IN THE MATTER OF THE BY-LAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA

AND DONALD MOFFAT LITTLE

Hearing Panel: Patrick T. Galligan, Q.C. (Chair) David W. Kerr, CFA F. Michael Walsh Heard: May 15, 16 and 17, 2007 Counsel: Natalija Popovic and K. Kelly Margaritis Enforcement Counsel James D. G. Douglas and Kara L. Beitel for the Respondent

DECISION OF THE HEARING PANEL Donald Moffat Little faces two charges under Association By-law 29.1. Those charges

read as follows:

1. In or about March 2006, the Respondent engaged in business conduct or

practice which is unbecoming or detrimental to the public interest, in that he accepted a cheque from an elderly client in the amount of $500,000, liquidated securities in the client’s account in order to cover the cheque and then deposited the cheque into his personal bank account, without the knowledge or consent, and contrary to the internal policies, of his Member firm employer, in violation of Association By-law 29.1.

2. In or about June 2003, the Respondent engaged in business conduct or

practice which is unbecoming or detrimental to the public interest, in that he became the Attorney, pursuant to a Power of Attorney for Property, and the Executor of the will of an elderly client, without the knowledge or consent, and contrary to the internal policies, of his Member firm employer, in violation of Association By-law 29.1.

2

An extensive review of the circumstances of the case is not necessary because the parties

have filed an Agreed Statement of Facts. We set out that Agreed Statement of Facts in its

entirety:

AGREED STATEMENT OF FACTS

A. Registration History of Respondent 1. At all material times, the Respondent was a registrant with the Association and employed

by a Member Firm.

2. The registration history of the Respondent is set out in the following table:

Dates Employer Designation

July 1, 2002 – Mar 30, 2006 TD Waterhouse Canada Inc. (“TDW”)

Registered Representative (RR)

Apr 6, 2001 – Jun 30, 2002 TD Securities Inc. RR

Oct 21, 1998 – Apr 6, 2001 Merrill Lynch Canada Inc. RR

May 13, 1996 – Oct 16, 1998 Aug 14, 1995 – May 13, 1996

TD Securities Inc. RR Registered Mutual Fund Representative

B. TD Compliance Manual and Guidelines of Conduct 3. As an employee of TDW from the time period of 2002 onwards, the Respondent and his

activities were governed, in part, by TDW’s internal policies including the Compliance Manual,

2002 (the “Compliance Manual”) and the Guidelines of Conduct, 2002 (the “Guidelines”). On

an annual basis the Respondent attested in writing to his acknowledgment of and that he was

bound by the Guidelines. Although the Respondent signed off on the Guidelines, he had not

reviewed the documents. As of October 2002, the Compliance Manual prohibited: (a) the receipt

of gifts from a client by an employee, other than gifts of a nominal value; and (b) acting in the

capacity of power of attorney or executor for clients. The Guidelines address a prohibition

against accepting gifts from clients other than gifts of a nominal value of $25.00. The

3

Respondent has admitted that he accepted a gift from LJH and acted as Power of Attorney and

Executor for LJH without the knowledge or consent of TD.

C. Gift from LJH i) Relationship with LJH 4. The Respondent first met his client, LJH, in 1994 while he was employed as a Mutual

Fund Representative with a non-Member organization. LJH was at that time approximately 80

years old and recently widowed, with no children or close family.

5. LJH followed the Respondent when he went to work at TD Securities Inc. and

subsequently TD Waterhouse Canada Inc. In April 2001, she opened a cash account (the

“Account”) with the Respondent at TDW. The value of the Account steadily increased from

approximately $750,000 in March 2003 to over $1,100,000 in February 2006.

6. In or about November 2005, LJH moved into a nursing home as her physical health was

beginning to fail.

