In the Matter of Staff’s Recommendation
for the Refusal of the Reactivation of Registration
of Christopher Veigas Couto
Opportunity to be Heard by the Director
Section 31 of the Securities Act, R.S.O. 1990,
c. S.5, as Amended
1. Christopher Couto has applied for a reactivation of his registration as a dealing representative in the category of mutual fund dealer, sponsored by TD Investment Services Inc. (TDIS). In a letter dated February 3, 2012, staff (Staff) of the Ontario Securities Commission (the OSC) informed Mr. Couto that it had recommended to the Director that his application be refused. The basis for Staff’s recommendation was Mr. Couto’s failure to make required disclosure to the OSC of a criminal charge and subsequent conviction.
2. Mr. Couto requested this opportunity to be heard (OTBH) pursuant to section 31 of the Securities Act (Ontario) (the Act) to determine whether the Director should accept Staff’s recommendation, and the OTBH was held on March 20, 2012. Michael Denyszyn, Senior Legal Counsel at the OSC, made submissions on behalf of Staff, and Mr. Couto made submissions on his own behalf.
3. Having heard from Messrs. Denysyzn and Couto, and having considered their submissions, my decision is to refuse Mr. Couto’s application for the reasons below.
4. From October 6, 2008 to July 11, 2010, Mr. Couto was registered as a dealing representative in the category of mutual fund dealer with TDIS.
5. On August 1, 2009, Mr. Couto was charged with operating a motor vehicle after having consumed alcohol in such a quantity that the concentration in his blood exceeded eighty milligrams of alcohol in one hundred milliliters of blood, contrary to paragraph 235(1)(b) of the Criminal Code (Canada) (a charge often referred to as “over 80”). Mr. Couto pleaded guilty to this charge on June 2, 2010.
6. Subsection 4.1(1) of National Instrument 33-109 – Registration Information (NI 33-109) required Mr. Couto, as a registrant, to disclose to the OSC both his criminal charge and subsequent conviction within ten days of each event by submitting a Form 33-103F5 – Change of Registration Information, which he did not do.
7. Mr. Couto resigned from TDIS effective July 11, 2010. Subsection 4.2(1) of NI 33-109 required a Form 33-109F1 – Notice of Termination of Registered Individuals and Permitted Individuals to be submitted to the OSC disclosing, among other things, whether Mr. Couto had been charged with any criminal offence in the past twelve months. This question was incorrectly answered “no”.
8. On October 25, 2011, Mr. Couto made the application for reactivation of registration that is the subject of this OTBH by submitting a completed Form 33-109F4 – Registration of Individuals and Review of Permitted Individuals (the F4). Item 14.2 of the F4 asks the applicant the following question: “Have you ever been found guilty, pleaded no contest to, or granted an absolute or conditional discharge from any criminal offence that was committed in any province, territory, state or country?” This question was incorrectly answered “no”.
9. As part of its review of Mr. Couto’s application, Staff conducted a routine criminal background check on him and learned of his over 80 conviction. On October 27, 2011, Staff sent a letter to Mr. Couto requesting that he either provide a Certificate of Police Clearance showing that the conviction had been pardoned, or update his F4 to disclose the conviction. Mr. Couto updated his F4 on November 16, 2011 to disclose the conviction.
