The Ontario Securities Commission (OSC) has overruled an Investment Industry Regulatory Organization of Canada (IIROC) hearing panel and imposed a two-year suspension on an investment advisor after finding that the panel was too concerned about the impact of a suspension on the rep and her clients and not concerned enough with ensuring investor protection.
The OSC found that the IIROC hearing panel “erred in law and proceeded on an incorrect principle” when it decided that a suspension was not warranted in the case of Lucy Marie Pariak-Lukic, a rep with yourCFO Advisory Group Inc. in Stoney Creek, Ont. Pariak-Lukic was found to have sold off-book investments to clients without ensuring that they qualified for prospectus exemptions, which the IIROC hearing panel found amounted to “conduct unbecoming” and violated the public interest.
However, the IIROC hearing panel didn’t levy a suspension against Pariak-Lukic. Rather, it ordered a $50,000 fine, $45,000 in costs, six months of close supervision by her firm, and that she re-take the Canadian securities course and the conduct and practices handbook exams.
IIROC staff appealed the decision to the OSC, asking for a suspension as well, and the provincial regulator has now ruled in their favour. In addition, rather than sending the case back to the IIROC hearing panel to reconsider its sanctions decision, the OSC simply imposed the two-year suspension itself, citing the need to “avoid the unnecessary cost to the parties of a further hearing”.
In the IIROC staff application for a review of the hearing panel decision, it was argued that the penalty the hearing panel imposed failed to place sufficient weight on the principle of general deterrence; overlooked evidence in determining the appropriate penalty. Furthermore, the application stated that the IIROC hearing panel made mistakes in finding that Pariak-Lukic derived no personal benefit from the investments and by considering the “trauma” Pariak-Lukic suggered due to her participation in the IIROC hearing as a factor in assessing sanctions, among other things.
According to the OSC decision, Pariak-Lukic argued that the IIROC hearing panel’s approach to suspensions was appropriate and that IIROC staff is wrong to argue that a suspension is the only way to achieve general deterrence. She also argued that it is unfair for IIROC staff to suggest that the panel erred by overlooking evidence; that it was a key observation of the panel that she received no personal benefit from her clients’ investments; and that the panel appropriately considered the impact, trauma and anxiety the IIROC proceeding against her, and the spectre of a suspension that hung over her head for almost two years, had cause. She also said that the OSC should give the IIROC hearing panel’s decision a high degree of deference and that it is consistent with other previous decisions in similar cases.
Although the OSC found that the IIROC hearing panel did not overlook material evidence and did not err by failing to impose a suspension solely because Pariak-Lukic may have received a personal benefit from the securities she sold, it did find that the panel should not have considered the impact of facing a regulatory hearing as a factor in determining sanctions.
“In my view, the panel’s assessment of the effect of the proceeding on Pariak-Lukic, some of which was speculative on the part of the panel, should not have been a factor in the panel’s determination of the appropriate sanctions to impose on Pariak-Lukic, particularly in light of both her breaches of the [Securities] Act … and the significant losses suffered by her clients,” the OSC decision said. “I find that the panel’s apparent consideration of the effect of the IIROC regulatory proceeding on Pariak-Lukic, particularly in the absence of evidence to that effect, constitutes an error of law.”
The OSC also found that the IIROC hearing panel “failed to adequately address the issue of general deterrence and appeared to be more concerned about the consequences of a suspension on Pariak-Lukic and her clients’ continuing ability to rely on her than it was on investor protection and market integrity.”
Ultimately, the OSC ruled that the IIROC hearing panel erred in law and that the sanctions it ordered are inconsistent with the OSC’s decisions and that the hearing panel’s perception of the public interest conflicts with the OSC’s view. Furthermore, the OSC ordered that Pariak-Lukic be suspended from the industry for two years.