Securities Law & Instruments



R.S.O. 1990 C.S.5, AS AMENDED







July 2, 2003
David M. Gilkes
Manager, Registrant Regulation
Capital Markets Branch
Ronald Pelletier
Counsel for the Applicant
Alexandra Clarke
Counsel for the Commission



1. This decision relates to the applicationof Mr. Ng (the Applicant) to transfer his registrationas a Mutual Fund Salesperson to Portfolio Strategies Corporation.Staff has recommended that the Director deny this application.


2. The Applicant was first granted registrationin 1992 as a Mutual Fund Salesperson with The Investment Centre.In 1995, he transferred to the Info Financial Group and inDecember 1998 he transferred to Fundex. Fundex dismissed Mr.Ng for cause on July 31, 2002. On September 5, 2002, PortfolioStrategies Corporation submitted Mr. Ng's application to transferhis registration. In a letter dated January 16, 2003, Staffadvised the Applicant that they recommended the Director denyhis application based on grounds that he was not suitablefor registration as a Mutual Fund Salesperson under the SecuritiesAct (Ontario) (the Act).

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

(3) Refusal -- The Director shall not refuseto grant, renew, reinstate or amend registration or imposeterms and conditions thereon without giving the applicantan opportunity to be heard.

4. The opportunity to be heard was done throughthe written submissions. Counsel for Registration Staff ofthe Ontario Securities Commission (OSC) provided reasonsfor their recommendation on May 9, 2003. Counsel for the Applicantprovided his submission on June 13, 2003 and counsel for Staffreplied on June 23, 2003.

Staff Submissions

5. The Applicant was dismissed for cause andas a result Staff investigated the circumstances of his dismal.The reasons for Mr. Ng's termination were provided by Fundexin the termination notice:

Mr. Ng had been on mandatory supervisionsince pre-signed order entry tickets were found in his officefiles in August 2001.

Subsequent to that finding, several complaintswere lodged with the Ontario Securities Commission againstMr. Ng. Ken Booker and Laurie Toledano from the EnforcementDivision are currently investigating those files. An OSCaudit in April 2002 revealed additional regulatory concerns.An internal audit was performed in June 2002 which againrevealed deficiencies in the way Mr. Ng operated.

6. Staff identified three major concerns withthe Applicant's activities based on the results of the investigation,the interviews with complainants and the OSC compliance fieldreview:

    • Unsuitablerisk level in clients' portfolios based on the risk tolerancedisclosed in their KYC forms,

    • Leveragedinvestments recommended for clients where such investmentswere not suitable, and

    • The use ofpre-signed order forms to purchase or redeem mutual fundson his clients' behalf, often without consulting his clientsof the action he was to take.

7. Staff concluded that Mr. Ng lacked thecompetence and integrity required of a securities industryprofessional and was not suitable for registration and recommendedthat the Director deny his application.

8. The Staff submission provided details ofthe findings above, which I will not repeat here, however,they support Staff's position that the Applicant had recommendedunsuitable investments to his clients.

9. The written submissions of Staff provideda summary of the law in this area. Section 26 of the Act providesthat:

Granting of Registration -- Unlessit appears to the Director that the applicant is not suitablefor registration, renewal of registration or reinstatementof registration or that proposed registration, renewal ofregistration, reinstatement of registration or amendmentof registration is objectionable, the Director shall grantregistration, renewal of registration, reinstatement ofregistration or amendment of registration to an applicant.

10. Clearly the onus of proof rests with Staffto establish that the registrant is "not suitable forregistration" or that the registration is otherwise "objectionable".

11. Staff referred to a number of Commissiondecisions including the Mithras and Charko decisionsthat read in part as follows:

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

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

... the Director must necessarily placea strong reliance on an applicant's past behaviour.

Re Charko, (1992) 15 OSCB 3986

12. Staff also referred to various other decisions(listed below) where registrants had demonstrated a lack ofunderstanding of their duties as registrants and whose reinstatementwas denied.

