THE SECURITIES ACT,
R.S.O. 1990, c. S.5 AS AMENDED
IN THE MATTER OF
JAIME ARLINDO VILAS-BOAS
1. From October 8, 1998 to December 14, 2000,Jaime Arlindo Vilas-Boas (Applicant) was registered as a salespersonof Merrill Lynch Canada Inc. (Merrill), a dealer in the categoryof Broker and Investment Dealer. By letter dated October 30,2001, BMO Mutual Funds (BMO) filed an application for the Applicantas a mutual fund salesperson. The application included a completedForm 4A - Application for Registration as a Mutual Fund Salesperson,fees and other related materials (Application).
2. Upon receipt of the Application, staff ofthe Registrant Regulation team, Capital Markets Branch, OntarioSecurities Commission (OSC) performed routine inquiries anddiscovered that there were two outstanding Investment DealersAssociation (IDA) investigations involving the Applicant.
3. Inquiries made of the IDA staff revealedthat the investigations involved a client complaint submittedby Chris and Colleen McNeil (McNeil complaint) and commentsmade by Merrill on the Applicant's Uniform Termination Notice(UTN).
4. Following receipt of the IDA information,by letters dated January 24, 2002 and February 13, 2002, staffproposed that the Applicant's registration be subject to certainterms and conditions, pending the outcome of the IDA's investigations.The proposed terms and conditions required the filing of a monthlysupervision report by the Applicant's supervising officer atBMO and also required that the Applicant sell mutual funds only.The Applicant had two choices. Either consent to the terms andconditions or exercise his right to be heard before the Director.The Applicant did not consent to the imposition of terms andconditions on his registration.
5. By letter dated May 3, 2002, staff advisedthe Applicant that it had recommended to the Director that hisapplication for registration be denied on the basis that hewas not suitable for registration. The letter states that "Itis staff's opinion that the above facts raise serious concernsabout your integrity and trustworthiness as a securities industryprofessional."
6. The Applicant has asked for a right to beheard before the Director. The parties agreed to conduct thishearing in writing. In making my decision, I have been providedwith the following documents:
- Written Submissions of Staff (undated), togetherwith Staff Brief of Documents and Staff Brief of Authorities
- Affidavit of Kathie Lisa Johnston (Johnston)sworn July 18, 2002 (Johnston is an Investigator in the Enforcementdepartment of the IDA)
- Written Submissions of the Applicant (undated)received by telecopy on August 28, 2002
7. The IDA has two principal concerns - theMcNeil complaint and the information on the Applicant's UTN.
8. Although the IDA's investigation into thesematters is not complete and the allegations have not been provenbefore a disciplinary panel, it is important to understand theIDA's concerns regarding the Applicants conduct as a registrant.For this reason, the IDA's concerns will be summarized briefly.
9. The McNeil complaint relates to the Applicant'sinvolvement in the incorporation and funding of their company,Myotec Inc. By letter to the IDA dated January 17, 2001, theMcNeils' allege, among other things, that the Applicant misledthem by stating that Merrill would be involved in the establishmentand financing of Myotec. One of the allegations is that theApplicant produced a document on Merrill letterhead entitled"Steps to Going Public". The document stated that"In this transaction, Merrill Lynch is acting as FinancialAdvisor and Process Consultant". Johnston is advised thatMerrill did not, in any way, participate in the venture.
10. The Applicant further recommended that theMcNeils engage the services of Marvin Winick, who was representedto be a Chartered Accountant, to structure the financial affairsof the company. Johnston is advised that Mr. Winick was expelledfrom the Institute of Chartered Accountants of Ontario for professionalmisconduct in 1992. The Applicant advised Johnston that he hadfailed to verify Winick's credentials in any way before recommendinghim.
11. On the strength of the Applicant's representations,the McNeils engaged Winick and invested over $85,000 in theventure.
12. In addition, the Applicant appears to havefacilitated the sale of shares of Myotec to several individualinvestors without the benefit of a prospectus, in violationof section 53 of the Securities Act (Ontario). It also appearsthat the Applicant may have engaged in similar conduct withrespect to a company called Urban Resorts Inc. (Urban)
13. As well, Johnston was advised by the Applicant'sformer manager at Merrill that Merrill had conducted an internalinvestigation of the Applicant's role in the Urban transaction.As a result of this investigation, the Applicant was reprimandedand would have been terminated from Merrill had he not resignedshortly after the reprimand was delivered.
14. The Applicants UTN states that the Applicant"resigned while on suspension from member firm [Merrill]prior to being terminated for cause" and that the Applicant"engaged in unauthorized corporate financing transactions".
15. The written submissions of OSC staff providea useful summary of the law in this area and I will providesome of that analysis in this decision.
16. Section 26 of the Securities Act providesthat:
Granting of Registration - Unless it appearsto the Director that the applicant is not suitable for registration…or that proposed registration… is objectionable, the Directorshall grant registration… to an applicant.
Terms and Conditions - The Director may in hisor her discretion restrict a registration by imposing termsand conditions [which]….may restrict the duration of aregistration and may restrict the registration to trades incertain securities or a certain class of securities.
