IN THE MATTER OF
THE SECURITIES ACT (ONTARIO)
R.S.O. 1990 C.S.5, AS AMENDED (Act)
IN THE MATTER OF
WRITTEN SUBMISSIONS TO THE DIRECTOR PURSUANT
TO SUBSECTION 26(3) OF THE ACT
June 8, 2004
Allison McBain, Senior Registration Officer and Les Daiter, Registration Research Officer, Registrant Regulation, Ontario Securities Commission (Commission)
Kenneth A. Dekker and Peter R. Greene, counsel to Ernest Huckerby (Applicant or Huckerby)
My decision is to deny the Mr. Huckerby's application for registration as a registered individual (either a trading officer or a salesperson) of Merchant Capital Wealth Management Corp. (Merchant).
These are the reasons for the decision.
During the course of his application, the Applicant sought registration under the Act as a trading officer and as a salesperson with Merchant. Merchant is registered as a mutual fund dealer and limited market dealer under the Act. Staff recommended that the Director deny the application.
The Applicant has been registered almost continuously since 1975. Commission records show that he was first registered as a mutual fund salesperson with Investors Syndicate Inc., then with Real Securities of Canada Ltd. (Real). Real's registration was suspended in late 1984 because of activities that occurred before the Applicant joined Real. As a result, the Applicant's registration with Real was also suspended. After Real's registration was reinstated in February 1985, the Applicant was registered as a trading officer of Real. In April 1985, the Applicant became a trading officer and director of a mutual fund dealer, Tillcan Financial Corporation. The Applicant resigned in November 1988 and subsequently became registered in December 1988 as a director and trading officer of what later became Fortune Financial Group Incorporated (Fortune), a mutual fund dealer. In August 1993, the Applicant was registered as a branch manager for Fortune. The Applicant ceased to be a director of Fortune in September 1997. The principal operations of Fortune were sold to Dundee Wealth Management Inc. and Fortune ceased operations. In August 1999, the Applicant was registered as a salesperson and branch manager with a limited market dealer and mutual fund dealer, Dundee Private Investors Inc. He remained there until October 2001 when he transferred his salesperson and branch manager registrations to what later became Avenue Wealth Management Inc. (Avenue). The Applicant's registration with Avenue was automatically suspended on December 31, 2003, when Avenue did not renew its registration.
On February 2, 2004, the Applicant filed an application to transfer his registration to Merchant (First Application). In the application, he applied to be both a trading officer and a mutual fund salesperson. These categories, in staff's view, are mutually exclusive. Staff asked the Applicant to resubmit his application as either a trading officer or a salesperson.
On February 4, 2004, Merchant resubmitted Huckerby's application as a salesperson (Second Application). In the First Application and the Second Application, Merchant advised staff that there was no information to disclose.
Staff had additional questions and on February 6, 2004 staff requested that the Applicant file a complete Form 33-109F4. The revised form was submitted on February 9, 2004 (Third Application).
The Third Application did not contain complete information regarding the Applicant's previous employment and did not disclose details regarding past and active civil litigation and the Applicant's financial solvency. In addition, the Third Application contained incorrect responses to other questions regarding the Applicant's previous registrations.
On February 10, 2004, staff asked for further information and on February 12, 2004 staff asked for information regarding the Applicant's activities with Avenue. The Applicant provided responses on February 13 and 19, 2004 (First Response).
The Applicant advised staff that he had opened approximately 24 new client accounts on behalf of his sponsoring firm, Avenue, from May 2003 to December 2003 and that he executed trades for his clients after December 2003. Terms and conditions had been placed on the registration of Avenue from May 2003 to December 2003 which prohibited Avenue from opening new client accounts. After December 31, 2003, Avenue's registration as a dealer under the Act was suspended and, as a result, the Applicant's registration was suspended as well.
On February 19, 2004, the Applicant re-applied for registration as an officer and as a salesperson of Merchant (Fourth Application). Notwithstanding that he had not already been approved to act as an officer of Merchant, the Applicant and Merchant advised staff that the Applicant was acting as the President of Merchant. Accordingly, staff treated the Fourth Application as an application for registration as a trading officer.
In staff's view, the First Application, Second Application, Third Application, Fourth Application, and the First Response contained material omissions and incorrect information.
