Re Castonguay. The Dealer Member Rules of the Investment Industry Regulatory Organization of Canada (IIROC)

Transcription

1 Unofficial English Translation IN THE MATTER OF: Re Castonguay The Dealer Member Rules of the Investment Industry Regulatory Organization of Canada (IIROC) and The By-Laws of the Investment Dealers Association of Canada (IDA) and Réal Castonguay 2012 IIROC 42 Investment Industry Regulatory Organization of Canada Hearing Panel (Québec District Council) Hearing held on June 8, 2012 Decision rendered on July 24, 2012 Hearing Panel: Me Jean-Pierre Lussier (Chair), Michel Duchesne, François Gervais Appearances : M e Myriam G. Del Zotto, for IIROC M e Paul-André Mathieu, for the Respondent INTERLOCUTORY DECISION 1 On February 3, 2012, Carmen Crépin, IIROC s Vice-President, Québec signed a Notice of Hearing in the matter of the Respondent, for the purpose of determining whether the latter has committed the following contraventions: (i) Between October 2003 and June 2007, the Respondent showed a lack of diligence toward one of his clients by neglecting to inform the latter of the existence of an essential fact in connection with the Cierra and Prospector offerings, even though he was aware of this essential fact at the time his client invested in these two offerings, thereby engaging in conduct unbecoming or detrimental to the public interest, contrary to By-law 29.1 of the IDA; (ii) Between January 2003 and June 2007, the Respondent facilitated investments for two (2) individuals, one a client and the other a non-client, in the Cierra and Prospector offerings, without the knowledge and consent of his employer, an IDA Member Firm, thereby engaging in conduct unbecoming or detrimental to the public interest, contrary to By-law 29.1 of the IDA. 2 In limine litis, Counsel for Respondent presented a motion to dismiss the proceedings. There are two aspects to this motion. The first concerns our Hearing Panel's lack of jurisdiction on grounds that the counts Re Castonguay 2012 IIROC 42 Page 1 of 8

2 mention "investments", whereas the business transactions involving Cierra and Prospector do not, in his opinion, constitute "investments" within the meaning of the law, but rather software distribution license subscriptions. Consequently, the Respondent maintains that IIROC has no jurisdiction over this type of business transaction. 3 Since it is impossible to rule on this aspect without taking evidence on the nature of the business transactions, our Hearing Panel chose to dispose of this argument at the same time as the merits of the case, as applicable. 4 The second aspect of the motion concerns the deadlines. The Respondent alleges that these were unreasonable and prejudicial to him. He argues that no remedy other than a stay of the proceedings can reasonably compensate for this prejudice, which may even be aggravated by holding the hearing. 5 This decision therefore is concerned solely with the second aspect of the motion. Our Hearing Panel must decide, in light of the doctrine and case law, whether the facts in support of the motion support the desired conclusion, namely the stay of the proceedings. 6 Before outlining the considerations that support our decision, it is appropriate to review the evidence in support of the motion, both that of the Respondent and that of IIROC. 1. THE EVIDENCE 7 The chronology of the material events, according to the Respondent, (including certain corrections to the dates discussed at the hearing), is as follows: October 22, 2008: January 20, 2009: March 26, 2009: March 27, 2009: March 31, 2009: May-June 2009: June 23, 2009: August 10, 2009: August 24, 2009: October 10, 2009: Letter of complaint from Michel Lalonde to Raymond James and Réal Castonguay. Letter from Raymond James replying to the complaint letter. Complaint forwarded by to IIROC by Michel Lalonde. First request for information to Raymond James (Réal Castonguay was only indirectly informed of the complaint against him.) Reply from Raymond James. New requests to Raymond James and Michel Lalonde. IIROC investigation opened. Request for information sent to Raymond James by the investigator. Receipt of information from Raymond James and exchanges. Notice of termination of Réal Castonguay's employment at Raymond James. November 12, 2009: Request for interview with Michel Lalonde. December 22, 2009: Interview with Michel Lalonde. January 11, 2010: January 19, 2010: January 25, 2010: February 8, 2010: February 9, 2010: Request for information sent to Raymond James by the investigator. Reply from Raymond James. Réal Castonguay summoned to interview by the IIROC investigator. Request for further details sent to Raymond James by the investigator. Reply from Raymond James. Feb. 11 & 22, 2010: Interview of Réal Castonguay by IIROC investigator February 22, 2010: Request for information sent to Raymond James by investigator Re Castonguay 2012 IIROC 42 Page 2 of 8

