An application for a hearing and review of this decision was made to the Commission pursuant to section 8 of the Securities Act (Ontario), and all notices, orders, and decisions relating to that application can be found in ‘OSC Proceedings’: The Commission’s final decision dismissing the application can be accessed by clicking here.
In the Matter of Staff’s Recommendation
to Suspend the Registration of
Opportunity to be heard by the Director
Under Section 31 of the Securities Act (Ontario)
- For the reasons outlined below, my decision is as follows:
- The registration of Christopher Reaney (Reaney) is suspended for a period of six months. The suspension term begins 10 business days after the date of this decision and continues for a period of six months.
- In the 10 business day period prior to the suspension term commencing, Reaney is not permitted to accept any new clients, open any new client accounts, or accept any new funds into an existing client’s account.
- If Reaney complies with paragraphs a. and b. above, then upon Reaney reapplying for registration in the future with a registered mutual fund dealer, staff (Staff) of the Compliance and Registrant Regulation Branch (CRR) of the Ontario Securities Commission (OSC or Commission) will not recommend to the Director that his application be refused unless Staff becomes aware after the date of this opportunity to be heard of conduct impugning Reaney’s suitability for registration, provided the following conditions are met:
- Reaney meets all other applicable criteria for registration at the time he applies for registration, and
- Reaney’s registration on reinstatement is subject to the following terms and conditions for a period of one year (a) Reaney will be under “strict supervision” (as that term is commonly understood) by his sponsoring firm, (b) if Reaney processes a transaction for a client using a document that is signed or initialled by a client and that is not the original version of the document, Reaney must deliver the original document to his sponsoring firm within one week of the transaction to permit the firm to verify the authenticity of the copied document, including whether the copied document was created using a pre-signed form, and (c) Reaney may not use a limited trading authorization for any of his clients.
- Reaney has been registered as a salesperson or mutual fund dealing representative with various sponsoring firms since 1996.
- On October 21, 2013, the Mutual Fund Dealers Association (MFDA) sent a letter to Reaney related to his admission to obtaining 10 blank signed forms from his clients, as well as falsifying the signature of his clients on 24 documents. The forms in question were comprised of know your client forms and trading forms and were dated between August 2007 and September 2012. The MFDA letter stated in part:
- Although the MFDA is responsible for ensuring compliance with its own by-laws and rules, the Commission is responsible for assessing the suitability of mutual fund dealing representatives for registration under the Securities Act (Ontario) (Act). After investigation, by letter dated August 14, 2014, Staff advised Reaney that Staff had recommended to the Director that:
Enforcement Staff is of the view that there is sufficient evidence to support a finding of breach of MFDA Rule 2.1.1(b), which states that… each Approved Person of a Member shall observe high standards of ethics and conduct in the transaction of business… While your conduct set out above is a serious matter… the MFDA has decided that it will not initiate formal disciplinary proceedings against you in this case. The MFDA is sending you this letter as a warning to ensure that there will be no similar breaches… in the future… Please note that this letter is being copied to the Ontario Securities Commission.
- the registration of Reaney be suspended for a period of nine to 12 months,
- should Reaney seek registration in the future, he must first successfully complete the Conduct and Practices Handbook Course (CPH), and
- if Reaney is registered in the future, his registration will be subject to prescribed terms and conditions for a period of one year.
- The basis of this recommendation is that Reaney admitted to personally signing, or allowing third parties to sign, some of his clients’ signatures to various investment-related documents, and to obtaining blank pre-signed forms for some of his clients. Staff alleged that this pattern of misconduct affected at least 25 clients or client households (of a total of approximately 200 clients or client households), and involved at least 22 documents bearing falsified signatures and at least 12 pre-signed forms. In addition, on at least two occasions, Reaney incorrectly responded “no” to a question in a questionnaire of his sponsoring firm asking whether he was in possession of any blank pre-signed forms. As a result, Staff alleges that Reaney failed to deal with his clients fairly, honestly and in good faith, contrary to OSC Rule 31-505 Conditions of Registration and that he failed to demonstrate the integrity required of an individual registered as a dealing representative under the Act.
- The opportunity to be heard (OTBH) with respect to these matters occurred on December 16, 2014.