10. During the OTBH, Mr. Denyszyn provided me with an affidavit from Rita Lo, a Registration Research Officer at the OSC, which he had also previously sent to Mr. Couto. In her affidavit, Ms. Lo said that after Mr. Couto updated the F4, she contacted a representative of TDIS to ask why the conviction had not been disclosed either at the time it occurred or when Mr. Couto submitted his application for registration. Through TDIS, Mr. Couto responded that he did not disclose the conviction when it occurred because he was not aware that it was necessary, and did not disclose it on his application because his lawyer had started a pardon process almost a year ago, which he thought had been completed. On December 19, 2011, Ms. Lo called Mr. Couto to follow up on the explanations he had provided through TDIS. During that call, Ms. Lo asked Mr. Couto for a copy of his pardon application, at which point he informed her that he had not yet submitted such an application. Mr. Couto said to Ms. Lo that he had attended a seminar in September 2011 where he was advised that he could apply for a pardon without the aid of a lawyer. Mr. Couto also told Ms. Lo that he did not disclose the charge or conviction to TDIS because he worried that it would jeopardize his employment. Shortly after this call, Mr. Couto sent an email to Ms. Lo apologizing for not disclosing the required information, and stating that the over 80 incident “was an embarrassing event in my life that I try to deny and/or hide sometimes by making excuses.” At the OTBH, Mr. Couto did not challenge Ms. Lo’s affidavit, other than to say the seminar he attended was in November 2011 rather than September 2011.
11. Mr. Couto spoke on his own behalf, and said that he has never received any complaints at TDIS regarding his commitment to honesty and good faith in his dealings with clients. He explained that he did not read the F4 carefully, conceded that he should have inquired about the exact details of his criminal record before submitting the application, but said that he genuinely believed that he had received a pardon for his over 80 conviction. Mr. Couto explained that the reason for his belief was a conversation he had with his lawyer during which his lawyer told him that he would “take care” of getting a pardon for him regarding the over 80 matter, which Mr. Couto had assumed had happened. Mr. Couto acknowledge in response to my questions to him that he had never filled out any paperwork to request a pardon from the government, and never received a certificate indicating that a pardon had been granted to him.
12. Subsection 27(1) of the Act provides that the Director shall register a person unless it appears to the Director that the person is not suitable for registration or that the registration is otherwise objectionable. Subsection 27(2) states that in considering whether a person is suitable for registration, the Director shall consider the requirements prescribed in the regulations relating to proficiency, solvency, and integrity.
13. Mr. Couto’s proficiency and solvency are not in issue. What is in issue is his integrity for registration. Specifically, does his failure to disclose the over 80 charge and conviction at the time those events occurred, and again at the time he applied for reactivation of registration, demonstrate that he currently lacks the requisite integrity for registration? In my view, the answer to this question is “yes”, based on my finding that Mr. Couto did not exercise a reasonable degree of care and diligence when he completed the F4.
14. In Re Thomas (1972), O.S.C.B. 118 the Commission wrote at page 120: “The keystone to the registration system is the application form. A desire and an ability to answer the questions in it with candour in many respects can be said to be the first test to which the applicant is put.” Given the importance of the application form in our registration system, the OSC rightfully expects that applicants will exercise a reasonable degree of care and due diligence in completing the document. In Re John Doe (2010), 33 O.S.C.B. 1371, a case which also involved the non-disclosure of a criminal record in an application for registration, I wrote at 1377:
Moreover, even if the Applicant somehow was honestly mistaken in the chain of inaccurate disclosure he provided to OSC staff (which I doubt) I agree with the statement in Re Doe [(2007), ABASC 296] that integrity is broader than dishonesty and encompasses a certain duty of care in one’s work product. The Applicant had a duty to carefully complete documents relating to his registration, including his initial application for registration. In my view, he did not meet this duty.
15. The OSC’s expectations regarding the accurate completion of the application form, as articulated in my decision in John Doe (which was based on the Alberta Securities Commission decision of the same name to which I referred in John Doe) are important for the following reasons. First, the application form is designed to provide the OSC with the information it needs to assess the applicant’s suitability for registration. Sometimes the information sought by the application form may reflect negatively on an applicant’s suitability. The effectiveness of the application process would be significantly diminished if applicants could avoid disclosing detrimental information on the basis of unreasonable assumptions, forgetfulness, or misunderstandings. Second, the OSC must be reasonably confident that the individuals to whom it grants the privilege of registration will discharge their professional obligations to their clients honestly and diligently. The application process is the seminal event in an applicant’s career as a capital markets professional, and a lack of care and diligence in this process may be a worrisome signal about how they will approach the interests of their clients.
