The OSC overturned an IIROC sanction decision, imposing its own more onerous sanctions, thus signaling that IIROC should be imposing tougher sanctions even when unintentional wrongdoing is in issue.
Lukic recommended that certain of her clients purchase securities of a private company promoted and owned by her husband. The securities were incorrectly sold without a prospectus. Lukic did not take steps to confirm the propriety of the prospectus exemption, and did not seek approval from her employer to recommend the securities to her clients.
IIROC found Lukic to have engaged in conduct unbecoming by selling off-book investments for clients without making reasonable inquiries to satisfy herself that the issue qualified for a prospectus exemption. Based in part on the finding that Lukic’s misconduct was not deliberate and the trauma on her as a result of the proceedings, IIROC did not suspend Lukic. Instead, Lukic was ordered to pay a fine and costs of $95,000, be subjected to six months of close supervision and re-write certain industry examinations.
IIROC Staff appealed the sanction decision to the OSC and sought a two-year suspension of Lukic. The OSC agreed with the position of IIROC Staff.
"Trauma" of regulatory proceedings not an appropriate consideration in determining sanctions. The OSC found that IIROC should not have considered the trauma visited upon Lukic by the IIROC proceedings, particularly in light of Lukic’s breaches of the Securities Act (the Act), the losses suffered by her clients and the absence of evidence of trauma.
Suspensions not limited to wrongful conduct. IIROC concluded that a suspension was not warranted because Lukic’s misconduct was not deliberate. The OSC disagreed with this approach, noting that in the past the OSC has found that even a mere lack of proficiency may require regulatory responses beyond education and supervision. The OSC referred to the IIROC Sanctions Guidelines, which recommend periods of suspension for breaches of the Act and egregious cases involving large-value, high-risk off-book distributions.
Expectation of consistency between IIROC and OSC in determining sanctions. In discussing the appropriate sanctions in this case, the OSC articulated an expectation that consequences of a breach of the Act should not differ significantly because a respondent appears before IIROC and not the OSC.
Although this case turns on its unique facts (off-book and unconventional investments with an element of self-dealing/related-party involvement), as a result of the OSC taking a tough stance on sanctions in this and other cases, registrants may expect stiffer penalties in future IIROC enforcement proceedings and more aggressive settlement positions taken by IIROC Staff.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
For permission to republish this or any other publication, contact Janelle Weed.
© 2021 by Torys LLP.
All rights reserved.