The Ontario Securities Commission (OSC) has doubled the fine imposed on Brian Sutton, the former chief financial officer of First Leaside Securities Inc. following a review of the disciplinary proceedings against him, the regulator announced Wednesday.
The decision follows an OSC review of disciplinary rulings against Sutton by an Investment Industry Regulatory Organization of Canada (IIROC) hearing panel, which found that he failed to properly oversee the firm’s compliance with its procedures for valuing securities.
In the initial IIROC hearing, Sutton argued that he had relied on an active market in order to appropriately price securities, but in its decision, the IIROC panel ruled that there was “no active market that could properly form the basis for pricing decisions,” and he therefore breached IIROC rules.
However, the IIROC panel found this to be an “honest mistake,” and ordered Sutton be fined $25,000 and reprimanded. IIROC had staff sought a $100,000 fine, and a permanent prohibition against him.
Sutton appealed the panel’s finding that he violated IIROC’s rules, while IIROC staff appealed the sanctions against Sutton that were ordered by the IIROC panel.
Following its review, the OSC essentially upheld both appeals. In its decision published Wednesday, the commission ruled the IIROC hearing panel erred in reaching its decision finding Sutton liable for violating IIROC rules. However, based on its own review of the evidence in the case, the OSC concluded Sutton should be found liable.
The OSC also ruled that the sanctions imposed by the IIROC panel were insufficient. The commission ordered Sutton be suspended for three years and pay a fine of $50,000 and costs of $50,000.
On Sutton’s appeal, “the IIROC panel made errors that, when taken together, constitute an error of law that leads us to set aside the liability decision and substitute our own decision. Having said that, once we complete our own analysis, we reach the same result that the IIROC panel did; that is, that Mr. Sutton contravened [IIROC rules],” the OSC decision states.
The OSC concluded that Sutton’s concerns with the IIROC panel’s findings are “well-founded”, in that IIROC panel reviewed extraneous materials, mischaracterized certain evidence and made a statement, unsupported by the evidence, regarding the firm’s financial difficulties and Sutton’s knowledge of those difficulties.
“None of these, by itself, appears to have determined the outcome of either the liability decision or the sanctions and costs decision,” the OSC decision states. “However, these errors have a cumulative effect. Together they constitute a significant unfairness to Mr. Sutton, and an error of law that is substantial enough to warrant our setting aside the liability decision and the sanctions and costs decision, and substituting our own decisions.”
After reaching its own conclusion that he violated IIROC rules, the OSC found “the sanctions imposed by the IIROC panel did not adequately address the seriousness of this matter.” As a result, the OSC ordered its own penalties.