A Canadian Investment Regulatory Organization (CIRO) hearing panel has found that Simon Christopher Kelly contravened his dealer’s policies and procedures, along with the regulator’s own rules when he was named as a beneficiary of a client’s investment accounts and when he accepted a power of attorney appointment for that client’s property.
Registered since October 1989, Kelly from November 2014 until December 2019 was a dealing representative registered in Alberta and British Columbia with Investia Financial Services Inc. Since the firm terminated Kelly’s registration, he has not been registered in the securities industry in any capacity.
From November 2014 until September 2019, the firm’s client, identified as DC in the decision and reasons document issued by the regulator, had their accounts serviced by Kelly, who says the pair were close personal friends since at least 2009. In 2014 DC opened three investment accounts. At same time, DC’s spouse, MC also became a client of the firm. The pair had three children. When they divorced in 2017, Kelly recommended that MC transfer her accounts to a new advisor.
Later that year, DC signed a letter of direction designating Kelly as the beneficiary on his registered retirement savings plan (RRSP) account at Investia. Early the following year DC signed another letter of direction designating Kelly as the beneficiary on their locked-in retirement account (LIRA). In both cases, Kelly forwarded the letters of direction to the applicable fund companies without sending a copy to Investia.
The transgressions were discovered in August 2019 when DC was hospitalized and Kelly informed his branch manager about the power of attorney appointment. An investigation later revealed the beneficiary designations. When he was informed that he could no longer service DC’s investment accounts, Kelly invoked his authority as power of attorney and transferred DC’s assets to another mutual fund dealer. After DC died, Kelly received the after-tax proceeds from both accounts, totalling approximately $150,235.
The hearing panel says the evidence indicates that DC had the capacity to make legal decisions. It reviewed Kelly’s earnings in the years leading up to his termination and took into consideration the fact that his own spouse was named as estate trustee for DC’s estate, as well.
During the council’s investigation Kelly’s counsel provided letters from a registered psychologist saying Kelly was suffering from a major depressive disorder. The panel found that this suffering was the natural and foreseeable consequences of his misconduct.
“Given his years of experience, the respondent ought to have been aware that he was required to disclose the existence of the conflicts of interest which arose from his being named a beneficiary and accepting the power of attorney to the member. He also ought to have realized that he was not allowed to accept the designation as a power of attorney in the first place,” the decision states. Although they add that there is nothing in Kelly’s conduct that was fraudulent or misleading, they still say his conduct was serious because it undermined the integrity of his relationship with both the client and Investia.
The regulator also noted that there has been no complaint or challenge associated with the bequest. “We find no evidence of harm caused to the client or his estate,” they write. “We see no basis for ordering a fine which amounts to an effective disgorgement.” The panel agreed it had the authority to order such a penalty, but in the present case could find no principled basis to do so. It also decided that the $100,000 additional penalty sought by enforcement council was excessive.
In addition to a six-month ban from conducting securities related business with any CIRO member firm, Kelly was ordered to pay a fine in the amount of $70,000 and costs in the amount of $10,000.