Securities Law & Instruments

IN THE MATTER OF

AN APPLICATION FOR TRANSFER OF REGISTRATION OF

KENNETH CLARK HOPPER

 

OPPORTUNITY TO BE HEARD BY THE DIRECTOR

UNDER SECTION 26(3) OF THE SECURITIES ACT

Date of Decision:
February 11, 2009
 
Director:
Christina Forster Pazienza, CA
Assistant Manager, Compliance
Ontario Securities Commission
 
Written Submissions by:
Rita Lo, Registration Research Officer
Michael Denyszyn, Legal Counsel, Registrant Regulation
For the staff of the Ontario Securities Commission
 
Jonathan J. Sommer, Sommer's Business Law Firm
For Kenneth Clark Hopper

Overview

1. This decision relates to the application (the Application) for the transfer of the registration of Kenneth Clark Hopper (Hopper) as a salesperson in the categories of mutual fund dealer (MFD) and limited market dealer (LMD) under the Securities Act (Ontario) (the Act) sponsored by Armstrong & Quaile Associates Inc. (Armstrong & Quaile), a firm registered in the categories of MFD and LMD.

2. Ontario Securities Commission (the OSC or Commission) staff recommended that the Director refuse the Application based on the circumstances leading to Hopper's resignation for cause from his former employer, Investor House of Canada Inc. (IHOC) and prior to that, the circumstances at another former employer, Queensbury Strategies Inc. (Queensbury). Staff has taken the view that the circumstances of Hopper's past employment calls into question his suitability for registration.

Background

3. Between 1994 and 2008 Hopper was registered under the Act as a salesperson with various mutual fund dealers.

4. Hopper was registered as a salesperson in the categories of MFD and LMD sponsored by Queensbury on May 2, 2003. On July 21, 2006 he left Queensbury in good standing.

5. Hopper was registered as salesperson in the categories of MFD and LMD sponsored by IHOC on July 24, 2006. On May 31, 2008 he resigned for cause from IHOC.

6. On June 3, 2008, Armstrong & Quaile submitted the Application.

7. On September 11, 2008, OSC staff advised Hopper that it was recommending to the Director that the Application be refused.

8. In accordance with subsection 26(3) of the Act, Hopper exercised his right for an Opportunity to be Heard by the Director through written submissions.

9. OSC staff, Rita Lo, Registration Research Officer and Michael Deneyszyn, Legal Counsel, Registrant Regulation, prepared written submissions by way of memorandum (Staff's Memorandum) dated November 27, 2008. Written submissions on behalf of Hopper were submitted by Jonathan J. Sommer, Sommer's Business Law Firm, by way of letter, dated December 15, 2008 (Hopper's Memorandum).

10. Below is a summary of OSC staff's and Hopper's submissions, as outlined in Staff's Memorandum and Hopper's Memorandum, respectively, followed by my decision and reasons.

Staff Submissions

Overview

11. OSC staff recommended that the Director refuse the Application on the grounds that Hopper is not suitable for registration due to the lack of the requisite integrity and competence, and that his proposed registration would be objectionable.

12. The recommendation was made in light of three main areas of concern:

    • Hopper's conduct while employed at Queensbury;

    • Hopper's conduct while employed at IHOC; and

    • Hopper's conduct in dealing with Mr. and Ms. P, and Mr. and Ms. R (collectively, the Complainants), former clients.

Suitability for registration generally

13. Subject to certain exemptions, subsection 25(1) of the Act requires any person or company that trades in securities or advises others in respect of investment in securities to become registered in the relevant category under the Act. A registrant is in a position to perform valuable services to the public, both in the form of direct services to individual investors and as part of the larger system that provides the public benefits of fair and efficient capital markets. A registrant also has a corresponding capacity to do material harm to individual investors and the public at large. Determining whether an applicant should be registered is thus an important component of the work undertaken by the OSC. As well, as noted in numerous decisions by the Commission, other securities commissions and the courts, registration is a privilege, not a right.

14. Subsection 26(1) of the Act states that unless it appears to the Director that the applicant is not suitable for registration, renewal of registration or reinstatement of registration or that the proposed registration, renewal of registration, reinstatement of registration or amendment to registration is objectionable, the Director shall grant registration, renewal of registration, reinstatement of registration, or amendment to registration to an application. Therefore, the question for the Director to determine in this matter is whether Hopper is suitable for registration or whether registering Hopper would be objectionable.

