R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
Hearing: November 10, 1998Panel:
J.A. Geller, QC - Vice-Chair
K. D. Adams - Commissioner
R. Stephen Paddon, QC - Commissioner
David Hausman - For the Staff of the Ontario
J. D. G. Douglas - For the Respondent
DECISION AND REASONS
Staff of the Ontario Securities Commission ("Staff") has, in these proceedings,asked the Commission to make an order under clause 127(1)1 of the Securities Act (the"Act") that the registration granted to Linden Dornford ("Dornford") under the Act beterminated or suspended for such period or subject to such terms and conditions asspecified in the order. Clause 127(1)1 reads as follows:
"127.(1) The Commission may make one or more of the following orders if in itsopinion it is in the public interest to make the order or orders;
1. An order that the registration or recognition granted to a person or company underOntario securities law be suspended or restricted for such period as is specified inthe order or be terminated, or that terms and conditions be imposed on theregistration or recognition."
By an Agreed Statement of Facts, staff and Dornford agreed the following facts forthe purpose of these proceedings:
A.1 The respondent Linden Dornford ("Dornford") is registered with the OntarioSecurities Commission (the "Commission") as a mutual fund and limited marketsalesperson. Money Growth Financial Services Inc. ("Money Growth") was aregistered mutual fund and limited market dealer until it surrendered its registrationto the Commission in February, 1997. Dornford was the President, a director and,indirectly, the controlling shareholder of Money Growth.
A.2 At all material times, Dornford was registered with the Commission as an officer ofMoney Growth.
B. MONEY GROWTH BANK ACCOUNTS
B.1 At all material times, Money Growth maintained three relevant accounts at the Bankof Montreal; namely: an operating account, a trust account, and a trust clearingaccount. The operating account was used for Money Growth's general businesspurposes.
B.2 Funds received from Money Growth's clients for investment in mutual funds weredeposited to the Money Growth trust account. These client funds were thentransferred to the Money Growth trust clearing account. From the trust clearingaccount, payments were made to mutual fund management companies for thepurpose of settling Money Growth's clients' mutual fund investments.
C. BUSINESS OF MONEY GROWTH
C.1 From about January, 1995 until late 1996, the business and operations expandedrapidly. In particular, in August, 1996, Money Growth leased new premises at 4950Yonge Street in the City of North York.
C.2 Throughout the summer of 1996, Money Growth experienced substantial cash flowimpairment. Money Growth continued to experience cash-flow shortagesthroughout the autumn of 1996 although its operating line of credit was increasedfrom $10,000 before January 31, 1996 to a permanent line of credit of $120,000and a temporary overdraft of $30,000 by late November 1996. At all times, theoperating line of credit was fully secured by cash collateral.
C.3 By the mid-autumn of 1996, it was apparent to Dornford that Money Growth couldnot meet its current financial obligations unless the Bank of Montreal increasedMoney Growth's operating line of credit or Money Growth attracted an infusion ofworking capital from an outside investor. Money Growth retained the services ofoutside consultants to assist it in addressing its cash flow deficiencies.
D. THE TRUST FUND DEFICIENCY
D.1 On approximately 13 occasions between June, 1995 and December, 1996, theBank of Montreal transferred funds on deposit in Money Growth's trust and trustclearing accounts to cover overdrafts in its operating account beyond its approvedline of credit at the time. Dornford authorized or acquiesced in these transfers. Thetotal amount transferred was approximately $365,000.00.
E. DISCLOSURE OF TRUST FUND DEFICIENCY TO THE COMMISSION
E.1 In late 1996, Money Growth retained BDO Dunwoody ("BDO") to prepare its fiscal1996 audited financial statements. At that time, Money Growth had also requestedthat BDO assist it in seeking additional financing.
E.2 In the course of preparing the financial statements, BDO discovered that MoneyGrowth had a $372,761.70 deficiency in its trust accounts. BDO advised Dornfordto seek legal advice and to resolve the trust fund deficiency as soon as possible.