In a letter dated February 27, 2004 (Denial Letter), staff advised the Applicant that it was recommending that his registration application be denied. The reasons provided in the letter can be summarized briefly as follows:
- Providing incomplete and/or misleading information
- Failure to disclose civil actions
- Failure to disclose material information regarding conflicts of interest
- Failure to disclose an undischarged bankruptcy
- Opening new accounts during a period when terms and conditions had been placed on the Applicant's sponsoring firm (Avenue) prohibiting this activity
- Conducting trades in mutual funds while the Applicant's licence was suspended
Based on these reasons, staff's position was that the Applicant lacks the competence, solvency and integrity required of a securities professional and therefore he is not suitable for registration.
The Denial Letter also advised that under section 26(3) of the Act, before a decision is made by the Director, the Applicant has a right to be heard and set out the process for that procedure.
This director's decision follows the receipt of written materials from both staff and the Applicant as follows:
- letter and related materials dated March 19, 2004 (Second Response) filed on behalf of the Applicant by his counsel
- staff memorandum and related materials dated April 15, 2004 (Staff Memorandum)
- letter and related materials dated April 23, 2004 (Third Response) filed on behalf of the Applicant by his counsel responding to the Staff Memorandum
All of these materials have been reviewed by me in making this decision. The relevant information from each of these documents is set out in this decision.
Applicant's Second Response
The Applicant provided further details regarding Avenue and Merchant. The Applicant submitted that in 2002, Avenue and Merchant agreed that Merchant would take over Avenue's mutual fund dealer business after Merchant became a member of the Mutual Fund Dealers Association (MFDA). It was submitted that it was the Applicant's intention to transfer his registration to Merchant and become employed by Merchant as a mutual fund salesperson.
It was submitted that during the summer of 2003, virtually all of the Applicant's clients advised him and Avenue that they intended to move their accounts to Merchant. At about the same time, the Applicant and Merchant brought an action against Avenue before the Ontario Superior Court of Justice to ensure that Avenue complied with its agreement to continue its registration until Merchant was able to take over its mutual fund business. A motion was brought within that action for an interim injunction to require Avenue to maintain its business and its registration until Merchant became a member of the MFDA.
It was submitted that on August 26, 2003, the return date of the application, the motion was adjourned subject to an undertaking of the parties to maintain the status quo pending the hearing of the injunction on its merits. Avenue's undertaking required it to stay in business and remain registered so that an orderly transfer of client accounts to Merchant could be affected.
It was submitted that throughout the fall 2003 and up to an including January 11, 2004, the Applicant understood that Avenue was going to remain operating and maintain its registration.
It was submitted that although Avenue wrote to Merchant on December 22, 2003 advising Merchant that Avenue was going to discontinue its registration effective January 1, 2004 (Avenue Letter), because the Applicant was out of the country he did not see a copy of the Avenue Letter until he returned to Toronto and returned to his office on January 11, 2004. For the period from January 11 to January 29, he continued to process a limited number of unsolicited transactions requested by clients. It was submitted that the Applicant continued to complete transactions based on his understanding of conversations and emails that Avenue's staff had with various parties.
The Applicant's materials state that he first received notice of the suspension of Avenue's registration on receipt of a January 29, 2004 letter from Allison McBain of the Commission (McBain Letter). Ms. McBain's letter stated that the
"registration of Avenue... was suspended.... on January 1, 2004.... [and Huckerby's] registration was suspended on January 1, 2004 as well. Since you are no longer registered you are prohibited from engaging in any activities that require registration. Please work with Avenue.... to ensure that any client accounts are transferred to another registered dealer who is qualified to handle these accounts immediately".
It was submitted that on the next business day, February 2, 2004, Merchant became a member of the MFDA and immediately filed the First Application with the Commission to register the Applicant with Merchant. Following several conversations between Commission staff and the Applicant, the Second, Third and Fourth Applications were filed.
To enable him to deal with his clients after receiving the Denial Letter, the Applicant asked for an interim transfer of his registration, with applicable terms and conditions. Although no written response was received from the Commission, staff confirmed that the Applicant was advised verbally that his request for an interim transfer would not be granted.
Section 26 analysis
Section 26 of the Act provides that unless "it appears to the Director that the Applicant is not suitable for registration [or] renewal of registration.... or that the proposed registration, renewal of registration or amendment of registration is objectionable, the Director shall grant registration, renewal of registration..... to an applicant".
