IN THE MATTER OF DISCIPLINE PROCEEDINGS PURSUANT TO BY-LAW 20 OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA. Re: MICHAEL ROBERT DE LONG

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1 IN THE MATTER OF DISCIPLINE PROCEEDINGS PURSUANT TO BY-LAW 20 OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA Re: MICHAEL ROBERT DE LONG Heard: March 9, 2005 Decision: March 22, 2005 Hearing Panel: Eric T. Spink, Chair John Wells Bradley Whyte Counsel: Charlene L. McLaughlin Timothy S. Hoar for the Investment Dealers Association of Canada for Michael Robert De Long REASONS FOR DECISION This is a settlement hearing brought pursuant to Part 10 of By-law 20 of the Investment Dealers Association of Canada ( Association ). At the conclusion of the settlement hearing the Hearing Panel rejected the Settlement Agreement and these are our reasons for doing so. The Settlement Agreement The following Settlement Agreement was presented to the Hearing Panel: I. INTRODUCTION SETTLEMENT AGREEMENT 1. The Enforcement Department Staff ( Staff ) of the Investment Dealers Association of Canada ( the Association ) has conducted a review ( the Review ) into the conduct of Michael Robert De Long ( the Respondent ). 2. The Review discloses matters for which the Respondent may be disciplined by a hearing panel appointed pursuant to Association By-law 20 Part 10 ( the Hearing Panel ). II. JOINT SETTLEMENT RECOMMENDATION 3. Staff and the Respondent consent and agree to the settlement of these matters by way of this settlement agreement ( the Settlement Agreement ) in accordance with By-laws to 20.40, inclusive and Rule 15 of the Association Rules of Practice and Procedure. 4. The Settlement Agreement is subject to acceptance by the Hearing Panel.

2 5. The Settlement Agreement shall become effective and binding upon the Respondent and Staff as of the date of its acceptance by the Hearing Panel. 6. The Settlement Agreement will be presented to the Hearing Panel at a hearing ( the Settlement Hearing ) for approval. Following the conclusion of the Settlement Hearing, the Hearing Panel may either accept or reject the Settlement Agreement. 7. If the Hearing Panel accepts the Settlement Agreement, the Respondent waives his/her right under the Association By-laws and any applicable legislation to a disciplinary hearing, review or appeal. 8. If the Hearing Panel rejects the Settlement Agreement, Staff and the Respondent may enter into another settlement agreement; or Staff may proceed to a disciplinary hearing in relation to the matters disclosed in the Investigation [sic]. 9. The Settlement Agreement will become available to the public upon its acceptance by the Hearing Panel. 10. Staff and the Respondent agree that if the Hearing Panel accepts the Settlement Agreement, they, or anyone on their behalf, will not make any public statements inconsistent with the Settlement Agreement. 11. Staff and the Respondent jointly recommend that the Hearing Panel accept the Settlement Agreement. III. (i) STATEMENT OF FACTS Acknowledgment 12. Staff and the Respondent agree with the facts set out in this Section III and acknowledge that the terms of the settlement contained in this Settlement Agreement are based upon those specific facts. (ii) Factual Background 13. On or about February 12, 2004, the Association received a Notice of Termination from the Member firm, Canaccord Capital Corporation ( Canaccord ), relating to the registered representative, Michael Robert De Long, (Respondent). 14. The Notice of Termination disclosed that the Respondent had been terminated for cause after Canaccord investigated and concluded that the 2

3 Respondent had, appended a signature on a form [transfer form] which should have been signed by the trustee of our registered plans. 15. On or about October 8, 2003, the Respondent affixed the address for Canaccord and endorsed his own signature to the transfer form, following the advice of Canaccord personnel, to affect [sic] the transfer of a client s locked-in pension funds from Alberta Pensions to the client s locked-in retirement savings plan account held at Canaccord ( Canaccord account ). This transfer form was rejected by Alberta Pensions, as Canaccord was not on Alberta Pension s approved list for transferring locked-in RSPs. 16. During the approximate period from early October, 2003, to early December 2003, the Respondent sought the advice of representative(s) of Alberta Pensions, representative(s) of Canaccord s trustee company (the trustee ) and employees of Canaccord as part of his efforts to transfer the client s funds from Alberta Pensions to the client s Canaccord account. 17. On or about December 5, 2003, following a conversation with an Alberta Pensions representative, the Respondent completed a transfer form, by affixing the trustee s address and a handwritten not indicating the transfer was to a Canaccord locked-in RSP account, for which the trustee was authorized to accept, and signing as an authorized representative of the trustee, in a further effort to affect [sic] the transfer of the client s funds from Alberta Pensions to the client s Canaccord account. The Respondent than [sic] faxed the transfer form to Alberta Pensions indicating on the fax cover sheet, Canaccord is the Agent. 18. The Respondent did not have authority to sign the trustee s representative s signature to the transfer form. 19. The client had been anxious to have the transfer of funds from Alberta Pensions to the Canaccord account completed and was pleased when the transfer was completed on or about January 23, The Respondent s conduct, described herein, did not cause harm to the client. 21. The Respondent has admitted to the inappropriateness of his conduct, stating that he made a grave error in judgment. Further, the Respondent has expressed remorse regarding any negative impact his conduct may have had upon the reputation of Canaccord and its business relationship with its trustee. 22. Association Staff conclude that the Respondent acted contrary to Association By-law 29.1, in that without legal authority he forged the 3

