Proceedings

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IN THE MATTER OF

AN APPLICATION FOR REGISTRATION OF

SAHIL CELLY

OPPORTUNITY TO BE HEARD BY THE DIRECTOR

PURSUANT TO SUBSECTION 26(3) OF THE SECURITIES ACT

Date:
June 4, 2004
 
Director:
David M. Gilkes
Manager, Registrant Regulation
Capital Markets Branch
 
Appearances:
Christopher Jepson
For Commission Staff
Sahil Celly
In person

Overview

 

1. This decision relates to the application of Mr. Celly (also referred to as the Applicant) for registration as a Mutual Fund Salesperson to Royal Mutual Funds Inc. Commission Staff has recommended that the Director deny this application.

Background

 

2. Mr. Celly was registered as a Mutual Fund Dealer Salesperson under the Securities Act (Ontario) (the Act) sponsored by Clarica Investco Inc (Clarica) from March 14, 2003 until his termination effective September 30, 2003. Over the same period, Mr. Celly was licensed as a life insurance agent sponsored by Clarica Financial Services Inc. (CFSI).

3. Mr. Celly was terminated in good standing by Clarica. He was terminated for cause by CFSI.

4. The notice of termination, commonly known as a Life Agent Reporting Form (LARF) filed by CFSI indicated the Applicant was terminated for the following reasons: conflict of interest, inducement, misrepresentation, money laundering, and illegal sales practices.

5. Mr. Celly applied for registration with Royal Mutual Funds Inc. on February 2, 2004. Since the Applicant had been terminated for cause, Staff conducted an investigation relating to the circumstances of his dismissal.

6. In a letter dated March 15, 2004, Staff advised the Applicant that they recommended the Director deny his application based on grounds that he was not suitable for registration as a Mutual Fund Dealer Salesperson.

7. After receiving the letter from Staff, Mr. Celly requested the opportunity to be heard by the Director pursuant to subsection 26(3) of the Act that states:

(3) Refusal -- The Director shall not refuse to grant, renew, reinstate or amend registration or impose terms and conditions thereon without giving the Applicant an opportunity to be heard.

8. The opportunity to be heard (the OTBH) was held on April 27, 2004 where submissions were made by Commission Staff and Mr. Celly.

Submissions

 

9. Staff for the Commission read into the record Schedule "A" from the Minutes of Settlement between the Superintendent of Financial Services and Sahil Celly. Schedule "A" is an Agreed Statement of Facts that provides some details of the activities that led to the termination of the Applicant from CFSI.

10. As a result of these activities Mr. Celly has agreed not to reapply for licensing as an insurance agent for a period of five years.

11. The activities related to the Applicant's dealings with Mustava Khan (Khan) and Zivota Mihajlovic (Mihajlovic). Mr. Celly met Khan and Mihajlovic through persons with whom he shared a house. Khan was a friend of one of these persons.

12. Mr. Celly met Khan socially and was contacted a couple of days later by Khan regarding the insurance business. Khan told Mr. Celly that he had a friend (Mihajlovic) that could refer a lot of business to the Applicant.

13. The Applicant met Khan and Mihajlovic at their offices. Mr. Celly discussed the insurance industry with Mihajlovic, who appeared to have an in-depth understanding of the industry. Mr. Celly entered into a referral agreement with Mihajlovic, believing that Mihajlovic was appropriately licensed as an insurance agent.

14. Mr. Celly did not ask for verification of Mihajlovic's credentials. The Applicant noted that the sign on the door of the office where he met Mihajlovic read "Cedar Car Rentals". The Applicant did not get a business card from Mihajlovic but he did get a card from Khan, the business was Cedar Car Rentals.

15. The Applicant knew that Mihajlovic and Khan were in a number of businesses including car rentals and providing loans and lines of credit to individuals. As Mihajlovic and Khan had separate offices, Mr. Celly believed they handled different lines of business.

16. As a result of this referral relationship with Mihajlovic, Mr. Celly engaged in some activities that were not in accordance with insurance regulations, such as, not witnessing the client signatures on the policies.

17. This arrangement also led to a significant increase in the Applicant's sales. In September 2003 he sold policies resulting in a commission of $160,000 where the commission for the previous months had ranged from $5,000 to $10,000.

18. The large increase in sales led to a review by CFSI and the subsequent termination of Mr. Celly.

Suitability for Registration

 

19. Determining the suitability for registration of applicants is an important function of the Commission to protect investors and foster confidence in the capital markets. This point was made in the Mithras decision that reads in part:

... the role of the Commission is to protect the public interest by removing from the capital markets -- wholly or partially, permanently or temporarily, as the circumstances may warrant -- those whose conduct in the past leads us to conclude that their conduct in the future may well be detrimental to the integrity of those capital markets. We are not here to punish past conduct; that is the role of the courts, particularly under section 118 of the Act. We are here to restrain, as best we can, future conduct that is likely to be prejudicial to the public interest in having capital markets that are both fair and efficient. In doing so we must, of necessity, look to past conduct as a guide to what we believe a person's future conduct might reasonably be expected to be; we are not prescient, after all.

Re Mithras Management Ltd., (1990) 13 OSCB 1600

20. The standard for suitability is based on three tenets which were presented by Commission Staff at the OTBH and have also been printed in the Ontario Securities Commission Annual Report:

The [registration] section administers a registration system which is intended to ensure that all Applicants under the Securities Act and the Commodity Futures Act meet appropriate standards of integrity, competence and financial soundness, ... Ontario Securities Commission, Annual Report 1991, Page 16

21. In addition, the Director could find that the application is objectionable. Staff of the Commission noted that this could refer to conduct that while not directly related to the securities industry, affects the investor confidence in the capital markets and its participants.

22. Mr. Celly's submission at the OTBH focused on his integrity and proficiency relating to the selling of insurance policies that were suitable to the client.

Decision and Reasons

 

23. Mr. Celly did not deny the facts as presented in the Agreed Statement of Facts that formed part of the Minutes of Settlement with the Superintendent of Financial Services.

24. The facts presented in this document and the clarification provided by the Applicant bring into question his competency and to a lesser extent his integrity.

25. There are two components to competency: education requirements and experience. It would appear that the Applicant has taken and passed all the required courses and more to be a Mutual Fund Salesperson. However, he showed a severe lack of judgement in his dealings with Mihajlovic and Khan, by not making basic inquiries into their backgrounds before entering into a business arrangement. The Applicant did not demonstrate the requisite experience needed for a position as a financial services industry professional.

26. It could also be that the Applicant did not make simple inquiries due to the potential of a large commission, calling into question his integrity.

27. The Applicant has not demonstrated the high standards of competency and of integrity required of a professional in the securities industry. As a result, having reviewed all the information provided to me, I find the Applicant unsuitable to be granted registration as a Mutual Fund Dealer Salesperson.

June 4, 2004.

"David M. Gilkes"