IDA appeals SFSC ruling

The Investment Dealers Association of Canada is appealing a ruling by the Saskatchewan Financial Services Commission that says the regulator has no authority to discipline former registrants.

Earlier this year, Wade MacBain, Karl Neufeld and Frederick Smith filed a motion to the SFSC to challenge the authority of the IDA to haul sanctions against them. The IDA accuses the three investment dealers, who worked for Matrix Financial in Saskatoon, of violating several IDA bylaws between 1996 and 2000.

The Saskatchewan hearing panel referred to Chalmers v. The Toronto Stock Exchange, an Ontario Court of Appeal case that debated the reach of domestic tribunals, to determine that the IDA needs statutory authority to impose sanctions on past members of the investment dealers organization. As a result, the commission sided with MacBain and Neufeld, who were no longer members. The case against Smith was allowed to proceed, because he was still a member of the industry.

While the IDA concedes in its factum filed with the SFSC in early October that it doesn’t have the requisite statutory authority against MacBain and Neufeld, it is appealing the decision on the grounds that its jurisdiction over members, or former members, is contractual in nature.

The IDA asserts the commission erred in staying the proceedings. It argues that simply because the courts will not enforce the IDA fines, this does not mean that the contracts between the regulator and its members, current and past, cannot be enforced. The IDA asserts its authority to regulate its members.

Given the significance of the SFSC’s initial ruling, the IDA expected a flood of similar motions would be filed. And that’s precisely what has happened. “It had a ripple effect across the country,” says Jeff Kehoe, the IDA’s director of enforcement.

Since the SFSC’s ruling, three other former IDA members have tried to challenge the regulator’s authority, but Kehoe is quick to point out that all of these challenges have been dismissed. “We’ve now received decisions in B.C., Ontario and Quebec that support our position.

Christian Guilbault in Montreal was the first to try to test the precedent set by the SFSC, although he later withdrew his proceedings.

In August, Charles Dass, a former IDA member in Vancouver, took his challenge to the British Columbia Securities Commission. Dass argued that since the B.C. Securities Act refers to “members” rather than “non-former members,” the IDA no longer had jurisdiction over him. That application, however, was dismissed, on the grounds “that self-regulatory bodies like the IDA regulate the members and approved persons in accordance with the bylaws, rules and other regulatory instruments of the self-regulatory body.”

Stephen Taub tried the same approach in Ontario, similarly with little success. In response to Taub’s application, a hearing panel of the Ontario Securities Commission said it has imposed “a duty on recognized SROs, like the IDA, to regulate the operations and the conduct of their members.”

According to Kehoe, the terms of the IDA bylaws — specifically bylaw 20.7 — make it very clear that the IDA has the authority to regulate former members and institute proceedings for a period of five years after they leave the industry.

That’s not to say the IDA has stopped its push for wider powers. “We would still like to see expanded powers across the country to improve our ability to collect fines, to compel witnesses to obtain third-party documents.”

The SFSC and the IDA are waiting for a reply from MacBain and Neufeld. As a result, no date has been set for the appeal.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(10/24/06)