17. Clearly the onus of proof rests with staff of the Commission,who must establish that the registrant is "not suitablefor registration" or that the registration is otherwise"objectionable".
18. I was referred to a number of Commissiondecisions including the Mithras and Charko decisions that readin 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 the circumstancesmay warrant - those whose conduct in the past leads us to concludethat their conduct in the future may well be detrimental tothe integrity of those capital markets. We are not here to punishpast conduct; that is the role of the courts, particularly undersection 118 of the Act. We are here to restrain, as best wecan, future conduct that is likely to be prejudicial to thepublic interest in having capital markets that are both fairand efficient. In doing so we must, of necessity, look to pastconduct as a guide to what we believe a person's future conductmight reasonably be expected to be; we are not prescient, afterall.
Re Mithras Management Ltd., (1990) 13 OSCB 1600
… the Director must necessarily place a strong relianceon an applicant's past behaviour.
Re Charko, (1992) 15 OSCB 3986
19. I was also referred to various other decisions(listed below) where registrants had demonstrated a lack ofunderstanding of their duties as registrants and whose reinstatementwas denied.
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
20. Staff also noted that in considering anapplication for registration from an individual who has failedto act in his clients' best interests, it is appropriate totake into account the principle of general deterrence. As expressedby Director Wolburgh-Jenah in considering the case of CraigAlan Jaynes:
Mr. Jaynes' conduct as a registrant had clearconsequences for many of his clients at Marchment. That suchconduct should have little or no consequences for Mr. Jaynes,or indeed others who would follow his example and breach theirobligations in like fashion, is inconceivable and wholly inconsistentwith the important principle of general deterrence…
Re Jaynes (2000) 23 OSCB 1543
21. The Jaynes decision also notes that "[w]hile termsand conditions restricting registration may be appropriate ina wide variety of circumstances, they should not be used to"shore up" a fundamentally objectionable registration."
Re Jaynes (2000) 23 OSCB 1543
22. Staff submits that the Applicant shouldnot be registered as a mutual fund salesperson at this time,while serious questions are outstanding concerning his suitabilityfor registration. Staff further argues that evidence gatheredby the IDA staff to date provides a strong prima facie casethat the Applicant has repeatedly breached the Securities Actwhile previously registered as a salesperson. As well, the Applicant'sformer employer clearly recognized the seriousness of the Applicant'sbreaches, giving him a written reprimand, and then informingthe IDA that the Applicant's employment would have been terminatedhad the Applicant not resigned.
23. As well, I was advised that the IDA's investigationinto the Applicant's conduct is nearly complete, with the matteranticipated to proceed to litigation counsel shortly.
24. Staff therefore requests that the Applicant'sapplication for a registration as a mutual fund salespersonbe denied. In the alternative, staff request that the Applicantbe registered subject to terms and conditions.
25. In his submissions, the Applicant arguesthat
- staff's position is ill founded in facts andinstead relies on feelings, opinions and unsubstantiated allegations;
- there are no facts that justify staff's opinionthat the Applicant is not suitable for registration in accordancewith legal standards;
- "there is absolutely no illustrationherein that in the past, the Applicant did not understand hisresponsibilities, did not live up to his obligations, did notdischarge his obligations to act fairly, honestly and good faithwith his clients, that he committed any illegal act or legallyreprehensible actions or that he acted dishonestly or fraudulently";
- staff's position is ill founded in law, "constitutingon the part of staff, an arbitrary and abusive exercise of itsdiscretionary power of recommendation which is not necessaryfor the protection of the public interest"; and
- nothing in staff's written documents (as included in the writtenmaterials for this hearing) "would tend to demonstratethat from the Applicant's past and/or present, one should fearfor his future behaviour".
26. On the basis of having reviewed and consideredall written submissions provided to me, it is my decision todeny the registration of the Applicant as a mutual fund salesperson.In my opinion, it would be inappropriate to register the Applicantas a mutual fund salesperson while serious questions regardinghis past conduct remain outstanding. Further, I think it isclear that the past conduct of the Applicant would lead to theconclusion that his conduct in the future may well be detrimentalto the integrity of the capital markets (the Mithras test).In the words of the Mithras decision, "we must, of necessity,look to past conduct as a guide to what we believe a person'sfuture conduct might reasonably be expected to be…".As well, I was guided by the Charko decision and determinedthat I must place a strong reliance on the Applicant's pastbehaviour.
27. Further, I determined that it was inappropriatesolely to impose terms and conditions on the Applicant's registration.I decided that staff's characterization of the Applicant's conduct(based on evidence gathered by IDA staff to date) provided instaff's words "a strong prima facie case that the applicanthas repeatedly breached the Securities Act while previouslyregistered". As a result, I did not agree with the Applicant'sarguments that staff's position is ill founded in fact or inlaw nor that it relied on feelings, opinions or unsubstantiatedallegations.
28. The Applicant is, however, invited to re-applyfor registration as a mutual fund salesperson following theconclusion of the IDA's enforcement proceeding.
September 18, 2002.