On Oct. 26, a Mutual Fund Dealers Association of Canada hearing panel has banned Ravi Puri, a former mutual fund salesman in Vancouver with Ascot Financial Services Ltd., for life and has fined him $550,000, plus $10,000 in costs, for misappropriating money from clients and failing to co-operate with MFDA investigators.

But if this case follows the pattern of almost all MFDA disciplinary matters, Puri will not pay a cent of these fines or costs.

A review of MFDA disciplinary action shows errant mutual fund salespeople and their firms have paid only $2.9 million, or 28%, of the $10.1 million in fines and costs assessed against them since the association began taking disciplinary actions in December 2004.

Further analysis shows almost all the money collected — $2.7 million — was paid by a single firm, Winnipeg-based Investors Group Inc. , on account of the MFDA’s market-timing case. The MFDA has collected only $151,000, or 2%, of the remaining $7.4 million.

The main reason for the poor collection record is the MFDA, like the Investment Dealers Association of Canada, has no statutory power — except in Alberta — to pursue miscreants after they leave the financial services industry.

In Alberta, legislation allows the MFDA and IDA to register their decisions as court judgments, which can be used to seize assets and garnishee wages. Elsewhere, the MFDA and IDA are on their own.

The self-regulatory organizations are similarly constrained when it comes to subpoena powers. As it now stands, they can’t force individuals or firms to attend interviews or produce documents and records — except in Alberta.

But there is some use in imposing financial penalties even if it is clear they will not be paid. Monetary sanctions are often a measure of the gravity of the offence and can impede the offender’s future employment prospects, particularly in financial services.

More specifically, offenders who have not paid fines are not permitted, under MFDA rules, to return to the mutual fund industry. This protects investors from future abuse.

But in the absence of an explanation, it’s probable that many, if not most, members of the public assume these fines and costs are collected. The misunderstanding may be reinforced by MFDA practices.

MFDA news releases announcing monetary penalties never comment on the probability of collection. In Puri’s case, the MFDA hearing panel didn’t comment on the collectibility of the fine it imposed, even though Puri had declared bankruptcy and was clearly unable to pay.

Similarly, media accounts of cases for which monetary penalties are imposed rarely say that the fines probably won’t be collected.

MFDA annual reports tend to emphasize the monetary penalties imposed and gloss over the actual collection record. For example, the MFDA’s 2006 annual report listed 10 enforcement cases that resulted in substantial financial penalties.

These were: Earl Crackower, $3.5 million; Glen Murray Greyeyes, $225,000; Joseph Van Der Velden, $500,000; Van Der Velden’s partner Andrew Stockman, $75,000; Robin Andersen, $200,000; Stephan Headly, $150,000; Scott Andrew Stevens, $61,000; Ernest Ming Chung Lo, $35,000; Shawn Sandink, $35,000; and Donald Coleman, $10,000.

In almost all 10 cases, costs were also imposed, but the MFDA didn’t collect a cent of fines or costs.

MFDA annual reports mention only in passing that the SRO has little power to force payment of financial penalties. In each of the 2006 and 2007 annual reports, collection commentary was restricted to a single paragraph: “Presently, the MFDA lacks effective powers to collect fines and costs ordered by hearing panels. This experience is identical to that confronting the IDA. However, individuals with outstanding fines and costs may be denied re-registration by securities regulators.”

The bottom line is that, with the focus on fines and costs assessed rather than on collections, the public may be getting a misleading picture of MFDA enforcement results.

Shaun Devlin, the MFDA’s director of enforcement in Toronto, concedes this may be so, and says the MFDA will consider amplifying its disclosure in future news releases to explain that it has no power to collect fines except in Alberta.

The small amount collected from miscreants contrasts sharply with the huge size of the industry. The MFDA now has 162 dealers and 75,000 approved persons under its jurisdiction. Together, these registrants have $310 billion in assets under management.

The MFDA’s poor collection re-cord is a result of how it is constituted. Neither the MFDA nor the IDA regulate by statute. Rather, they regulate pursuant to a contractual agreement with their members. Provincial securities commissions have given both associations official recognition as SROs and enshrined that recognition in provincial securities acts.

@page_break@This gives the MFDA and the IDA the authority and the responsibility to license, regulate and discipline firms and individuals. That authority extends for five years after the member has ceased being a member and left the industry. But provincial legislation (other than in Alberta) does not give the MFDA or the IDA the power to register their decisions as court judgments.

“We have asked the securities commissions several times in writing to recommend changes to the Securities Act that would give us this power,” says Devlin. “They have not agreed to these steps.”

The IDA has also been trying to resolve this problem. In its most recent annual report, it says it has been lobbying provincial securities commissions and governments for additional enforcement powers, “including the power to compel third-party documents and testimony for investigations and hearings; statutory immunity from claims of negligence for enforcement decisions made in good faith; and power to file IDA discipline panel decisions as decisions of the superior court.”

“We’re still doing that,” says Warren Funt, the IDA’s vice president of enforcement for Western Canada in Vancouver. “But the commissions are not supportive for legal reasons. We are a private organization, and these powers are only vested in government organizations. And it may not be appropriate or legal for SROs to have these powers.”

The IDA has the same collection hurdles as the MFDA but a much better collection record. In the past 10 years, it has collected 72% of the fines it has assessed, compared with 28% for the MFDA.

These statistics, however, have been skewed upward by the market-timing cases that resulted in several firms paying large fines. If these cases are removed, the IDA collected 32%, compared with 2% for the MFDA. Clearly, the IDA has a better collection record.

Devlin says this is because most MFDA cases have been against individuals, who are more likely to walk away, as opposed to firms that want to stay in business and are more likely to pay their fines. Aside from Investors Group, only two member firms have been disciplined: IQON Financial Inc. , which was fined $100,000, plus $7,500 in costs; and Altimum Mutual Inc. , which was fined $10,000.

Devlin says almost all MFDA disciplinary cases against individuals have resulted in permanent bans, so respondents will never have a reason to pay the fines. In contrast, the IDA has more short-term suspensions, giving respondents more incentive to re-enter the industry. IE