E.3 Upon advice from BDO and his solicitors, Dornford wrote to the Commission onJanuary 8, 1996 [sic], and advised the Compliance Branch that the trust accountswere "offside by $357,000".
F. SALE OF MONEY GROWTH'S ASSETS TO FORTUNE FINANCIAL
F.1 After learning about Money Growth's trust fund deficiency, the Commissionrecommended, and Dornford consented to, the appointment of BDO as a monitorof Money Growth's financial operations. BDO was appointed as Money Growth'smonitor on or about January 13, 1997.
F.2 BDO served as Money Growth's monitor from about January 13 to January 24,1997. In its capacity as monitor, BDO continued to settle mutual fund investmentsthrough the trust accounts thereby deferring the crystallization of investor lossesresulting from the deficiency in Money Growth's trust accounts.
F.3 In January, 1997, representatives of the Commission and the Investment FundsInstitute of Canada ("IFIC"), in cooperation with Dornford, identified registeredmutual fund dealers that were willing to acquire the assets of Money Growth. It wasanticipated that the proceeds of the sale of these assets would be applied to reducethe trust account deficiency. Ultimately Fortune Financial Corporation acquired theassets of Money Growth for approximately $320,000 on or about January 24, 1997.IFIC contributed $58,000 from its own assets to eliminate the balance of MoneyGrowth's trust fund deficiency. Dornford cooperated fully with BDO, FortuneFinancial and Staff of the Commission in the sale of Money Growth's assets toFortune Financial. As a result of the sale, the trust fund deficiencies of MoneyGrowth were eliminated and no client suffered any loss.
F.4 Upon completion of the sale of Money Growth to Fortune Financial Corporation,Dornford's registration as a mutual fund salesperson was transferred to FortuneFinancial Corporation with the consent of Commission Staff. Dornford has beenemployed as a salesperson with Fortune Financial Corporation from January, 1997to the present date."
Accordingly, at the hearing argument was presented as to what sanctions shouldbe imposed by the Commission under clause 127(1)1 of the Act on the basis of the agreedfacts.
The principal arguments made by Mr. Hausman, on behalf of Staff, were thefollowing.
1. Dornford committed a fundamental breach of Ontario securities law by permittingthe misuse by the Bank of trust funds by commingling portions thereof with thefunds of Money Growth Financial Inc. ("Money Growth"). Section 119 of theRegulation (the "Regulation") made under the Act provides as follows:
"119. Subscriptions or prepayments held pending investment by mutual funddealers, securities advisers or investment counsel shall be segregated in atrust account and not commingled with the assets of the dealer, adviser orcounsel."
In addition to constituting a breach of the section, a breach of trust by misuse oftrust funds is a fundament breach of the responsibilities of a registrant to its clients,which by itself would justify the Commission in exercising its clause 127(1)1 powers.
2. Dornford, as the indirect controlling shareholder of Money Growth, was thebeneficiary of the commingling, which kept Money Growth alive.
3. Although no individual client of Money Growth suffered a financial loss by reasonof the commingling, because at the end of the day the trust fund deficiency wasrecovered out of the purchase price paid by the purchasers of Money Growth'sbusiness, supplemented by a top-up payment made by the Investment FundsInstitute of Canada ("IFIC"), this was purely fortuitous, and all of Money Growth'sclients were at a risk of loss so long as the deficiency continued to exist.
4. In determining what sanction ought to be applied, the Commission should haveregard to two elements - preventing future abuse of the marketplace by Dornford,and general deterrence, the latter involving a consideration of the impact of theCommission's decision on the integrity of the business of distributing mutual fundunits. In support of his general deterrence argument, Mr. Hausman referred us tothe decision of the Divisional Court in Warnes v. College of Physicians andSurgeons of Ontario,  O.J. No. 3748, which involved an appeal against thedecision of the Discipline Committee of the College revoking the appellant's licenceto practice medicine. In dismissing the appeal, O'Driscoll, J., speaking for theCourt, said the following:
"We find no error in what the Discipline Committee has done. TheCommittee analysed the evidence and took into account who it was that wasbefore them and what it was that the person had admitted doing. Obviously,general deterrence was the primary factor in this case."