The Applicant submitted that staff's recommendation of denial of transfer of registration takes away the Applicant's livelihood. I was referred to two cases - Re Rosen and the Commission and Bernstein and the College of Physicians and Surgeons of Ontario. The Applicant argues that both cases set out that "nothing short of clear and convincing proof based on cogent evidence that is accepted by the decision-maker will justify a decision that has the effect of destroying or interfering with a person's livelihood."
I think that this reference should be reviewed. Re Rosen involved a hearing before the Commission where staff of the Commission requested the suspension of a registrant's registration for a period of at least five years. Paragraph 127(1)1 of the Act [subsection 27(1) of the Act in 1991] grants the Commission the power to make an order in the public interest that a registrant's registration be suspended for a period of time or be terminated. In contrast, provided the applicant provides new or other information or demonstrates that material circumstances have changed, an applicant whose registration application is denied under section 26 of the Act may reapply immediately thereafter. Section 127 grants the Commission broad enforcement powers which includes the authority to: permanently prohibit any person from trading in securities; force any person to resign as a director or officer of an issuer; prohibit any person from acting as an officer or director of any issuer; impose an administrative penalty of not more than $1 million per violation of the Act; and disgorge any amounts obtained from any violation of the Act. These powers can permanently affect an individual's ability to participate in the securities industry or work for any company that issues securities. These powers can compel the payment of considerable sums of money. These powers extend beyond the authority to deny a registration application and affect a person's ability to participate in all aspects of Ontario's capital markets. Section 26 of Act is limited to the denial or approval, with or without terms and conditions, of registration applications. It should be noted that the route of appeal of a Director's denial of registration decision is through the Commission, while an appeal to the courts for judicial review is the route for appeal of the Commission's orders under section 127 of the Act. I do not disagree that these precedents stand for the position that when a person
Director D.M. Gilkes in Re Ng (2003), 26 OSCB 5485, at paragraph 22 contrasted the two standards of proof when he stated that:
"The difference in the standard [of proof] is consistent with the difference in the scope of the sections. I agree with Staff that the Director must only find that the applicant appears to be unsuitable and that is a different standard than section 127."
In addition, other than the conflicts of interest matter discussed below, the Applicant's own submissions and representations to staff comprise the basis upon which staff came to recommend that I not register Mr. Huckerby. I have considered the Applicant's submissions regarding his past disclosure to staff and the Commission and the submissions do not materially contradict staff's recital of the facts. What truly is at issue is how staff interprets these facts versus how the Applicant views these facts.
The Denial Letter
The Applicant argues that the stated reasons for issuing the Denial Letter are allegations which were made without proper, or in some cases any, investigation by Commission staff. The Applicant further argues that most of these events occurred through inadvertence and do not warrant taking away his livelihood.
I'll deal with the staff's reasons for the denial recommendation set out in the Denial Letter and the Applicant's responses individually.
Providing incomplete and/or misleading information
The first reason for denying registration related to the filing of incomplete and misleading information in the Applicant's registration application. The Applicant submitted that he was not definitively aware that Avenue had decided not to renew its registration on January 1, 2004 until January 29, 2004 and that it was only after he received the McBain Letter. The Applicant argues that he was out of the country and did not return to the office and receive the Avenue Letter until January 11, 2004. I do not find the Applicant's response plausible. Given the significance to both Avenue and Huckerby of the Avenue Letter to Merchant, I have great difficulty believing that the first time the Applicant heard of the Avenue Letter or its contents was on January 11, 2004. I also noted that staff was advised by in-house counsel of Avenue that the Applicant was made aware in December 2003 of Avenue's intention not to renew its registration on December 31, 2003.
Failure to disclose civil actions
The second reason for denying registration relates to the Applicant's non-disclosure in his November 2001 registration application of three outstanding civil proceedings against him. If a successful or pending claim has been made against the Applicant in a civil proceeding in which fraud, theft, deceit, misrepresentation, or similar conduct is alleged, question 16 of Commission Form 4 (currently item 15 or Form 33-109F4) requires disclosure of that civil action. The Applicant answered "no" to question 16 on the application he filed in 2001. The Applicant argues that at the time of filing of the November 2001 registration application form, he did not have copies of the statements of claim in the three actions outstanding against him. His counsel further argues that the Applicant's "understanding of those actions was that they related to negligent advice regarding the purchase of mutual funds. While the three actions do allege negligent misrepresentation, Mr. Huckerby was not aware of those allegations when he filed his November 2001 Form".
