MFDA Fines Advisor Who Accepted Gift From Clientpar Andrew Rickard | June 26 2015 12:59PM
A former Investors Group advisor who accepted and then tried to return a gift of more than $300,000 from a client has been sanctioned by the Mutual Fund Dealers Association (MFDA).
In a settlement agreement released earlier this week, the MFDA found that Kenneth Karasick held a power of attorney from a client, was named as a beneficiary on the client's in-trust investment account, and that he accepted a gift of $309,475.
MFDA regulations forbid an advisor from accepting or acting upon a general power of attorney from a client in his own favour unless it is for his own spouse, parent, or child. The MFDA also says that, by being a beneficiary on an account and accepting money from a client, Karasick put himself in a situation that could give rise to a conflict of interest.
The MFDA began its investigation into Karasick's activities in July 2012 after receiving a letter from the client's daughter. The client had died in January of that year, and she claimed that Karasick had taken advantage of her father when he was not of sound mind. For his part, Karasick said the client's own lawyer was involved at all times and protected the client’s interests.
Investors Group specifically forbids its advisors from being named as a beneficiary of a client's estate or account in its policies and procedures manual. In 2011 Karasick answered a questionnaire saying that he was not named as a beneficiary on any accounts. However, when the client died in January 2012, Karasick did notify Investors Group in writing that he had been named as a beneficiary and he also refused all proceeds from the in-trust account, which went instead to the client's children. In May of 2012, Investors sent Karasick a warning letter for failing to comply with the company's conflict of interest guidelines.
As for the $309,475 gift, this was made in 2009 through a deed that was signed by the client and witnessed by the client's lawyer. Karasick says the client gave him the money to thank him for helping to sell his condominium, and then find and move into a suitable retirement home. The client was estranged from his family, and Karasick says he advised him at the time to try to reconcile with his relatives and to leave his estate to them.
While Karasick initially accepted the gift and deposited the funds into his personal bank account, he returned the funds to the client's in-trust account at Investors Group in December 2011, saying that he was never comfortable receiving the gift. The client's lawyer, however, asked Karasick to reverse the deposit because of the adverse legal and tax implications it would have for the client. Karasick then took the money back into his own bank account. The MFDA ruled that by accepting the gift, Karasick engaged in personal financial dealings that could or did give rise to a conflict of interest.
For these contraventions, and for not disclosing these matters on annual questionnaires from Investors Group, the MFDA has ordered Karasick pay a $10,000 fine and $2,500 in costs. Although Karasick is aged 72 and retired from the business in 2013, the regulator has also prohibited him from conducting securities related business in any capacity for one year.