In Mr. Hausman's submission, Warnes stands for the proposition that anadministrative tribunal, exercising a disciplinary function, is entitled to take intoaccount general deterrence. He argued that the Health Disciplines Act, which wasthe statute involved in Warnes, was regulatory, and not punitive, in nature, and thatthe College is a professional disciplinary body having functions similar to the clause127(1)1 functions of the Commission, in deciding whether a particular physician orsurgeon is fit to practice. Accordingly, he argued that we should follow Warnes,and take general deterrence into account in deciding what sanctions areappropriate on the facts of this case.
Mr. Hausman also referred us to statements by the Chair of the Commission, Vice-Chair Geller and Commissioner Stromberg as to the seriousness with which theCommission regarded the misuse of trust funds, and, in the case of the lastmentioned, the deterrent effect of section 127 orders against persons misusing trustfunds.
5. As regards what prophylactic action is appropriate in the circumstances of this caseto protect the marketplace, Mr. Hausman referred us to the Commission's decisionin In the Matter of Mithras Management Ltd. et al, (1990), 13 OSCB 1600, in whichthe Commission said, at page 1610:
"Under sections 26, 123 and 124 [now incorporated in section 127] of theAct, the role of this Commission is to protect the public interest by removingfrom the capital markets -- wholly or partially, permanently or temporarily, asthe circumstances may warrant -- those whose conduct in the past leads usto conclude that their conduct in the future may well be detrimental to theintegrity of those capital markets. We are not here to punish past conduct;that is the role of the courts, particularly under section 118 [now section 122]of the Act. We are here to restrain, as best we can, future conduct that islikely to be prejudicial to the public interest in having capital markets that areboth fair and efficient. In so doing we must, of necessity, look to pastconduct as a guide to what we believe a person's future conduct mightreasonably be expected to be; we are not prescient, after all. And in sodoing, we may well conclude that a person's past conduct has been soabusive of the capital markets as to warrant our apprehension andintervention, even if no particular breach of the Act has been made out.Equally, however, even if there has been a technical breach of the Act, wemay well conclude that, in the circumstances, no sanction is necessary toprotect the public interest."
This statement as to the role of the Commission in these matters has been adoptedin a number of subsequent Commission decisions, and we agree with it.
Mr. Hausman argued that, in applying the Mithras tests to the case before us, theCommission should take account of the facts that Dornford's breach of trust by themisuse of trust funds was a serious matter, and that, as was often the case withmisuse of trust funds, it had occurred while Dornford was under financial pressure.He said that, while we should take into account a number of possible mitigatingfactors -- that no one had actually lost deposited money as a result of thedefalcation and that Dornford had cooperated in finding a purchaser for the MoneyGrowth business -- because, like the defalcation itself, these might be a guide asto what could happen in the future, we should not give undue weight to thesemitigating factors, because the fact that no one had lost deposited money waslargely fortuitous, and Dornford had, once his auditors and lawyers had advised himto report the defalcation to the Commission, little option but to do so and to co-operate in attempting to reduce the losses for which he could be liable to MoneyGrowth's customers. Mr. Hausman further argued that conditioning Dornford'sregistration so as to prohibit him from handling customer funds would not be anadequate sanction, since next time he was under serious pressure Dornford might,instead of misusing trust funds, engage in some other improper activity. It was, heargued, a question of commercial morality.
Mr. Hausman asked us to make an order permanently terminating Dornford'sregistration.
Mr. Douglas, on behalf of Dornford, made the following principle arguments.
1. Dornford did not engage in fraudulent conduct. The facts of this case show a manwho was a bad manager, but not a bad man. There is no evidence of bad intent.
