MFDA bans rep for dealings with elderly mother

A regulatory hearing panel has fined and permanently banned a former fund rep who admitted to improper financial dealings with a vulnerable client — his mother.

A hearing panel of the Mutual Fund Dealers Association (MFDA) ordered that Mark Allen Smith, a former rep with Investors Group Financial Services Inc. in Toronto, be permanently prohibited from the industry, pay a fine of $140,000, and pay $5,000 in costs for misconduct to which he admitted.

In March, Smith and MFDA staff submitted an agreed statement of facts in which he admitted to violating MFDA rules. Yet a hearing was required to determine sanctions, as the two sides couldn’t agree on that element of the case.

The hearing panel ordered sanctions after considering submissions from both sides.

In reaching its decision, the panel focused on the importance of deterrence in cases that involve the financial exploitation of vulnerable investors.

“The securities industry is taking steps to ensure that vulnerable clients are protected including sanctions that promote general and specific deterrence from engaging in misconduct which causes harm to vulnerable investors,” the MFDA panel said in its decision.

In this case, Smith admitted that, after obtaining a power of attorney from his elderly mother, he used it to borrow almost $150,000 from her accounts.

According to the panel’s decision, he admitted to using the money to support a gambling habit and for other personal expenses.

“The respondent submitted some evidence at the hearing that he suffered from mental health issues including depression and a gambling addiction. While mental illness might explain a failure to co-operate with a regulator, it cannot be a defence to borrowing or obtaining money from a client, particularly predatory behaviour targeting a vulnerable client as in this case,” the panel said in its decision.

In determining sanctions, the panel stressed that a fine must disgorge all of the benefits received by the rep’s misconduct, in order to “achieve general deterrence and send a clear message to the industry that financially exploiting vulnerable investors will not be tolerated.”

The panel concluded that Smith financially benefited by approximately $122,000, as he withdrew almost $150,000 from his mother’s accounts, but repaid $54,358. She was also charged $27,000 in interest on her lines of credit.

The panel noted that Smith co-operated with the MFDA and had no history of client complaints or prior disciplinary actions. However, the panel also said that he “was experienced and knew better. The egregious nature of his misconduct outweighs the fact that he has not been the subject of any prior disciplinary action.”

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.