4 signature of a representative of the trustee company to a client transfer form, which conduct is unbecoming a registered representative and detrimental to the public interest. IV. CONTRAVENTIONS 23. The Respondent admits to the following contraventions of Association Bylaws, Regulations, Rulings or Policies: (i) VI. Contravention of Association By-law 29.1 in that without legal authority he forged the signature of a representative of Canaccord s trustee company to a client transfer form, which conduct is unbecoming a registered representative and detrimental to the public interest. TERMS OF SETTLEMENT 24. The Respondent agrees to the following terms of settlement: Penalties (i) Formal reprimand Costs (i) $3, Unless otherwise stated, any monetary penalties and costs imposed upon the Respondent are payable immediately upon the effective date of the Settlement Agreement. 26. Unless otherwise stated, any suspensions, bars, expulsions, restrictions or other terms of the Settlement Agreement shall commence on the effective date of the Settlement Agreement. Additional facts At the hearing, counsel for the Association and the Respondent provided the following additional facts. The Respondent met with administrative frustration in attempting to transfer these funds and was under pressure from his client. The Respondent spoke to a representative of the trustee who apparently did not recognize this particular form and who advised the Respondent that she could not help him. The Respondent subsequently forged that representative s signature on the document. The forgery was discovered when the document was reviewed by the trustee. When the Respondent was questioned about the signature, he admitted the forgery immediately and co-operated with the investigation. 4

5 The Respondent has no prior disciplinary record. As a result of the forgery, the Respondent was terminated by his former employer on February 12, The former employer assisted the Respondent in finding other employment in the industry, which commenced February 24, 2004, and the Respondent has been working under close supervision since that date. Submissions on penalty The Association s counsel drew our attention to several previous decisions dealing with forgery by Respondents, submitting that the decision most comparable to the case at hand is Re Gee, [2004] I.C.A.D. No. 58. In that case, the Respondent forged the signature of a client on a form required to transfer an RSP. The Respondent was confused about the form of document to have signed and had previously sent three other documents to the client for purposes of completing the transfer. The first three documents were signed and returned, but when the Respondent realized that they were not the correct documents he forged the client s signature on the correct document in order not to appear like an incompetent professional, as a matter of convenience and in order not to delay the transfer. The Respondent realized his error and within a day or two forwarded a correct document to the client for signature. The hearing panel imposed a fine of $5,000 and ordered that, as a condition of the Respondent s re-registration, he rewrite and pass the examination based on the Conduct and Practices Handbook for Securities Industry Professionals and be subject to a requirement of close supervision for one year. The hearing panel noted that the Disciplinary Sanction Guidelines approved by the Association in January 2003 (the Guidelines ) suggest a minimum fine for forgery of $25,000, and referred to the Preamble to the Guidelines, which says: The minimum fines suggested within the individual guidelines are intended to establish the baseline fine for specific offences in other words, the lowest fine that can be expected by a respondent where there are no aggravating factors and all mitigating factors have already been taken into account. However, nothing in these guidelines shall fetter the discretion of a District Council to impose a lesser or greater penalty in specific circumstances. The hearing panel described a number of considerations that led them to the conclusion that a fine of $25,000 was not appropriate in that case. The Respondent made several attempts to get things right before resorting to the forgery; he neither sought nor obtained any advantage by the forgery; his client suffered no detriment; the client had clearly indicated his wish, intention and willingness to sign a document that accomplished what the forged document was intended to accomplish; and the Respondent moved quickly to repair what he had done. While the hearing panel did not disagree with the description of the Respondent s act as dishonest, they indicated that its more salient characteristic was that it represented an appalling lapse of judgment. The 5