2. There is nothing about general deterrence in Mithras. The Commission should lookonly to the prospective harm that might be caused by Dornford, and not worry aboutdeterring the rest of the world. Mithras makes it clear that the Commission, inexercising its section 127 jurisdiction should not be looking to punishing pastconduct, and it would be improper, in these proceedings, to punish Dornford forgeneral deterrence purposes, because general deterrence only has a punishmentelement to it, not a public interest element. A section 127 hearing is not a punitiveone, but rather, one has a prospective and prophylactic role.
As regards the Warnes decision, it was made under the Health Disciplines Act,which is differently structured than the Act. People are charged under the formerstatute with offences under the statute, and the standard of proof is much higherthan under section 127, and, in effect, there is a finding of guilt under the HealthDisciplines Act, under which there is not a public-interest hearing. Under the Act,if Staff is seeking to invoke general deterrence, it should lay charges under section122 for breaches of the Act. There is no similar alternative under the HealthDiscipline Act, which does not have a public interest purpose in all respects, butinvolves a professional disciplinary body before which people are charged withconduct and there are findings of wrong-doing made against them, not publicinterest orders.
3. Dornford had a choice as to whether or not he was going to co-operate in the saleof his business. The business could not be sold and the trust account made wholewithout his co-operation.
4. Dornford knew about the movement of funds out of Money Growth's trust accounts,but could have been ignorant of the fact that this placed the accounts in a deficittrust position over a period of time.
5. Over the 18-month period, Dornford did not attempt to hide the transfer of funds andhe did not act deceitfully to prevent the auditors from discovering the transfers.Dornford's previous auditors had reported to the Commission's Compliance Divisiona trust fund deficiency in the prior year, and the letter went undetected, or at leastthere is no evidence as to what the Commission's Compliance Department didabout it. If it is accepted that Dornford is not a good manager, he would not havethought that there was a problem if the trust fund deficiency was disclosed to Staff,and nothing transpired and no one suggested he had a problem.
6. The Commission should encourage registrants to co-operate with Staff and toensure that client problems are dealt with in a responsible fashion, as Dornford did,and as a result of which his clients suffered no loss.
7. Staff permitted Dornford to continue his registration with Fortune FinancialCorporation ("Fortune"), the purchaser of the business. During the interveningperiod he has done nothing wrong. This is pretty cogent evidence that in the roleof simply a mutual fund salesperson, he poses no harm to the public. A number ofletters of reference from clients have been filed, and they are entirely happy withhis performance. His current employer is prepared to continue to supervise him.Leaving aside the managerial role, where he has his problems, there is nosuggestion that Dornford poses an ongoing risk to retail clients in the mutual fundarea.
8. Mr. Douglas referred us to the decision of the Court of Appeal in Re W.D. LatimerCo. Ltd. et al. and Bray et al., (1974), 52 D.L.R. (3rd) 161, in which Dubin J.A. (ashe then was), speaking for the Court, had this to say at page 167:
"It was submitted by counsel for the appellants that the observationshereinbefore set forth reflect the view of the Divisional Court that the functionof the Ontario Securities Commission in determining the continued fitnessof registrants is one which is only incidental to the greater purpose ofprotecting the public interest, and that thereby in conducting a hearing unders.8 of the Securities Act, the Commission's duty to conduct a fair andimpartial hearing is less than what would otherwise prevail. If that meaningcan be taken from the above quoted passage, I cannot subscribe to it, nordo I see anything in the conduct of the Commission in this case whichindicates that it approached its duties in that way.
With respect to the Divisional Court, I view the obligation of the Commissiontowards its registrants as analogous to a professional body dealing indisciplinary matters with its members. The duty imposed upon theCommission of protecting members of the public from the misconduct of itsregistrants is, of course, a principal object of the statute, but the obligationof the Commission to deal fairly with those whose livelihood is in its handsis also by statute clearly placed upon it, and nothing is to be gained, in myopinion, by placing a priority upon one of its functions over the other."
Although Latimer was a bias case, if there is a duty to give a fair hearing to arespondent who is a registrant, there is also a duty to give a fair result, and dealingfairly with registrants in part of the public interest duty.
