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Court ruling backs regulator

Ex-brokers can face discipline

Ontario regulators plan to move forward with a logjam of enforcement cases following a recent Ontario Court of Appeal decision that concluded the Investment Industry Regulatory Organization of Canada has the jurisdiction to discipline former members who quit the industry.

The ruling ends a year of delays affecting more than two dozen Ontario cases at both IIROC, which regulates brokerage firms and their members, and at the Mutual Fund Dealers Association of Canada, which regulates advisers who sell mutual funds in Canada.

Both organizations operate under the same Ontario Securities Act statute that has been under challenge since the Ontario Divisional Court ruled in July, 2008, that IIROC does not have jurisdiction over former members who have left their jobs.

The case stemmed from a complaint by former Research Capital Corp. investment adviser Stephen Taub, who was accused by IIROC of conducting improper trades for clients. Mr. Taub quit his job in 2004, a year before IIROC launched disciplinary proceedings against him.

He challenged IIROC's jurisdiction on the basis that the Ontario Securities Act does not explicitly give IIROC jurisdiction over former members. That position was upheld by the divisional court last year, which said there is no wording in the statute to cover former members.

But the Ontario Court of Appeal overturned that decision in an Aug. 28 ruling, arguing that Mr. Taub's position "does not withstand scrutiny."

Madam Justice Kathryn Feldman said the Ontario Securities Act does not specifically limit jurisdiction to current members. She also said it could be argued that because Mr. Taub was an IIROC member at the time of his alleged misconduct, he would still be covered by the legislation.

Mr. Taub's lawyer, Robert Brush, said yesterday that he could not comment on the decision, but that he will seek leave to appeal the ruling to the Supreme Court of Canada.

IIROC enforcement director Jeff Kehoe said the recent ruling restores IIROC's jurisdiction "in a very clear way" against its former members.

"It's unambiguous," he said. "That's a very good thing from our perspective because people simply can't walk away from regulatory disciplinary action by quitting their jobs."

Last year's decision left many cases in legal limbo because it is common for brokers or mutual fund dealers to leave their jobs when they are under investigation. IIROC has seven cases on hold involving former members, while the MFDA has had 18 cases - some involving several individuals - held up.

Hugh Corbett, director of litigation at the MFDA, said the ruling is welcome news not only for his association, but also for a small number of people who have wanted to settle their disciplinary cases, but could not because the MFDA's status was unclear.

While the MFDA was not named in the Taub case, its jurisdiction was also in doubt because it operates under the same legislation as IIROC. Mr. Corbett said the association is now able to move forward immediately with its cases even if there is an appeal to the Supreme Court of Canada - unless a "stay" is granted by the Ontario Court of Appeal to prevent any cases from proceeding until the issue is resolved.

Mr. Brush said no decision has been made yet about whether to apply for a stay.

The court challenge has only affected cases in Ontario. Recent cases in British Columbia and Quebec have upheld IIROC's jurisdiction over former members, while other provinces have not seen challenges or have legislation specifically giving IIROC authority over former members.

© 2007 The Globe and Mail. All rights reserved.

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