Regulator imposes $776,100 fine plus costs for borrowing money from clients

After reserving judgment for a time, a Canadian Investment Regulatory Organization (CIRO) hearing panel has released its decision, imposing sanctions on Jila Mahnaz Mott. The former dealing representative who conducted business in the Toronto, Ontario-area was fined $776,100 and assessed costs in the amount of $7,500. She was also thrown out of the mutual fund industry permanently after admitting that she borrowed money from clients.

The 80-year-old’s problems began in October 2018 when she received communications from an individual who said they were a real estate broker in the United States, contacting her about vacation ownership shares she purchased in two Cancun, Mexico resorts back in May 2004. She was advised by the fraudster that she needed to pay various taxes and fees to process the sale of her shares and receive the sale proceeds. Later she was told a lawsuit related to the sale of her shares had been commenced on her behalf, requiring additional monies. Finally, she was told that she was receiving a $950,000 settlement and $42,000 from the sale of her shares (both figures in U.S. dollars). To access the settlement amount, she was told to provide additional funds.

Bank told her that transfers looked fraudulent 

Meanwhile, Mott was borrowing $561,300 (Canadian funds) and $93,000 (U.S. dollars) from nine clients before transferring the monies to Mexico. Even after being told by her bank that the transfers looked fraudulent (one was stopped), Mott continued to borrow and remit the funds.

“In the many years during which the respondent was registered in the mutual fund industry, we expect she would have received training on how to identify potential frauds,” the regulator’s decision states. “We were particularly concerned that she then got clients’ monies involved, choosing to follow the instructions of an unknown third party over her obligations to her clients, the dealer member and the Mutual Fund Dealers Association of Canada (one of CIRO’s predecessor organizations).” 

Mott was registered from August 1997 until she was terminated in September 2021. The decision and reasons document published in her case is a thorough study of the rules a representative is breaking when borrowing money from clients. 

A significant and direct conflict 

“Borrowing from a client by either the member or the approved person raises a significant and direct conflict that, in almost all cases, will be impossible to resolve in favour of the client,” the regulator states. “Staff are unaware of any circumstances where members or approved persons proposing to enter into any such arrangements would be able to demonstrate that the conflict has been appropriately dealt with. Hearing panels have reached the same conclusion.” 

In addition to her firm’s policies and procedures, Mott’s activity was also a breach of several of the regulator’s Mutual Fund Dealer Rules and at least one staff notice related to personal financial dealings with clients. 

“Borrowing from her clients created a conflict or perceived conflict of interest. The respondent took advantage of her professional relationship with her clients, to whom she had an obligation to act in their best interest and placed her own interests ahead of the client’s interests, to their detriment.” 

Filed for bankruptcy in May 2022 

Aside from $11,000 she repaid to some clients using money borrowed from others, Mott has not repaid any of the outstanding loans. She filed for bankruptcy in May 2022, listing the loans as part of her liabilities totalling $1,292,086. The decision also notes that there is no evidence the dealer compensated the client for their losses, as is often done in similar circumstances. Although she will be eligible for automatic discharge from bankruptcy in May 2024, the decision further notes that it is unlikely the former respondent will make good on her obligation to pay the sanctions being imposed.

General deterrence 

“In our view, the imposition of a permanent prohibition on the respondent in this case is a very significant sanction and should serve to achieve general deterrence of other approved persons who might be inclined to engage in similar conduct.” Later the decision continues, ordering Mott to disgorge the loan amounts, plus $100,000, “to reflect the seriousness of the misconduct and ensure that the fine serves as a general deterrent.” 

In making submissions regarding the penalty, Mott suggested that a permanent prohibition was warranted, but that she could not pay a financial penalty. “We have sympathy for the respondent in light of her health issues (Mott is being treated for depression) and dire financial circumstances in which she now finds herself, although she is largely the architect of her current financial misfortune,” the decision states.