15. The meanings of "suitable" and "objectionable" for the purposes of section 26 of the Act are not set out in Ontario securities law. However, the Commission has, over time, articulated three fundamental criteria for determining suitability for registration:

    Integrity, which includes honesty and good faith, particularly in dealings with clients, and compliance with Ontario securities law;

    Competence, which includes prescribed proficiency and knowledge of the requirements of Ontario securities law; and

    Financial solvency, which is considered relevant because it is 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.

Concerning "integrity", section 102 of the Regulations under the Act (the Regulation) expressly provides that no registration or renewal of registration will be granted unless the Applicant has complied with the applicable requirements of the Regulation at the time of granting of registration or renewal of registration. Among other relevant provisions of the Regulation, subsection 2.1(1) of OSC Rule 31-505 Conditions of Registration (OSC Rule 31-505) requires that a registered dealer or adviser shall deal fairly, honestly and in good faith with his or her clients.

As described below, staff is of the view that the criteria at issue in the Application are Hopper's integrity and competence. Staff is not of the view that Hopper should be denied registration due to concerns with his financial solvency.

Objectionable

16. Subsection 26(1) draws a distinction between the Director's determination as to whether (a) an applicant is suitable for registration, or (b) it would be objectionable to permit the applicant to be registered.

17. Staff argues that the determination that something is "objectionable" in the context of the Act must be made with reference to the public interest that is served by the Act. That public interest is in turn defined by reference to the purposes of the Act as they are set out in section 1.1 (a) to provide protection to investors from unfair, improper or fraudulent practices, and (b) to foster fair and efficient capital markets and confidence in capital markets.

18. In most cases, the determination as to whether registration is "objectionable" will coincide with the determination as to suitability based on the criteria enumerated above. Nonetheless, the Director also has the power to determine that it would be objectionable to approve an application on broader public interest grounds, regardless of the determination as to suitability.

Relevance of past conduct

19. In the Charko decision (In re Charko (1992), 15 OSCB 1389), the Commission has taken the position that "[i]n assessing fitness for registration, the Director must necessarily place a strong reliance on an applicant's past behaviour. As well, the Commission noted that "[s]uitability includes the totality of ...[a Registrant's] ... past and present".

20. In the Mithras decision (In re Mithras Management Ltd .et al (1990) 13 OSCB 1600) the Commission also stated that "... the role of this 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 ... 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 so doing 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."

Suitability of Hopper

21. Staff has recommended that the Director refuse the Application on the basis that Hopper lacks the requisite integrity and competence for registration.

Integrity

Conduct at Queensbury

22. Staff alleges that while employed at Queensbury, Hopper participated in and recommended certain charitable donation programs (Programs) without his employer's knowledge and consent, and concealed his involvement in the Programs by initialling a statement that he had not participated in/recommended Programs for any clients. Hopper had, in fact, recommended Programs to the Complainants, as well as several other clients, in 2003, 2004 and 2005, which Hopper acknowledged to staff.

23. By way of background, on February 7, 2006, the Compliance Department at Queensbury distributed a series of policy memoranda, including Policy Memorandum Str-2006-03, "Charitable Donation Programs," which all Queensbury representatives were expected to abide. All representatives were required to apprise Queensbury of any Programs recommended to Queensbury clients, and since the Programs were considered to be an outside business activity, clients were required to execute an acknowledgement and waiver with regard to the Programs. Hopper signed an acknowledgement stating that he had read, understood, and would abide by each of the policy memoranda, including Str-2006-03. The statement that he had not participated in these programs, as noted above, was on the same page.

Conduct at IHOC

24. Staff submitted that after Hopper joined IHOC, Queensbury filed a complaint to the Mutual Fund Dealers Association of Canada (the MFDA). Queensbury alleged that on August 22, 2006, while employed at IHOC, Hopper used pre-signed forms and faxed Queensbury trade orders, on Queensbury letterhead, using his Queensbury Dealer/Rep code. Hopper acknowledged to the MFDA that these allegations were true.

25. The MFDA found that Hopper violated MFDA Rule 2.1.1 to deal fairly, honestly and in good faith with his clients and not engage in any business conduct or practice which is unbecoming or detrimental to the public interest.

26. Regarding Hopper's use of his former Dealer/Rep code, the MFDA found that Hopper violated MFDA Rule 1.1.4(a) requiring him to be registered or licensed in the manner necessary in order to conduct business as an Approved Person.

27. During the MFDA's investigation, MFDA enforcement staff also discovered that Hopper had been marketing securities under the trade name "Wisdom Financial" without the approval of IHOC.

