The Mutual Fund Dealers Association of Canada has assessed penalties against a Corner Brook man the association said inappropriately facilitated and leveraged investment strategies for a series of clients.
In the decision released Monday, Arthur George Pretty was fined a total of $125,000 for three violations of the association’s rules and bylaws.
The association also assessed a 10-year prohibition on Pretty, who is now 62 years old, from conducting any securities-related business with a Mutual Fund Dealers Association member.
The penalty also included and additional $5,000 in costs.
Pretty was represented by lawyer Jim Bennett during hearings that took place in Corner Brook in June and October 2013. Bennett told The Western Star Tuesday that his client is declining to comment on the association’s decision as he is considering filing an appeal of the steep fines.
The final decision on the penalties was made by the three-person panel who heard the case against Pretty. Chaired by Merlin Nunn — a retired justice from the Supreme Court of Nova Scotia, the panel also included two industry representatives, namely Susan Nixon of Royal Mutual Funds Inc. and Ann Etter of BMO Investments.
In January, the panel released its decision that it had been proven Pretty had not acted with due diligence when advising six clients — comprised of three couples — and had violated the association’s rules and bylaws.
According to the Mutual Fund Dealers Association, Pretty did not properly learn the essential facts relative to the clients and he never ensured the leveraged investment strategy was suitable for these clients and was in keeping with the clients’ investment objectives.
The association found that Pretty misrepresented or failed to adequately explain “the benefits, risks, material assumptions and features of a leveraged investment strategy and its underlying investments” to the clients.
Pretty also never complied with multiple requests to provide a written statement to the association in response to client complaints and to attend an interview requested by the association during the course of the subsequent investigation, which is also a violation of the association’s rules and bylaws.
The association indicated the financial losses to Pretty’s affected clients was in the range of $540,000, while Pretty earned nearly $48,000 from the investment strategies he recommended for them between March 2005 and July 2008.
Pretty was fired from his job as a mutual funds sales representative after the investigation into his work was launched in 2010 and has not worked in the field since.
The staff of the Mutual Fund Dealers Association had recommended an eve bigger fine — in the range of $125,000 to $150,000, plus a permanent prohibition from any securities-related business under the association’s jurisdiction and costs of at least $20,000.
“Staff submits that these sanctions would reflect the seriousness of (Pretty’s) misconduct and are consistent with the mandate of the (association) to enhance investor protection and strengthen public confidence in the Canadian mutual fund industry,” reads the written decision released Monday.
Pretty did not testify and Bennett did not call any evidence in his defence during the hearings. In a brief he presented to the panel with regard to what the penalties should be, Bennett proposed any fine should be at the lower end of the range given for similar cases.
Bennett said a lower fine, combined with “a mid-range prohibition,” would “effectively be permanent” penalties for a man of Pretty’s age. He also suggested no more than $5,000 in costs be levied as Bennett said his client did nothing to hinder the hearing process.
As part of the defence’s argument on the penalties, Bennett did take exception to inferences made by the Mutual Fund Dealers Association staff with regard to Pretty’s decision not to testify or present evidence in his defence.
Pretty was not required to testify, Bennett said, and no inferences should have been drawn from the decision not to testify. He also argued Pretty cannot be faulted for not conceding to any disputed facts or allegations in the matter.
In explaining its decision, the panel wrote that Pretty intentionally and deliberately ignored his “know-your-client obligations and duties,” despite being aware of their respective financial situations.
“He paid no attention to the absolutely necessary considerations any financial advisor must follow in recommending leveraging as a financial strategy,” the panel wrote in its decision.
Bennett said he and his client will have to do some further consideration of the grounds they might have to appeal, including whether the decision is the correct one for each violation and whether the penalties are appropriate.
“You can’t just appeal for the sake of appealing,” said Bennett. “He will probably decide over the next couple of weeks. He really needs to consider what the possible outcomes are and if they will be any different.”
In a prior story, the Mutual Fund Dealers Association told the Western Star it has no authority to collect the fines it levies. The fines, it said, are mainly to serve notice to the public how seriously the association takes violations of its rules and bylaws and serve as a safeguard against someone trying to get become licensed in the industry again.
Bennett said the association would likely have to go through the civil courts to force someone to pay the fines.