident in Calgary. From December 1989 to April 2002 - over 12 years - Simpson maintained investment accounts with Yorkton Securities Inc. (Yorkton) and predecessor entities. The accounts were handled by William Schofield (Schofield), who was a broker with Yorkton and registered under what now is the Securities Act, R.S.A. 2000, c. S-4 (the Act).

 6      The evidence suggests that Schofield had been an acquaintance of members of Simpson's family and a close friend of one of Simpson's cousins.

 7      It appears that Orion Securities Inc. succeeded Yorkton and that Simpson's former Yorkton accounts are currently held with that firm. Schofield, it seems, is not associated with Orion Securities Inc., and we were told that he is no longer working in the securities industry.

 8      The IDA is a self-regulatory organization recognized by the Alberta Securities Commission (the Commission) under what is now section 64 of the Act. That recognition is set out in an order of the Commission dated 23 November 1999 to which are appended certain undertakings and "Conditions of Recognition". The first of the enumerated undertakings is that the IDA will:

[e]nforce compliance by its members, their staff, and their approved persons, with the IDA Rules and securities legislation as a matter of contract between the IDA and its members.

 9      The IDA's Conditions of Recognition include the following:

2.

a.   The IDA will maintain within the Province of Alberta a staff complement sufficient to ensure that all necessary investigations, disciplinary actions, and enforcement proceedings are conducted and concluded within a reasonable period of time following receipt of a complaint or other information that leads to the investigation, disciplinary action, or enforcement proceeding.

 10      It was not disputed that Yorkton was a member of the IDA and that both Yorkton and Schofield were subject to the authority of the IDA.

B.   The Complaint

 11      In April 2004 Simpson made a number of complaints about Schofield's conduct as his broker. Simpson sent to the Central Complaints Bureau of the IDA a letter dated 23 April 2004 (the Complaint Letter), which appears to have been submitted as an attachment to a standard-form IDA "Customer Complaint Form". The Complaint Letter included the following specific allegations:

... an account was opened by ... Schofield without the client's consent ... in December, 1993 and closed in November, 1994 without the client's consent and, to the knowledge of the client, without the completion of account opening documentation and [sic] margin agreement.

...

[A] Cash account ... was switched to a margin account in January or February, 1991 without the consent of the client and without the completion of a margin agreement or discretionary trading documents.

...

... Schofield ... made trades in the client's accounts without the prior authorization of the client as follows [followed by descriptions of a number of transactions] ... The client complained several times to Schofield about [certain of] these unauthorized discretionary trades and asked that they be reversed. Schofield did not carry out the client's instructions ...

 12      Simpson's Complaint Letter also alleged that unauthorized trading in various of Simpson's accounts "appear[ed] to indicate that the trading was intended to support the share price of the stock [of a listed public company]". Finally, the Complaint Letter alleged:

... a number of trades in January - March, 1998 in [an RRSP] account without the client's authorization. This trading appears to be for the sole purpose of generating commissions for Schofield and Yorkton Securities and therefore constitutes churning which is contrary to the rules and regulations of the IDA.

 13      Simpson concluded the Complaint Letter with the request "that the IDA undertake an investigation of this complaint".

C.   IDA Response

 14      The evidence before us included a one-page memorandum dated 6 May 2004 addressed to Farrell by an IDA Complaint Inquiries Officer. This memorandum refers to Simpson's Complaint Letter, which was received by the IDA on 26 April 2004. The memorandum summarized Simpson's complaints, then stated under the heading "COMMENTS":

CCB [presumably the IDA's "Central Complaints Bureau" to which the Complaint Letter had been sent] notes the following based on a review of Simpson's complaint package, and other available information ...:


--

  Simpson has not, at any time, complained to the firm in writing


--

  Simpson allowed Schofield to administer his accounts for 13 [sic] years despite alleged problems since inception


--

The most recent activity complained of occurs in June 2001


--

The age of most of Simpson's complaints are such that supporting information and documentation would not be available ...


--

Schofield is not presently working in the industry, and most recently terminated from Wolverton Securities (March 2004) in good standing.


--

Nothing of detriment against Schofield [appears in various data sources] relating to unauthorized trading.

 15      The memorandum closes with the following recommendation:

Based on the above summary of complaint and comments, CCB is recommending this file be closed with no further action.

 16      A handwritten notation on this memorandum indicates Farrell's agreement with that recommendation, also on 6 May 2004.