9. Mr. Douglas referred us to two disciplinary decisions of The Toronto StockExchange which, he said, had made two-tiered orders removing a member for anextended period of time from the area in which the member had clearly shownhimself to be incapable of properly carrying out his duties as a member, but not forsuch a lengthy period in other areas, and recommended a similar approach to us.
Dornford made an unsworn statement to us, in which he said that the had not,before opening Money Growth, had any real management experience, that the businessgrew rapidly and this had led to the problems he encountered, that he now recognized thathe should never have permitted Money Growth's bankers to apply trust funds to thecompany's operating line of credit, that he apologized for any risk that this may haveplaced his client's in, but was proud that he brought the matter to the attention of theCommission, that he was able to work with Staff, staff of IFIC and Fortune to ensure thatno harm came to clients of Money Growth, that he wanted to remain a part of theinvestment industry and could assure us that he would never be before us in this positionagain, that he was 45 years old and had a wife and three children, two of whom were stillin high school, that mutual fund sales have been his livelihood for the past 11 years, andthat all that he asked for was a second chance.
Is Dornford a "Bad Man"?
Mr. Douglas' principal argument, on which a good deal of the balance of hisarguments depended, was that Dornford was a bad manager, but not a bad man. We areunable to agree. Dornford may, as Mr. Hausman stated, be a nice man, but we cannotaccept Mr. Douglas' proposition that in this instance he was not a bad man.
On approximately 13 occasions between June, 1995 and December, 1996, he,being the President of Money Growth, authorized or acquiesced in transfers of fundstotalling approximately $365,000 from Money Growth's trust accounts to cover overdraftsin its operating account beyond its approved line of credit. He was indirectly thecontrolling shareholder of Money Growth, and, accordingly, was the principal beneficiary,apart perhaps from the bank, of these transfers. This is not the conduct of a good man.
For a registrant to connive in the use of customer trust funds for his own benefit isnot merely some technical breach of the Regulation, or some minor breach of theobligations owed to clients. Rather it goes to the heart of the relationship between adealer and its clients. If clients cannot trust their dealer to obey the Commission'srequirements relating to trust funds, then the credibility of the system may be called intoquestion, posing a potentially serious threat to the capital markets.
If there had been only one or two occasions on which Dornford had permitted MoneyGrowth's trust funds to be dipped into to satisfy its obligations, then it might have beenpossible for Mr. Douglas to argue that Dornford was not a bad man and had no bad intent,but rather that he had not fully appreciated what he was doing. But we cannot accept suchan argument when there was a course of conduct on Dornford's part, stretching over aperiod of some 18 months, resulting in about 13 transfers to cover overdrafts beyondMoney Growth's approved line of credit. This is more than bad management. Itevidences, in our view, a complete disregard by Dornford of the duties which MoneyGrowth and he owed to Money Growth's clients. We can only conclude that Dornfordshowed a callous disregard for the risks to which he was exposing Money Growth's clients,and for the marketplace in which he was, and of which he wants to continue to be, aparticipant.
The facts that there were, because a buyer was found for Money Growth's business,and IFIC agreed to contribute the deficiency between what the buyer was prepared to payand the amount of the deficit in the trust accounts, no visible victims, that only breach oftrust and of the Regulation, and not fraud, was involved, that, when told to do so by MoneyGrowth's auditors and lawyers, Dornford advised the Commission of the deficiency, thathe co-operated in transferring the business to Fortune, thus reducing his potential liabilityto Money Growth's customers, that five of his clients, who wrote letters filed with us, likeDornford and would continue to use his services, do not, to any material extent, mitigatethe very serious nature of Dornfords breach of trust, nor do they, in our view, make himanything but a bad man. Even a bad man can have some saving graces, but neverthelessremain a bad man.
And, in our view, Dornford has evidenced a callous disregard for the interests ofthose who trusted him with their investments and their money, and for the industry andmarketplace which he says he wants to continue to participate in.
