Securities Law & Instruments

IN THE MATTER OF STAFF'S RECOMMENDATION TO REGISTER SANJIV SAWH WITH TERMS AND CONDITIONS

OPPORTUNITY TO BE HEARD BY THE DIRECTOR UNDER SECTION 31 OF THE SECURITIES ACT (ONTARIO)

Decision

1. For the reasons outlined below, I have varied the recommendation of staff (Staff) of the Ontario Securities Commission (the Commission) to register Sanjiv Sawh as a dealing representative in the category of mutual fund dealer. The terms and conditions are as follows:

a. Strict supervision for one year from the date registration is granted, and

b. While the terms and conditions are imposed, he will not seek registration as a dealing representative in the category of exempt market dealer.

Background

2. On November 6, 2014, the Commission received an application for the registration of Sanjiv Sawh (Sawh) as a dealing representative in the category of mutual fund dealer. Staff initially recommended to the Director that Sawh's application be refused based upon his prior disciplinary history and forward-looking statements made in two prior decisions: one by the Director in 2011{1} (the Director Decision) and another by the Commission in 2012{2} (the Commission Decision).

3. Sawh was previously registered with Royal Mutual Funds Inc., Breton Asset Management Limited and The Investment House of Canada Inc. (IHOC) until IHOC's membership was suspended following a settlement agreement dated April 8, 2010, which was accepted by a hearing panel of the Mutual Fund Dealers Association of Canada (the MFDA) on April 9, 2010.{3}

4. After IHOC's registration was suspended, Sawh and a former IHOC colleague (collectively, the Applicants) applied for the reinstatement of their registrations as dealing representatives with a new mutual fund dealer and exempt market dealer. Staff opposed the applications of the Applicants, and the reinstatement of their registrations in both the mutual fund dealer and exempt market dealer categories was refused in the Director Decision dated January 25, 2011.{4} The Applicants requested a hearing and review of the Director Decision by a panel of the Commission, which conducted a hearing de novo and ruled in the Commission Decision dated August 1, 2012 that the Applicants' applications for reinstatement of their registrations as mutual fund dealing representatives should be refused.{5} The Applicants then appealed the Commission Decision to the Ontario Superior Court of Justice, Divisional Court which dismissed the appeal in a decision dated June 12, 2013.{6}

5. Both the Director Decision and the Commission Decision made forward-looking statements as to the Applicants suitability for registration at some point in the future. The Director Decision reasoned that "the past conduct of [the Applicants] ... leads me to conclude that their conduct in the future may well be detrimental to the integrity of the capital markets".{7} The Commission Decision included findings that the Applicants lacked the proficiency and integrity required to be dealing representatives in the category of mutual fund dealer, that reinstatement of registration was objectionable, and that the Applicants lacked the high standards of business conduct required of a securities industry professional.{8}

6. Neither the Director Decision nor the Commission Decision precluded the Applicants from re-applying for registration as a dealing representative at some point in the future.

7. Since there is no explicit statement that restricts Sawh's ability to re-apply for registration in either the Director Decision or the Commission Decision, upon subsequent application for registration, the Director will require new evidence to determine his suitability for registration and that his registration is not otherwise objectionable.

Law

8. The Securities Act (Ontario) (the Act) requires the Director, as defined in the Act, to determine, at the time of an application, whether the applicant is suitable for registration.

9. Subsection 27(1) of the Act is clear that the Director shall make the determination on the suitability of an applicant for registration. Further, subsection 27(2) provides the elements that the Director shall consider when making that determination. Subsection 27(3) provides that the Director has the ability to impose terms and conditions on the registration of any person or company.

27.

(1) Registration, etc. -- On receipt of an application by a person or company and all information, material and fees required by the Director and the regulations, the Director shall register the person or company, reinstate the registration of the person or company or amend the registration of the person or company, unless it appears to the Director,

(a) that, in the case of a person or company applying for registration, reinstatement of registration or an amendment to a registration, the person or company is not suitable for registration under this Act; or

(b) that the proposed registration, reinstatement of registration or amendment to registration is otherwise objectionable.