 17      That conclusion was conveyed to Simpson in an IDA letter dated 7 May 2004 (the IDA Staff Determination). The IDA Staff Determination ended as follows:

After due consideration of the facts under review, [IDA] Enforcement staff determined that no further action would be taken. Accordingly, our file in respect of this matter has been closed.

 18      There seem to have been oral discussions between Simpson and the IDA shortly thereafter, as indicated in a 10 May 2004 letter from the IDA to Simpson which invites him, should he wish to make a claim for compensation, to contact the Ombudsman for Banking Services and Investments or to consider arbitration. An information brochure on these options was apparently enclosed with that letter.

D.   Subsequent Communications

 19      In a letter dated 12 May 2004 to the IDA Enforcement Department, Simpson challenged the IDA Staff Determination. In that letter, Simpson said that he "was not aware of the extent of the misconduct that occurred with respect to my accounts until last year (2003) when I was informed by the new broker on my accounts ...". Simpson concluded this letter by saying that:

... I believe that my April 23 complaint has validity and was made in a timely manner ... Accordingly I request that you reconsider your decision not to investigate my complaint.

 20      By letter of 7 June 2004 Farrell responded to Simpson, advising him that "there is insufficient evidence of regulatory violations to necessitate an investigation in this case. Accordingly, our file in this matter remains closed". Earlier in that letter, Farrell said that "the particulars of our review are confidential", and refused to elaborate on the factors considered by IDA Staff in assessing Simpson's complaints. Her letter also included the following statement:

Please be advised that as a not for profit organization with limited resources, the [IDA] cannot formally investigate all complaints brought to its attention ... the courts have ruled that the [IDA] must have clear and convincing evidence of misconduct [to impose disciplinary sanctions].

 21      Simpson responded in a letter of 24 June 2004, challenging the explanation of "lack of financial resources" and concluding as follows:

An investigation would in any case be necessary to establish the clear and convincing evidence you refer to in your letter. I also put it to you that the courts set out this standard of evidence as one that the IDA must meet to impose sanctions after a hearing of the evidence gathered by an IDA investigation not one that the complainant investor must meet to have the IDA commence an investigation.

 22      The evidence before us includes additional correspondence between Simpson and Farrell in July and August of 2004, Simpson continuing to urge that IDA Staff investigate his complaint and IDA Staff continuing to decline.

E.   Earlier Preliminary Ruling

 23      It appears from the evidence that Simpson then approached the Government of Alberta requesting that the Commission consider his complaint. The matter eventually made its way before us.

 24      Simpson had a number of discussions with staff of the Commission (Staff) indicating that he wished to appeal the IDA Staff Determination. On 13 April 2005 Staff filed an application for advice and direction under sections 73 and 31 of the Act respecting the scheduling of Simpson's appeal and any other preliminary matters necessary to ensure the timely proceeding of any appeal before the Commission. Simpson had yet to file a written notice of appeal with the Secretary as contemplated under sections 73 and 36 of the Act.

 25      On 25 April 2005, a separate panel of the Commission heard Staff's application. The panel heard oral representations from Staff counsel, counsel for the IDA and a Mr. Ken Andrews, who appeared as agent for Simpson. That panel ordered that if Simpson intended to appeal the IDA Staff Determination, he must file a written notice of appeal setting out the grounds of his appeal by 30 May 2005. The panel further directed the parties to appear before a panel of the Commission on 7 July 2005 to hear any preliminary issues arising out of the filing of such notice of appeal. Simpson did file a notice of appeal, and this panel was constituted to hear argument from the parties on 7 July 2005 relating to the issues raised in the IDA Application.

III. THE ISSUES

 26      Simpson struck us as a sincere man, genuinely frustrated with what he perceives to have been mishandling of his investment accounts over the years and with his lack of success in obtaining satisfaction through regulatory authorities, specifically the IDA.

 27      Without reaching any conclusion on the merits of his original complaints, or how his complaints were handled, we express our sympathy for Simpson and his frustration. However, as we explained to Simpson at the hearing, securities regulation is a matter of law, and we, as well as Simpson himself, are bound by those laws. Here, we must identify and resolve the issues before us in accordance with those laws.

 28      The issue to be determined in this preliminary application is whether Simpson's appeal is properly before the Commission.

 29      The IDA argued that Simpson's appeal is not properly before the Commission and therefore ought to be dismissed. The IDA Application specifies four grounds for that position:

1.

  [Simpson] is not a person 'directly affected' pursuant to [subsection] 73(1) of the Act;

2.

The review of [Simpson's] complaint to the IDA was not a 'decision' pursuant to [subsection] 73(1) of the Act;

3.