6 hearing panel noted that the Respondent had already suffered heavily for that lapse, referring to the termination of his employment in the securities industry (approximately 14 months prior to the decision) and his inability so far to find other employment in the securities industry, and the fact that his record would make it more difficult to find any employment. For those reasons, the hearing panel concluded that a fine of $5,000 was more appropriate, both to the Respondent and as a matter of general deterrence. The Association s counsel submitted that Re Gee represents the least serious example of forgery considered in any previous case, and that the penalties imposed were similarly the least serious to date. She submitted that the present case represents the new low in that it is a less-serious example of forgery and should attract lower penalties than were imposed in Re Gee. The Association s counsel suggested that the forgery in Re Gee was more serious than the forgery in the present case because that case involved forgery of a client s signature, whereas this case involved forgery of the signature of a trustee s representative. She submitted that, since a fine of $5,000 was imposed in Re Gee for a more serious violation, no fine was appropriate in this case. In response to questions from the Hearing Panel, the Association s counsel submitted that the amount of the fine imposed in Re Gee was not influenced by the period of time that the Respondent in that case had been out of the industry after being fired as a result of the forgery. She submitted that the hearing panel must be cautious about considering such absence from the industry because a Respondent may voluntarily stay out of the industry. She submitted that, in any event, such absence can only be relevant to the question of whether a further suspension is appropriate, and is not relevant when considering what fine may be appropriate. The Respondent s counsel joined with the Association s counsel in submitting that the penalties proposed in the Settlement Agreement were appropriate in the circumstances. During the course of submissions on penalty, the Hearing Panel was also referred to three other decisions involving forgery: Re Holowatiuk, [2004] I.D.A.C.D. No. 64; Re Spowart, [2004] I.D.A.C.D. No. 17; and Re Sklar, [2001] I.D.A.C.D. No. 20. Re Holowatiuk and Re Spowart each involved acts of forgery that were considerably more serious than the present case, so they are of limited assistance in the present case. Re Sklar was more similar to the present case and to the circumstances in Re Gee but, since it was decided before the introduction of the Guidelines, the issues in the present case are better illustrated by comparison with the decision in Re Gee. We were also referred to Re Chan, [2001] I.D.A.C.D. No. 28. That case did not involve forgery by the Respondent so the Hearing Panel did not consider it relevant. Reasons for rejecting the Settlement Agreement The Hearing Panel rejected the Settlement Agreement because in our view the proposed penalties are inadequate, having regard to circumstances of the case and the principles described in the Guidelines. We agree with counsel s submission that the present case is generally comparable to Re Gee but we disagree with the submissions on two important points. 6

7 First, we do not agree that the forgery of the trustee s representative s signature in this case is any less serious than the forgery of the client s signature in Re Gee. As stated in Guideline 1.2, forgery is a serious regulatory matter because it shows that the RR lacks the honesty required of a professional in the securities industry. If anything, we view the Respondent s forgery in this case as more dishonest than that which occurred in Re Gee because, in that case, it was clear that the client would have signed the document in question if given the opportunity to do so. In this case, the Respondent forged the signature of a representative who showed no such inclination to sign the document. Forgery of any document relating to a client transaction poses a similar threat to the client s interests and causes actual harm to the Member firm and to the securities industry as a whole. Second, we disagree with counsel s analysis of how the penalties imposed in Re Gee relate to the Guidelines. In our view, the decision in Re Gee clearly indicates that the Hearing Panel considered the Respondent s termination and resulting absence from the industry as a relevant factor in determining what fine was appropriate. Guideline 1.2 recommends not only a minimum fine of $25,000. It also states that in almost all cases a permanent ban on approval will be sought, and that if mitigating circumstances exist, a suspension of between 6 months and 10 years should be considered. The Respondent in Re Gee had already been out of the industry for a period of 14 months preceding the Hearing Panel s decision. Since it is agreed that sanctions near the minimum end of the spectrum were warranted in that case, it is sensible and appropriate that the Hearing Panel would impose a lesser fine in light of the fact that the Respondent s termination already had the effect of a relatively severe period of suspension. We view the Respondent s act of forgery in the present case as more serious than that which occurred in Re Gee but we also recognize that the mitigating factors in this case place it very near Re Gee at the less serious end of the spectrum of cases involving forgery. We see a serious disparity, however, between the outcome in Re Gee and the proposed Settlement Agreement in this case. The Respondent in this case has served the equivalent of a 12-day suspension versus 14 months in Re Gee. It is proposed that the Respondent in this case pay no fine versus the $5,000 fine in Re Gee. It is proposed that the Respondent in this case not be required to rewrite and pass the examination based on the Conduct and Practices Handbook for Securities Industry Professionals versus such a requirement in Re Gee. The sanctions in any case must be appropriate to the particular respondent and conduct in question, having regard to the need to protect the investing public, the Association s membership, and the integrity of the securities markets. Appropriate sanctions should provide general deterrence, with a view to preventing similar conduct by others. We view the sanctions recommended in Guideline 1.2 as generally appropriate for cases involving forgery, bearing in mind that the Guidelines do not fetter the discretion of a Hearing Panel to impose a lesser or greater penalty in specific circumstances. In our view, the decision in Re Gee is consistent with Guideline 1.2 and the proposed Settlement Agreement in this case is not. 7

8 Costs Costs are not sanctions and we make no comment on the costs proposed in the Settlement Agreement. DATED at Calgary, Alberta, this 22nd day of March, 2005 Eric T. Spink John Wells Brad Whyte 8