(2) Matters to be considered -- In considering for the purposes of subsection (1) whether a person or company is not suitable for registration, the Director shall consider,

(a) whether the person or company has satisfied,

(i) the requirements prescribed in the regulations relating to proficiency, solvency and integrity, and

(ii) such other requirements for registration, reinstatement of registration or an amendment to a registration, as the case may be, as may be prescribed by the regulations; and

(b) such other factors as the Director considers relevant.

(3) Terms and conditions--The Director may, in his or her discretion, impose terms and conditions on the registration, reinstatement of registration or amendment of registration of any person or company and, without limiting the generality of the foregoing,

(a) may restrict the duration of the registration; and

(b) may restrict the person or company to,

(i) trading only specified securities or specified classes of securities or securities of specified classes of issuers,

(ii) underwriting only specified securities or specified classes of securities or securities of specified classes of issuers, or

(iii) providing advice with respect to investing in, buying or selling only specified securities or specified classes of securities or securities of specified classes of issuers.

10. The Act does not preclude a person or company from making a subsequent application for registration, if that person or company has previously been refused registration, has had its registration suspended or the registration is found to be objectionable.

11. However, in these instances, the Director will need to consider other factors prior to making a decision on the applicant's suitability for registration. In order to determine what factors the Director should consider, Staff submitted the following decisions of the Director and the Commission:

Re Price (1962),{9}

Re The House of Henderson Limited,{10}

Re Northern Securities Company,{11}

Re Price (1964),{12}

Re Scanlon,{13}

Re Brand,{14}

Re Harris,{15} and

Re Friesen.{16}

12. Many of the decisions were decided at a time when the Act explicitly required further applications for registration to be made upon new or other material or where it was clear that material circumstances had changed: Re Price (1962), Re The House of Henderson Limited, Re Northern Securities Company, Re Price (1964), Re Scanlon, Re Brand, and Re Harris. One of the decisions was made in a context other than an application for registration: Re Friesen. However, the decisions are useful for determining the appropriate criteria for the Director to consider upon a subsequent application for registration.

13. In Re Price (1962), the full Commission heard an appeal from an order refusing the application for registration of an individual, whose registration had previously been cancelled by the Commission.{17} The Commission held that the onus was upon an applicant to prove that material circumstances had changed.{18} The Commission held that the onus would be heavy and the evidence adduced by the applicant must not be of a negative nature only, but should be positive.{19} Although the applicant submitted evidence from his employer that he had not been the subject of any complaints, the Commission found that this was evidence of a negative nature and did not evidence a change in the character of the applicant.{20} The Commission stated that it would wish to have evidence of a change in the applicant's mode of business behavior and, in nearly all cases, it would be necessary for this evidence to be more than that of the applicant himself.{21}

14. The only new evidence submitted by the applicant when making a subsequent application for registration in Re The House of Henderson Limited was a letter written to the applicant.{22} The Director found that the letter had little, if any, bearing on the applicant's fitness for registration, since it was the writer's report of an informal discussion with the former Chairman of the Commission, that took place prior to the Commission's decision to refuse the applicant's registration, regarding the applicant's ability as a promoter.{23} The Director held that the applicant had not adduced acceptable new or other material to affect the application nor demonstrated that the material circumstances affecting his application had changed.{24}

15. In Re Northern Securities Company,{25} the full Commission interpreted the meaning of "new or other material", since the Act at that time stated: "A further application for registration may be made upon new or other material or where it is clear that material circumstances have changed."{26} The Commission held that "new material" meant material that had arisen and come into being subsequent to the previous application.{27} With respect to "other material", the Commission held that it meant material different from the material submitted in the previous application and that was not known to the applicant at the time of the first application.{28} The underlying principle being that a subsequent application for registration is not an appeal or review of a previous decision of the Director or the Commission and the previous decision would only come into question if new or other material would be sufficient to cast doubt on the previous decision.{29} The Commission considered whether the mere lapse of time would be a change in material circumstance and remarked that it doubted that fact by itself would ever be sufficient to warrant new registration.{30} As to the meaning of "material circumstances", the Commission held that one of the most important considerations in determining whether to grant registration is the character of the applicant.{31} Also, if an applicant had previously been found to lack the knowledge required of a registrant, the Commission held that the material circumstance upon a subsequent application for registration would be the applicant's knowledge.{32}