28. The MFDA found that Hopper violated MFDA Rule 1.1.7(c) which prohibited him from the use of a trade name not owned by IHOC unless IHOC had given its prior written consent and had its legal name used together with Hopper's unaffiliated trade name.

29. The MFDA issued a warning letter to Hopper on February 7, 2007 which addressed the above issues.

30. Hopper signed an acknowledgement to the MFDA on February 6, 2007 that the use of "Wisdom Financial" was limited to "marketing and servicing of insurance business" and was "not authorized for the marketing or sale of any products offered through IHOC".

31. Staff alleges that Hopper did not provide full disclosure to staff of his reasons for resigning from IHOC. He excluded the fact that he had received numerous warnings from IHOC about the use of the unauthorized trade name, and that on April 30, 2008, the day before he resigned, he was cautioned by IHOC that he faced termination if he did not cease the use of the unauthorized trade name.

Disclosure to Armstrong & Quaile

32. Staff alleges that Hopper failed to provide full disclosure to Armstrong & Quaile regarding his past conduct at Queensbury and IHOC as a letter written by Armstrong & Quaile (the "Armstrong Letter"), which was provided to staff by Hopper, omitted certain key details.

Competence

Lack of duty of care to the Complainants

33. OSC Rule 31-505 sets out the general duties and obligations which registrants owe to their clients. The general duties under subsection 2.1 (1) require a registered dealer to deal fairly, honestly and in good faith with its clients.

34. Section 1.5 of OSC Rule 31-505 also sets out the know your client (KYC) and suitability obligation which requires a registered salesperson of a registered dealer to make such enquiries about each client as are appropriate, in view of the nature of the client's investments and of the type of transaction being effected for the client's account, to ascertain the general investment needs and objectives of the client and the suitability of a proposed purchase or sale of a security for the client.

35. Staff alleges that Hopper failed to provide the requisite duty of care to the Complainants and failed to perform an adequate KYC and suitability review with respect to the Programs.

36. In the Daubney decision (In re Daubney and Littler (2008), 31 OSCB 4817), the Commission stated that the Act "... places the duty of care on the registrant, who is better placed to understand the risk and benefits of any particular investment product."

The donations

37. Hopper recommended to Mr. and Ms. P that they use borrowed funds to increase the value of their donation to two Programs -- the Canadian Gift Initiatives (CGI) and the Canadian Humanitarian Trust (CHT). Hopper's son is a sales representative of CHT.

38. Hopper recommended that Mr. and Ms. R use borrowed funds to increase the value of their donation to the Banyan Tree Foundation Program (Banyan Tree), also a Program.

39. The Complainants had the expectation that they would be able to claim both their funds and the borrowed funds as a tax deductible donation. The Canada Revenue Agency (CRA) has since reassessed the tax returns of each of the Complainants, resulting in a large sum of money owing to CRA.

KYC and suitability assessment

40. Staff alleges that Hopper failed to collect and document appropriate KYC information. While at Queensbury, Hopper worked with Mr. and Ms. P in the completion of their new account application forms. For both Mr. and Ms. P, the initial forms, dated May 19, 2003, indicated an investment knowledge of "average" and a risk tolerance of "medium". Less than a year later, on February 16, 2004, their investment knowledge was updated to "minimal", while their risk tolerance was updated to "high". A high risk tolerance was inconsistent with minimal investment knowledge. When Mr. and Ms. P later opened accounts through Hopper with IHOC on August 6, 2006, their account opening forms also indicated an investment knowledge of "low" and a risk tolerance of "high". Hopper signed off on each of these forms.

41. Similarly, while at Queensbury, Hopper assisted Ms. R in the completion of a new account application form. Her initial form, dated December 2003, specified an investment knowledge of "medium" and a risk tolerance of "high". On August 18, 2006, Ms. R opened an account through Mr. Hopper at IHOC, with an investment knowledge of "low" and a risk tolerance of "high". A high risk tolerance was inconsistent with low investment knowledge. Hopper signed off on each of these forms.

42. The Complainants stated in a letter to the Vice President of Queensbury, dated August 14, 2007, that Hopper advised them to indicate on their account opening forms a risk tolerance of high in order for him to make investment decisions that were suitable for their families. Staff alleges that Hopper guided the Complainants to declare a high tolerance for risk, not because a high-risk approach suited their needs and goals, but because it would enable him to ensure that the Complainants could participate in his preferred investment strategies.

