A British Columbia Securities Commission (BCSC) hearing panel has fined a former mutual fund sales rep $17.5 million and permanently banned him after it found that he improperly sold millions in exempt market securities.
The panel also ordered that David Michaels disgorge the $5.8 million in commissions he generated as a result of his misconduct.
Earlier this year, the panel ruled that Michaels had committed fraud, illegally advised clients, and made misrepresentations, to several hundred clients, many of whom were seniors. (See Former fund salesman committed $65M fraud: BCSC, investmentexecutive.com, August 12, 2014.)
Back in August, the hearing panel found that Michaels fraudulently advised almost 500 clients to purchase over $65 million worth of exempt market securities. And, it noted that at least $40 million of these investments have been lost, and that “most of the rest remains at risk”.
BCSC staff were seeking $65 million in disgorgement and a $65 million fine.
According to the sanctions decision, Michaels cited several mitigating factors in his defence, including that he did not sell any securities that he thought were in distress and none of the investments were fictitious; he invested $2 million of his own money into these investments; some of the investments still have value; and, that he only received a commission for selling the securities, the investors’ money went to purchase securities.
However, the panel found that none of these amounted to mitigating factors. It also noted that he has a previous disciplinary history, and that his sales were based on misrepresentations.
In arriving at the monetary sanctions, the panel ordered that he should be required to disgorge the commissions earned from the improper sales. It also used this as a basis for setting his fine, which it imposed at about three times the benefit Michaels earned.
“The seriousness of Michaels’ misconduct and the catastrophic losses that have been suffered by the investors through his misconduct justify a significant administrative penalty. A significant administrative penalty is warranted both as a specific deterrent to Michaels who has not been deterred by the previous sanctions imposed on him, and as a general deterrent to others who would commit fraud, make serious misrepresentations or provide investment advice without being registered to do so and callously recommend unsuitable investments to others for personal gain,” the panel said in its decision.