16. The applicant in Re Price (1964){33} was the same individual as in Re Price (1962){34}. In his 1964 application, the applicant submitted two letters: one stating he had been a registered real estate salesman for nine years without complaints against his activities and the other attesting to his good character. The Director found that the evidence produced met the requirements set out by the Commission in Re Price (1962).{35} Additionally, the Director considered the hardship upon the applicant caused by the rigors of his occupation at the time of the application, that the applicant was only guilty of one infraction of the Act during his time as a registrant and that the applicant had been deprived of his registration for fourteen years.{36} The Director granted the application for registration but ordered that, if the applicant change his place of employment, his application would be re-examined to determine whether his new employer would have a beneficial influence on his activities.{37}

17. The Director found in Re Scanlon that the applicant's own assurances of his change in character, in the absence of substantial corroborative evidence, did not overcome the earlier findings of the Commission that he had been guilty of acts or conduct which made him not suitable for registration.{38}

18. In Re Brand, the Commission considered whether an applicant, whose registration was cancelled by the Commission following an investigation and hearing, should be registered upon his subsequent application for registration.{39} In respect of the types of evidence that would be considered, the Commission held that the mere lapse of time is not new or other material and an applicant must show evidence of the manner in which he or she has carried out his or her duties during that time and the related responsibilities connected with those duties.{40} Also, the Commission held that character references may be considered as evidence of a change in circumstances but found that those submitted by the applicant were of a general nature.{41}

19. The Director's decision in Re Harris was based upon the same criteria considered by the Commission in Re Brand: the lapse of time is not new or other evidence, an applicant must submit evidence of the manner in which he or she has carried out his or her duties during that time and the related responsibilities and character references may be evidence of a change in material circumstances but not if they are of a general nature.{42}

20. In Re Friesen, the Commission considered whether to vary an order that prohibited the applicant from engaging in the securities business in Ontario, expect for trading in his personal accounts, on a permanent basis.{43} In determining whether to vary its previous order, the Commission cited a prior decision, Re Orsini,{44} in which the Commission had considered six of the seven criteria used by the Law Society of Upper Canada to assess an application for readmission. The Commission summarized the applicable criteria when determining whether the order should be varied as the following:

a. The applicant must be able to convince the Commission, by substantial and satisfactory evidence (including the evidence of trustworthy persons, especially persons with whom the applicant has been associated since the making of the order sought to be revoked or varied) that

i. and the marketplace because the applicant is a "changed person", having, in the period since the making of the order, completely rehabilitated himself or herself (or, to put it another way, "purged his or her past conduct") and

ii. his or her conduct since the time of the making of the original order shows that he or she can now be trusted not to engage in securities activities which are contrary to the public interest.{45}

b. The test is difficult but not impossible to meet.{46}

c. A substantial period of time must have passed, during which the actions of the applicant can be assessed against the criteria.{47}

d. Since general deterrence is a consideration which may be properly taken into account by the Commission in determining appropriate sanctions, sanctions should not be modified until a sufficient period of time has passed to make it clear that actions of the type on which the order is based will not, if taken by others, be taken lightly by the Commission.{48}

Reasons for Decision

21. My decision is based on materials provided before, during and after the in-person meeting and the submissions of Michael Denyszyn (Senior Legal Counsel, Compliance and Registrant Regulation); Janice Wright (Counsel for Sawh) and Sanjiv Sawh for this OTBH.

22. Staff has submitted that if an applicant has been found not suitable for registration by the Director or the Commission, the Act does not preclude the applicant from making a subsequent application for registration.

