A former investment dealer who quit the profession before facing disciplinary proceedings plans to take his battle over a self-regulatory organization’s right to punish former members to the Supreme Court of Canada.Robert Brush, lawyer for former Investment Dealers Association of Canada member Stephen Taub, says his client will seek leave to appeal the Ontario Court of Appeal’s recent decision in the case.
The appeal court ruled the IDA has jurisdiction to pursue disciplinary proceedings against previously approved members who no longer work in the industry.
Brush, of Crawley Meredith Brush LLP, declined to comment further on the case.
The appeal court recently overturned the Divisional Court’s 2008 majority ruling, which found the Securities Act would need to be unduly “stretched” to permit the IDA to discipline Taub.
The Court of Appeal, in reasons prepared by Justice Kathryn Feldman in Taub v. Investment Dealers Association of Canada, said that view “does not withstand scrutiny.”
Hugh Corbett, director of litigation for the Mutual Fund Dealers Association of Canada, an intervener in the case in support of the IDA and Ontario Securities Commission, says the decision allows the mutual fund organization to continue to move disciplinary cases along.
Like the IDA, which became part of the new Investment Industry Regulatory Organization of Canada in 2008, the Mutual Fund Dealers Association also is a self-regulatory organization recognized under the Securities Act.
“It’s very often the case that in situations involving the most serious forms of misconduct by approved persons, that they either resign themselves as soon as it’s apparent that they’re about to be found out. Or else as soon as there’s the first inklings of misconduct coming to light, the member terminates the approved person,” says Corbett.
“The decision of the lower court, which the implication was the MFDA would not have jurisdiction over former approved persons, would have meant that we were prevented form taking disciplinary proceedings involving the worst instances of misconduct.”
Jeff Kehoe, director of enforcement at IIROC, says Taub is crucial for all self-regulators.
“It’s part of an effective deterrence message that a registrant simply can’t walk away from alleged misconduct by resigning or being terminated,” he says. “A component of effective enforcement is the ability to discipline or to prosecute individuals once they have left the industry.”
Taub was a registered representative of the Investment Dealers Association of Canada from June 1988 until September 2004, when he resigned from the IDA and the brokerage firm where he had worked. In October 2005, the IDA began disciplinary hearings against him involving four counts of conduct unbecoming.
The association alleged that Taub “facilitated ‘trading activity that appeared to be or was consistent with market manipulation or deception’ and circumvented rules of the IDA and the U.S. Securities and Exchange Commission by ‘opening accounts and accepting orders from clients outside his jurisdiction of registration,’” according to the Court of Appeal decision.
Taub also faced allegations of having “improperly disclosed and used confidential client information and to have misled his member firm regarding involvement in accounts of certain individuals,” the court said.
But Taub sought a finding from the discipline tribunal that the association could not punish him because his status as a registered representative expired before the proceeding began. This, noted the Court of Appeal, despite having agreed upon registering with the IDA to be bound by its various policies - including being subject to its jurisdiction for five years after membership ends.
The hearing panel denied Taub’s order, a decision upheld on appeal to the Ontario Securities Commission.
Last year, the majority of a Divisional Court panel overturned that ruling. Justices Helen Pierce and Charles Hackland said Ontario lacks a “clear statutory provision that permits self-regulated organizations to discipline former members.”
Specifically, the judges said s. 21.1(3) of the Securities Act “cannot be stretched to include the discipline of former members without doing violence to the meaning of the statute.”
Justice James Carnwath dissented.
“The issue is whether the bylaw extending Mr. Taub’s capacity to be sanctioned following resignation carries out the purpose of the legislation, i.e., to protect investors from improper practices and to foster confidence in capital markets,” he said.
The Court of Appeal agreed with Carnwath, deciding that the OSC’s ruling on the matter was “reasonable and should be upheld.”
The court noted: “If the IDA is able to impose the same significant fines when disciplining former members as it can when disciplining members, and if those fines are legally collectable, then expulsion or removal of a person from membership in [a self-regulated organization] would not be the ultimate or necessarily the only significant disciplinary penalty that could be imposed on former members.”
It added, “This would make discipline proceedings against a former member as effective and relevant as proceedings against a current member. . . .”
The Court of Appeal also asserted that the OSC’s decision should be considered “precedential.”
“Although the court reviews the decision on the reasonableness standard, the OSC has determined as a matter of law the correct interpretation of a provision of its home statute,” said the ruling.
The OSC declined an interview request on the decision, but issued a statement.
“We’re extremely pleased with the decision,” said communications and public affairs director Wendy Dey. “We are reviewing the decision in detail before commenting further.”