43. Hopper represented to staff in his response to the OSC Questionnaire that he told the Complainants that leveraging was a risky strategy and that he only recommended the Programs to those that had tolerance for risk. Staff alleges that even if the Complainants articulated a tolerance for risk, that did not absolve Hopper of his statutory responsibility to make an appropriate suitability determination.

44. Staff alleges that there was an inappropriate suitability analysis performed by Hopper as there was no documented evidence to support that the Programs were a suitable strategy for the Complainants, and that using leverage to support that strategy was appropriate, in light of the Complainants' income, family circumstances, and limited ability to absorb losses.

45. In response to a complaint letter dated April 17, 2007 from the Complainants to the MFDA, the MFDA issued a second warning letter to Hopper on September 20, 2007. The MFDA also noted Hopper's lack of documentation to support leveraging, and stated that Hopper breached MFDA Rule 5.1 (b) which requires that an adequate record of each order and of any other instructions received be maintained.

46. Staff alleges that Hopper provided advice to the Complainants that was outside of his area of expertise and competence, with respect to the CRA reassessment process of the Programs.

Referral Fees

47. Hopper denied to staff that he received any compensation for recommending the Programs. However, Hopper acknowledged to staff that Hopkin Holding Ltd (Hopkin), a company of which he is the President and Director, did receive remuneration for sales of the Programs. Hopkin received a total of $12,280 in referral fees in connection with the three Programs, CGI, CHT, and Banyan Tree .

48. Hopper acknowledged to staff that he did not disclose to clients that Hopkin received referral fees for the Programs they had contributed to. Staff alleges that this is contrary to MFDA Rule 2.4.2 that requires written disclosure of referral arrangements to clients prior to any transactions taking place. The written disclosure must include an explanation or an example of how the referral fee is calculated, including the name of the parties receiving and paying the fee.

Personal financial dealings with a client

49. Staff alleges that Hopper failed to disclose a conflict of interest to IHOC. The conflict arose from a situation where Hopper issued a cheque for $600 to a client as compensation for what Hopper felt was an untimely response by IHOC to his redemption request for a client. Rather than escalate this issue to IHOC, he paid the client himself. Staff also alleges that he breached MFDA Rule 2.1.4 which requires Approved Persons to immediately disclose any conflict of interest or potential conflict of interest between the Member and the Client to the Member (as such terms are defined in the MFDA Rule).

Registration objectionable

50. As described above, in addition to determining whether an applicant is suitable for registration, the Director also has the ability to determine whether it would be objectionable to permit the applicant to be registered on broader public interest grounds, regardless of the suitability determination. Staff submits that the proposed registration of Hopper is objectionable on public interest grounds.

Denial or terms and conditions

51. Depending on the degree to which an applicant for registration, renewal of registration, transfer of registration or reinstatement of registration has failed to satisfy one or other of these criteria noted above in paragraph 15, staff will often recommend registration subject to terms and conditions tailored to the suitability concerns that are specific to the individual applicant. Less often, staff will recommend that registration be denied altogether because of the extent or persistence of an applicant's failure to satisfy the suitability criteria.

52. In the Jaynes decision (In re Craig Alan Jaynes (2000), 23 OSCB 1543) the Commission took the position that "[w]hile terms and conditions restricting registration may be appropriate in a wide variety of circumstances, they should not be used to "shore up" a fundamentally objectionable registration. To do so would be to create the very real risk that a client's interests cannot be effectively served due to the severity and extent of the restrictions imposed."

Hopper submissions

Overview

53. Hopper objects to staff's recommendation. The primary area in which staff and Hopper disagree is with respect to the issue of integrity. Hopper represents that he has always placed his client's interest above his own. His failure to observe the rules has been to better fulfill his clients' wishes.

54. Hopper alleges that staff has failed to observe procedural fairness in this proceeding, in light of the unfair, biased and unsubstantiated method employed by staff in arriving at its conclusion about Hopper's disclosures to Armstrong & Quaile, as set out in the Armstrong Letter, and the refusal of staff to provide copies of its interview notes with interviewees.

55. Hopper proposes that, in these circumstances, registration with terms and conditions would be more appropriate than a denial of registration. Hopper acknowledges that his failures cannot be justified by their benevolent nature, and he has some real work to do to focus on strict compliance no matter what the circumstances. Hopper feels that his failings can be remedied by allowing him to register, with terms and conditions imposed on his registration.

56. Hopper admits he has made some mistakes and that his compliance with certain technical rules has not always been perfect. Hopper apologizes for his errors and wishes the OSC to know that never did he act with any motivation contrary to providing the fullest service to his clients.