Issues discussed during the OTBH
- The principal facts in this OTBH were largely undisputed. Reaney admitted to falsifying clients’ signatures on more than 20 documents. Only one client contacted by Staff indicated that he was unaware that Reaney had falsely signed his name to a document. Others contacted had signed the documents in question (or signed the documents on behalf of their spouse), or were either aware that Reaney had signed their name to documents or had verbally authorized Reaney to sign documents on their behalf. Reaney also admitted to having pre-signed blank client documents in his client files.
- With respect to the attestations of Reaney in his sponsoring firm’s questionnaire, again the facts were largely undisputed (particularly with respect to the second questionnaire when the pre-signed forms were more recently dated). Reaney incorrectly answered “no” to a question regarding whether he had pre-signed client documents in his client files, when in fact he did. This misconduct clearly inhibited his sponsoring firm from effectively supervising his activities and from detecting his misconduct at an earlier date.
- What was in dispute at the OTBH was the proposed nine to 12 month suspension sanction recommended by Staff.
Reasons for decision
- My decision is set out in paragraph one above. Since Reaney successfully passed the CPH course in November 2014, it was not necessary to include this requirement as a term of my decision.
- My decision is based on the written and verbal submissions of Mark Skuce (Legal Counsel, CRR) and Johanna Braden (counsel to Reaney). Reaney also provided submissions during the OTBH.
- Section 28 of the Act provides that the registration of a person or company may be suspended if it is determined that the person or company is not suitable for registration (i.e. possesses the requisite integrity, proficiency and solvency), has failed to comply with Ontario securities law, or that their registration is otherwise objectionable.
- In Re Sterling Grace & Co., Ltd. and Graziana Casale (2014), 37 OSCB 8298, a recent decision at the Commission level at paragraph 171, the Commission adopted a broader understanding of integrity. The Commission wrote:
We agree with the finding of a director of the Alberta Securities Commission that the concept of integrity invoked in the registration regime is broader than dishonesty. Rather it encompasses a duty of care and while a registrant may not be dishonest, he or she may “be reckless or lackadaisical over whether one complies with the rules or requirements of one’s industry. (Re John Doe (2010) 33 OSCB 1371 at para 37, citing Re Doe (2007), ABASC 296)
- In this case, Staff argued that that recklessness and lackadaisicalness is apparent in this case when you consider the number of falsified and pre-signed forms over a prolonged period of time and his integrity has therefore been impugned. I agree.
- During the OTBH, Reaney’s counsel referred to Staff’s requested period of suspension as being lengthy, not warranted in these circumstances, and “over-the-top” disproportionate to Reaney’s admitted misconduct. She also argued that a lengthy period of suspension would be professionally and financially devastating to Reaney. Lastly, she argued that “[T]he errors in judgement were, in [Reaney’s] own words, serious, but, again, he was motivated by a desire to assist his clients, to make their lives easier, to bother them less.” I believe that the statement made by a hearing panel of what was then the Investment Dealers Association of Canada in the Re Hugh Cairns Bell is applicable here:
Forgery is always serious. It is unequivocally condemned because it is a 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.
- In my view, a period of suspension is appropriate for the misconduct engaged in by Reaney over an extended period of time. I agree with Director Blumberger’s words in Re Anna Pyasetsky (2012) 35 OSCB 2092 where he stated that “[I]n my view, terms and conditions are not appropriate for cases involving forgery”. Reaney’s counsel argued that this was a case of false endorsement (where a registrant signs on behalf of a client with the client’s knowledge and consent), rather than a forgery case (where a registrant signs on behalf of a client without the client’s knowledge and consent). With respect, I disagree. This case involves what was characterised by Reaney’s counsel as false endorsement, as well as forgery. It also involves the use of pre-signed forms and false attestations by Reaney to his sponsoring firm. In my view, given all the facts and circumstances of this case, the appropriate sanction for Reaney is a shorter suspension period than recommended by Staff (for the reasons set out in this decision), plus prescribed terms and conditions on his registration should Reaney choose to re-register after his suspension.
Suspension period shortened to six months
- I shortened the suspension period to six months from the nine to 12 months recommended by Staff. In my view, I was able to distinguish this case from the precedents provided by Staff. For example, in Re Cyril Obasi (2011) 34 OSCB 3012, Obasi was found to have forged the signatures of two clients, then asking his clients to cover up for his misconduct by lying to his sponsoring firm. In addition, Obasi lied to Staff when questioned about the forgery. Obasi’s registration was suspended for nine months.
