Securities Law & Instruments


[Update: The terms and conditions imposed by the Director in this decision were removed as at September 30, 2008.]


 

In the Matter of an Application
for Registration of Yegor Solovyev



Opportunity to be Heard by the Director
under Subsection 26(3) of the Securities Act


Date:
September 3, 2008
 
Director:
David M. Gilkes
Manager, Registrant Regulation
 
Submissions:
Nancy Silliphant
For staff of the Ontario Securities Commission
Yegor Solovyev
For the Applicant
 
Overview

1.  This decision relates to the recommendation of Ontario Securities Commission (OSC) staff to impose terms and conditions on the registration of Mr. Solovyev (also referred to as the Applicant). OSC staff made the recommendation based on the circumstances leading to his termination from TD Investment Services Inc. that called into question the Applicant’s suitability for registration in the securities industry.

Background

2.  Mr. Solovyev was registered as salesperson in the category of mutual fund dealer sponsored by TD Investment Services Inc. (TDIS ) under the Securities Act (the Act) onOctober 18, 2002. On February 20, 2006 he was terminated for cause by TDIS.

3.  On January 7, 2008 BMO Investments Inc. submitted an application for registration of Mr. Solovyev as salesperson in the category of mutual fund dealer. On June 18, 2008, OSC staff advised Mr. Solovyev that it had recommended the Director impose terms and conditions on his registration. Mr. Solovyev exercised his right for an Opportunity to be Heard (OTBH) by the Director.

4.  The OTBH was conducted through written submissions.

Staff Submissions

5.  OSC staff recommended that the Director impose terms and conditions on the registration of Mr. Solovyev based on the information from TDIS related to his termination.

6.  Mr. Solovyev worked for both TD Canada Trust bank (TD or the bank) and TDIS. His employment with both organizations was terminated on February 20, 2006. The Notice of Termination identified a combination of events that led to his dismissal. Mr. Solovyev had prepared a credit application for a client of the bank that had a number of factual errors which resulted in a higher level of financing than the individual should have qualified. Mr. Solovyev had been previously reprimanded and suspended in relation to forging client initials on two mutual fund account applications. He had also been reprimanded for using another employee’s bank system access to post his own financial transactions.

7.  In relation to the credit application, TD found that Mr. Solovyev could not provide a reasonable explanation for the errors in the credit application. However, he admitted knowing the client prior to becoming an employee of TD. There was no monetary loss to TD as a result of this application.

8.  Mr. Solovyev admitted to having forged client initials on two mutual fund account applications. These events were investigated by TDIS and led to a reprimand and a three-day suspension without pay in January 2006. The Applicant was advised that another reprimand could lead to the termination of his employment. The branch manager maintained close supervision of Mr. Solovyev’s mutual fund activities following these events.

9.  Mr. Solovyev was reprimanded and suspended for using another employee’s bank system access to post his own financial transactions. The transactions were not related to mutual fund activities.

10. The Mutual Fund Dealers Association (MFDA) conducted an investigation into the allegations of forged client initials on two mutual fund account applications. The MFDA concluded that Mr. Solovyev may have been in breach of the TDIS internal policy relating to personal integrity as well as the MFDA Standard of Conduct. The MFDA issued a warning letter and did not initiate proceedings against the Applicant.

Applicant Submissions

11. The Applicant provided context to the three events in the Notice of Termination. He said that none of the actions were done with malice but were undertaken in good faith.

12. The credit application was made by an existing client of the bank. The client wished to have a line of credit secured against his principal residence to finance a down payment on a second residence. The balance of the house payment would be a mortgage held by the same bank. According to Mr. Solovyev, he had arranged the credit facility with a down payment of 25% and a mortgage of 75%. The manager of the bank wanted a 35/65 split. Mr. Solovyev did not follow the instructions of the manager as he believed the income and the collateral of the client were sufficient for the deal as arranged.

13. In relation to the forged client initials on mutual fund accounts Mr. Solovyev noted he covered up an oversight where a document had not been initialed by the clients. He did not feel it was appropriate or necessary for them to come in just to initial documents.

14. In the first case, the clients were borrowing money to invest. In addition, it appeared to the Applicant and his manager that the funds that the clients wanted were not exactly suitable for them given their risk profile. The clients filled out and signed all the required documentation. However, after the clients left, Mr. Solovyev discovered a document that had not been initialed by the clients. After unsuccessful attempts to contact the clients, the Applicant initialed the documents rather than cancelling the account and having the clients return to the office to reopen the account.

15. The second case did not involve borrowed money and the manager was not present. The client filled out and signed the required documentation. After the client left, Mr. Solovyev found a document that had not been initialed by the client. Once again the Applicant initialed the document.

16. In relation to using another employee’s bank system access to post his own financial transactions, the Applicant explained he could not deposit coin into his account using the ATM at his office. He asked a colleague to deposit some loose coin into his account. The bank considered this activity as posting his own transactions under a different access number.

Suitability for Registration

17. 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.

18. Determining whether an Applicant should be registered is an important component of the work undertaken by OSC staff to protect investors and foster confidence in the capital markets. The standard for suitability is based on three well established criteria that have been identified by the OSC:
  • Integrity, including honesty and good faith, particularly in dealings with clients, and compliance with Ontario securities law,
  • Competency, including 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 of the risk that an individual will engage in self-interested activities at the expense of clients.
19. In this matter the question of the Applicant’s suitability for registration surrounds the criteria of integrity and to a lesser extent competency. There is no issue relating to the Applicant’s financial solvency.

20. The Applicant admits that he falsified client initials on two accounts. In these two cases, the clients had received all the information about the investments they were making including the risks. The clients signed all the documentation, however, with each application, the clients missed a spot where client initials were required. The Applicant tried unsuccessfully to contact the clients and rather than inconvenience the clients, he inserted the client initials.

21. The other events leading to the Applicant’s termination involve activities outside of the securities business. However, it is clear that the Applicant did not follow the internal policies of the bank or the instructions of his manager.

Decision and Reasons

22. The Director has the discretion to grant registration, refuse registration or impose terms and conditions on the registration. Terms and conditions are most useful in cases where remediation is possible. This point was discussed in the Jaynes decision that reads in part:
While 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.Re Jaynes (2000), 23 O.S.C.B. 1543
23. The submissions made by OSC staff and by the Applicant demonstrated a shortcoming in relation to the integrity required of a mutual fund salesperson. The Applicant, however, believed he was acting in the best interests of his client.

24. In the situation presented, the Applicant has shown remorse. He understands his past mistakes and has had over two years to reflect on them.

25. However, to ensure that there is no recurrence of past practices, close supervision will be required for a period of two years. Therefore, I impose the terms and conditions as set out in Exhibit A on the registration of Yegor Solovyev.

September 3, 2008

“David M. Gilkes”



Exhibit A
Terms and Conditions of Registration
for
Yegor Solovyev


Monthly Close Supervision Reports are to be completed on the Applicant’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 for a period of two years commencing September 30, 2008.


__________________________                 ________________________
Approved Officer for                                                Yegor Solovyev
BMO Investments Inc.



____________________________               ________________________
Print Name of Approved Officer                                         Date



Monthly Close Supervision Report*



I hereby certify that supervision has been conducted for the month ending____________ of the trading activities of Yegor Solovyev, 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 BMO Investments 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.


____________________________
Compliance Officer/Branch Manager
BMO Investments Inc.



____________________________               ________________________
Print Name                                                                         Date




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