IN THE MATTER OF THE BY-LAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA. Re: KELLY JOHN CAMPBELL HUSKY

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1 IN THE MATTER OF THE BY-LAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA Re: KELLY JOHN CAMPBELL HUSKY Heard: May 1, 2006 Decision: May 10, 2006 Hearing Panel: Eric Spink, Chair Kathleen Jost William Welton Counsel: Darren Gross John Henderson for the Investment Dealers Association of Canada on behalf of Kelly John Campbell Husky REASONS FOR DECISION [1] This Hearing Panel considered a Settlement Agreement pursuant to By-law of the Investment Dealers Association of Canada (IDA). At the conclusion of the settlement hearing we accepted the Settlement Agreement and indicated that we would provide written reasons for our decision. [2] The Settlement Agreement is attached to these reasons. It describes two unauthorized trades carried out by Mr. Husky in the account of a client. Mr. Husky admitted that the trades were unauthorized and that he had never met with or spoken to the client. Mr. Husky also admitted having altered the Internal Know Your Client Forms (KYC Forms) for that same client s accounts, signing the Forms and submitting them to his branch manager for his signature, all without speaking to, or meeting with, the client. [3] In this case, the facts disclosed in the Settlement Agreement were rather sparse but were augmented considerably by additional facts introduced by both counsel during the settlement hearing. Both parties consented to providing these facts, as required by Rule 15.3(1) of the IDA Rules of Practice and Procedure. The additional facts include: Mr. Husky made several attempts to contact the client in question, by telephone and in writing, but was unable to do so because the client was out of the country for an extended period. Mr. Husky then filled out the KYC Forms based on information contained in the client s previous forms, making slight changes to the objectives described in the previous forms, and indicating that Mr. Husky had known the client for 3 months. After the client complained, the unauthorized trades were reversed by Mr. Husky s Member firm at a cost of approximately $4,590. In June 2005, Mr. Husky voluntarily indemnified the Member firm for this amount. The client did not sustain any financial loss as a result of the contraventions. Mr. Husky felt the unauthorized trades were appropriate at the time. It was not suggested that the trades were unsuitable for the client. The changes to the KYC Forms made by

2 Mr. Husky were not material to the question of whether the unauthorized trades were suitable for the client. Mr. Husky has no prior disciplinary record. He co-operated with the investigation, admitted the contraventions and accepted full responsibility. [4] Mr. Husky agreed to the following penalties: (i) close supervision for a period of 6 months; (ii) re-write and pass the examination based on the Conduct and Practices Handbook within 6 months; (iii) a fine in the amount of $15,000 for unauthorized trading; (iv) a fine in the amount of $10,000 for failure to know your client; and (v) disgorgement of profits in the amount of $1,227. Mr. Husky also agreed to pay the amount of $4,000 as a partial contribution to the IDA s costs in this matter. After receiving credit for the $5,000 fine already paid by Mr. Husky to his Member firm, the net amount payable by Mr. Husky under the terms of the settlement agreement is $25,227. [5] When determining whether to accept or reject a Settlement Agreement, the test is whether the proposed penalty is reasonable, having regard to the facts disclosed and the nature of the settlement process. In each case there will normally be a range of penalties that can be considered reasonable. The Hearing Panel should accept a Settlement Agreement if the proposed penalty falls within that range, even if the Panel considers that a different penalty might be more appropriate. [6] We were referred to a number of previous decisions and settlements but these were of limited use because they dealt with situations considerably more egregious than this. Both counsel submitted that the proposed penalties were reasonable, based on the fact that the circumstances surrounding Mr. Husky s contraventions place them near the least-egregious end of the scale. It was noted that the proposed penalties reflect the minimum sanctions recommended in IDA s Disciplinary Sanction Guidelines dated January Both counsel agreed that Mr. Husky s actions since the contraventions are a significant mitigating factor because they indicate remorse and his acceptance of responsibility. [7] The Hearing Panel agreed with the submissions of counsel. We are satisfied that the proposed penalties are reasonable and that the Settlement Agreement should be accepted. DATED at Edmonton, Alberta, this 10th day of May, Eric T. Spink Kathleen Jost William Welton 2

3 INVESTMENT DEALERS ASSOCIATION IN THE MATTER OF: THE BY-LAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA AND KELLY JOHN CAMPBELL HUSKY SETTLEMENT AGREEMENT I. INTRODUCTION 1. The Enforcement Department Staff ( Staff ) of the Investment Dealers Association of Canada ( Association ) has conducted a review ( Review ) into the conduct of Kelly John Campbell Husky ( Respondent ). 2. The Review disclosed matters for which the Respondent may be disciplined by a hearing panel appointed pursuant to Association By-law 20 Part 10 ( 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 ( 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. 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 ( 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 right under the Association By-laws and any applicable legislation to a disciplinary hearing, review or appeal. 3

