A Mutual Fund Dealers Association of Canada (MFDA) hearing panel has banned a former mutual fund representative from employment with an MFDA member firm for 10 years as a penalty for actions that include borrowing $455,000 from a client.
Lisa Hua Deng Huang, formerly an advisor with Toronto-based Royal Bank of Canada (RBC) and a rep with the bank’s mutual fund arm, has also been ordered to pay a fine of $50,000 and costs of $7,500.
The hearing panel’s “decision and reasons,” released on Friday, states that the two allegations, which also include failure to fully co-operate with the MFDA’s investigation, have been established.
Although the hearing panel felt a serious consequence was necessary to protect the public’s confidence in the integrity of investment professionals, it avoided calling for a complete ban on Huang’s participation in the securities industry, which was contrary to the suggestion the MFDA’s enforcement counsel made.
“Permanent prohibition is a maximum penalty,” the hearing panel says in its decision. “It has been wisely said that maximum penalties are reserved for worst cases. We do not think that either of these violations is a worst case.”
Huang’s first violation was the borrowing of $455,000 from a client, who was referred to as “EA,” between 2012 and 2013. The borrowed funds were repaid completely to EA by the spring of 2013.
Huang was found to have violated her obligation as an “approved person” under the MFDA to observe a high standard of ethics and conduct and avoid a conflict of interest with clients.
The hearing panel acknowledges in its decision an MFDA staff notice, which states that the act of borrowing from a client “is not explicitly prohibited under MFDA rules” but that “borrowing from a client by either the member or approved person raises a significant and direct conflict that in almost all cases will be impossible to resolve in favour of the client.”
In addition to finding herself in a conflict of interest with her client, Huang failed to notify her employer that she borrowed those funds from EA, which is in violation of MFDA rules.
Huang also failed to co-operate fully with the MFDA’s investigation into her actions, which began in late 2014 after RBC informed the MFDA of Huang’s actions and its own investigation into the matter, which led to Huang’s termination.
Huang was co-operative at the beginning of the investigation, when she submitted to two separate interviews, during which she was questioned about the loan she received from EA. However, she avoided the investigator’s attempts to learn more about two large deposits totalling more than $700,000 to her personal bank account from an unknown source or sources in late 2012.
The hearing panel made its decision for a temporary ban and a $50,000 fine based on its understanding that EA was not harmed by the act of lending to Huang and that the former mutual fund rep was only partially unco-operative during the MFDA’s investigation as she did answer all questions related to the issue of client loans.
Photo copyright: aruba2000/123RF