Submissions on allegations

57. Hopper responded to each of the areas of concern set out in Staff's Memorandum and provided details to support his arguments.

58. Hopper apologizes if it is Queensbury's view that Hopper answered the statement incorrectly as to whether he had recommended any Programs to clients. He had no intention of hiding anything. He interpreted Policy Memorandum Str-2006-03 to apply on a going forward basis, and did not apply to his past involvement in the Programs.

59. Hopper is sorry he handled the situation poorly regarding the order placed with Queensbury after his termination. He understands now that even though he may have helped the client and acted out of a desire to help, he ought to have told the client to deal with Queensbury directly.

60. Hopper admits to the use of pre-signed forms and has ceased this practice. He admits that he did not follow proper procedure by using these forms.

61. Hopper states that he never marketed securities to clients or to the public under the trade name "Wisdom Financial", and only used that trade name in connection with insurance and other products. He states that IHOC was aware at all times of his use of the name in connection with non-IHOC products, and states that IHOC never told him there was anything wrong with that practice. However, Hopper acknowledges and agrees that a strict adherence to the rules would have required him to obtain prior approval by IHOC in writing

62. Hopper disagrees with OSC staff's suggestion that Hopper left IHOC because of the dispute related to his trade name. He states that his decision had more to do with joining a more supportive and reputable firm.

63. Hopper's view is that with respect to the Programs listed in staff's allegations, whether or not a Program's participants are reassessed says nothing about whether the program is legally effective in securing for its participants the tax benefits they claim. The responsibility lies with the Tax Court of Canada. His view is that to talk of the fact of reassessment as if that is determinative is misleading at best.

64. Hopper acknowledges that he recommended or provided loan advice to the Complainants in connection with their participation in the Programs. His understanding of the risks involved in the programs was formed by: (a) the due diligence process information in the Programs' marketing material; (b) the legal and accounting opinions in the Programs' marketing materials; (c) discussions he had with the promoters of the Programs and their lawyers, and (d) CRA's pamphlet "Tax Advantages of Donating to Charity".

65. Hopper is of the view that the Programs were effective and reliable ways of reducing tax for his clients.

66. Hopper represents that he made the Complainants aware of the existence of substantial legal defence funds established in order to defend the Complainant's participation in these Programs in the event of reassessment (as outlined in the Program documentation he gave to the Complainants), which was a possibility. He also stressed the importance of investing tax savings obtained through participation in the Programs so that any future tax liability incurred as a result of a possible reassessment would be covered. Furthermore, he told them that if they needed funds in the short term they could get them by borrowing, but that it was not advisable to do so unless their cash flow could absorb quick repayment of those loans.

67. Hopper states that he informed the Complainants of the risks involved in the Programs, to the extent that it was possible, since Hopper is not a tax shelter lawyer.

68. Hopper alleges that the risky ways that the Complainants financed their participation in the Programs were beyond Hopper's control, and that they refused to listen to reason, financial and legal counsel. He alleges that the Complainants refused to take responsibility for the mistakes they made in the way they handled their finances. He also states that the Complainants were forceful and active determiners of their own destinies.

69. In Hopper's dealings with the Complainants, he regrets and is sorry that his documentary disclosure and note-taking were not done as they should have been. However, he believes that the disclosure and advice that he gave in his lengthy discussions with the Complainants was sound.

70. Hopper acknowledges that he received referral fees in connection with the Programs in 2003 and 2004. He also acknowledges that he failed to abide by MFDA Rule 2.4(b)(iv) which required him to provide disclosure of the referral fees to the Complainants.

71. Hopper disagrees with staff's submission that referral fees in connection with his clients' investment in the Programs were paid to him through Hopken. His view is that although Hopper is the majority shareholder in Hopken, he has never received Program commissions/referral fees "through" that entity. Rather, Hopken only made payments to Hopper's son and other representatives.

72. Hopper acknowledges that he did not disclose to IHOC the conflict of interest between IHOC and the client which arose as a result of IHOC's failure to process that client's redemption request in a timely manner. He paid the client $600 out of his own pocket because he cared about the client's financial and emotional well-being. He acknowledges that his failure to disclose constitutes a technical violation of the applicable rules which he claims he will never commit again. However, he disagrees with staff that this incident demonstrates a lack of integrity.