7. Since around early 2000, LJH would call the Respondent and the Respondent would visit

LJH. The Respondent and LJH had developed a close relationship. These visits were primarily

social as LJH’s Account required minimal attention. The Respondent and LJH would have lunch

together and the Respondent would do small errands for LJH that she had difficulty doing on her

own. Since her physical health had begun to deteriorate, and starting in March 2006, the

Respondent would fill out cheques for LJH to pay her various bills and she would sign them.

ii) Cheque to the Respondent 8. On or about March 9, 2006, the Respondent visited LJH. During this visit, LJH

expressed her desire to gift $500,000 to him. LJH gave the Respondent a cheque payable to him

personally in the amount of $500,000. The cheque was written from LJH’s personal bank

account at an unrelated bank (“LJH’s Bank”). At this time, the Respondent told LJH that there

was not enough money in her personal bank account to cover the amount of the cheque. The

Respondent and LJH discussed liquidating her Account. The Respondent did not bring the fact

that he accepted the cheque to the attention of TDW.

4

9. On or about March 10, 2006, the Respondent attended at LJH’s Bank and met with the

Manager of Customer Service. The Respondent presented a Power of Attorney (“POA”) for

financial affairs that he held. The Respondent was named as LJH’s Attorney for financial affairs

under the POA dated June 24, 2003.

10. On or about March 11, 2006, LJH suffered a heart attack.

iii) Liquidation of the Account 11. On or about March 13, 2006, the Respondent liquidated the securities in LJH’s Account,

which were worth approximately $1,100,000. This sale generated a deferred service charge

(“DSC”). The DSC was approximately $45,000, or 4%.

12. The Respondent arranged for the transfer of the proceeds from the sale of securities in

LJH’s Account to be sent by way of electronic transfer to the personal chequing account at LJH’s

Bank.

13. The transfer was completed by way of two separate transactions: one on March 13, 2006

for $571,000 and a second on March 16, 2006 for $532,324.76.

iv) Deposit of cheque 14. On or about March 16, 2006, the Respondent deposited the cheque he received from LJH

into his TDW account.

15. Upon learning that LJH’s Bank had not cleared the cheque, the Respondent attended at

LJH’s Bank on or about March 20, 2006 and met with the Manager Customer Service to inquire

as to when the funds would be cleared.

v) Statutory Declaration 16. On May 4, 2006, with the assistance of her legal counsel, LJH executed a statutory

declaration in which she explained her relationship with the Respondent and that he was a close

friend. LJH declared that she had asked the Respondent to act as her Attorney for financial

affairs as well as Executor of her will.

5

17. Pursuant to the Statutory Declaration, LJH further declared that she gave the Respondent

a cheque for $500,000 on March 9, 2006, that these funds were intended as a personal gift to the

Respondent, and that she was mindful that the amount of the cheque represented a sizable

proportion of her total estate. LJH further stated that her decision to gift these funds to the

Respondent was made freely, and she was not under duress or unduly influenced by any

individual.

18. LJH declared that she had believed she was nearing the end of her life, but because she

had survived she hoped the Respondent would return the monies previously gifted to him so that

she could use the funds for her future care. She declared that she intended to benefit the

Respondent in her Will.

C) Power of Attorney 19. The Respondent was named as LJH’s Attorney for financial affairs under the POA dated

June 24, 2003. The Respondent took steps to revoke his position as LJH’s Attorney on March

21, 2006.

20. The Respondent was also named as the Executor for LJH’s Will dated June 24, 2003.

21. The Respondent did not notify TDW that he had been appointed Attorney or Executor for

LJH.

D) Return of Funds 22. The cheque LJH gave to the Respondent was returned by LJH’s bank marked as funds

not cleared and therefore the $500,000 never left LJH’s personal account.

23. In or about April 2006, TDW credited LJH’s Account with the approximately $45,000

DSC fees which were previously charged to the Account.

24. On or about March 30, 2006, the Respondent was terminated by TDW as a result of his

conduct as detailed herein. The Respondent is not currently employed with a Member firm.

25. On or about July 3, 2006, LJH passed away and the Respondent commenced acting as the Executor of her estate.

6

With reference to the $45,000, referred to in paragraph 23, the evidence shows that the

full amount was charged by TD Waterhouse to Mr. Little personally.

