IN THE MATTER OF THE INVESTMENT DEALERS ASSOCIATION AND TIFFANY YEN SIAM MU DECISION OF THE PANEL OF THE PACIFIC DISTRICT COUNCIL

Transcription

1 IN THE MATTER OF THE INVESTMENT DEALERS ASSOCIATION AND TIFFANY YEN SIAM MU DECISION OF THE PANEL OF THE PACIFIC DISTRICT COUNCIL Introduction Pursuant to a Notice of Hearing dated November 8, 2005 (the Notice ), a hearing in respect of certain conduct of Tiffany Yen Siam Mu ( Ms. Mu or the Respondent), was held in Vancouver, British Columbia commencing on January 23, The Notice alleged the following: Count 1 In or about October 2003, the Respondent submitted to the Association a Registration Transfer Information application and a National Registration Database ( NRD ) registration application form, for registration purposes, that was false or misleading, and thereby engaged in business conduct that was unbecoming or detrimental to the public interest, contrary to Association By-law Count 2 The Hearing In or about September 2004, the Respondent submitted to the Association a NRD registration application for registration purposes that was false or misleading, and thereby engaged in business conduct unbecoming or detrimental to the public interest, contrary to Association By-law 29.1 Evidence in this matter was heard over two days in January Submissions were heard on March 1, Ms. Barbara Lohman, on behalf of the Association, called 5 witnesses. Mr. Thomas Manson, on behalf of the Respondent, called 3 including the Respondent. Following submissions by counsel, the Panel adjourned to deliver a written decision on the question of liability.

2 - 2 - Findings of Fact On a number of factual issues, there is little dispute. Certain other matters are contentious. The following recitation of the relevant facts includes our findings of fact on those matters not in dispute, as well as those that are contentious. 1. The Respondent was first registered and employed as an Investment Representative with RBC Dominion Securities Inc. ( RBC ) from April 20, 2000 to July 29, During this time she worked primarily as an assistant to her brother, Frank Mu, an Investment Adviser with RBC. Mr. Mu testified at the hearing. 2. During the early part of 2002, RBC conducted a routine internal audit. The audit uncovered a Letter of Authority (an LOA ) for one of Frank Mu s clients. The LOA ( LOA#1 ) had been altered using a cut and paste procedure with a copy of the client s signature photocopied from an earlier LOA and pasted on LOA#1. LOA#1 authorized the transfer of funds from the client s brokerage account to the client s bank account. 3. Subsequent investigation revealed that LOA#1 had been created by the Respondent in order to execute the instructions of an elderly client of Frank Mu. It was done as a convenience to this client. The Respondent met with her supervisor, Chris Oosterhuizen, then a branch manager with RBC, to review her conduct. Mr. Oosterhuizen testified at the hearing. During that meeting Mr. Oosterhuizen expressed his disappointment in the conduct of Ms. Mu and gave her a warning letter that left no doubt that RBC viewed her conduct as a serious breach of their procedures. 4. Following the meeting, the Respondent, over the course of the next month, reviewed the files for all of the Frank Mu s clients and discovered two further situations involving altered LOA s. Through Frank Mu, these additional LOA s and their replacements were provided to Chris Oosterhuizen. 5. There is a dispute between counsel with respect to the discovery of these subsequent LOA s. The Association argues that the Respondent was aware that further audits were taking place and wants the Panel to find that the Respondent turned these other files over to her supervisor with the knowledge that these audits were taking place. Counsel for Ms. Mu argues that the Respondent conducted in these searches on her own initiative. In our view, the issue of whether or not Ms. Mu was aware of further audits is not relevant, and we do not need to make a finding with respect to her state of mind on this matter at that time. 6. Upon learning of the additional LOA s, on July 29, 2002, Mr. Oosterhuizen terminated the Respondent s employment with RBC.