The Applicant's position is that these civil actions did not involve the type of alleged conduct that required him to report those actions to the Commission. The Applicant refers to an August 2003 letter from the Commission. In that letter, the Commission advises the Applicant that on March 31, 2003, Multilateral Instrument 33-109 (MI 33-109) came into effect. "This [instrument] imposes a requirement for the registrant to amend Item 15 of the F4 (Civil Disclosure) within five business days to disclose the outcome of proceedings". Prior to MI 33-109, the Commission imposed terms and conditions on any registrant with unsettled civil proceedings. As a result of MI 33-109, the terms and conditions on the Applicant's registration were removed. The Applicant's position is that the letter clearly indicates that the civil proceedings against the Applicant were never hidden from the Commission and that the Commission was aware of those proceedings. This argument I can accept. What I don't accept is that the Applicant was unaware that he was required to disclose the civil proceedings -- settled or not -- in subsequent registration applications with the Commission. This he did not do until reminded to do so by Commission staff. I do, however, acknowledge that his 2003 registration documents were amended after conversations with the Commission to include reference to these civil cases.
Failure to disclose conflicts of interest
The third reason staff cited for denying registration relates to the Applicant's failure to disclose to either his firm or his clients potential conflicts of interest. This matter is currently the subject of separate ongoing regulatory enquiries and has not been relied upon in order to reach my decision.
Failure to disclose a petition, assignment or proposal regarding bankruptcy
The fourth reason relates to the Applicant's failure to disclose on a timely basis that he is an undischarged bankrupt.
In April 2002, it came to staff's attention that the Applicant had filed a proposal regarding the Bankruptcy and Insolvency Act (Canada). The Applicant claimed that he was not bankrupt and that he would only become bankrupt if his creditors did not accept his proposal. The Applicant undertook that if he did become bankrupt he would advise staff accordingly.
I was advised by Applicant's counsel that the Applicant became bankrupt in early 2003. The Applicant's bankruptcy status was not disclosed to the Commission staff until February 2004, a year after he became bankrupt. The Applicant currently is an undischarged bankrupt.
The Applicant has represented that his bankruptcy was largely unrelated to his position as a mutual fund salesperson. Applicant's counsel advised me that negotiations are proceeding for an absolute discharge and the Applicant is optimistic the discharge will be obtained over the next several months. It has been submitted that it was the Applicant's expectation during 2003 that he would soon be filing an application to transfer his registration from Avenue to Merchant and that he would disclose his bankruptcy status at that time.
Question 17 of the Applicant's fall 2001 Form 4 application disclosed that the Applicant had never been declared bankrupt or made a voluntary assignment in bankruptcy and had never made a proposal under any legislation relating to bankruptcy or insolvency. Effective February 21, 2003, subsection 8.5(2) of MI 33-109 requires registered individuals to file a completed Form 33-109F5 if any information on the individual's previously filed Form 4 changed, within 5 days of the change. The Applicant did not file a change form regarding his status as a bankrupt until staff asked him about his status in 2004.
The Applicant argues that the Act does not prescribe an obligation to notify the Commission of a salesperson's bankruptcy. However, Commission Policy 34-601 is directly applicable. Commission Policy 34-601 requires salespersons that declare personal bankruptcy to promptly advise the Commission. The policy goes on to state that each "situation will be reviewed and assessed on its individual merits. The fact of personal bankruptcy itself will not of itself call for cancellation of the individual's registration in the case of a salesman. It is likely to raise more serious questions as to the fitness for continued registration of individuals registered in other categories". Of this requirement, the Applicant argues an inadvertent breach. Applicant's counsel suggests that Commission Policy 34-601 cannot create an obligation to do something which is not prescribed in the Act or the regulations because subsection 143.8 prohibits the Commission from adopting a policy that, by reason of its prohibitive or mandatory character, is of legislative nature. In my view, a policy which is in effect a guideline as to when information previously submitted to the Commission should be updated does not create a fresh obligation to disclose new information but outlines a pre-existing and continuing obligation to ensure that information submitted to the Commission remains up to date. This continuing obligation can be found in MI 33-109, which requires registered individuals to disclose to the Commission any changes to their previously filed information.
The Applicant, despite over 30 years in the industry, claims that he was not aware that he had an obligation to disclose his bankruptcy status to the Commission prior to that time. This argument I also do not find to be credible. Registrants have a responsibility and a duty to be aware of and comply with applicable registration requirements. Ignorance of the requirements has not been and will not be accepted as an excuse. It seems clear to me that the Applicant does not appear to understand his regulatory obligations or simply chooses not to comply with them if he does understand them. As well, since the Applicant is currently applying to be a trading officer, Commission Policy 34-601's guidelines make it quite clear that more serious fitness questions will arise when an applicant is an undischarged bankrupt.
