Rep fell for fraud scheme, sanctioned by SRO

A former mutual fund rep who was duped in apparent fraud scheme — and borrowed from her clients as a result — has been fined almost $800,000 and permanently banned.

A hearing panel of the Canadian Investment Regulatory Organization (CIRO) ruled that Jila Mahnaz Mott, a former rep with Keybase Financial Group Inc. in Toronto, is prohibited from the securities business, fined $776,100 and ordered to pay costs of $7,500.

The panel’s ruling on sanctions followed a hearing where Mott admitted she violated the self-regulatory organization’s rules. The panel’s only job was to determine the appropriate sanctions.

In an agreed statement of facts, Mott said she borrowed a total of $561,300 and US$93,000 from nine clients between September 2019 and 2021 — actions that resulted in conflicts of interest that weren’t disclosed to her dealer or resolved in the best interests of clients.

The panel said Mott borrowed the money from clients after she was ensnared in an apparent fraud — a scheme that sought payments from her to obtain the “proceeds from the sale of shares she had previously purchased in two Mexican vacation resorts.”

The panel said she continued to borrow from clients even after her bank had blocked a wire transaction to Mexico, suspecting it was fraudulent, and after she admitted to her dealer that she had contacted police and filed a report with the Canadian Anti-Fraud Centre about these transactions.

“[W]e were surprised and concerned that she allowed herself to become a victim of the fraud where the circumstances in which the monies were requested and sent to Mexico ought to have triggered a suspicion of a potential fraud,” the panel said in its decision.

“We were particularly concerned that she then got her clients’ monies involved, choosing to follow the instructions of an unknown third party over her obligations to her clients, [her dealer and regulators],” the panel added. “These concerns were factors in our decision that the respondent should not be allowed to continue as [a rep] in the mutual fund industry.”

According to the panel’s decision, while Mott agreed that a permanent ban was in order, she asked for no financial penalty, citing her inability to pay.

However, CIRO staff sought a fine of $674,300 and $7,500 in costs, in addition to a ban from the industry.

In its decision, the panel said the seriousness of the misconduct “was a significant factor in our decision to impose a permanent prohibition and substantial fine on the respondent.”

The panel ruled that the financial sanctions should represent disgorgement of the amount still owed to her former clients: $550,300 and US$93,000. An additional $100,000 penalty was imposed “to reflect the seriousness of the misconduct and ensure that the fine serves as a general deterrent,” the panel said.

The panel said it’s unlikely the clients will get their money back, “given the respondent’s bankruptcy,” and noted that “there was no evidence before us to indicate that the [dealer] had compensated the clients for their losses as is often done in similar circumstances. However, we were advised that none of the clients had complained to either the [dealer] or to CIRO.”