13. Re Vilas-Boas (200), 25 OSCB 6401

Re Ramdhani (2002) 25 OSCB 1745

Re DiCostanzo (2001) 24 OSCB 5307

Re Bushell (2001) 24 OSCB 5669

Re Thatcher (2001) 24 OSCB 631

Re Curia (2000) 23 OSCB 1745

Re Jaynes (2000) 23 OSCB 1543

Re Dornford (1998), 21 OSCB 7499

14. Staff further noted that in consideringan application for registration, it is appropriate to takeinto account the principle of general deterrence. As expressedin Re Jaynes:

In my view, to reinstate Mr. Jaynes at thistime despite his inappropriate past conduct and seriousbreaches of his duties as a registrant, even with conditionsor restrictions on his registration would be to send anunequivocal message to the marketplace that such conducthas little consequence. Such a message would be inconsistentwith the Director's obligation to act in accordance withthe Commission's investor protection mandate. Mr. Jaynes'conduct as a registrant had clear consequences for manyof his clients at Marchment. That such conduct should havelittle or no consequences for Mr. Jaynes, or indeed otherswho would follow his example and breach their obligationsin like fashion, is inconceivable and wholly inconsistentwith the important principle of general deterrence...

Re Jaynes (2000) 23 OSCB 1543

15. Staff concluded that the Applicant failedto meet the standards set out in the Act in terms of determiningthe suitability of investments for his clients (OSC rule 31-505,s. 1.5), the heightened standards of duty for leveraged investments(National Instrument 33-102), he had no authority to conductdiscretionary trading (Ont. Reg 1015, s. 98) and he did notdeal fairly, honestly and in good faith with his clients (OSCrule 31-505, s. 2.1).

16. Staff submitted that Mr. Ng is not suitablefor registration as a Mutual Fund Salesperson and as a result,his application should be rejected.

Applicant's Submissions

17. The key points made in Applicant's submissionsare:

    • The burdenof proof for determining an applicant is unsuitable undersection 26 of the Act is the same as a proceeding undersection 127,

    • Some of thecomplaints should be discounted because they were withdrawnor not acted upon by Fundex,

    • The Applicanthad not recommended unsuitable investments rather his clientswere the victims of bad timing,

    • The Applicantmet the higher standards required when recommending leveragedinvestments as witnessed by disclosure forms clients signedindicating they understood the risks of leveraged investments,and

    • There hasbeen no action by the Enforcement Branch of the OSC relatingto any of the activities described in Staff's submission.

18. The Applicant also noted that the Directordecisions relied on in the Staff submission are distinguishablefrom the case of Mr. Ng.

19. The Applicant concluded that there wererelatively few complaints against Mr. Ng when the whole ofhis business is considered and that the complaints relatedto bad timing. He noted that the obligation to disclose therisk of leveraged investments is demonstrated through thesigned forms. The Applicant also noted there is no clear evidencethat Mr. Ng engaged in discretionary trading or that he didnot deal with his clients fairly.

20. The Applicant submitted that there isno valid reason to deny Mr. Ng's registration.

Reply of Staff

21. Staff's made a reply to the Applicant'ssubmissions. I was interested in the reply to the issues ofthe burden of proof, and that the Applicant had not recommendedunsuitable investments rather his clients were the victimsof bad timing.

22. Staff submitted that the standard of prooffor determining suitability under section 26 is differentthan that for proceedings under section 127. The differencein the standard is consistent with difference in the scopeof the sections. I agree with Staff that the Director mustonly find that the applicant appears to be unsuitable andthat is a different standard than section 127.

23. In addition to the submissions by Staffand the Applicant, I referred to the 1991 OSC Annual Report.Under the heading of Registration Section, it stated:

The section administers a registration systemwhich is intended to ensure that all registrants under theSecurities Act and the Commodity Futures Act meet appropriatestandards of integrity, competence and financial soundness,...

Ontario Securities Commission, Annual Report1991, Page 16

This is consistent with Staff's descriptionof the burden of proof under section 26.

24. In regard to the suitability of the investmentsrecommended by Mr. Ng, the Applicant had submitted that noexpert evidence had been provided to make this determination.Staff replied that there was clear evidence from the chartsand documents supporting their submission and the Directorwas competent to make this judgement. I agree with Staff onthis point. The four cases cited in Staff's reply (p.7, par.29) clearly represent unsuitable investments recommended bythe Applicant.


25. I have reviewed and considered all writtensubmissions provided to me and based on that material, I findthe Applicant unsuitable to be granted registration as a MutualFund Salesperson.

July 4, 2003.

"David M. Gilkes"