3 RBC provided Ms. Mu with a termination letter. It also prepared and filed a Uniform Termination Notice (the UTN ). The UTN stipulated that the Respondent had been terminated as a result of an Internal Control Violation. The UTN was not provided to the Respondent. 8. Upon receipt by the Association of the UTN, Ms. Lohman, counsel for the Association at this hearing, sent a letter dated December 9, 2002, to the Respondent (the IDA Letter ). It was filed as Exhibit 11 in these proceedings and is, in the view of the Panel, a very important document. 9. The IDA Letter is entitled Uniform Termination Notice. The last sentence of the first paragraph of that letter states: The UTN filed by RBC in respect of you indicated that you had been subject to internal discipline and terminated by RBC for failure to comply with RBC s internal control policies. (emphasis added) 10. In October 2003, following an offer of employment from Raymond James Ltd. ( RJ ), Ms. Mu completed a registration transfer information form (the RJ Application ). Question 10 on that form asks: Have you ever resigned or been terminated following allegations, made by a client, sponsoring firm, self-regulatory organization, securities regulatory authority or any other regulatory authority that you: (a) violated investment-related statutes, regulations, rules or standards of conduct? The Respondent s answer was no. 11. In addition, the RJ Application asks: Have you ever been disciplined or sanctioned either internally by an existing or predecessor firm or externally by a regulatory body? The Respondent s answer was yes. 12. At the end of the RJ Application, it requires the applicant to provide details if any yes answers have been provided on the form, and the Respondent left that section blank. 13. The second form completed by the Respondent as part of the RJ application process was the NRD registration form (the RJ NRD ). That form included, in Item 12, the same question as Question 10 on the RJ Application. The Respondent again answered no. 14. The RJ NRD requires an acknowledgement from the applicant that he or she has discussed the questions with an officer or branch manager of the firm. It also requires an acknowledgement by an officer that he or she is satisfied that the applicant fully understands the questions in the form. 15. Robin Douglas, Branch Manager for RJ, signed the RJ NRD on behalf of RJ. Mr. Douglas testified at the hearing, and advised that he generally fulfilled his responsibilities with respect the RJ NRD by asking applicants if they had answered the questions accurately and honestly. 16. The Respondent testified that she spoke to Franco Papalia with respect to how to answer the questions on the two RJ forms, and that she explained to him all of the

4 - 4 - circumstances surrounding her departure from RBC. Mr. Papalia, who testified at the hearing, was the registered representative for whom Ms. Mu was going to, and did work. Mr. Papalia s testimony in respect of this discussion was not entirely clear, particularly as he was unable to recall, with certainty, the timing or details of the discussion. However, he clearly remembered having some discussion with Ms. Mu concerning the circumstances of her departure from RBC. We find that Ms. Mu did discuss these questions with Mr. Papalia and that she derived little assistance from Mr. Papalia, or, for that matter, from Robin Douglas, in respect to how the questions should be answered. 17. The Respondent worked successfully with Mr. Papalia for a number of months but determined that she wanted to get back to working in a situation that involved more portfolio management and less trading, and accordingly she applied for a position with BMO Nesbitt Burns Inc. ( BMO ). 18. In the course of her application process to BMO, Ms. Mu was interviewed by Lorraine Loughren, currently a Divisional Regional Manager for BMO. Ms. Loughren testified at the hearing and her evidence was clearly the most contentious. Ms. Lohman would have us accept all of Ms. Loughren s evidence, while Mr. Manson would have us accept little of her evidence on the key issues. 19. Ms. Loughren gave her evidence on examination-in-chief in a confident, forceful and clear manner. She had apparently no trouble recollecting events. She indicated, in summary, that the Respondent had discussed the circumstances surrounding her leaving RBC and described them as a minor matter involving a letter of authorization. She recalled the Respondent asking for help with Item 12 on the NRD registration form for BMO (the BMO NRD ) and that she had simply advised her to answer the question truthfully. When the Respondent asked further questions, she advised her to contact someone in BMO s registration area. 20. The BMO NRD was filed with a no response to the question in Item 12. BMO subsequently obtained a copy of the UTN and once that was reviewed, advised the Respondent to change the response to a yes. The Respondent did so and the form was re-filed. The Respondent was then fired. Ms. Loughren testified that she felt deceived and that the Respondent had lied to her. 21. Ms. Loughren s demeanour on cross-examination was very different. She was evasive, defensive and argumentative. She testified that at all times, the Respondent had characterized the conduct leading to her leaving RBC as minor and that she had only ever said that she had been let go. Ms. Loughren stated very clearly that the Respondent had never used the word terminated in any correspondence or conversation. 22. Ms. Loughren continued to hold to this position in the face of strong crossexamination by Mr. Manson and only faltered when confronted by an exchange of e- mails, introduced by Mr. Manson, that demonstrated clearly that Ms. Mu had sought