OVERVIEW

We intend to address separately the two charges which Mr. Little is facing. Before doing

so, however, we feel compelled to say something about what this case is about and what it is not

about. The charges, on their face, are clear. What the case is about is the alleged failure of

Mr. Little to comply with the internal policies of his employer. However, there runs through the

whole case an undercurrent, perhaps no more than a hint or an innuendo, that Mr. Little sought to

victimize an ailing elderly widow. It must be stated clearly that the whole of the evidence in this

case does not justify a finding of any victimization of LJH by Mr. Little.

In March 2006, LJH was elderly and ill. There is no suggestion, however, that LJH was

other than in full command of her mental faculties. She was fully entitled to do whatever she

wished with her property. Not only would the evidence not support a finding that Mr. Little used

duress or undue influence upon her; any such finding would be directly contrary to the evidence

of LJH herself. As noted in the Agreed Statement of Facts, on May 4, 2006, a little over two

months after she gave the cheque to Mr. Little, LJH, through her lawyer provided a statutory

declaration in which she related the circumstances under which she made the gift. The Agreed

Statement of Facts accurately summarizes the contents of that document. However, because of

the innuendo of victimization, mentioned above, we propose to quote two specific paragraphs

from it. Before doing so, we think it important to note that the evidence shows that

Mr. Little and LJH’s lawyer were not acquainted with one another. The paragraphs which we

wish to emphasize are the following:

6. On March 9, 2006, I gave Donald Little a cheque in the amount of

$500,000.00. At that time, I believed that I was about to die. I intended for these funds to be a personal gift to Donald Little, and was mindful that this amount represented a sizable proportion of my total estate, but believed that my death was imminent and I would no longer need this money. My decision to pay these funds to Donald Little for this purpose was made freely. I was not under duress and was not unduly influenced by any individual.

7

… 8. I acknowledge and confirm that I have discussed this matter with my

counsel, Linda Fowler and believe that the facts as I understand them are as set forth in this Affidavit.

There can be no doubt that LJH intended to make a very substantial gift to Mr. Little.

She was mentally competent to do so. There is no evidence which would justify us in declining

to accept the declaration of LJH that she was not under duress and was not unduly influenced at

the time she made the gift. Therefore, she was fully entitled to do what she did. Mr. Little

accepted the gift. If he had not been employed by a Member of the Association, he would have

been free to do so. The issues in the case are whether Mr. Little acted in breach of the internal

policies of his employer and, if he did so, whether his conduct amounted to conduct unbecoming

or to conduct detrimental to the public interest. Because of the harm that an allegation of

misconduct towards LJH, on the part of Mr. Little, could do to his reputation in the community,

we stress that no such allegation is made against him in the charges. The evidence in the case

would not support such an allegation if it had been made.

We will now address the two charges which he is facing.

Charge No. 1

For ease of reference, we set it out again:

1. In or about March 2006, the Respondent engaged in business conduct or practice which is unbecoming or detrimental to the public interest, in that he accepted a cheque from an elderly client in the amount of $500,000, liquidated securities in the client’s account in order to cover the cheque and then deposited the cheque into his personal bank account, without the knowledge or consent, and contrary to the internal policies, of his Member firm employer, in violation of Association By-law 29.1.

This charge relates to the cheque for $500,000 which, on March 9, 2006, LJH gave to

Mr. Little. It is common ground that Mr. Little accepted the cheque and that one of the purposes

of liquidating LJH’s securities was to enable the cheque to be honoured when it was presented.

8

Mr. Little testified that he explained to LJH that it would be necessary to liquidate her portfolio in

order to have funds available to cover the cheque and that she instructed him to proceed with the

liquidation. We see no reason to decline to accept that evidence.

It is also common ground that he did not advise his employer of the gift. Thus, we find

that Mr. Little accepted the gift and did not tell his employer about it. The facts establish that the

employer Member did not know of the gift. The employer did not give its consent to the

acceptance of that gift by Mr. Little.