3 March 2-3, 2010: March 9, 2010: March 10, 2010: exchange between Raymond James and investigator Reply from Raymond James. Receipt of documents in connection with reply. March 14 to 18, 2010: Michel Lalonde follows up regarding his investigation. May 10, 2010: Request for information sent to Raymond James by investigator. May 21-25, 2010: s between Raymond James and the investigator. September 20, 2010: End of the investigator's activities. October 14, 2010: Réal Castonguay is informed by IIROC that his file is being referred to the Enforcement Division. June 2, 2011: First letter from IIROC since the end of the investigation, inviting the Respondent to begin, if he wishes, a negotiation for the purpose of reaching a settlement agreement. June 2011: Two meetings between the legal counsels of both parties. July 4, 2011: Telephone conversation between the parties' legal counsels. August 26, 2011: Telephone conversation between the parties' legal counsels. January 10, 2012: Telephone conversation between the legal counsels and letter from IIROC to Me Loranger. Late January 2012: February 3, 2012: March 30, 2012: Failure of negotiations between the parties. Notice of Hearing. Notice of termination of employment at Canaccord. 8 The Respondent, in his testimony, stated that he has been unemployed since his dismissal from Canaccord. He did not stop working between the loss of his job at Raymond James and his job at Canaccord. He had received a 90-day notice of termination from Raymond James, but before the expiration of this time period, he went to work for Canaccord, a firm where the ex-president and ex-vice-president of Raymond James had been working for the past few months. The Respondent had the same contract with Canaccord that he had had previously with Raymond James. 9 On July 15, 2009, the Respondent stated that he had agreed in writing to submit to strict supervision (in reality, it was close supervision, since his trades were supervised after the fact, rather than strict supervision where every trade must be preapproved). He mentioned, moreover, that the manager who was supervising him was his employee. At some point in April 2012, he was dismissed by the senior management of Canaccord. He explained that the reason for this dismissal was that the complaint filed against him by IIROC was still pending. He had begun to be stigmatized at Raymond James following the IIROC investigation and the uncertainty created by the situation had and continued to be prejudicial to him, since no one wanted to retain the services of someone who was the subject of a complaint by IIROC. 10 IIROC called as witnesses the investigator, Yannick Béland, on the one hand, and Me Carmen Crépin, Vice-President, Québec, on the other. Investigator Béland explained that the investigation ran from June 23, 2009 to September 20, It was not the only investigation he was conducting during that period. As for M e Crépin, she confirmed that IIROC has internal guidelines for fulfilling its self-regulatory mandate. When a complaint is brought, 45 to 90 days are allocated to assess the seriousness of the complaint. Once convinced of its seriousness, the file is referred to Investigations. The guidelines provide "benchmarks" for the length of the investigation, a period of 12 to 24 months. When the investigation is complete, the file goes to Enforcement for Re Castonguay 2012 IIROC 42 Page 3 of 8

