Regulators in Saskatchewan have ruled
that the IDA does not have the right to bring disciplinary action
against brokers after they have left the industry. This is a major
setback for the IDA, which has been looking to the provincial securities
commissions to back its enforcement efforts.
The case dates back 10 years, and
involves two former IDA registrants, and another who is still in the
industry. The trio appealed an IDA hearing panel decision to the
Saskatchewan Financial Services Commission. According to the SFSC panel,
chaired by William Ready, the IDA does not have the authority to
regulate former members either under its by-laws or in contract.
The decision effectively nullifies the
IDA's by-law 20.7 in that province which states that "any member and any
approved person shall remain subject to the jurisdiction of the
association for a period of five years from the date on which such
member or approved person ceased to be a member."
The panel's decision would seem to
contradict an Ontario ruling on a case involving former registrant
Robert Kyle. In that case, after see-sawing between the courts and the
commission, the Ontario divisional court finally confirmed that the IDA
does have jurisdiction over its members for a period of five years after
the decision, although Kyle has applied for leave to appeal.
"These are not laws, they are terms of
a contract between the IDA and its members," Kyle insists, saying he
will be adding the Saskatchewan ruling to his case.
"We are disappointed obviously," says
Alex Popovic, vice-president of enforcement for the IDA. The
Saskatchewan hearing panel relied heavily on a case involving
Chalmers v. the Toronto Stock Exchange which debated the reach of
domestic tribunals, but Popovic feels the Saskatchewan panel
misinterpreted that decision.
The IDA accuses Wade MacBain, Karl
Neufeld and Frederick Smith of Matrix Financial in Saskatoon of
violating several IDA by-laws between 1996 and 2000.
The SFSC hearing panel in its judgment
notes that the Chalmers case states that "the only effective sanction a
domestic tribunal can impose on its members is expulsion." The panel
went on to conclude, "So far as MacBain and Neufeld are concerned the
IDA cannot now expel them because they are no longer approved persons."
As a result, the panel allowed the appeal and stayed the disciplinary
proceeding against them.
Smith, who is still an approved person,
wasn't as lucky. The panel denied his appeal and his request for a stay
of the disciplinary proceedings against him.
MacBain faces a litany of IDA charges.
He is alleged to have provided services to clients in jurisdictions
where he was not registered to do so, having recommended unsuitable
investments and strategies to clients, having made recommendations to
clients without presenting them with a balanced picture and having
improperly amended client documentation.
As for Smith and Neufeld, who held
senior posts in Matrix at the time, they are accused of failing to
supervise the activities of MacBain.
If the IDA was successful in
disciplining the three registrants, Popovic says they could have faced
some stiff fines. Under the old by-laws, which were in effect at the
time of the alleged offence, the penalties can be up to three times
disgorgement of any profits realized, in addition to a $1 million fine
per allegation, and a ban from being registered with the IDA. Although
the IDA would still face the challenge of making them pay since it does
not have the court authority to seize assets, except in Alberta.
The decision puts the IDA in a
difficult position. "I suspect we are going to see a flurry of others
making similar applications until the Saskatchewan decision is either
overturned or confirmed," says Popovic. Since the SFSC applies only in
Saskatchewan, it's too soon to say how much impact it will have in the
rest of Canada. "I think the Ontario divisional court decision trumps
the Saskatchewan commission decision," Popovic says. "We'll have to wait
Popovic also believes that the SFSC
extended its jurisdiction beyond Saskatchewan, since the brokers also
provided services to clients in B.C. and the Northwest Territories.
"That would be an appeal point."
The IDA has until March 6, 2006 to
decide whether to appeal.
Filed by Mark Brown, Advisor.ca,