5 - 5 - considerable advice on several occasions concerning the question in Item 12 and that she had used the word terminated. 23. The Respondent, in her evidence, told the Panel that she spent considerable time seeking advice on how to properly answer the question in Item 12 on the BMO NRD. She testified that she contacted the BMO registration group and received advice that she should answer as best she could, and that once the UTN was received and reviewed by BMO, they would revise the form if required. Accordingly, she answered the question with a no. 24. We listened carefully to the evidence of both Ms. Loughren and the Respondent on these matters. To the extent that their evidence diverges, we prefer the evidence of the Respondent. Her evidence is supported by the s and by her prior conduct while completing the forms at RJ. Ms. Loughren s evidence on these matters is unreliable, having been very clearly contradicted in certain material aspects by the documents put to her by Mr. Manson. Liability First, we wish to make it clear that the matters surrounding Ms. Mu s dismissal from RBC are not before us. There can be no question but that the alteration of documents is a serious matter, even if such action was taken to convenience clients, to conduct transactions that could be conducted in another fashion and with no personal benefit to the Respondent. However, those matters do not form part of this hearing. In our view, there are two important preliminary questions to be considered: 1. Were the answers to the questions false? and 2. Did the Respondent know that the answers were false? Before addressing these questions, we want to deal with the fact that, as Ms. Lohman points out, the Respondent failed to answer the last item on the RJ Application where it required elaboration if a yes answer was provided earlier in the form. We note that this matter is not referenced in the particulars of the fabrications in the Notice of Hearing. Accordingly, we do not believe it is appropriate for us to determine whether or not this is, itself, an incorrect answer on the form. If we are wrong in this determination, we find that this matter is immaterial in the context of this hearing. Question #1 above is difficult. It is uncontested that the Respondent was dismissed from RBC as a result of the fabrications. The real question is whether that conduct amounts to a violation of investment-related statutes, regulations, rules or standards of conduct. The Association argues that the fabrications amount to forgery and that is conduct that is a violation of industry standards of conduct. Mr. Manson argues that the fabrications do not amount to forgery because they are true; that is, the clients instructed the Respondent to transfer the funds and, therefore, the document was in and of itself a true document.

6 - 6 - While we are sympathetic to Mr. Manson s argument, we believe that the cut and paste indulged in by the Respondent did amount to a forgery, albeit a technical one. We agree with Mr. Manson that one would be unlikely to see such a forgery prosecuted. It was not done for any personal gain and was only done to convenience the clients involved. That said, we are also of the view that any forgery, however minor, is conduct that violates industry standards of conduct. The answers were, therefore, technically false. That, however, does not end the matter. For us, the seminal question is whether the Respondent knew that the answers were false. It is clear to us on the evidence that the Respondent did not know how to properly answer the questions. Her conduct demonstrates a consistent course of requesting assistance in answering the questions. The apparent inconsistency of her responses on the RJ Application and the RJ NRD demonstrates that she was confident that her dismissal from RBC related to a failure to comply with an internal control policy, but that she was unclear whether that failure was one captured by the question in Item 12. This is consistent with her position that she was always trying to answer honestly and correctly. Furthermore, in our view, she could not possibly have been attempting to conceal anything from the Association, with whom the forms were to be filed, because she knew the Association had all the details. She had received the IDA Letter describing the circumstances. And that letter is extremely important. It was, at that time, the only official correspondence received by the Respondent in respect of her dismissal from RBC. That letter, in clear and unambiguous language, makes it clear that she was subject to internal discipline and terminated by RBC for failure to comply with RBC s internal control policies. After reading this letter, we find ourselves wondering how anyone could come to any conclusion other than that the matter was internal. We find, therefore, that the Respondent did not know that the answers were false. Prior to the commencement of argument, we asked counsel to address the following question: If the Respondent held an honest but mistaken belief that she had completed the forms correctly, can her conduct in completing them incorrectly amount to conduct unbecoming or detrimental to the public interest contrary to By-law Mr. Manson argued that knowledge of the falsity, in this case, was a condition precedent to a finding that Ms. Mu s conduct was conduct unbecoming. Ms. Lohman took the position, when pressed, that any conduct that was a breach of any Association rule or By-law or industry standard of conduct was, de facto, contrary to the public interest and that no defence was available. We find this position untenable and wrong at law. A brief review of some of the law in this area is in order. 1. Re Yorkton Securities Inc. [1984] T.S.E.D.D. No. 35 In Re Yorkton, the misconduct was a failure to have appropriate account documentation for two related client accounts. The panel concluded that the failure to have appropriate documentation may be carelessness, but carelessness is not in itself conduct unbecoming. The panel also