The fifth reason relates to the opening of new accounts between May and December 2003. The new accounts were opened despite terms and conditions imposed in 2003 on Avenue (his sponsoring firm) prohibiting Avenue from opening new accounts. The Applicant argues that he was unaware of any restriction on opening new accounts until he received an inquiry from Allison McBain on February 12, 2004. Again, my view is that the Applicant's complete unawareness and disregard for his registration requirements is unacceptable. I do not find the Applicant's position credible.
Registerable activities under suspension
The sixth reason relates to trading in mutual funds after the Applicant's registration had been suspended on January 1, 2004. The Applicant bases his decision to continue servicing existing clients during January 2004 on conversations with various people and unresolved conversations with Commission staff. He also relied on the court proceeding and Avenue's undertaking to maintain its registration. He argues that he was not aware he couldn't process transactions for clients until receipt of the January 29, 2004 letter. In any event, he argues that he only processed unsolicited transactions for two clients during this period.
In my view, the Applicant's arguments are not credible. This is the second time the Applicant had his registration suspended because his sponsoring firm's registration was suspended.
Staff Memorandum summary
Staff argues that the question for the Director in reviewing an application for registration is whether the applicant is suitable for registration and whether registering the applicant would be objectionable (see section 26(1) of the Act). The meaning of "suitable" and "objectionable" is not prescribed by Ontario securities law. However, the Commission has, over time and as set out in various decisions, articulated three fundamental criteria for determining suitability for registration:
- integrity, which includes honesty and good faith, particularly in dealing with clients, and compliance with Ontario securities laws,
- competence, which includes prescribed proficiency and knowledge of the requirements of Ontario securities laws, and
- financial solvency, which is considered relevant because it is an indicator of a firm's capacity to fulfil its obligations and can be an indicator of the risk than an individual will engage in self-interested activities at the expense of clients.
Staff also specifically referred me to section 102 of the Regulation which expressly provides that no registration or renewal of registration will be granted unless the applicant has complied with the applicable requirements of the regulation at the time of the granting of the registration or renewal of registration.
Relevance of past conduct
In the past, the Commission has taken the position that in assessing fitness for registration, the Director must necessarily place a strong reliance on an applicant's past behaviour. This was articulated in the Charko decision as "Suitability includes the totality of.... [a Registrant's]....past and present". The Mithras decision is also relevant here. It stated that:
"... the role of this Commission is to protect the public interest by removing from the capital markets -- wholly or partially, permanently or temporarily, as the circumstances may warrant -- those whose conduct in the past leads us to conclude that their conduct in the future may well be detrimental to the integrity of those capital markets. We are not here to punish past conduct; that is the role of the courts..... We are here to restrain, as best we can, future conduct that is unlikely to be prejudicial to the public interest in having capital markets that are both fair and efficient. In so doing we must, of necessity, look to past conduct as a guide to what we believe a person's future conduct might reasonably be expected to be... "
Denial or terms and conditions
Depending on the degree to which staff determines a registrant has not meet the three suitability criteria set out above, staff will recommend either denial of registration or the imposition of terms and conditions. Terms and conditions, if recommended, will be tailored to the suitability concerns specific to the applicant. Less often, staff will recommend denial of registration because of the extent and/or persistence of the applicant's failure to satisfy the suitability criteria. In this case, staff has recommended denial of recommendation. I was referred to the Jaynes case which sets out the following:
"While terms and conditions restricting registration may be appropriate in a wide variety of circumstances, they should not be used to "shore up" a fundamentally objectionable registration. To do so would be to create the very real risk that a client's interests cannot be effectively served due to the severity and extent of the restrictions imposed."
Suitability of this applicant
It is staff's recommendation that the Applicant not be registered. Staff argues that while some instances of his failure to satisfy the suitability criteria might, taken in isolation, warrant conditional registration (i.e. terms and conditions), others in and of themselves would justify a denial of registration. Staff further argues that the Applicant's conduct, taken as a whole, clearly demonstrates that the Applicant is unsuitable for registration and it would be objectionable to permit him to be registered. I agree. My analysis of each of the registration criteria follows.
Staff argues that the Applicant has a history of failure to provide full and complete information to the Commission.