23. However, upon a subsequent application for registration, the applicant must submit new information that evidences changes in the material circumstances that led to the Director's or the Commission's prior finding that the applicant was not suitable for registration. In these circumstances, the onus is on the applicant to prove that he or she is suitable for registration.

24. Based on the cited case law, Staff has recommended that the Director consider the following six factors and evaluate the evidence supporting each of the factors, prior to making a decision on the subsequent application for registration:

a. the applicant must show by a sufficient course of conduct that he/she can be trusted in performing business duties;

b. the applicant must introduce evidence of other independent, trustworthy persons with whom the applicant has been associated since the prior refusal, suspension or revocation of registration;

c. a sufficient period of time must have elapsed for the purposes of general and specific deterrence;

d. where proficiency is at issue, the applicant must demonstrate how he or she has specifically remediated his or her proficiency;

e. the applicant must demonstrate that the misconduct that led to the prior refusal, suspension or revocation is unlikely to recur in the future by no longer engaging in business with non-compliant business associates; and

f. the applicant must demonstrate remorse and take full responsibility for his or her past conduct.

25. I agree that, at a minimum, these six factors must be considered before the Director can make a determination on an applicant's suitability for registration; after a finding by the Director or the Commission that the applicant was not suitable for registration.

26. Sawh presented the following evidence in response to the six factors:

a. Since 2010 Sawh has engaged in mortgage and insurance sales and financial planning services through Comprehensive Wealth Planning, Inc. (CWP), a company that is 100% owned by Sawh. On his own initiative, Sawh hired an independent compliance consultant to examine the policies and procedures and adherence to the regulations governing CWP's activities. The compliance consultant conducted reviews in 2014 and 2015 and determined that CWPs policies and procedures were followed, books and records were in order and no deficiencies were found in the management of the client accounts. Furthermore, Sawh confirmed that there have been no client complaints made to any of the insurance carriers, mortgage lenders or the relevant ombudsman office.

b. Reference letters were provided by two independent industry professionals with whom Sawh has worked in the insurance industry for 4 years and mortgage business for 7 years. Both provided favorable references and specified that there have been no customer complaints during their working relationship and in their opinion, good business practices have been followed. Also, that Sawh has been forthcoming regarding his prior disciplinary history.

c. At the time of this decision, Sawh has not been registered in the securities industry for almost six years. This time out of the industry is in line with other sanctions levied in respect to similar cases for both general and specific deterrence purposes.

d. Since May of 2011, Sawh has attended a significant number of industry conferences that included knowledge enhancement and skills training. Also, on his own initiative, he has taken and passed the Conduct and Practices Handbook course, the Investment Funds course, and the CFA Institute Ethics on-line refresher course. In total 46 separate courses, educational conferences and seminars were attended during this period.

In addition, Sawh teaches business course at Humber College and previously at George Brown College. Sawh brings real life experience into the classroom. He explains what factors led to the findings in the Director Decision and Commission Decision and shares this important lesson with the students. Essentially, if you don't comply with the regulatory requirements, act with integrity and understand the obligations that industry professionals owe to clients then there will be consequences and those consequences will have a lasting impact on you reputation, credibility and career.

e. Sawh has confirmed that he has severed business ties and is no longer conducting business, nor is he associated with his prior IHOC colleague or the principals of the issuers with which he previously dealt. This representation was also confirmed through a review of client relationship documents and the on-line presences for Sawh and CWP. Furthermore, he is not seeking registration as a chief compliance officer or as a dealing representative of an exempt market dealer, so he will not be conducting the same type of business activity that was the basis for the prior misconduct findings.

f. At the in-person meeting and voluntary interview in September 2015, Sawh demonstrated remorse. He has accepted responsibility for his prior misconduct and the impact it had on IHOC's clients. He substantiated that he fully appreciates the significance of and has learned from his prior misconduct. He reviewed the prior decision "... dissecting it to see what went wrong, where did I make mistakes, whether it was through actions or lack of actions, as you can see in the decision, and through different lenses and going through courses, as well as speaking to others, asking their advice and so on, you go back and you understand the decision." Additionally, since Sawh holds licenses outside of the securities industry and maintains a financial planning and Certified Financial Analyst designation, Sawh represented that he reported the disciplinary actions taken in the Commission Decision to each of the appropriate oversight bodies.