Mr. Little’s employer, TD Waterhouse, had internal policies respecting gift by clients to

employees. They are contained in its Compliance Manual and in its Guidelines of Conduct. It is

only necessary for us to cite one provision which is contained in the Compliance Manual:

4.27 Gifts and Secret Commission Gifts to and from clients should be avoided. An acceptance of a gift from a client may give the appearance of extra compensation or a gratuity of some kind. All forms of compensation must be paid to IAs by the Firm. Gifts given by clients that are of nominal value ($25 or under) are admissible. IAs may also give their clients a ‘token’ gift, again of nominal value. If there is any doubt as to the nominal nature of the gift Compliance must be consulted before a gift is given or accepted. Any other arrangements must receive prior approval from National Sales and Compliance. [Emphasis in text.]

We find that the essential averments of this charge have been established. Mr. Little

accepted LJH’s gift contrary to the internal policies of his employer. The question which must

be answered is whether in so doing his action amounted to conduct which was unbecoming or

detrimental to the public interest.

It was argued, on behalf of Mr. Little, that every transgression by an employee of a

Member does not, of itself, amount to conduct unbecoming or to conduct detrimental to the

9

public interest. As a general proposition, that is probably a sound contention. However, we have

difficulty accepting the generality of the statement found in IDA v. Bahcheli, [2004] I.D.A.C.D.

No. 12, at paragraph 21, that:

… Implicit in the charge [of conduct unbecoming] is a degree of moral turpitude or, at the very least, bad faith on the part of the Respondent.

Moral turpitude or bad faith could certainly turn, what otherwise might be a minor transgression,

into conduct unbecoming. However, we are unable to accept that they are an essential ingredient

of all charges of conduct unbecoming. Neither moral turpitude nor bad faith exists in this case.

It is our view that transgressions must be looked at in the light of the reputation which the

investment industry must maintain in the eyes of the public and the effect which the

transgression could have upon that reputation. The public interest demands that Members of the

industry, and their employees, be held to a very high standard of financial probity. They must be

trusted because they handle other people’s money. They must be seen to be trustworthy. If

conduct could even appear to cast doubt upon that probity, then it could be detrimental to the

public interest and constitute conduct unbecoming.

When the reputation for financial probity is involved, appearances are very important.

That is recognized in both the Compliance Manual and in the Guidelines of Conduct. For

example, in the Compliance Manual, the following appears as part of section 1.35:

… [E]mployees may not accept or offer … gifts or favour or become involved in any situation or activity in which their personal interests may conflict or appear to conflict with those of the Firm or its clients.

[Emphasis added.]

In the Guidelines of Conduct, under the heading Conflicts of Interest, the following is

stated:

You must be constantly be vigilant to identify conflicts of interest. Rules and procedures have been developed to help you avoid situations which might give

10

rise to an appearance of a potential conflict of interest, whether or not such a conflict of interest actually exists. [Emphasis added.]

Taking a substantial gift from a client can do nothing other than raise a reasonable

question about the propriety of the transaction. The two witnesses from LJH’s bank, who

testified at the hearing, were entirely reasonable when they had concerns about this gift. The

steps which they took, as a result of their concerns, were commendable.

Mr. Little testified that he had not read the Compliance Manual or the Guidelines of

Conduct and was, therefore, unaware of their provisions respecting gifts and conflicts of interest.

That cannot be a valid excuse. He should have known about them. Moreover, once he thought

about what he had done, he knew intuitively that what he had done would create an appearance

of possible impropriety. At the outset of his first interview with the TD Waterhouse investigator,

he said:

… So I put the cheque through, stupidly. I don’t know what I was thinking about, but I put the cheque through.

A little while later, he added:

But in the meanwhile this cheque went through and I know that looks very bad. Very bad.

The value of the Compliance Manual’s requirement of prior approval before a substantial

gift can be accepted is demonstrated in this case. When an employee is thinking “stupidly”, to

use Mr. Little’s word, discussion with a supervisor, in all likelihood, would prevent the

acceptance of the gift. The requirement of prior approval is, therefore, reasonable and is very

important.