4 processing by legal counsel, who examines the evidence, ensures that it is completed where necessary, and drafts a Notice of Hearing. The timeframe for Enforcement is generally 10 to 12 months. Prior to the Notice of Hearing, it is also customary to send a draft to the Respondent in order to negotiate a settlement agreement, if applicable. In the absence of a settlement agreement, a formal Notice of Hearing is filed. 11 M e Crépin mentioned that there are Standard Track and Complex Track cases. The Respondent's case, as the Notice of Hearing shows, is on the Standard Track. However, this does not always have an impact on the length of the investigation, since matters that appear simple can often require a fairly lengthy investigation for all kinds of reasons (for example, the availability of the Respondent or of the latter's legal counsel, the difficulty in reaching certain witnesses or obtaining certain documents, etc.). 2. THE PARTIES' REPRESENTATIONS 12 Counsel for the Respondent has emphasized that a delay of 34 months between the filing of the complaint and the Notice of Hearing is unreasonable, considering the simplicity of the matter, the few witnesses to contact, and the small number of business transactions to examine. The investigation lasted 15 months. Nothing happened between May 25, 2010 and June 2, 2011 (11 months), as well as between September 20, 2011 and February 3, 2012 (4 months). The Notice of Hearing was not signed until February 3, These delays, which are altogether too long argues counsel for the Respondent, have been prejudicial to the Respondent and this prejudice cannot be offset by anything less than a stay of the proceedings against him. 13 For her part, counsel for IIROC argues that the case law does not support the Respondent's claims, since the courts of law have ruled that only in very exceptional cases are such motions granted. On the one hand, the delays must be exaggeratedly long and, on the other hand, they must cause actual prejudice to the Respondent, for instance preventing him from presenting a full and complete defense (which might be the case if material documents cannot now be found or if major witnesses are deceased in the interim). If there is no real problem in regard to the right to procedural fairness, it must be demonstrated that very serious prejudice has resulted from the delay. In this case, the Respondent has certainly not demonstrated the existence of such relatedness between the loss of his job at Canaccord and the delay. His motion must therefore be dismissed. 3. DECISION AND REASONS 14 The first remark by our Hearing Panel is to the effect that the analysis of the parties' respective claims need not be done in light of the rights provided by the Canadian Charter of Rights and Freedoms. Indeed, the Charter, according to its s. 32, applies to the Parliament of Canada and the provincial legislatures. It also applies to bodies created by federal or provincial statute, even those independent of government, when exercising a statutory authority. IIROC is not a body created by statute. It is a self-regulatory organization responsible for regulating the investment dealers who are its members. The Act respecting the Autorité des marchés financiers (R.S.Q., c. A-33.2) recognized the IDA (which has since become IIROC) as a self-regulatory organization, and this allows it to enforce its own disciplinary rules. In short, as the Québec Court of Appeal noted, in a decision written by Justice André Rochon in IIROC v. Marc Beaudoin et al 1, maintaining discipline among IIROCregulated firms relies on a contractual rather than a legislative foundation. The judgment states: [UNOFFICIAL TRANSLATION] In the case at hand, the SRO s power to govern and discipline its members has a contractual foundation which becomes enforceable under the effect of recognition by the AMF. This recognition shall be granted inasmuch as the SRO has provided an adequate disciplinary process, notably in its internal documents. 15 That said, regardless of whether there is a violation of the Charter or not, the principles of natural justice apply to any disciplinary body. When an unacceptable delay causes one party significant prejudice, such as the 1 Reported in 2011 QCCA 2247, see par. 35. Re Castonguay 2012 IIROC 42 Page 4 of 8

5 inability to respond to a complaint against it, the delay may justify a stay of the proceedings. This is generally the case, for example, when delays are abnormally long and unjustified to the point that, for instance, major witnesses are deceased in the interim or become impossible to find. Proceeding in such circumstances would constitute a real abuse of process or a denial of justice. 16 Blencoe v. British Columbia (Human Rights Commission) 2 contains the principles applicable in this matter. After analyzing several decisions, notably by several of the country's appeal courts, Justice Bastarache, writing for the majority, mentions first of all, in paragraph 115 of the decision: "115 I would be prepared to recognize that unacceptable delay may amount to an abuse of process in certain circumstances even where the fairness of the hearing has not been compromised. Where inordinate delay has directly caused significant psychological harm to a person, or attached a stigma to a person s reputation, such that the human rights system would be brought into disrepute, such prejudice may be sufficient to constitute an abuse of process. The doctrine of abuse of process is not limited to acts giving rise to an unfair hearing; there may be cases of abuse of process for other than evidentiary reasons brought about by delay. It must however be emphasized that few lengthy delays will meet this threshold. I caution that in cases where there is no prejudice to hearing fairness, the delay must be clearly unacceptable and have directly caused a significant prejudice to amount to an abuse of process. It must be a delay that would, in the circumstances of the case, bring the human rights system into disrepute. The difficult question before us is in deciding what is an unacceptable delay that amounts to an abuse of process." 17 He then outlines the circumstances that would enable a court of law to conclude the existence of an abuse of process that would justify a stay of proceedings: "120 In order to find an abuse of process, the court must be satisfied that, the damage to the public interest in the fairness of the administrative process should the proceeding go ahead would exceed the harm to the public interest in the enforcement of the legislation if the proceedings were halted (Brown and Evans, supra, at p. 9-68). According to L Heureux Dubé J. in Power, supra, at p. 616, abuse of process has been characterized in the jurisprudence as a process tainted to such a degree that it amounts to one of the clearest of cases. In my opinion, this would apply equally to abuse of process in administrative proceedings. For there to be abuse of process, the proceedings must, in the words of L Heureux Dubé J., be unfair to the point that they are contrary to the interests of justice (p. 616). Cases of this nature will be extremely rare (Power, supra, at p. 616). In the administrative context, there may be abuse of process where conduct is equally oppressive." 18 The preceding excerpts lead to certain conclusions. These may be summarized as follows: When delays are so lengthy that they affect a party's right to a just and fair hearing or their right to make full answer and defense, there may be a stay of proceedings; When the overly lengthy delays do not affect procedural fairness, but have caused prejudice that is so significant that to pursue the proceedings would bring the justice system into disrepute, there may also be a stay of proceedings; It is up to the party petitioning for the stay of proceedings to convince the court that to pursue them would be contrary to the interests of justice. 19 With these conclusions in mind, our Hearing Panel has discussed the evidence to determine, on the one hand, whether the delays were so excessive that they qualify for a motion to stay the proceedings. Secondly, we 2 Reported in [2000] 2 S.C.R Re Castonguay 2012 IIROC 42 Page 5 of 8

