After they made off with more than $6 million of their clients' money and left the Investor Protection Corporation holding the bag, the Mutual Fund Dealers Association (MFDA) has permanently prohibited Dianne Stuart and her husband Howard Stuart from working in the mutual fund industry. This is the second time Dianne Stuart has received a lifetime ban from the securities business. Neither of the Stuarts showed up for the final stage of their hearing.
Between 2003 and 2013 Dianne Stuart, operating through the W. H. Stuart Mutuals fund dealer, collected more than $6 million from clients. She was offering them bogus investment notes that were supposed to pay returns of between 7% and 10%, but the MFDA says she took the cash and deposited it into bank accounts that she controlled. These funds were never repaid or accounted for. When W. H. Stuart became insolvent in 2013, the MFDA's Investor Protection Corporation (IPC) had to step in and make clients whole again.
“Actively deceived" investigators
The MFDA released its reasons for decision for the case on April 29, and the document reveals that investigators were stymied in their attempts to gain interviews and answers from both of the Stuarts. At one point Howard Stuart even claimed he was experiencing financial difficulties and asked MFDA staff to provide him with "some money" so that he could attend his own hearing. The regulator countered with an offer to conduct the interview by Skype so that Stuart could remain at his home in California, but he never replied. Dianne Stuart was also antagonistic, and the MFDA says she "actively deceived" investigators and initially denied the existence of any note program.
Falsification and concealment of records
In the end, the MFDA determined to proceed with its case against the Stuarts in their absence. MFDA panel chairman Mark Sandler and industry representatives Kenneth Mann and Vasant Pachapurkar determined that the allegations against the Stuarts had been proved; they described the W. H. Stuart note program as "a massive scheme of dishonesty" which involved both falsification and concealment of records. "The scheme represented a gross breach of trust and fiduciary responsibility, and resulted in losses in the millions of dollars," reads their decision.
W. H. Stuart Mutuals' membership in the MFDA has been officially terminated (the dealer was already bankrupt), and the regulator has permanently banned both Dianne and Howard Stuart from conducting securities related business in any capacity with any MFDA member. In this ignominy they join their son James Howard Munro Stuart, who was banned from the business earlier this year.
Banned by Alberta regulator in 2000
In Dianne Stuart's case this is the second time she has been banned from the business, and the MFDA is more than fifteen years late to the party. In August 2000, the Alberta Securities Commission prohibited her from ever working as a director or officer at a registrant after she orchestrated a "crude but deliberate" attempt to circumvent local registration requirements; she used fake addresses to make it look as if sales were being made to people outside of the province.
The MFDA has ordered the Stuarts to pay $50,000 in costs and the panel will meet later to decide on further penalties. As we have reported earlier the MFDA lacks the authority to enforce most of its financial penalties, so it remains to be seen if the regulators will ever collect money from the Stuarts.