An example of this is the Applicant's failure to disclose his personal bankruptcy in August 2002, as required by Policy 34-601 which requires salespersons to promptly advise the Commission of personal bankruptcies. In addition, the Applicant had an obligation under MI 33-109 to advise the Commission if any previously submitted information has changed within 5 days of the change. This he did not do. Staff was advised of the Applicant's bankruptcy by a member of the public unrelated to the Applicant. Not until staff specifically requested information on Huckerby's bankruptcy did he finally directly disclose it to the Commission in February 2004, over a year after the bankruptcy occurred.
Another example is the Applicant's failure to disclose that he was a defendant in three civil suits. This failure to disclose was part of a registration application for Blue Heron Wealth Management Inc. made in October 2001. In that application, the Applicant answered "no" to a direct question asking whether he is involved in any successful or pending civil proceedings which are based in whole or in part on fraud, theft, deceit, misrepresentation, or similar conduct. Staff was advised of the three civil suits by the Applicant's former sponsoring dealer. All three lawsuits seek significant damages and claim negligent misrepresentation. The allegations in the suits include making unsuitable investments, receiving undisclosed or secret commissions and being motivated by self-interest in his recommendations.
In response to a Commission request for information, by letter dated December 7, 2001, the Applicant advised that "it did not appear to me, having read that section that this would apply against the three outstanding law [suits] in that it dealt with fraud, theft, deceit, [misrepresentation] or similar conduct". He also advised that it was his intention to make arrangements to have the suits settled on or before February 2002. As a result of this correspondence, the Applicant was now aware that the Commission was aware of the lawsuits and in the February 2004 registration application, the lawsuits were disclosed.
Staff argues that while civil suits are not necessarily indicative of unsuitable registrant behaviour, when a registrant is party to numerous similar complaints and civil proceedings, a pattern of inappropriate conduct may emerge. This is particularly concerning where other issues affecting the individual's suitability for registration exist. In this case, Commission staff have received at least seven other complaints regarding the Applicant's conduct. Four of the complaints relate to recommending unsuitable investments. Two of these complaints relate to alleged conflicts of interest. Staff is understandably concerned about both the number of complaints received and the consistency in the nature of the complaints.
Staff further argues that inadvertent non-disclosure of information to staff may not, in and of itself, warrant a denial of registration. However, when a registrant does not disclose issues relating to suitability, such as litigation or bankruptcy, until staff learns of these matters from third parties, the pattern of non-disclosure or misrepresentation does raise integrity concerns.
Another example relates to the Applicant performing registerable activities throughout January 2004, despite having no registration to do so. This is because the Applicant's registration was automatically suspended after Avenue failed to renew its registration. As above, the Applicant advised that he was not aware of his lack of registration status until sometime in January or February of 2004. However, staff was advised by the in-house counsel of Avenue that Mr. Huckerby was made aware in December 2003 of Avenue's intention not to renew its registration. The Applicant's own documents are unclear on this point. In some, he states that he became aware of Avenue's intention not to renew its registration on January 11, 2004. In other documents, he says he first learned that Avenue had not renewed its registration on January 29, 2004. Staff's view, with which I concur, is that the Applicant has demonstrated a lack of integrity by changing his story. As the Staff Memorandum puts it the "trades that Mr. Huckerby states that he made after his registration was suspended, while of concern to Staff, are not as disturbing as the incomplete and inconsistent disclosure provided by Mr. Huckerby".
A final example relates to staff's view that the Applicant put himself into a clear conflict of interest by acting as President of Merchant while still conducting registerable activities through Avenue. Form 33-109F4, signed by the Applicant, states that he became employed by Merchant as of January 1, 2004, coincidentally the first day that Avenue was no longer registered. If Mr. Huckerby had still been registered with Avenue, as he claims to have believed, he would have been in violation of Commission Rule 31-501, which prohibits a salesperson of one registrant acting as a salesperson, officer, director or partner of another registrant. On the other hand, as staff sets out, if Mr. Huckerby knew that Avenue was no longer registered and subsequently took employment as an officer of Merchant, then he has clearly not been forthcoming in his submissions to the Commission.
