Securities Law & Instruments

In the Matter of Staff’s Recommendation
for the Suspension of Registration
of Cyril Obasi

Opportunity to be Heard by the Director
Section 31 of the Securities Act



Decision

1. For the reasons outlined below, my decision is to suspend the registration of Cyril Obasi (Obasi) for nine months.

Overview

2. On January 18, 2011, Staff recommended Obasi’s registration as a dealing representative in the category of scholarship plan dealer (SPD) be suspended for nine months and that he be prohibited from applying to have his registration reinstated for a period of nine months from the date of this decision. Staff also submits that as a precondition to any application by Obasi for reinstatement of his registration that he be required to complete the Conduct and Practices Handbook course (CPH).

3. Pursuant to section 31 of the Securities Act (Ontario) (Act), Obasi is entitled to an opportunity to be heard (OTBH) before a decision is made by me, as Director. My decision is based on the written submissions of Mark Skuce, Legal Counsel, Compliance and Registrant Regulation Branch for the Staff and Obasi (on his own behalf).

The Law

4. The purposes of the Act (as set out in section 1.1) are to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets.

5. Subsection 28(a) of the Act states that the Director may suspend a registrant’s registration if it appears to the Director that the person or company has failed to comply with securities law.

6. Subsection 2.1(2) of OSC Rule 31-505 Conditions of Registration states that a registered representative of a registered dealer shall deal fairly, honestly and in good faith with his or her clients. Both the OSC and the courts have confirmed that OSC Rule 31-505 is part of Ontario securities law.

7. Subsection 122(1) of the Act provides that a person or company that makes a statement to Staff that, in a material respect at the time and in the light of the circumstances under which it is made, is misleading or untrue or does not state a fact that is required to be stated or that is necessary to make the statement not misleading has contravened Ontario securities law.

Arguments relating to Staff’s recommendation of suspension of Obasi’s registration

Reasons for nine month suspension

8. Staff submits that Obasi’s registration be suspended for nine months on the grounds that he breached Ontario securities law by:

  1. Forging the signatures of two of his clients (the O’s) to a letter authorizing him to remain as their account representative,
  2. Asking Mr. O to cover up for Obasi’s misconduct by lying to his sponsoring firm, and
  3. Lying to Staff when questioned about the forgery.

Obasi’s registration history

9. Obasi was first registered in 2003 as a dealing representative in the category of SPD with Global Educational Marketing Corporation (GEMC). He was then registered as a dealing representative in the categories of mutual fund dealer, limited market dealer and SPD with a related company (Global Maxfin Investments Inc. (GMII)). Since February 2010, he has been registered with GEMC as a dealing representative in the category of SPD.

Obasi’s alleged conduct

10. In December 2007, the O’s purchased a registered educational savings plan through Obasi.

11. In February 2010, Mr. O received a call from Ms. J, a branch manager from GMII. Ms. J was calling to confirm that the O’s were content to move their account from GMII to GMEC. Ms. J advised Mr. O that Obasi had moved from GMII to GMEC and that she had a letter dated February 16, 2010, purportedly signed by the O’s that stated that they had authorized Obasi to continue as their account representative. Mr. O advised Ms. J that he had no knowledge of Obasi moving from GMII to GMEC and that neither of the O’s had signed the February 16 letter.

12. Shortly after, Mr. O received a call from Obasi. During the call, Obasi admitted to Mr. O that he had forged the February 16 letter. Mr. O’s affidavit states that Obasi told him the February 16 letter was causing problems with his employer and asks Mr. O to tell GEMC that Mr. O had in fact signed the February 16 letter. Mr. O refused.

13. Mr. O subsequently contacted GEMC and advised that the O’s no longer wanted Obasi to be their account representative as they considered Obasi’s actions to be dishonest and unethical.

14. When first contacted by Staff in July 2010, Obasi denied the forgery. In a subsequent interview with Staff in December 2010, Obasi admitted to the forgery. However, he maintained that he did not ask Mr. O to cover up for him with GEMC.

Violations of Ontario securities law

15. Staff submits that by forging the February 16 letter, Obasi did not deal with the O’s fairly, honestly or in good faith, contrary to OSC Rule 31-505. I agree.

16. Obasi admitted to both forging the O’s signatures on the February 16 letter and to lying to Staff in July 2010. Staff submits that this conduct is a violation of subsection 122(1) of the Act. I agree.

17. The evidence of Mr. O and Obasi differs on whether Obasi asked Mr. O to cover up for him. Staff submits I should accept the evidence of Mr. O over Obasi on this point. I agree since, in my opinion, the O’s have no reason to be untruthful. As a result, I concur with Staff’s submissions that Obasi’s conduct is contrary to OSC Rule 31-505.

Principles on general deterrence and sanction

18. Staff argued that in imposing sanctions, the Commission’s objective is not to punish past conduct. Rather, the Commission must act in a protective and preventative manner to restrain future conduct that may be harmful to investors or the capital markets. See Re Mithras Management Ltd., (1990) 13 OSCB 1600.

19. Staff also argued that the Director should consider general deterrence as an important factor in determining appropriate sanctions and referred me to Cartaway Resources Corp. Re, [2004] S.C.R. (S.C.C.) which held that “it is reasonable to view general deterrence as an appropriate, and perhaps necessary, consideration in making orders that are both protective and preventative”.

