Securities Law & Instruments

In the Matter of the Registration of
Donovan Gene Brown


Opportunity to be Heard by the Director
Subsection 26(3) of the Securities Act, R.S.O. 1990, c. S.5



Date of decision: July 2, 2009
   
Director: Erez Blumberger
Manager, Registrant Regulation
Ontario Securities Commission
   
Oral Submissions by: Michael Denyszyn, Legal Counsel
For staff of the Ontario Securities Commission

Donovan Gene Brown
For the Registrant


Background

[1] Donovan Gene Brown (the Registrant) has been registered under the Securities Act, R.S.O. 1990, c. S.5 (the Act) as a mutual fund dealer salesperson and limited market dealer salesperson for Dundee Private Investors Inc. (DPII) since August 22, 2006.

[2] On March 13, 2009, DPII submitted a financial disclosure change notice to the Ontario Securities Commission (OSC) indicating that a requirement to pay had been issued by the Canada Revenue Agency (CRA) against the Registrant on February 27, 2009.

[3] On March 27, 2009, OSC staff sent a letter to the Registrant and to DPII proposing terms and conditions for monthly close supervision reporting, be imposed on the registration of the Registrant.

[4] The Director may restrict a registration by imposing terms and conditions under section 26 of the Act, but must provide the registrant with the opportunity to be heard by the Director.

[5] The Registrant requested an opportunity to be heard through an in-person appearance, which was conducted on June 2, 2009. At the conclusion of the hearing, I communicated my decision to impose terms and conditions for monthly close supervision reporting on the registration of the Registrant. The analysis leading to my decision is set out in detail below.

Submissions

Summary of staff’s submissions

[6] Registrants are subject to a fit and proper standard for registration, which is not only an initial, but an ongoing requirement. The fit and proper standard is based on three well-established criteria that have been identified by the OSC: integrity, competence and financial soundness.

[7] Here, none of the evidence suggests that the Registrant’s integrity or competence are in question. However, OSC staff recommended to the Director that the registration of the Registrant be subject to close supervision, as the requirement to pay has a bearing on the Registrant’s financial soundness because there is a risk that the Registrant may engage in self-interested activities at the expense of clients.

[8] It is OSC staff’s practice to impose close monthly supervisory terms and conditions on the registration of an individual who has an unresolved requirement to pay from the CRA. It is not OSC staff’s practice to wait until evidence surfaces of self-interested activities by a registrant before recommending the imposition of close monthly supervisory terms and conditions.

Summary of the Registrant’s submissions

[9] The Registrant explained that errors had been made with his tax return dating back to 1999. In the course of trying to resolve his tax issues in the past few years since the issue came to light, he became very ill with lymphoma cancer and was unable to work very much. Subsequent to his recovery from his illness, he then went through a divorce and is now a single father.

[10] As a result of all that he has been through in the past few years, the Registrant explained that he let his tax situation “slip”, which led to the accumulation of further interest and penalties. However, he is working with his current accountant to resolve his tax issues which he anticipates to be resolved within the next three to six months.

[11] The Registrant did however stress that throughout the time he has been in the business, although he has been going through a lot of stress, not once has he been unethical. Specifically, he noted that his priority is his clients and that he would never do anything to deceive them of their funds.

[12] The Registrant expressed concern that the fact that he will be under close supervision will create a “very negative impression” of him.

Summary of staff’s reply

[13] OSC staff reiterated that there are no concerns about Mr. Brown’s integrity or competence. However, it is important that such decisions be made public as consistent with OSC’s investor protection mandate so to provide transparency and disclosure of terms and conditions on registrants in Ontario’s capital markets.

Analysis

Suitability for registration

[14] The fit and proper standard for registration is both an initial and an ongoing requirement for registrants. The fit and proper standard is based on three well established criteria that have been identified by the OSC:
The [Registrant Regulation] 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)
[15] When analyzing these criteria staff consider:
  • integrity – honesty and good faith, particularly in dealings with clients, and compliance with Ontario securities law;
  • competence – prescribed proficiency and knowledge of the requirements of Ontario securities law; and
  • financial soundness – an indicator of a firm’s capacity to fulfill its obligations and can be an indicator of the risk that an individual will engage in self-interested activities at the expense of clients.
[16] As mentioned above, in this case neither the Registrant’s integrity nor his competence are in question. However, the requirement to pay overdue taxes raises concern regarding the financial soundness of the Registrant. To mitigate the potential increased risk concerning self-interested activities by the Registrant, staff recommended that terms and conditions for monthly close supervision reporting be imposed on the registration of the Registrant.

[17] It is OSC staff practice to impose terms and conditions for monthly close supervision reporting on an individual’s registration should, among other things, that person file for bankruptcy, receive a garnishment or receive a notification to pay overdue taxes, which is the situation in the case at hand. The terms and conditions are removed when the financial obligations resulting from the event have been satisfied. This practice is consistent with the investor protection mandate of the OSC.

Decision

[18] I find that the requirement to pay overdue taxes that has been made by the CRA does, on its face, raise concerns about the Registrant’s financial soundness. While I empathize with the Registrant’s personal circumstances which have factored into and made it more difficult for him to pay the tax debt owing to the CRA, I am mindful of the investor protection mandate of the OSC. Accordingly, it is my decision to impose the terms and conditions as set out in Exhibit A on the registration of Donovan Gene Brown. These terms and conditions will be lifted upon OSC staff receiving evidence that the obligation to pay has been fulfilled to the satisfaction of the CRA.

July 2, 2009
“Erez Blumberger”
Manager, Registrant Regulation




EXHIBIT “A”



Proposed Conditions For Registration

of

Donovan Gene Brown



Monthly Close Supervision Reports are to be completed on the registrant’s sales activities and dealings with clients. The supervision reports are to be retained with the sponsoring firm and must be made available for review upon request. These terms and conditions are to continue until the obligation has been satisfied and acceptable evidence has been provided to the OSC.



_______________________________
Approved Officer for
Dundee Private Investors Inc.
_______________________________
Donovan Gene Brown
   
_______________________________
Print Name of Signatory Above
 
   
_______________________________
Date
_______________________________
Date




EXHIBIT “A” (cont.)


Standard Monthly Close Supervision Report*

Donovan Gene Brown


I hereby certify that supervision has been conducted for the month ending ____________ of the trading activities of Donovan Gene Brown, by the undersigned. I further certify the following:
  1. All orders from the salesperson were reviewed and approved by a compliance officer or branch manager of Dundee Private Investors Inc.

  2. There were no client complaints received during the preceding month. If there were complaints, a description of the complaint and follow-up action initiated by the company is attached.

  3. All payments for the purchase of the investments were made payable to the dealer. There were no cash payments accepted.

  4. The transactions of the salesperson were reviewed during the preceding month to ensure compliance with the policies and procedures of the dealer, including the suitability of investments for clients. If there were any violations, a description of the violation and follow-up action is attached.

________________________________
Signature
Compliance Officer/Branch Manager of Dundee Private Investors Inc.
Printed name of signatory above:




________________________________
Date

     * In the case of violations or client complaints, the regulator must be notified within five business days.