Staff argues that Mr. Huckerby's actions as described above demonstrates both a lack of integrity and a lack of competence. As a former trading officer, director and branch manager, it is not acceptable for the Applicant to claim lack of knowledge of registration rules and regulations. Staff expects a competent registrant to be able to read the questions asked on a Form 4, which is an affidavit, and to make enquires, as appropriate, if a question is not understood or if the registrant does not have all of the information available to enable a complete response. Staff would also expect a competent registrant that has outstanding civil proceedings against him to read the claims against him or to seek legal counsel to explain them to him before swearing an affidavit confirming their existence. As well, a competent registrant who is a branch manager should be aware of what is required to be disclosed by registrants to the Commission and to be aware of the requirement to update this information when it changes. Since there is evidence that Mr. Huckerby failed to do these things appropriately, staff's view is that he is not competent. I concur with staff's view. I do not think that ignorance of the rules and requirements related to registration is an appropriate excuse. As a registrant for over 30 years, I would expect a far better understanding of and compliance with the registration requirements than that demonstrated by the Applicant.
The Applicant is currently an undischarged bankrupt. His proposal was filed in August 2002 (there is some difference in dates between staff submissions and the Applicant's in this matter). If the Applicant was applying for registration as a salesperson and his personal bankruptcy was the only issue, terms and conditions on his registration might be appropriate. However, Mr. Huckerby is representing himself to be an officer of Merchant and has applied to be a trading officer of Merchant. As a result, in staff's view, his bankruptcy is relevant in these circumstances. As well, the Applicant's status as an undischarged bankrupt brings into question his ability not only to handle his personal finances, but his ability to handle those of his clients.
Applicant's Third Response
The Applicant provided further submissions dated April 23, 2004. The responses primarily address the Staff Memorandum, summarized above. To the extent the additional submissions are new and relevant to my decision, I'll summarize them here.
There seems to be some confusion as to what category of registration the Applicant is applying for. In the April 23 submissions, his counsel makes it clear that Mr. Huckerby is seeking to be registered as a salesperson, and not as a trading officer. In either case, my decision is the same.
In the submissions, the Applicant provides further information on his personal bankruptcy. In August 2002, the Applicant filed a proposal to his creditors. Bankruptcy does not occur until after the proposal is rejected by the creditors. For the Applicant, this did not occur until January/February 2003. The Applicant argues that the deadline of 5 business days (as set out in MI 33-109) to notify the Commission of bankruptcy did not come into effect until March 2003. This was after the Applicant's bankruptcy. As set out in his original submissions, Mr. Huckerby intended to disclose his bankruptcy when applying to transfer his registration to Merchant. This he did. Notwithstanding this argument, Policy 34-601 was directly applicable to the timing of disclosure of a bankruptcy as discussed above and MI 33-109 confirmed that obligation effective February 21, 2003.
The Applicant argues that staff has a fundamental misunderstanding of bankruptcy law in relation to the status of civil proceedings. He advises that under the bankruptcy law, the three civil actions were automatically stayed when Mr. Huckerby became bankrupt in early 2003. The stay was lifted in March 2003 only to the extent the plaintiffs may, if they choose, have their damages quantified so they can prove in the bankruptcy. In all other respects, the three actions are stayed and cannot proceed. This includes any proceedings to determine liability or the validity of the allegations made in the actions. While I'm sure the summary provided by counsel is accurate, in my view it has little bearing on this case. The requirement is to disclose civil proceedings in which fraud, theft, deceit, misrepresentation, or similar conduct is alleged. Whether the proceedings are stayed under bankruptcy laws or not is not relevant to whether the conduct is alleged.
The Applicant also takes issue with the staff reference to complaints filed with Commission against him. He states that he is only aware of one complaint. He states that no complaints have led to formal hearings or disciplinary actions being taken by the Commission to date and he therefore concludes that the complaints referred to lack validity. While these assumptions may or may not be correct, he should not assume that failure to take regulatory action to date on these complaints means that regulatory action may not be taken at some future point in time.
My decision is to deny the Mr. Huckerby's application for registration -- whether he is applying to be a trading officer of Merchant or applying to be a salesperson with Merchant.
In my opinion, the Applicant's total disregard for the registration requirements of the Act render him unsuitable for registration. In staff's words, he "demonstrates a clear pattern of both a lack of integrity and an incompetent disregard for his obligations under Ontario securities laws. Furthermore, Mr. Huckerby's personal financial circumstances demonstrate an inability to fulfil and manage financial obligations.... Staff is therefore also of the opinion that given his history, it would be objectionable to register Mr. Huckerby because to do so would undermine the confidence in the regulation of our capital markets".
June 8, 2004.