... [Simpson] filed his appeal outside of the time frame prescribed by [subsection] 36(1) of the Act; and

4.

  [Simpson] failed to request an extension of the appeal time during the appeal period prescribed in [subsection] 36(1) of the Act pursuant to [subsection] 36(2) of the Act.

 30      In our view, these four grounds correctly frame the issues for our determination. We heard the IDA's arguments on each of these issues. We also heard Simpson's oral statement in support of his position.

IV.

ANALYSIS AND DISCUSSION

A.

Application of Section 73

       1.   Requirements

 31      Subsection 73(1) of the Act reads as follows:

A person or company directly affected by, or by the administration of, a direction, decision, order or ruling made under a bylaw, rule, regulation, policy, procedure, interpretation or practice of a recognized exchange, recognized self-regulatory organization, recognized clearing agency or recognized quotation and trade reporting system may appeal that direction, decision, order or ruling to the Commission.

 32      There are three essential elements to the application of subsection 73(1):

--

It can be invoked by, but only by, a person "directly affected".


--

The subject matter of an appeal is a "direction, decision, order or ruling".


--

What is appealed from must originate with a "recognized exchange, recognized self-regulatory organization, recognized clearing agency or recognized quotation and trade reporting system".

 33      The third element is not in dispute here. The IDA is a recognized self-regulatory organization.

 34      The other two elements are in dispute. In our view, if either of these two elements does not apply in this case, then we do not have jurisdiction to consider Simpson's appeal under subsection 73(1) of the Act. Therefore, it would be unnecessary for us to review and decide upon the other issues set out in the IDA Application.

       2.   Was There a "Decision"?

 35      We first determine whether the IDA Staff made a "direction, decision, order or ruling" from which Simpson can appeal.

 36      The IDA Staff Determination appealed from is the determination by IDA Staff not to proceed further with an investigation of Simpson's complaints.

 37      In common parlance that might very well be referred to as a "decision", but we are applying Alberta securities laws and we must look to the meaning under the Act.

(a)

Meaning of "Direction, Decision, Order or Ruling"

 38      The Act defines "decision" in subsection 1(n) as follows:

'decision', when used in relation to the Commission or the Executive Director, means a direction, decision, order, ruling or other requirement made by the Commission or the Executive Director, as the case may be, under a power or right conferred by this Act or the regulations;

 39      In our view, this definition is inapplicable here, as subsection 73(1) deals with the Commission's consideration of something done by another regulatory body. That is not, in our view, the nexus contemplated by the phrase "in relation to the Commission" in the definition of "decision" under subsection 1(n).

 40      However, subsection 1(n) is of some assistance, as it uses some of the same words as subsection 73(1). The four words "direction, decision, order, ruling" used in paragraph 1(n) are followed by the words "under a power or right conferred by this Act or the regulations". That phrasing indicates to us that each of the first four words shares the concluding characteristic that it must be made "under a power or right conferred by this Act or the regulations". Therefore, not every decision meets the definition of "decision" for the purposes of the Act. Subsection 73(1) similarly limits the right of appeal to a "direction, decision, order or ruling" that is made under a "bylaw, rule, regulation, policy, procedure, interpretation or practice" of a recognized self-regulatory organization. This indicates to us that the legislative intention, once again, was that not every decision made by a self-regulatory organization such as the IDA, as that term is understood in common parlance, is a "decision" that can be appealed.

 41      Our conclusions are supported by the decision of this Commission in Re Ironside, [2002] A.S.C.D. No. 158 that the Executive Director's decision not to take enforcement action against certain parties was not a "decision" within the meaning of the Act. In considering the meaning of section 1(n) of the Act, the Commission stated (at para. 59):

... the decision not to proceed with enforcement action in this case is not a 'decision' as defined by the Act because it is not made 'under a power or right conferred by this Act or the regulations.'

 42      Was the IDA Staff Determination made under a "bylaw, rule, regulation, policy, procedure, interpretation or practice" of the IDA?

 43      IDA By-law 20 Association Hearing Processes defines "Decision" to mean "a determination, including reasons, arrived at after consideration of facts and/or law by a Decision-maker pursuant to this By-Law ...". IDA Staff can be a "Decision-maker" under IDA By-Laws in only two circumstances: when approving an application for registration (20.18 Part 7 By-Law 20); or when approving or refusing an exemption from proficiency requirements (20.24 Part 8 By-law 20). Therefore, it appears to us that a decision by IDA Staff to proceed, or not to proceed, with further investigation of a complaint would not be a decision made under any "bylaw, rule, regulation, policy, procedure, interpretation or practice" of the IDA.