7 - 7 - noted that it was necessary to consider the particular circumstances, and that there was no allegation that the respondent had any improper motive. 2. Re J.C. Dickson Davidson Partners Ltd., [1989] T.S.E.D.D. No. 10 Re: J.C. Dickson was a decision of a Toronto Stock Exchange hearing panel chaired by G. Arthur Martin, a highly respected and experienced member of the Ontario Bench and Bar and then recently retired from the Ontario Court of Appeal. There, the respondent had misrepresented the value of debentures held in the account of a client, although the misrepresentation arose as a result of negligence. The panel made the following comments: The respondent, Dickson, was under a fiduciary obligation to both Mr. Wu and Mr. Braticevic requiring him to exercise reasonable care. It does not necessarily follow, however, that mere negligence constitutes a disciplinary offence. Some assistance may be derived by analogy from the concept of conduct unbecoming a solicitor and its relationship to negligence, that is, a failure to exercise due diligence or reasonable care. The Professional Conduct Handbook governing the conduct of lawyers issued by the Law Society of Upper Canada contains the following: Rule 2 provides: (a) (b) The Lawyer owes the Client a duty to be competent to perform legal services undertaken on the Client s behalf. The Lawyer should serve the Client in a conscientious, diligent and efficient manner, and should provide a quality of service at least equal to that which lawyers generally would expect of a competent lawyer in a like situation. It will be noted that the rule does not require a standard of perfection. A mistake, even though it might be actionable for damages in negligence, would not necessarily constitute a failure to maintain the standard set by the Rule, but evidence of gross neglect in a particular matter or a pattern of neglect or mistakes in different matters may be evidence of such a failure regardless of tort liability. Where both negligence and incompetence are established, while damages may be awarded for the former, the latter can give rise to the additional sanction of disciplinary action. Sir Thomas Lund in A Guide to The Professional Conduct and Etiquette of Solicitors (1960) says on page 62: The Disciplinary Committee have stated the principle as follows: While not holding that mere negligence of itself constitutes professional misconduct or conduct unbefitting a member of the Solicitors profession, negligence may be of such a character and so aggravated as to merit either of these descriptions.

8 - 8 - The respondent was not actuated by dishonest or improper motives, and we are unable to say that, in the particular circumstances, his negligence was of such a character as to fall within the description of conduct that is unbecoming within section 17.14(i)(b), attracting disciplinary sanction. 3. Re Bahcheli, [2004] I.D.A.C.D. No. 12 In Re Bahcheli, the respondent had been involved in the reimbursement of client losses (through a third party) without fully advising his firm. The IDA panel stated that implicit in an allegation of conduct unbecoming is a degree of moral turpitude, or, at the very least, bad faith on the part of the respondent (para 21). It found that the evidence did not establish that the respondent was motivated by self-interest. The panel stated that it did not in any way condone the actions of the respondent but that the single failure of the respondent does not rise to the level of wrong doing sufficient to found the charge of conduct unbecoming and contrary to the public interest, contrary to By-Law 29.1 (para. 27). 4. Re Steinhoff, [2004] BCSECCOM 666 Re: Steinhoff was a hearing and review before the British Columbia Securities Commission of an IDA decision. The IDA panel had found, among other things, that Steinhoff had contravened IDA By-Law 29.1 by serving Ontario clients without being registered in Ontario. The hearing before the IDA had dealt with other more serious allegations, and the IDA staff conceded that no charges would have been brought solely for that technical violation (see para. 36). The Commission found (at paras ) that the IDA panel erred because it failed to consider all the circumstances.. Those other circumstances were the IDA s unexplained delay in processing Steinhoff s registration application and the nature of the allegation (which the IDA panel had described as a tag on, a technical charge, and an afterthought ). The Commission concluded that Steinhoff had not simply ignored registration requirements, and that both she and her employer had taken the steps necessary to ensure that she was registered in all the relevant jurisdictions. She reasonably believed that her application for registration was being handled properly by her employer, and it was ultimately granted by the IDA without conditions or restrictions. The Commission concluded that, taking into account all the circumstances, Steinhoff s conduct in serving her Ontario clients without being registered there was not conduct unbecoming. In the instant matter, the Respondent held an honest but mistaken belief that her answers to the questions were accurate. In our view, a simple breach of a rule, By-law or code of conduct does not, in and of itself, amount to conduct unbecoming under By-law There must, at a minimum, be some evidence of improper motive. We believe it is noteworthy that all witnesses from RBC who testified at the hearing, including Mr. Oosterhuizen who was responsible for firing the Respondent, remain fully convinced of Ms. Mu s trustworthiness and honesty. Mr. Papalia echoed that sentiment. This is also not a case where the negligence of the Respondent raises her conduct to conduct unbecoming. To do that, we are of the view that the negligence would have to be characterized as gross negligence. In the instant matter, we do not believe there is evidence of any negligence.

9 - 9 - The Respondent attempted, on a number of occasions, to take steps to determine the proper course of action. In the end, the Respondent relied, as she was entitled to, on a letter issued to her by the Association. Conclusion In summary, we find that the Association has failed to prove the allegations made in the Notice of Hearing. Dated in British Columbia this day of, Wade Nesmith, Chair Bradley Doney Chris Lay