A recent decision from the Mutual Fund Dealers Association (MFDA) considered the lengths to which regulatory staff are required to go when providing disclosure and documentation to advisors it is investigating.
Jeffrey Gordon Cox was an advisor with Sun Life Financial in Winnipeg, Manitoba. Between October 2012 and August 2013, the MFDA found that he had misappropriated at least $274,600 from a number of his clients.
After receiving a notice from the MFDA that a disciplinary hearing was about to begin, and an invitation to arrange for the delivery of the disclosure materials, Cox emailed the regulator to say that he had destroyed the documents. He informed MFDA staff that he would not be heeding any summons, and his reply concluded with "I DON'T CARE".
"He also indicated that if another person came to his premises without his knowledge or acceptance beforehand, they would be dealt with as trespassers," reads the reasons for decision document published by the MFDA on Feb. 16. "He asked that Staff stop sending him material."
MFDA staff decided to bring a motion
MFDA staff made subsequent attempts to contact Cox and fulfil their disclosure obligations, offering him an opportunity to review the documents they intended to rely upon during the hearing. By this point Cox had already turned himself in to the Winnipeg Police, and simply demanded to know why the MFDA kept sending him correspondence. MFDA staff decided to bring a motion to clarify their disclosure obligations.
Sherri Walsh, chair of the MFDA Hearing Panel of the Prairie Regional Council, was faced with a number of questions: Does the MFDA have an absolute or automatic obligation to provide pre-hearing disclosure to a respondent and, if not, under what circumstances are they not obliged to do so? Furthermore, if MFDA staff are not required to provide respondents with disclosure in every case, did the circumstances of Cox's case require MFDA staff to provide him with prehearing disclosure?
"Given the importance of disclosure to a Respondent’s ability to make full answer and defence to the allegations set out in a Notice of Hearing, Staff will only be relieved of its disclosure obligations in the clearest of cases. This is particularly so where a Respondent is self represented," wrote Walsh.
MFDA staff must exercise particular diligence
Walsh ruled that the MFDA is obliged to ensure that respondents have been fully informed of their right to receive disclosure in accordance with the MFDA's Rules of Procedure and the common law. Where a respondent is self-represented, MFDA staff must exercise particular diligence and may be required to take extra steps to ensure that the respondent has been fully informed of his or her rights.
However, depending on the response provided to a notice, Walsh determined that MFDA staff are not obliged to automatically provide disclosure. "In particular, where a Respondent waives his right to disclosure Staff will be relieved of its obligation to provide disclosure. This is true whether the Respondent has counsel or is self-represented," reads the decision. "Whether a Respondent has waived his right to disclosure, either expressly or through conduct, will depend on the facts of each case."
As far as Cox's case was concerned, Walsh found that he had expressly waived his right to disclosure and that "it would serve no useful purpose to require Staff to provide the Respondent with copies of documents, including material which contains client information of a confidential nature, which the Respondent has clearly indicated he does not want to receive and is unlikely to maintain in a secure fashion."
Both the fines and the costs remain unpaid
The MFDA permanently banned Cox from the securities business and ordered him to pay a fine of $240,000 and costs in the amount of $10,000. Cox, however, left Sun Life and gave up his registration in June, 2013. As we reported previously, the MFDA is only able to collect a small percentage of the fines it hands out because, except in the province of Alberta, it has no power over advisors who are unlicensed
The Insurance and Investment Journal contacted Ken Woodard, the director of communications and membership services the at MFDA, and asked if Cox had paid these amounts. Woodard indicated that that both the fines and the costs remain unpaid.