16. The John Doe standard calls for due diligence, not perfection. Minor inaccuracies may be excused, but significant errors that reflect a failure to exercise a reasonable degree of care in the completion of the application will not be.
17. Mr. Couto has explained that he did not disclose his over 80 conviction in his application because he believed he had been pardoned for that offence. Regardless of whether this belief was honestly held, it could not have been reasonably held. Mr. Couto admitted that he never completed an application for a pardon or received anything from the government notifying him that he had been pardoned. Mr. Couto’s basis for believing he had received a pardon was a conversation with his lawyer one or two years prior. I cannot accept that Mr. Couto’s belief that he had a pardon was reasonable under these circumstances. Had Mr. Couto simply called to his lawyer to ask about the pardon before submitting the F4, he would have learned of the true state of affairs. During the OTBH, Mr. Couto conceded that he should have inquired about the details of his criminal record before submitting his application. Instead however, Mr. Couto submitted his application on the basis of an unreasonable assumption, and in doing so, I find that he acted recklessly. This lack of due diligence is inconsistent with both the application form’s status as a cornerstone of the registration regime, and the duty of care referred to in John Doe.
18. While I have decided that Mr. Couto’s application is refused, I do not think he should be permanently barred from the securities industry. In my view, this is an appropriate case to provide some guidance to this particular applicant, and to Staff, as to when it would be appropriate for him to reapply for registration, if it is his intention to do so.
19. In my view, based on the facts of this case, Mr. Couto is not an individual who should never again be registered. Had I found that he intentionally attempted to deceive the OSC during the application process, my opinion in this regard would be different. However, having heard from Mr. Couto personally during this OTBH, I am of the view that he is a young man who appears to have acted recklessly in his completion of the application, who has acknowledged his wrongdoing and taken responsibility for it, and who seems remorseful for his actions. Implicit in this observation is the question of when he could reapply, a question addressed by Director Wolburgh-Jenah in Re Jaynes (2000), 23 O.S.C.B. 1543, when she wrote at page 1548:
[ . . .] Similarly, and although not necessary in view of my decision, I have chosen to squarely address the question raised by Mr. Sofer at the hearing regarding when and under what circumstances it might be appropriate for Mr. Jaynes to re-apply for reinstatement of registration.
In my view, it would be inappropriate for Mr. Jaynes to “reapply tomorrow” as suggested. Mr. Jaynes should re-take the “Conduct and Practices Course” and assimilate the principles it espouses so that his conduct can fully reflect these principles in future. If Mr. Jaynes is able to secure employment, albeit in a non-registered capacity, with a reputable registrant that fosters a strong and pervasive culture of compliance with fundamental obligations to clients, this would, in my view, be an important factor to consider in any future application made by Mr. Jaynes (although I realize it might well be difficult to secure employment on this basis).
Although I have no authority to prevent Mr. Jaynes from re-applying for reinstatement of registration for a certain period of time, I think it would be appropriate for there to be some further period of reflection and opportunity to address some of the matters identified above which continue to be of concern. In the event that Mr. Jaynes decides to re-apply at a future point in time, he will need to be in a position to demonstrate, through positive actions he has undertaken in the interim, that he will be able to live up to his obligations as a registrant in future. [. . .]
20. Like the applicant in Jaynes, it would not be appropriate for Mr. Couto to reapply tomorrow. Instead, he should first pass the Conduct and Practices Handbook Course administered by CSI Global Education Inc., and second, he should demonstrate at the time of reapplication that he has held steady and productive employment with a reputable company in the financial services industry. Of course, in the event any facts came to light that were not reviewed during this OTBH that impugned Mr. Couto’s suitability for registration, those facts would have to be considered by Staff in its assessment of his application.
April 20, 2012“Erez Blumberger”
Compliance and Registrant Regulation