Decision

73. After having reviewed the written submissions provided, it is my decision that the Application should be refused.

Reasons

74. The questions for me to determine are whether Hopper, as applicant in the Application, is suitable for registration or whether it would be objectionable to permit Hopper to be registered. In order to make this decision, I have considered Staff's Memorandum and Hopper's Memorandum, the nature and extent of the issues raised by staff, and have reviewed past decisions which may have bearing on the Application.

75. In deciding whether to: (a) deny registration or (b) register Hopper with terms and conditions, I looked at the extent and persistence of Hopper's failure to satisfy the suitability criteria for registration. This is demonstrated by the nature and number of concerns raised by staff regarding Hopper's past conduct at Queensbury and IHOC. I have considered whether terms and conditions would be appropriate in these circumstances. However, I do not believe that terms and conditions would be able to address my concerns regarding Hopper's suitability.

76. I agree with staff's view that Hopper lacks the integrity and competence required of a registrant and therefore is not suitable to be registered. I do not find Hopper's arguments to be persuasive. Hopper was involved in a series of transgressions at two former employers, Queensbury and IHOC, that in their totality, reflect poorly on his conduct as a salesperson and would necessarily require remedial action. However, it is his lack of duty of care to the Complainants, including a failure to conduct a reasonable and adequate KYC review and to ensure the suitability of the Programs, and the leveraged strategy recommended by him and employed by the Complainants to facilitate their contributions, that I find most troublesome.

77. Staff has alleged that Hopper showed a lack of integrity with respect to his lack of disclosure to Armstrong & Quaile regarding the circumstances of his departure from his previous employer. However, I am not convinced that staff had sufficient evidence to support their conclusion. In this regard, Hopper had cited a lack of procedural fairness on the part of staff. As a result, I have put aside this allegation and have not considered it in my decision.

78. I agree with staff that Hopper violated the KYC obligation and suitability requirements, as well as the duty of care set out in OSC Rule 31-505 to deal fairly, honestly and in good faith when he made unsuitable investment recommendations to the Complainants. I find that Hopper failed to fulfill his obligations as a registrant under the Act, and his conduct caused great harm to the investors who relied on him and trusted him to follow the rules and regulations applicable to registrants when dealing with clients.

79. Hopper has been registered as a salesperson with many mutual fund dealers over approximately a fifteen year period. These transgressions appear to have arisen over the last five years of that period. Given the length of time that he has been in the industry, I find the actions of Hopper raised by staff even more troubling and am of the view that his actions are not that of a registrant who meets the standards of integrity and competence.

80. Hopper has shown remorse for some of his actions, but not all. He blames the Complainants for their current predicament and the CRA reassessments that have resulted in large sums of money owed to CRA, as well as the manner in which the Complainants have chosen to deal with the reassessments. Hopper has failed to take responsibility for his actions and his recommendations to the Complainants with respect to the Programs, as well as the leverage strategy that he advised the Complainants to undertake. To reiterate, in the Daubney decision, the Commission has stated that the Act "... places the duty of care on the registrant, who is better placed to understand the risk and benefits of any particular investment product. That duty cannot be transferred to the client."

81. As part of Hopper's KYC and suitability obligations, it was his responsibility to perform adequate due diligence on the Programs. Hopper argues that he adequately assessed the risk of the Programs, and feels that the Programs were effective tax reduction strategies. However, given the number of warnings that CRA has issued to the public regarding these Programs in the past, and the potential negative outcomes of CRA reassessments, it is my view that this was a high risk activity for any investor. Despite this, Hopper recommended these Programs to the Complainants, Programs from which he also benefited financially. In this regard, I would note that even if Hopper did not benefit directly, he benefited indirectly by referral fees going to a company that he controlled.

82. The fact that Hopper also advised the Complainants to prepare for a negative scenario by investing tax savings obtained through participation in the Programs so that any future tax liability would be covered, and taking comfort in the fact that legal relief funds had been set up for these Programs, supports that these Programs were risky . In my view, these Programs were not suitable for the Complainants, given their level of income, family circumstances, minimum investment knowledge and low risk tolerance, and limited ability to absorb losses. The use of a leverage strategy to donate to these strategies further amplified the risk to the Complainants, and again, was not suitable for the Complainants.

83. As I have determined that Hopper is not suitable for registration, it is not necessary for me to determine whether it would be objectionable to permit Hopper to be registered. However, it should be noted that given the extent of Hopper's actions, I would agree with staff that the proposed transfer of registration would be objectionable and contrary to the public interest.

"Christina Forster Pazienza, CA"
Assistant Manager, Compliance