SRO panel takes softer line on sanctions

A regulatory hearing panel has sanctioned a mutual fund rep for failing to disclose that he was granted power of attorney and named the beneficiary of the accounts of a client, who was also a long-time friend. But the penalty was much less severe than regulators sought.

A hearing panel of the Canadian Investment Regulatory Organization (CIRO) found that Simon Christopher Kelly, a former rep with Investia Financial Services Inc. in Calgary, violated the self-regulatory organization’s rules and his firm’s policies.

In an agreed statement of facts with the SRO, Kelly admitted that he was designated as the beneficiary of a client’s investment accounts, which represented a conflict of interest that he did not disclose to his dealer.

He was also granted power of attorney over the client’s financial affairs, giving him decision-making authority. He didn’t disclose that until his client fell into a coma in August 2019, and Kelly informed his branch manager that he had authority over the client’s finances.

Ultimately, the accounts were transferred to another dealer to address the conflict, but the client died soon after. Kelly was terminated by his dealer at the end of the year.

While the facts of the case were not disputed, the SRO panel was left to determine sanctions. It ordered a $70,000 fine and a six-month suspension, along with $10,000 in costs against Kelly.

The sanctions were far below what the SRO counsel sought. They argued for a permanent ban and a fine of at least $250,000, along with $10,000 in costs.

However, the panel ruled that a much smaller financial penalty and a six-month suspension were warranted.

In its decision, the panel noted that Kelly had no disciplinary record, cooperated with the investigation, and that there was no evidence of coercion or undue influence in the client naming him as beneficiary and power of attorney.

“While we consider the respondent’s misconduct to be serious, we do not find that it is at the highest end of severity which is reserved for conduct which is, for example, deliberately misleading, deceitful or fraudulent or which exploits a client who is vulnerable,” the panel said in its reasons.

The panel concluded that the less severe sanctions would achieve the goal of deterrence and send the message to the industry that “sanctions for misconduct of this nature will be more than just the cost of licensing.”