A hearing panel of the Mutual Fund Dealers Association of Canada (MFDA) has permanently banned Sean Preston Davidson, formerly of Sterling Mutuals Inc. in Windsor, Ontario, after Davidson borrowed money from friends who were also his clients and entered into a consumer proposal without informing his firm.
In addition, Davidson is being sanctioned for submitting annual compliance questionnaires to Sterling that contained false or misleading responses about the loan and his consumer proposal.
Davidson began servicing the accounts of his long-term friends, identified only as MC and KC in the MFDA’s decision (penalty) and reasons document, in March 2004. In February 2014 he borrowed $18,000 from one or both of those friends, without documenting the loan in writing. The loan was discovered when the MFDA began looking more closely at Davidson’s consumer proposal – the surname C appeared on the consumer proposal as he still owed MC $15,290 – which caused the MFDA to ask Sterling if they were clients.
“Borrowing money from a client has consistently been held by other panels to be a conflict of interest,” the MFDA writes, adding that it “takes a hard line on borrowing from clients.” Sterling Mutuals also prohibited its approved persons from borrowing funds from clients and required, as per the MFDA’s policies, approved persons to report within two business days if they file a consumer proposal.
“The consumer proposal was not disclosed to the member until January 3, 2017 – almost two years after he filed the proposal,” the MFDA adds. “As with the loan from MC and KC, he did not disclose the consumer proposal in the annual compliance questionnaires.”
Davidson did not appear at the hearing in person or by video or teleconference. Although he filed a reply to the misconduct allegations, the MFDA says he did not participate further in the proceedings. “The respondent did not dispute the loan in his reply,” the MFDA writes. “He claimed that it was not the business of the member or the MFDA to know what he did in his personal life with a close friend.”
In addition to being permanently prohibited banned from working with any MFDA member in the future, the hearing panel also fined Davidson $25,000 and assessed costs of $7,500.