As we have stated, Mr. Hausman, citing Warnes, asked us to take into accountgeneral deterrence in determining what sanction is appropriate on the facts before us. Mr.Douglas argued that Warnes related to a very differently constructed statute, and was notapplicable in a public-interest proceeding. As we understand it, his basic argument in thisregard is that general deterrence is only an applicable consideration in a punitiveproceeding, and not in a prophylactic public-interest one.
It is certainly true that the Health Disciplines Act uses language quite different fromthat of section 127. Section 61 of that statute (which is a successor to the section 60considered in Warnes), provides as follows:
61. (1) The Discipline Committee shall,
(a) when so directed by the Council, Executive Committee or ComplaintsCommittee, hear and determine allegations of professionalmisconduct or incompetence against any member;
(b) hear and determine matters referred to it under section 58, 60 or 64;and
(c) perform such other duties as are assigned to it by the Council.
(2) In the case of hearings into allegations of professional misconduct orincompetence, the Discipline Committee shall,
(a) consider the allegations, hear the evidence and ascertain the facts ofthe case;
(b) determine whether upon the evidence and the facts so ascertainedthe allegations have been proved;
(c) determine whether in respect of the allegations so proved themember is guilty of professional misconduct or incompetence;
(d) determine the penalty to be imposed as hereinafter provided in casesin which it finds the member guilty of professional misconduct or ofincompetence.
(3) A member may be found guilty of professional misconduct by the Committeeif,
(a) the member has been found guilty of an offence relevant to his or hersuitability to practice, upon proof of such conviction;
(b) if the member's rights or privileges under the Narcotic Control Act(Canada) or the Food and Drugs Act (Canada) or the regulationsunder either of them have been restricted or withdrawn, unless by hisor her own request, upon proof thereof; or
(c) the member has been guilty in the opinion of the DisciplineCommittee of professional misconduct as defined in the regulations.
(4) The Discipline Committee may find a member to be incompetent if in itsopinion the member has displayed in his or her professional care of a patienta lack of knowledge, skill or judgement or disregard for the welfare of thepatient of a nature or to an extent that demonstrates he or she is unfit tocontinue in practice.
(5) Where the Discipline Committee finds a member guilty of professionalmisconduct or incompetence it may by order,
(a) revoke the licence of the member, or withdraw recognition of his orher specialist status, or both;
(b) suspend the licence of the member or recognition of his or herspecialist status, or both, for a stated period;
(c) impose such restrictions on the licence of the member for such aperiod and subject to such conditions as the Committee designates;
(d) reprimand the member and, if deemed warranted, direct that the factof such reprimand be recorded on the register;
(e) impose such fine as the Committee considers appropriate to amaximum of $10,000 to be paid by the member of the Treasurer ofOntario for payment into the Consolidated Revenue Fund;
(f) direct that the imposition of a penalty be suspended or postponed forsuch period and upon such terms as the Committee designates,
(6) Where the Discipline Committee is of the opinion that the commencementof the proceedings was unwarranted, the Committee may order that theCollege reimburse the member for his or her costs or such portion thereof asthe Discipline Committee fixes.
(7) Where the Discipline Committee revokes, suspends or restricts a licence orrecognition of specialist status on the grounds of incompetence, the decisiontakes effect immediately even if an appeal is taken from the decision.
(8) Where the Discipline Committee revokes, suspends or restricts the licenceor recognition of specialist status of a member on grounds other than forincompetence, the order shall not take effect until the time for appeal fromthe order has expired without an appeal being taken or, if taken, the appealhas been disposed of or abandoned.
(9) Where the Discipline Committee finds a member guilty of professionalmisconduct or incompetence, a copy of the decision shall be served uponthe persons complaining in respect of the conduct or action of the member.
(10) Where a proceeding is commenced before the Discipline Committee and theterm of office on the Council or on the Committee of a member sitting for thehearing expires or is terminated before the proceeding is disposed of butafter evidence has been heard, the member shall be deemed to remain amember of the Discipline Committee for the purpose of completing thedisposition of the proceeding in the same manner as if his or her term ofoffice had not expired or been terminated.