Taub is the third case this year in which IIROC’s jurisdiction over former members has been upheld. Similar cases were addressed in Quebec and British Columbia.
The appeal court ruled the IDA has jurisdiction to pursue disciplinary proceedings against previously approved members who no longer work in the industry.
Brush, of Crawley Meredith Brush LLP, declined to comment further on the case.
The appeal court recently overturned the Divisional Court’s 2008 majority ruling, which found the Securities Act would need to be unduly “stretched” to permit the IDA to discipline Taub.
The Court of Appeal, in reasons prepared by Justice Kathryn Feldman in Taub v. Investment Dealers Association of Canada, said that view “does not withstand scrutiny.”
Hugh Corbett, director of litigation for the Mutual Fund Dealers Association of Canada, an intervener in the case in support of the IDA and Ontario Securities Commission, says the decision allows the mutual fund organization to continue to move disciplinary cases along.
Like the IDA, which became part of the new Investment Industry Regulatory Organization of Canada in 2008, the Mutual Fund Dealers Association also is a self-regulatory organization recognized under the Securities Act.
“It’s very often the case that in situations involving the most serious forms of misconduct by approved persons, that they either resign themselves as soon as it’s apparent that they’re about to be found out. Or else as soon as there’s the first inklings of misconduct coming to light, the member terminates the approved person,” says Corbett.
“The decision of the lower court, which the implication was the MFDA would not have jurisdiction over former approved persons, would have meant that we were prevented form taking disciplinary proceedings involving the worst instances of misconduct.”
Jeff Kehoe, director of enforcement at IIROC, says Taub is crucial for all self-regulators.
“It’s part of an effective deterrence message that a registrant simply can’t walk away from alleged misconduct by resigning or being terminated,” he says. “A component of effective enforcement is the ability to discipline or to prosecute individuals once they have left the industry.”
Taub was a registered representative of the Investment Dealers Association of Canada from June 1988 until September 2004, when he resigned from the IDA and the brokerage firm where he had worked. In October 2005, the IDA began disciplinary hearings against him involving four counts of conduct unbecoming.
The association alleged that Taub “facilitated ‘trading activity that appeared to be or was consistent with market manipulation or deception’ and circumvented rules of the IDA and the U.S. Securities and Exchange Commission by ‘opening accounts and accepting orders from clients outside his jurisdiction of registration,’” according to the Court of Appeal decision.
Taub also faced allegations of having “improperly disclosed and used confidential client information and to have misled his member firm regarding involvement in accounts of certain individuals,” the court said.
But Taub sought a finding from the discipline tribunal that the association could not punish him because his status as a registered representative expired before the proceeding began. This, noted the Court of Appeal, despite having agreed upon registering with the IDA to be bound by its various policies - including being subject to its jurisdiction for five years after membership ends.
The hearing panel denied Taub’s order, a decision upheld on appeal to the Ontario Securities Commission.
Last year, the majority of a Divisional Court panel overturned that ruling. Justices Helen Pierce and Charles Hackland said Ontario lacks a “clear statutory provision that permits self-regulated organizations to discipline former members.”
Specifically, the judges said s. 21.1(3) of the Securities Act “cannot be stretched to include the discipline of former members without doing violence to the meaning of the statute.”
Justice James Carnwath dissented.
“The issue is whether the bylaw extending Mr. Taub’s capacity to be sanctioned following resignation carries out the purpose of the legislation, i.e., to protect investors from improper practices and to foster confidence in capital markets,” he said.
The Court of Appeal agreed with Carnwath, deciding that the OSC’s ruling on the matter was “reasonable and should be upheld.”
The court noted: “If the IDA is able to impose the same significant fines when disciplining former members as it can when disciplining members, and if those fines are legally collectable, then expulsion or removal of a person from membership in [a self-regulated organization] would not be the ultimate or necessarily the only significant disciplinary penalty that could be imposed on former members.”
It added, “This would make discipline proceedings against a former member as effective and relevant as proceedings against a current member. . . .”
The Court of Appeal also asserted that the OSC’s decision should be considered “precedential.”
“Although the court reviews the decision on the reasonableness standard, the OSC has determined as a matter of law the correct interpretation of a provision of its home statute,” said the ruling.
The OSC declined an interview request on the decision, but issued a statement.
“We’re extremely pleased with the decision,” said communications and public affairs director Wendy Dey. “We are reviewing the decision in detail before commenting further.”
Taub is the third case this year in which IIROC’s jurisdiction over former members has been upheld. Similar cases were addressed in Quebec and British Columbia.