6 considered the evidence of the prejudice and, if any, the connection between it and the length of the delays. A. The delays 20 The initial complaint was forwarded to IIROC on March 26, The investigation was opened on June 23, 2009 and ended on September 20, The matter was then referred to Enforcement. After discussions between the legal counsels in order to reach a settlement agreement, the negotiations were found to have failed towards the end of January A Notice of Hearing was signed on February 3, In short, 34 months elapsed between the receipt of the complaint and the Notice of Hearing. 22 When considered without regard for the usual delays in disciplinary matters, this 34-month delay does in fact seem very long to dispose of a matter which, at first glance, could have been processed more quickly. The chronology we reported in the chapter on evidence might indicate a certain inaction at the material times. However, the length of the delays must also be examined comparatively. In Blencoe, Judge Bastarache mentions, in paragraph 130, that "the delay in the case at bar should be compared to that in analogous cases." 23 In this regard, M e Crépin's testimony regarding the usual delays in the case of a disciplinary complaint demonstrates that the Respondent's case is roughly within the norm. It is usual to analyze the seriousness of the complaint before referring it to the Investigations Department. To have taken three months to do this is certainly a little long, but not to the point of being excessive, or of causing prejudice to the Respondent. The usual investigations run 12 to 24 months as a rule. The one involving the Respondent lasted 15 months. It is therefore within the norm. The last period, that of enforcement, usually spans 10 to 12 months. Here, it lasted 16 months, which exceeds the norm slightly. But even if we estimate that, here as well, the delays were too long, it is not, in our opinion, an excessive delay to the point of creating real prejudice for the Respondent, or of bringing the disciplinary process into serious disrepute, justifying our Hearing Panel ordering a stay of proceedings. B) The prejudice 24 Of course, a practicing representative who is the subject of a disciplinary investigation is likely to suffer prejudice. His reputation may be tainted and it is in his interest that any matters that involve him be addressed within a reasonable timeframe. But the prejudice stems primarily from the existence of a disciplinary investigation. It may however be aggravated by overly lengthy delays in the investigation. 25 In the Respondent's case, the evidence is to the effect that, despite the complaint against him, he suffered no financial loss until March 30, 2012, which is when Canaccord terminated his employment. Even though the Respondent argues the relatedness between the pending disciplinary proceedings and his termination, that is not what the documentary evidence reveals. The letter of dismissal, dated March 30, 2012, makes no mention of either the period during which the Respondent was under investigation or IIROC's Notice of Hearing. The relevant excerpt from this letter of dismissal reads as follows: For greater certainty, your departure is on the following basis: 1. Termination (a) Termination Date: In accordance with the agency agreement dated as of October 13, 2009 (the Agency Agreement ), this letter shall be your written notice of termination effective today s date, that is March 30, 2012 (the Termination Date ). This letter will have the effect of terminating any agency/employment or engagement that you have with any parent, subsidiary, affiliate, predecessor or successor of Canaccord, as well as any obligations owed to you by Canaccord pursuant to the Agency Agreement, all with effect on the Termination Date. (b) Cause: Your termination is based on, but not limited to, the following reasons: (i) (ii) Inappropriate Trading Practices Misconduct Re Castonguay 2012 IIROC 42 Page 6 of 8