Mr. Little was not a neophyte in the investment industry. He had been in it a long time

and had been very successful at it. He should have acted as a good example to others, not as an

example of how not to behave.

11

It is our opinion that Mr. Little’s conduct in breaching his employer’s internal policies, in

the particular circumstances of this case, could have had the effect of creating an appearance that

he was acting other than in the best interests of his client. Such an appearance could

detrimentally affect the reputation which the investment industry must have for financial probity.

His conduct, therefore, was detrimental to the public interest and amounted to conduct

unbecoming.

We hold that the contravention set out in Charge No. 1 has been established to the

requisite degree of proof. We find him guilty of that charge.

Charge No. 2

For ease of reference, we set it out again:

2. In or about June 2003, the Respondent engaged in business conduct or practice which is unbecoming or detrimental to the public interest, in that he became the Attorney, pursuant to a Power of Attorney for Property, and the Executor of the will of an elderly client, without the knowledge or consent, and contrary to the internal policies, of his Member firm employer, in violation of Association By-law 29.1.

Section 4.28 of the Compliance Manual provides that an employee of a Member may not

“act” as an executor of a client’s estate or “act” also under a power of attorney for a client.

This charge relates to the month of June 2003. In that month, LJH made a Will in which

she appointed Mr. Little as her Executor. However, until a testator dies an executor has no

power to act upon her behalf. LJH was alive throughout 2003 and, therefore, during the time

covered by the charge, Mr. Little did not act as her Executor. Insofar as the charge relates to

executorship, it is not made out.

In June 2003, LJH appointed Mr. Little as her Power of Attorney. He did not act upon

the Power of Attorney until March 2006 when he presented it to LJH’s bank. That action did not

take place within the time frame set by the charge and is not covered by the charge.

12

However, a paragraph of section 4.28 of the Compliance Manual contains the following

provision:

Clients who request that a staff member serve in such a role are to be politely but firmly informed that TD Waterhouse Investment Advice policy does not allow it. Exceptions may be made for certain situations such as family member, but such exceptions must be fully disclosed, documented and approved by the Human Resources and Compliance Department. In such circumstances, the staff member may have to choose between acting as IA on the account and acting as the fiduciary with another independent person being appointed as IA. The CPH states that the ‘RR should review the matter with the appropriate official of the firm, such as the director of compliance. Any such dealings should not be entered into without the knowledge and approval of the firm, and the firm should ensure that the client’s interests are fully protected’. [Italics in the text.]

Mr. Little did not, in June 2003 or later, disclose to his employer the fact that he had been

appointed as LJH’s Attorney. It may be that in June 2003 he did not anticipate acting upon the

Power of Attorney in the foreseeable future and, therefore, did not direct his mind to the question

of his obligation to disclose. His failure to disclose does, nevertheless, amount to a breach of his

employer’s internal policy set out in section 4.28 of the Compliance Manual.

It is possible that Mr. Little’s failure to disclose was the result of inadvertence. Previous

decisions of disciplinary panels of the IDA have held that inadvertence or negligence, by

themselves, do not necessarily amount to conduct unbecoming. See IDA v. Babb, [2000]

I.D.A.C.D. No. 39 and IDA v. Finkelstein, [2005] I.D.A.C.D. No. 34. We are left in a state of

doubt on this charge. The benefit of that doubt must be given to Mr. Little. Accordingly, Charge

No. 2 is dismissed.

PENALTY

It is necessary that we take a serious view of the contravention of which Mr. Little has

been convicted. The circumstances surrounding his acceptance of the gift from LJH could have

a detrimental effect upon the investment industry’s reputation for financial probity. Mr. Little

13

was a senior member of the industry with a substantial book of business. He should have been

giving guidance to others. Instead, he did not report to his employer something which, although

he did not think properly about it, he knew intuitively looked “very bad. Very bad.” He had a

responsibility to uphold the reputation of the industry, not to make the industry look bad.