27. After reviewing the materials submitted and Sawh's responses to the questions posed at the in-person meeting, I am satisfied that the evidence presented demonstrates a material change in circumstances. Also, Sawh has appropriately rehabilitated his integrity and proficiency and he is not likely to engage in misconduct in the future. Further, he is suitable for registration and his registration would not be objectionable.

28. The proposed terms and conditions recommended by Staff and agreed to by Sawh included two levels of supervision after registration is granted. Strict supervision for a minimum of one year and then after successful completion of that term, an added term of close supervision for a minimum of one year. Also proposed was a prohibition from applying for registration as a dealing representative in the category of exempt market dealer while the terms and conditions are imposed.

29. Based on the evidence presented, the terms and conditions are modified as follows:

• Strict supervision will be imposed for a period of one year from the date of registration.

• While the terms and conditions are imposed, Sawh will not seek registration as a dealing representative in the category of exempt market dealer.

30. During the strict supervision term, Staff will receive monthly reports that will evaluate Sawh's compliance with various aspects of sales activity and dealings with clients. Staff can lift the strict supervision term and condition after one year from the date of registration, unless Staff becomes aware of detrimental information that has arisen after the date of this decision. If detrimental information arises during the strict supervision term then Staff will evaluate this information and recommend a course of action to the Director.

31. In this case the terms and conditions are not being imposed to "shore up" an objectionable registration, but to provide an added measure of investor protection and to foster public confidence.

"Debra Foubert J.D."
Director, Compliance and Registrant Regulation Branch
Ontario Securities Commission

March 11, 2016

{1} Re Sawh and Trkulja (2011), 34 OSCB 1059.

{2} Re Sawh and Trkulja (2012), 35 OSCB 7431.

{3} Re The Investment House of Canada Inc., Sanjiv Sawh and Vlad Trkulja, 2010 CanLII 85828 (CA MFDAC); reasons for the decision to approve the settlement agreement dated June 29, 2010, Re The Investment House of Canada Inc., Sanjiv Sawh and Vlad Trkulja, 2010 CanLII 86173 (CA MFDAC)

{4} Re Sawh and Trkulja (2011), supra note 1.

{5} Re Sawh and Trkulja (2012), supra note 2.

{6} Sawh v Ontario Securities Commission, 2013 ONSC 4018.

{7} Re Sawh and Trkulja (2011), supra note 1 at para 29.

{8} Re Sawh and Trkulja (2012), supra note 2 at para 313.

{9} (1962) OSCB 1 (November).

{10} (1963) OSCB 1 (December).

{11} (1964) OSCB 1 (May).

{12} (1964) OSCB 3 (June).

{13} (1965) OSCB 13 (July-August).

{14} (1965) OSCB 5 (November).

{15} (1966) OSCB 24 (March).

{16} (1999), 22 OSCB 2427.

{17} Supra note 9.

{18} Re Price, supra note 9 at 1.

{19} Ibid.

{20} Ibid at 2.

{21} Ibid.

{22} Supra note 10.

{23} Ibid at 3.

{24} Ibid.

{25} Supra note 11.

{26} Ibid at 1.

{27} Ibid at 2.

{28} Ibid.

{29} Ibid at 3.

{30} Ibid.

{31} Ibid.

{32} Ibid.

{33} Supra note 12.

{34} Supra note 9.

{35} Supra note 12 at 4.

{36} Ibid.

{37} Ibid at 5.

{38} Supra note 13 at 14.

{39} Supra note 14.

{40} Ibid at 6.

{41} Ibid.

{42} Re Harris, supra note 15 at 25; Re Brand, supra note 14 at 6.

{43} Supra note 16.

{44} (1997), 20 OSCB 6068.

{45} Re Friesen, supra note 16 at 2429.

{46} Ibid.

{47} Ibid.

{48} Ibid.