7 UTN: For the purpose of regulatory compliance, Canaccord will confirm that your cessation of employment is pursuant to Dismissal for Cause." 26 The letter, as we can see, refers to inappropriate business practices and misconduct. Canaccord's response to IIROC regarding the reasons for dismissal mentions the fact that Canaccord was aware of the negotiations and discussions between IIROC and the Respondent. But a reading of the full letter signed on April 19, 2012 by Bruce Maranda shows that the present complaint against the Respondent was in no way a reason for dismissal. At most, it constituted one of the reasons for which the Respondent was subjected to strict supervision. This letter reads as follows: Dear Sirs: Re : Réal Castonguay Notice of Termination Further to your dated April 5, 2012, please find our response as follows: 1. Please find enclosed a copy of the termination letter sent to Mr. Castonguay, dated March 30 th a. 2.b. The inappropriate trading practice that we identified was that the Branch Manager ( BM ), Mr. Daniel Mackay, noticed while Mr. Castonguay was under strict internal supervision, that he was prepared to accept a trading order from the spouse of a client which did not have a trading authorization in the client s account. This order was detected by the BM and refused. Canaccord verified its system to identify if this same person previously requested orders for any clients and we found no evidence of any previous order requests from this person. The misconduct that we identified is that Mr. Castonguay threatened the BM to advise his clients to complain against Canaccord for the services that the clients have been provided. This activity would violate amongst other legislation and jurisprudence, the Civil Code of Quebec, sections dealing with an employee s obligation to act faithfully and honestly in the course of his work. 3. Mr. Castonguay was put under strict supervision at the request of the BM, Mr. Daniel Mackay. The reason for this decision was because the firm was preparing to dismiss Mr. Castonguay and it was decided that the best way to closely monitor his activity was by putting him under strict supervision. In addition, Canaccord was also aware that IIROC was in negotiations or discussions with Mr. Castonguay with respect to a disciplinary action they were pursuing and the BM that was at this specific branch where Mr. Castonguay worked, previous to Mr. Mackay, had recently resigned. 4. Canaccord had two forgivable loans with Mr. Castonguay that were to be amortized over five (5) years form[sic] their signing. Canaccord was aware of these loans as we were the grantor (creditor) of these loans. As Mr. Castonguay was terminated prior to the end of the amortization period, these loans became owing to Canaccord, forthwith. Please contact our office if you require any further information. 27 The inappropriate business practices and misconduct have nothing to do with the complaint brought by IIROC against the Respondent. What's more, the letter has not convinced our Hearing Panel that Canaccord divested itself of the Respondent's services because of the complaint pending against him at IIROC, and even less so because of the delays in settling the complaint. Canaccord explains the inappropriate business practice as follows: while the Respondent was under strict supervision, he approved the execution of a trade on behalf of a client, even though the trade had been solicited by the client's spouse who had no authority to the trade in her husband's account. Re Castonguay 2012 IIROC 42 Page 7 of 8

8 28 As for the second reason for termination, the misconduct, the letter refers to threats to contact the clients to incite them to complain about Canaccord's services which, in Canaccord's opinion, constituted disloyal conduct. 29 The next paragraph in the letter only refers to the complaint brought by IIROC against the Respondent as one of the original grounds for the decision to place him under strict supervision. 30 In short, while our Hearing Panel acknowledges that a representative who is the object of a complaint filed with IIROC is subject to stress and that this tension will persist until the disciplinary process is complete, we are not of the opinion that this prejudice, in the case at hand, would justify a stay of the proceedings. We are not looking at a case that jeopardizes procedural fairness, the Respondent having moreover never alleged that his defense was jeopardized by the passage of time. Neither are we faced with a case where pursuit of the proceedings would bring into disrepute the disciplinary process whose prime function is to protect the public and the reputation of the securities industry. 31 FOR THESE REASONS, OUR HEARING PANEL: 32 DISMISSES the aspect of the Respondent's motion that pertains to the length of the delays; 33 SUSPENDS judgment in respect of its rationae materiae jurisdiction to rule on the merits of the complaint, it being understood that it will rule on this argument of the Respondent after hearing the evidence; 34 SUMMONS the parties to the hearing on the merits which will be held November 6 to 9, IN WITNESS WHEREOF WE HAVE SIGNED: This 24th day of July, 2012 Michel Duchesne, Panel Member François Gervais, Panel Member M e Jean-Pierre Lussier, Panel Chair All rights reserved 2012 The Investment Industry Regulatory Organization of Canada Re Castonguay 2012 IIROC 42 Page 8 of 8