20. I was also referred to Re Dornford (1998) 21 OSCB 7345 where the Commission held that it was appropriate to consider general deterrence in deciding whether to suspend a registrant who had been accused of misappropriating client funds. Extracting from that decision:

“In our view, taking into account general deterrence… would not be for the purpose of punishing Dornford… but rather for… the further protection of the marketplace not only from the actions by Mr. Dornford but also from breaches of trust by others. It seems to us that Warnes does not in any way indicate that general deterrence can be taken into account for punitive purposes, but rather, in the securities law context, that it can be taken into account in determining what is necessary to restrain conduct by others that is likely to be prejudicial to the public interest by having capital markets that are fair and efficient.”

21. General deterrence has also been endorsed by the Director in the context of an OTBH. In Re Jaynes (2000) 23 OSCB 1543, the Director said “I further find that the Dornford decision clearly establishes that general deterrence is an appropriate consideration for the Commission to take into account, and by extension, is also important for the Director to take into account in this context.”

Case law relating to forgery

22. In Re Hugh Cairns Bell (a 2005 decision of the Investment Dealers Association of Canada (IDA)), the hearing panel noted that:

“Forgery is always serious. It is unequivocally condemned because if is fundamentally dishonest and dangerous. Any act of forgery is a step onto a steep and slippery slope of deception that is always potentially harmful to clients and actually harmful to the… securities industry as a whole.”

23. In Bell, the registrant, who had no previous disciplinary record, forged three client signatures to facilitate certain transactions. There was no malicious intent on the part of Bell, no harm to his clients, and the financial benefit to the registrant was nominal. The registrant cooperated with the IDA’s investigation, accepted responsibility for his actions, and expressed remorse for his conduct. The hearing panel concluded that if Bell had not been terminated as a result of his conduct, the hearing panel likely would have considered a suspension of six months.

24. In Re Lamontagne (2009) ABASC 490, the registrant, who also had no previous disciplinary record, forged thirteen client signatures to his firm’s internal documents. The registrant initially denied the forgeries, but subsequently admitted to his misconduct. He did not contest the forgery charges brought against him by the Investment Industry Regulatory Association of Canada (IIROC), however the penalty phase of the hearing was contested. Mitigating factors noted by the hearing panel included that the registrant had paid a significant price for his misconduct, no clients were affected, the registrant had no disciplinary history with IIROC, and the registrant had learned his lesson. The IIROC hearing panel imposed a six month suspension, which was confirmed on appeal to the Alberta Securities Commission.

25. In contrast, in Re Inglis (a 2005 decision of the IDA), the registrant was suspended for two years after she signed her client’s signature to an account guarantee form without the client’s knowledge or consent. The case included an additional charge relating to using the client’s funds to satisfy her own undertaking to the client to reimburse the client for deferred sales charges. The IDA panel imposed a suspension of three years.

26. Staff submits that these cases indicate that six months to two years is an acceptable range for a suspension for Obasi. However, Obasi also lied to Staff, which Staff submits should also be reflected in the length of his suspension. As a result, Staff submits that a suspension of nine months is appropriate in this case for the following reasons, having regard to the applicable factors identified in Re Peter Sabourin et al (2010) 33 OSCB 5299:

  1. Forgery and lying to Staff are very serious matters,
  2. Registrants need to be made aware that the OSC will not tolerate forgery by registrants and that Staff will take forceful regulatory action to address situations where forgery has occurred,
  3. At the time of the forgery, Obasi had been a registrant for over seven years and thus he should have been aware that his conduct was not appropriate for a securities professional,
  4. The forgery did not result in any financial loss to the O’s or any financial gain to Obasi, and
  5. Obasi admitted most of his misconduct to Staff and expressed remorse for his actions.

Obasi’s arguments

27. Obasi submitted that a decision by me to suspend his registration would have a drastic effect on his career, his family and his ability to earn income to support and maintain his family. As well, the suspension of his registration would impact his insurance licence and his family would be seriously impacted both financially and socially.

28. Obasi’s materials indicate that he takes responsibility for the situation, refers to the situation as “an obvious misunderstanding” and offered his apologies to me, as Director, for “any conduct that appear [sic] to be not becoming of a licensed representative”. He also advised me that he “will personally give [his] apologies to the clients for the misunderstanding”.

29. He appealed to me for leniency and no suspension of his licence. He promised “to be extremely careful carrying out my business with the code of conduct and guarantee that this kind of misunderstanding will never happen again.”

Reasons

30. After having read the submissions of Staff and Obasi, it is my decision that Mr. Obasi’s registration should be suspended for nine months. Mr. Obasi is prohibited from applying to have his registration reinstated for a period of nine months from the date of this decision. As well, as a precondition to any application by Obasi for reinstatement of his registration, I decided that Mr. Obasi should complete the CPH.

31. I was troubled, as Staff was, with Obasi’s characterization of the forgery committed by him as a “misunderstanding”. In my view, there is clear evidence of Obasi’s forgery, his request this the O’s lie to his employer to cover up the forgery, and his misrepresentation to Staff when questioned about the forgery. As a result, I had difficulty in concluding that Obasi is truly remorseful for his actions.

32. In my view, the sanctions suggested by Staff are appropriate and reasonable in the circumstances and are commensurate with the securities law violations committed by Obasi. In my view, the nine month suspension suggested by Staff falls clearly into the test set out in Re Mithras above and is in line with the cases referred to me by Staff relating to similar conduct.

 

 

“Marrianne Bridge”, FCA
Deputy Director, Compliance
Ontario Securities Commission
March 4, 2011