               (b)  What Did the IDA Issue?

 44      IDA Staff considered Simpson's complaints and, having done so, determined not to proceed with any further investigation. In this case, all that IDA Staff did was refrain from pursuing this matter.

 45      This Commission discussed the nature of investigative decisions in enforcement proceedings under the Act in Ironside (at para. 63):

In the context of investigations and enforcement, the only final and determinative decisions are made by the Commission after a hearing. Decisions by staff, of which the highest example would be the decision to proceed with enforcement action by issuing a notice of hearing, do not decide anything finally or substantively. Such decisions are, at most, analogous to prosecutorial discretion.

 46      In our view, the determination by IDA Staff not to proceed with further investigation is similar to an exercise of prosecutorial discretion. The discretion to institute proceedings is vested with IDA Staff. There was no evidence of any requirement that every complaint presented to the IDA must proceed through to a formal investigation or to a disciplinary hearing. The portion of the IDA's Conditions of Registration quoted earlier does not impose such a requirement. It speaks to resources and timeliness relating to "necessary investigations". It does not mandate the conduct of an investigation nor prescribe specific action. We note, in contrast, that the IDA Member Regulation Enforcement Annual Report at 2 is clear that the preliminary investigation of a complaint could result in the matter being closed with no action taken.

 47      We are not aware of any right conferred on a complainant to have IDA Staff's termination of an investigation reviewed by an internal IDA body, unlike other decisions that IDA Staff may make (By-law 20.19 Review Hearings). This, too, is consistent with there being no "decision" to review.

(c)

Conclusion as to "Direction, Decision, Order or Ruling"

 48      For the reasons above, we conclude that this case involves no "direction, decision, order or ruling" of the IDA. This key element of subsection 73(1) of the Act is absent.

 49      It follows, and we find, that we do not have the jurisdiction to hear Simpson's appeal. Given that finding, we need not look further into the issues raised in the IDA Application.

 50      However, in the event that we were incorrect in our finding as to the absence of a "direction, decision, order or ruling", we now consider the second disputed element of subsection 73(1) of the Act: was Simpson "directly affected" by the IDA Staff Determination?

3.

Was Simpson Directly Affected by the IDA Staff Determination?

               (a)  Meaning of "Directly Affected"

 51      The meaning of the phrase "directly affected" under British Columbia securities legislation was considered by the British Columbia Securities Commission (the "BCSC") in Re Investment Dealers Association, [2001] B.C.S.C.D. No. 49, 2001 BCSECCOM 49 (Re IDA) (at paras. 13-14):

... the class of persons who can be considered to have been directly affected for the purposes of [sub]section 28(1) of the Act should be interpreted narrowly. As the [BCSC] observed in In the Matter of RMS Medical Systems Inc. et al [1999] B.C.S.C. 18 Weekly Summary 62, at page 68:


'[Subs]ection 28(1) does not require a person who seeks a hearing and review merely to be 'affected' by the decision, but to be 'directly affected'. By including the word 'directly' the legislature must have intended a narrowing of the word 'affected' and indeed the authorities have tended to agree.'


After a review of the case law, the [BCSC] concluded at page 70:


'These cases establish that a person directly affected has to be someone who is affected by the terms of the order or decision, not just the incidental effects of the decision. These decisions suggest that this is someone who is a party to the proceedings that lead to the decision or someone to whom the terms of the order or decision relate.'


The second principle that can be drawn from prior decisions is that the words 'directly affected' should be interpreted in light of all the relevant circumstances, including: the nature of the power that was exercised, the decision that was made, the nature of the complaint being made by the person requesting the hearing and review, and the nature of that person's interest in the matter. ...

 52      At issue there was a settlement agreement between the IDA and a salesperson. It arose out of the handling of accounts of a client named McEwan. McEwan had applied to the BCSC challenging that settlement agreement.

 53      The BCSC held (at para. 19):

The only parties to such a disciplinary proceeding are the self regulatory organization itself and the person against whom the allegations are made. Hence, the only parties to the Settlement Agreement in issue are the IDA and [the salesperson]. ... McEwan himself is not a party. Nor do any of the terms of the agreement relate to him. McEwan's position in this matter is analogous to that of a victim in a criminal trial; a person in this position may well be a witness in the proceedings against the alleged perpetrator, but is not a party to those proceedings.

