A former mutual fund rep has been fined and permanently banned after a disciplinary hearing panel found that he failed to cooperate with an investigation — but the panel said that it lacked the evidence to determine the severity of that failure.
A Mutual Fund Dealers Association of Canada (MFDA) hearing panel has banned Manjit Singh Cheema, a former rep with Peak Investment Services Inc., from the industry, in addition to ordering him to pay a $25,000 fine and $7,500 in costs.
The sanctions follow the panel’s finding that Cheema violated MFDA rules by failing to cooperate with the self-regulatory organization’s investigation into an allegation that he might have been involved with a sort of pyramid scheme known as a “gifting circle.”
According to the decision, an internal investigation by Peak found that, in February 2017, one of Cheema’s clients may have attended a promotional meeting for the gifting circle, but the client didn’t participate or devote any money to it.
The decision also said that Cheema, who left the industry in August 2017, denied any involvement with the scheme. However, Cheema didn’t respond to MFDA staff’s efforts to arrange an interview regarding the allegation.
The decision indicated that MFDA staff sought a fine of between $50,000 and $75,000 in the case, along with costs, and a permanent ban.
However, the panel imposed a lower fine, indicating that it didn’t have enough evidence to determine how significantly Cheema’s failure to attend an interview disrupted the MFDA’s investigation.
“The claim that the respondent’s breach blocked staff’s ability to investigate his involvement in a pyramid scheme cannot be asserted as an aggravating factor unless there is clear and convincing evidence that the scheme actually existed and the respondent was aware of its fraudulent nature,” the panel said in its decision.
“The witness transcript and Peak’s report do not meet this standard,” the panel said. “At most, they establish that staff had a rational basis for suspicion that justified conducting an investigation.”
Ultimately, the panel concluded that Cheema’s misconduct “was limited to a single episode of failing to attend an interview.”
In handing down penalties in the case, the panel said that it only had “limited information” to assess the seriousness of Cheema’s failure to attend that interview.
“His failure to cooperate with the investigation was by definition serious misconduct, and he has not offered a persuasive excuse for it,” the MFDA said in ordering a permanent ban.
The fine imposed in this case is lower than what is typically ordered in other cases, the panel noted, which reflects the “atypical circumstances established by the evidence.”
“The evidence confirms that none of Peak’s clients sustained harm and says nothing about the extent to which the investigation was hindered,” the panel said.
“Against this stands the need to uphold strict compliance with investigations, which is absolutely essential if the MFDA is to have a meaningful enforcement capability,” the panel added.