4 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. 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, neither they, nor anyone on their behalf, will make any public statement inconsistent with the Settlement Agreement. 11. Subject to paragraph 10, nothing in this section is intended to restrict the Respondent from making full answer and defence to any civil proceeding against him. 12. Staff and the Respondent jointly recommend that the Hearing Panel accept the Settlement Agreement. III. STATEMENT OF FACTS (i) Acknowledgment 13. For the purposes of this Settlement Agreement only and for no other civil proceeding, Staff and the Respondent agree with the facts as set out in this Section III and acknowledge that the terms of the settlement contained in this Settlement Agreement are based upon these specific facts. Notwithstanding the provisions of this clause, Enforcement Counsel for the Association is not prohibited from raising the terms of this Settlement Agreement with a future Discipline Panel considering any future disciplinary proceedings that might be brought against Mr. Husky. (ii) Factual Background 14. The Respondent s registration history is as follows: Registration Issue Date Registration Termination Date Employer Registration Category January 1999 January 2002 BMO Nesbitt Burns Registered Representative January 2002 May 2004 RBC Dominion Securities Inc. Registered Representative May 14, 2004 Present BMO Nesbitt Burns Registered Representative 4

5 15. On or about July 13, 2004, the Association received a notice from a Member firm, RBC Dominion Securities Inc. ( RBC ), that they had received a written complaint ( Complaint ) about the Respondent from D.M. who was a client of the Respondent while he was employed at RBC. 16. The Respondent ceased working for RBC and re-joined BMO Nesbitt Burns Inc. ( BMO ) effective May 14, The Complaint, dated July 6, 2004, alleged that the client s investments had been changed without her authorization. The trades disputed were reversed by RBC. 18. In an interview with Staff D.M. advised that she was on an extended trip out of the country during April and May of During this time two trades were conducted in her account for a total value of $76,500 resulting in a commission of $1227 to the Respondent. D.M. stated that she did not authorize any trades in her accounts and that she had never met with, or spoken to, the Respondent. 19. The Respondent replied to these allegations in a letter dated July 22, 2004 addressed to his branch manager at BMO. He admitted the allegations were truthful. He stated that he attempted several times to contact D.M. but was unsuccessful. 20. In a letter dated September 30, 2004, the branch manager from BMO details discussions held with the Respondent which confirms the allegation of unauthorized trading. The letter informs the Respondent that he is to be fined $5,000 for his actions. The Respondent signed this letter on September 30, On or about November 9, 2004, BMO Nesbitt Burns Inc. ( BMO ) deducted $5, from the Respondent s paycheque. This amount represented the internal fine levied against the Respondent referred to in paragraph In a letter dated December 17, 2004 addressed to the Manager, Retail Complaints for BMO the Respondent admitted to never having met with or spoken to D.M. 23. In an interview with Staff conducted on February 28, 2005, the Respondent admitted never having met with or spoken to D.M. and admitted to making the trades for which the complaint was made. 24. During the course of the Review, Staff discovered that the Internal Know Your Client Forms completed at RBC ( KYC Form ) relating to D.M. s accounts contained several discrepancies. 25. The Respondent advised that the D.M Account was transferred to him after the previous broker moved to Toronto. During April, 2004 approximately 20 to 30 client accounts were transferred to, and processed by, the Respondent. 5

6 26. The Respondent altered the KYC Forms for D.M. s accounts, signed them and submitted them to his branch manager for his signature. All of which was done without speaking to, or meeting with, the client. 27. In the interview with Staff the Respondent admitted to signing the KYC Forms and submitting them to his manager at RBC. 28. Association Staff conclude that the Respondent acted contrary to Association By-law 29.1, in that he conducted two unauthorized trades in a client account and that he completed, signed and submitted a KYC Form without meeting with or speaking to the client, which conduct is unbecoming a registered representative and detrimental to the public interest. IV. CONTRAVENTIONS 29. The Respondent admits to the following contraventions of Association By-laws, Regulations, Rulings or Policies: i. Contravention of Association By-law 29.1 in that he performed trades in a client account without the client s knowledge and consent which conduct is unbecoming a registered representative and detrimental to the public interest. ii. Contravention of Association By-law 29.1 and Regulation (a) in that he failed to use due diligence to learn and remain informed of the essential facts relative to every customer and to every order or account accepted which conduct is unbecoming a registered representative and detrimental to the public interest. V. TERMS OF SETTLEMENT 30. The Respondent agrees to the following terms of settlement: Sanctions a. Close Supervision for a period of six months; b. Re-write and pass the examination based on the Conduct and Practices Handbook within six months of the date the Settlement Agreement is accepted by a Hearing Panel; Penalties a. Fine for Unauthorized Trading $15, b. Failure to Know Your Client $10, c. Disgorgement of Profits $1, d. Less Firm Fine Previously Paid ($5,000.00) e. Total Penalties $21,

7 f. Partial Contribution to Costs $4, TOTAL PENALTIES AND COSTS $25, Unless otherwise stated or agreed between the parties, any monetary penalties and costs imposed upon the Respondent are payable immediately upon the effective date of the Settlement Agreement. 32. 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. AGREED TO by the Respondent at the City of Edmonton in the Province of Alberta, this 24th day of April, (Print Name) WITNESS Kelly John Campbell Husky RESPONDENT AGREED TO by Association Staff at the City of Calgary in the Province of Alberta, this _25th day of April, (Print Name) WITNESS Darren J. Gross Enforcement Counsel on Behalf of Staff of the Investment Dealers Association of Canada ACCEPTED this 1st day of May, 2006, by the following Hearing Panel: Per: Eric Spink, Panel Chair Per: Kathleen Jost, Panel Member Per: William Welton, Panel Member 7