IIROC panel overstepped on sanctions, ASC finds

By James Langton | October 19, 2020 | Last updated on October 19, 2020
2 min read

A regulatory hearing panel erred in handing out penalties to a rep when it found that his defence represented a lack of remorse, the Alberta Securities Commission (ASC) ruled.

The ASC published its reasons for allowing advisor Michael Francis O’Brien to appeal sanctions imposed on him by an Investment Industry Regulatory Organization of Canada (IIROC) hearing panel earlier this year.

The IIROC panel ordered a $100,000 fine, a two-year suspension and an additional $20,000 in costs after finding that O’Brien contravened IIROC rules when he was an advisor with RBC Dominion Securities Inc. The panel found that O’Brien borrowed money from an elderly client and made misleading statements about the loan to both the firm and IIROC investigators.

On appeal, the ASC upheld the panel’s findings that O’Brien violated IIROC rules, but it found the panel made mistakes in setting the sanctions against him.

As a result, the regulator ordered the fine be reduced from $100,000 to $50,000 and that the suspension be cut from two years to nine months.

“We are of the view that in the penalty decision, the IIROC panel erred by overemphasizing O’Brien’s perceived lack of remorse and failure to recognize the seriousness and impact of his misconduct, which they associated with his continued denial that Ms. H was a vulnerable client or that she had been harmed by his actions,” the ASC ruling stated.

The commission said that while demonstrating remorse may be considered a mitigating factor, failing to show remorse is not an aggravating factor.

The ASC decision noted that O’Brien’s defence was that the client in question was not vulnerable, and that she was not harmed by his breach of the rules regarding unapproved personal financial dealings with clients.

“It was not inconsistent for O’Brien to admit the contravention by admitting that he engaged in personal financial dealings with a client… while also maintaining that Ms. H was neither vulnerable nor harmed,” it said.

Additionally, it noted that “O’Brien was steadfast in denying that he misled investigators or failed to cooperate. That was his right…”

The ASC also found that the panel was wrong to consider speculation that the client may have incurred legal fees in making its penalty decision.

“Any speculative facts should have been disregarded entirely,” it said.

Ultimately, the ASC found that the IIROC panel “erred in law and principle by considering irrelevant factors in deciding the penalties.”

While the ASC found that the misconduct was serious and that significant sanctions were appropriate, given the panel’s errors the commission concluded it was necessary to reduce the penalties.

Instead of sending the case back to the panel to reconsider its ruling, the ASC substituted its own judgment on sanctions, saying, “these penalties are proportionate in relation to relevant prior decisions, recognize the seriousness of the misconduct, and are stern but not excessively punitive.”

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.