A hearing panel of the Mutual Fund Dealers Association of Canada (MFDA) on Monday terminated the membership of bankrupt firm W. H. Stuart Mutuals Ltd. and imposed $8 million in fines on the firm’s founders.
Back in April, the MFDA ordered permanent bans against Dianne Stuart and Howard Stuart, along with costs of $50,000, and a permanent ban for the firm.
Those sanctions followed a disciplinary hearing that found a number of violations of MFDA rules in connection with an unregistered note scheme that saw clients lose approximately $6 million.
MFDA bans founders of W.H. Stuart permanently
In its decision and reasons (penalty) document issued Monday, the MFDA panel announced a $7-million fine against Dianne Stuart, and a $1-million fine for Howard Stuart.
In explaining the size of the penalties, the panel noted that it found Dianne Stuart orchestrated the scheme that led to investors’ losses, while Howard Stuart was only found to have failed to co-operate with the MFDA’s investigation. The panel also noted that both founders had a previous disciplinary history.
“Ms. Stuart’s conduct falls at the most serious end of the spectrum of wrongdoing. She was a prime architect of a sophisticated, lengthy scheme involving deliberate dishonesty, and resulting in millions of dollars of losses,” the panel said in its decision.
As for Howard Stuart, the panel said: “We must engage in a balancing exercise: both recognizing the actual allegation proven against Mr. Stuart and the need to ensure that there is little or no incentive for refusing to co-operate with an ongoing investigation.”
The panel did not fine the firm, noting that it would have imposed a multi-million dollar fine based on its conduct, but that there’s no point as the company is bankrupt and has no ability to pay.
It is similarly unlikely that the Stuarts will be able to pay their fines, the panel decision notes, but since they didn’t participate in the hearing against them, the panel had no basis for concluding that they wouldn’t be able to pay.
The Stuarts should make restitution to those who have incurred losses, including the MFDA Investor Protection Corp., the panel ordered, and if they do, their fines will be reduced accordingly.
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