 54      In Ironside, this Commission applied the principles expressed in Re IDA in considering whether a complainant was a party "directly affected" by a decision of the Commission's Executive Director not to take enforcement action against certain parties that had been the subject of an investigation order. In that case, the Commission decided that the complainant was not "directly affected" by the decision not to take enforcement action based on his complaint because (at para 76):

Mr. Ironside's interests in the complaint are private and personal. As a complainant, he has no status in the investigation or prosecution of his complaint.

               (b)  Assessment of Simpson's Role

 55      In this case, Simpson was a complainant. Under the investigative process, a complainant is typically not a party to either the investigation or any subsequent enforcement proceedings. The only parties to such proceedings would be the IDA and any registrant whose conduct was in issue - in this case, Schofield.

 56      Even had such an investigation proceeded to enforcement and any allegations been proved, what might have been the result? Possible IDA orders against Schofield could have included: a reprimand; a requirement that he work under supervision or take additional training or education; removal or suspension of his ability to conduct securities-related business; or an order to pay a fine to the IDA. One or more such outcomes might have given some moral satisfaction to Simpson, but that is not in our view a sufficient basis for concluding that he had been, or would have been, "directly affected" by the IDA Staff Determination. Simpson was not exposed to prosecution, and his reputation, property and liberty were not in jeopardy. Nor would any of these hypothetical outcomes have positively affected his rights or economic interests. In none of these hypothetical outcomes would Simpson himself be "directly affected". Since the ultimate hypothetical outcome of an IDA staff determination to move forward with an investigation of his complaints would not have had a direct effect on Simpson's rights or economic interests, it follows that the actual IDA Staff Determination did not have a direct effect on Simpson.

               (c)  Conclusion as to "Directly Affected"

 57      For the reasons above, we conclude that Simpson was not "directly affected". We therefore find that the second key element of subsection 73(1) of the Act is missing. Simpson cannot, therefore, avail himself of that provision of the Act.

       4.   No Basis for Appeal

 58      To summarize, for the reasons discussed above we have found that:

--

the IDA Staff Determination not to conduct any further investigation of Simpson's complaint was not a "decision" as defined in either IDA By-Law 20.1 or subsection 73(1) of the Act; and


--

even had the IDA Staff Determination constituted a "decision", Simpson was not "directly affected" by it for purposes of subsection 73(1) of the Act.

 59      We therefore conclude that we have no jurisdiction under subsection 73(1) of the Act to determine this matter. It follows that there is no basis on which this appeal can proceed. This appeal must therefore be dismissed.

B.   Application of Section 36

 60      The IDA also argued that Simpson missed the available appeal period prescribed by section 36 of the Act, so that we ought to dismiss Simpson's appeal.

 61      It was clear that Simpson did not file, or obtain an order extending the time for filing, his formal written notice of appeal within the time period prescribed by the Act. There was, however, some suggestion that Simpson may have informally commenced an appeal within the prescribed period.

 62      In view of our findings that we have no jurisdiction under subsection 73(1) of the Act to hear an appeal of the IDA Staff Determination, it is unnecessary for us to consider issues relating to the time periods prescribed by section 36 of the Act.

C.   Public Interest Jurisdiction to Order Investigation?

 63      In his oral statement to us Simpson made reference to our "public interest" authority. He seemed to suggest that even if the IDA were successful in their arguments concerning the application of sections 73 and 36 of the Act, we could nonetheless invoke such authority to order the IDA to investigate his complaints. We believe that submission is without foundation.

 64      The public interest jurisdiction of the Commission is extensive and important. It is not, however, unlimited.

 65      Insofar as the Commission has the power to issue orders in the public interest, that power must be grounded in the Act. Section 198 of the Act is the primary source of such authority. Subsection 198(1) empowers the Commission to order one or more of the following, when we consider it to be in the public interest: cessation of trading in securities; the denial of exemptions under Alberta securities laws; bans on serving as a director or officer of an issuer; or a prohibition, authorization or direction to disseminate information to the public. What Simpson seeks is not found in section 198.

 66      Simpson's submission overstates the scope of the orders we can make solely on the basis of our assessment of the public interest. We have no jurisdiction to order Commission staff to investigate any matter or to institute regulatory or disciplinary proceedings. Nor can we rely on public interest authority to make such orders to the IDA or IDA Staff.

V.   CONCLUSION

 67      For the reasons given, we conclude that the Commission has no jurisdiction to hear Simpson's appeal nor to grant him the relief he seeks. In light of our ruling there is no need to address the other relief sought in the IDA Application.

 68      We therefore dismiss Simpson's appeal.

 69      22 August 2005

 70      For the Commission: G.A. CAMPBELL, Q.C., Vice-Chair S.R. MURISON, Vice-Chair