A British Columbia Securities Commission (BCSC) panel has ruled that the guts of an enforcement decision against a prominent broker by an Investment Industry Regulatory Organization of Canada (IIROC) hearing panel are valid, but that the penalty levied against her is much too harsh.
The BCSC released its decision Thursday, upholding the findings of an IIROC hearing panel that Victoria-based broker, Carolann Steinhoff, contravened the suitability rules. (See Investment Executive, BCSC stays Steinhoff penalty pending hearing, July 20, 2012.)
However, it also found that the panel was wrong in concluding that Steinhoff misled her firm, Wellington West Capital Inc., and that the penalty it handed down — a one-year suspension, a fine of $100,000, costs of $20,000, and disgorgement of commissions of $6,813 — was too severe.
It set aside the penalty decision of the IIROC panel, noting that it didn’t find any evidence that her misconduct was anything other than an isolated incident. It noted that there was no scheme, or systematic effort to do harm.
“Steinhoff had been a broker for about 24 years when the penalty hearing was held. There was no evidence before the IIROC panel of dishonest conduct on her part to that point in time. Nor is there any evidence, in our opinion, that Steinhoff acted dishonestly in this case,” it says. “Yes, she contravened the suitability requirements, a serious error, but we see no evidence in the record of a fundamentally dishonest person, which is what the IIROC panel would have people believe.”
And, it concluded that some of the panel’s findings are too harsh. “There is absolutely no basis in the record for the panel’s finding that Steinhoff cannot be trusted to act honestly and in a fair manner,” it says.
Additionally, it notes that Steinhoff did not have the opportunity to address the panel’s dim view of her conduct when she made her submissions at the penalty hearing. “That, she says, taints the penalty hearing with the stain of unfairness,” it notes.
“We agree,” the BCSC says. “Although an SRO need not include in its finding on liability all of the factors it will consider relevant to the issue of penalty, if it does not do so, it must signal to the parties the issues they ought to address at the penalty hearing, preferably in advance of the hearing if the issues are significant. Failing that, the SRO should put the issues to the parties at the hearing so they have the opportunity to respond.”
Ultimately, it concludes that the IIROC panel’s characterization of Steinhoff’s conduct amounts to an error in law because it was not supported by the evidence, and she did not have the opportunity to address it.
The commission says that some penalty for Steinhoff is appropriate in the case, and that it will decide on that sanction after hearing submissions from both sides; and it provides guidance on the relevant factors it will consider.