- In Re Riccardo Alberto Dipronio (2011) 34 OSCB 6345, Dipronio was found to have opened a mutual fund account for a client and to have used funds to purchase mutual funds for that account, all without his client’s consent. Under a settlement agreement with Staff, Dipronio’s registration was suspended for a period of nine months.
- Lastly, in Re Kevin Duffy (2014) 37 OSCB 9409, Duffy was found to have used pre-signed forms on numerous occasions. In three reviews of his practice (2008, 2010 and 2013), Duffy’s sponsoring firm found him using blank pre-signed forms. Following every review, Duffy signed an undertaking to his firm that he would review all client files and destroy any blank pre-signed forms, and that he would not use pre-signed forms at any time in the future. In addition, the MFDA sent Duffy a warning about using pre-signed forms in 2014. Under a settlement agreement, Duffy agreed not to reapply for the reinstatement of his registration for a minimum period of nine months from the date of his termination with his sponsoring firm.
- In my view, Reaney’s misconduct did not rise to the level of the misconduct in any of these three cases. All but one of Reaney’s clients contacted by Staff authorised him to sign various client documents or were aware that Reaney was signing documents on their behalf. While signing clients’ names to documents is clearly reckless, lackadaisical and dishonest conduct that clearly seriously impugns Reaney’s integrity, in my view, it did not rise to the level of Obasi’s misconduct because it did not involve lying to Staff or asking clients to lie on his behalf. Nor did it involve actual client harm as in the Dipronio case or being “caught” three times and still using blank pre-signed forms as in the Duffy case.
General vs. specific deterrence
- In my view, this decision strikes the appropriate balance between general and specific deterrence.
- With respect to specific deterrence, Reaney has been suspended for six months and will be subject to strict supervision (and other terms and conditions) on re-registration. Reaney’s misconduct occurred over a number of years. MFDA Rule 2.3 prohibits its Members or any approved person from having discretionary trading authority over a client account. Maintaining pre-signed investment instruction forms could facilitate trading on a discretionary basis or could be used to facilitate fraudulent acts. In addition, his sponsoring firm issued a compliance bulletin prohibiting the use of blank, pre-signed and photocopied forms in June 2011 and the sponsoring firm’s policies and procedures starting in approximately 2008 had a strict prohibition against blank pre-signed client forms. Lastly, the firm’s questionnaire had a specific question regarding the use of blank pre-signed or pre-signed forms, which Reaney responded to incorrectly. In my view, these are aggravating factors which call for specific deterrence sanctions against Reaney. With respect to mitigating factors, Reaney responded truthfully and completely to requests for information from his sponsoring firm, the MFDA and Staff. In addition, he admitted to his misconduct and he appeared to me to be remorseful for his misconduct. In my view, he is unlikely to repeat this misconduct in the future.
- With respect to general deterrence, I believe the six month suspension will serve as adequate general deterrence for registrants who are considering engaging in similar misconduct. Falsifying client signatures and the use of blank pre-signed forms is misconduct that directly seriously impugns the integrity of registered individuals. In addition, providing incorrect information to the registered individual’s sponsoring firm which inhibits the sponsoring firm from effectively supervising the registered individual and from meeting its obligation to report the use of blank, pre-signed or photocopied forms to the MFDA, is also misconduct that seriously impugns the integrity of registered individuals.
Amendment to terms and conditions recommended by Staff on re-instatement of registration
- I amended the terms and conditions requested by Staff to include a provision that should Reaney apply for registration in the future, provided he complied with the terms I’ve imposed related to the misconduct described in this decision, Staff would not recommend to the Director that his application be refused unless Staff becomes aware after the date of the OTBH of further misconduct impugning Reaney’s suitability for registration. In addition, Reaney’s will have strict supervision terms and conditions attached to his registration for a period of one year following his reinstatement of registration. In my view, this amended term and condition was necessary in order to ensure that Reaney’s misconduct as described in this decision is not used again to assess his suitability for registration. In my view, this decision adequately deals with the misconduct identified by Staff prior to the date of the OTBH and as outlined in this decision. However, Reaney is on notice that should Staff identify similar misconduct after the date of the OTBH, Staff will use the misconduct identified in this decision, together with any further misconduct identified to assess his suitability for registration.
“Marrianne Bridge”, FCPA, FCA
Deputy Director, Compliance, Strategy and Risk
Compliance and Registrant Regulation Branch
Ontario Securities Commission
Dated: January 5, 2015