At first glance, the use of terms such as "guilty" and "penalty" would seem to supportMr. Douglas argument that the section is punitive in nature rather than prophylactic, butthe fact that both words apply with respect not only to being "guilty" of professionalmisconduct but also to being "guilty" of incompetence, would seem to us to indicateotherwise.
This view is supported by the language of subsection 59(2) of the statute, dealingwith in what circumstances an order can be made temporarily suspending the licence ofa physician or surgeon, which reads as follows:
2. The Executive Committee may make an order under subsection (1) where theCommittee has received a report in writing by the Registrar with respect to theconduct or actions of the member, has considered the explanations andrepresentations in writing, if any, under subsection (3) of the member and is of theopinion that the conduct or actions of the member expose or are likely to expose toharm or injury persons who are or who become patients of the member.
It seems to us that, in essence, section 61 of the Health Disciplines Act is a public-interest provision, designed to act prophylactically for the protection of the public, and hassubstantially the same purpose as clause 127(1)1.
Accordingly, in our view Warnes is a decision applicable in the exercise by us ofour clause 127(1)1 powers.
In our view, taking into account general deterrence, in the case before us, would notbe for the purpose of punishing Dornford, as argued by Mr. Douglas, but rather for aprophylactic purpose, the future protection of the marketplace not only from actions by Mr.Dornford but also from breaches of trust by others. Although Mithras speaks of deterringfuture improper conduct of a respondent, it does note that the Commission is "here torestrain, as best we can, future conduct that is likely to be prejudicial to the public interestin having capital markets that are both fair and efficient." It seems to us that Warnes doesnot in any way indicate that general deterrence can be taken into account for punitivepurposes, but rather, in the securities law context, that it can be taken into account indetermining what is necessary to restrain conduct by others that is likely to be prejudicialto the public interest in having capital markets that are fair and efficient.
In our view, general deterrence is not inconsistent with Mithras (which, in any event,was decided before Warnes), but is rather a gloss on Mithras.
Accordingly, in deciding what sanctions are required under clause 127(1)1, we willtake into account general deterrence.
We do not disagree with Mr. Douglas' argument that Latimer requires us to give afair hearing and, by extension, a fair result, and that dealing fairly with registrants is partof our public interest duty. Mr. Douglas argued that, if we looked only to protecting thepublic, the best way to protect the public would be to give the maximum sanction in allcases, but that this might not be to deal fairly with registrants. We agree.
What is the Appropriate Sanction?
Looking at the Mithras tests, we conclude that Dornford's conduct is such, and ofsuch a serious nature, that we must conclude that his conduct in the future may well bedetrimental to the integrity of the capital markets, and that his conduct has been soabusive of the capital markets as to warrant our apprehension and intervention.
We do not accept Mr. Douglas' argument that Dornford can be safely permitted toact as a mutual fund salesman so long as he is prohibited from handling clients' money.On the facts before us, Dornford's offences arose out of the handling of money, but hisactions showed so callous a disregard for the duties owed by a registrant to his clients andto the capital markets as to lead us to conclude that, when serious problems arise for himin the future, as they well might, it is more than possible that he will evidence a similardisregard in some other manner.
We, however, do accept Mr. Douglas' argument that, in this case, we should adopta "two-tiered" approach.
We have concluded that Dornford should never be registered as a dealer or as anofficer, director or partner of a dealer, or in any other capacity which involved the handlingby him, or permitted him to handle, clients' funds or property.
We have concluded that Dornford should not be permitted to be registered as asalesman of a dealer for the period of five years from the date of this decision. If, at theend of this period, Dornford is able to convince the Director that he has changedsufficiently that he has become a fit and proper persons to be registered as a salesmanof a dealer, then he may be so registered provided he has, in the interim, successfullycompleted such courses, including in any event an ethics course, as the Director considersappropriate.
Had we not considered that general deterrence should be taken into account, theperiod would be three, rather than five, years.
Accordingly, we order that Dornford's registration as a salesman, or registeredrepresentative, be terminated.
"J. A. Geller" "K. D. Adams"
"R. Stephen Paddon"