Enforcement counsel suggested that a part of an appropriate penalty would be a

permanent bar of approval with the Association. That suggestion, we believe, is part of the

undercurrent, mentioned earlier, which hints that Mr. Little attempted to victimize his elderly

friend and client. Mr. Little has not been charged with attempting to victimize a client. He has

not been tried for such an attempt. He cannot be penalized as if he had attempted to victimize

her.

General deterrence, might have called for some suspension of approval. What has

happened to Mr. Little since he accepted the gift has made it unnecessary for this panel to try to

determine the appropriate length of any such suspension. TD Waterhouse, upon the completion

of its investigation, terminated Mr. Little for cause. While his status with the

Association has been in question, he has been unable to work in the investment industry. In

effect, he has been under suspension for over 14 months. That period is longer than a suspension

which we would have imposed. We, therefore, do not propose to impose any suspension of

approval.

We think that the contravention calls for the imposition of a fine. We have taken many

considerations into account in arriving at an appropriate amount of a fine. Mr. Little has no

disciplinary record in the investment industry. Many years ago, while acting as a life insurance

representative, he pleaded guilty to what appear to have been three administrative violations of

regulations governing replacement of insurance policies. We do not consider that conduct

relevant to the contravention of which he has been found guilty.

Mr. Little’s inability to work in the investment industry for 14 months has caused him

serious financial loss. That loss is far in excess of the fine portion of the penalty suggested by

Enforcement counsel. Moreover, he has been charged with the $45,000 DSC fees which had

14

been charged to LJH’s account on the liquidation of her securities. Mr. Little’s contravention of

TD Waterhouse’s internal policies has cost him dearly.

Mr. Little made no effort to hide the gift. He deposited the cheque at his TD account. At

the very beginning of the investigation by TD Waterhouse, he volunteered complete information

about the circumstances of the gift and, as noted earlier, described his conduct as stupid.

Finally, very impressive character evidence was provided to us. Three witnesses testified

at the hearing. Over 20 other persons wrote or co-signed letters in support of him. The tenor of

all of that evidence is that, notwithstanding the troubles which he is in, they have respect for and

complete confidence in him. They want to be able to continue to use him as their investment

adviser. Typical is the conclusion of one of the letters:

Please give Don back his licence so he can advise our family once again.

The decisions of other panels, which were cited to us, are not of great help in determining

an appropriate penalty. There is one case which is somewhat analogous, on its facts, to this one.

It is IDA v. Lam Phan, [2000] I.D.A.C.D. No. 28. In that case, the registered representative,

among other alleged contraventions, assisted a client in the preparation of her Will by which she

made him a significant beneficiary. He failed to disclose his actions to his employer. For that

contravention, he was fined $10,000. The case has very little value as precedent because the fine

was part of a settlement agreement. We do not know what considerations led the parties to agree

to a fine of that amount.

We have decided that a balancing of the need for a general deterrent with the

circumstance of the particular respondent, in the light of the facts of this case, calls for the

imposition of a fine of $15,000.

In view of Mr. Little’s testimony that he was not aware of certain important provisions in

TD Waterhouse’s Compliance Manual and in its Guidelines of Conduct, we think that he should

write and pass the examination based upon the Association’s Conduct and Practices Handbook.

15

At the hearing Enforcement counsel made submissions and provided us with an affidavit

in respect to costs. Counsel for Mr. Little asked for permission to make his presentation about

costs, in writing, after the decision on liability and penalty had been released. We acceded to

that request. Accordingly, we allow counsel for Mr. Little to file material and make his written

submissions respecting costs within 21 days of receipt of this decision. Enforcement counsel

will have 10 days thereafter to file a written reply.

RESULT

1. Donald Moffat Little is convicted of Charge No. 1.

2. Charge No. 2 is dismissed.

3. Donald Moffat Little shall pay a fine in the amount of $15,000.

4. As a condition of his reapproval by the Association in any registered capacity

with any Member of the Association, Donald Moffat Little shall successfully

rewrite the examination based on the Conduct and Practices Handbook for

Securities Industry Professionals.

5. The decision on costs is reserved.

Dated at Toronto, this day of 2007.

Patrick T. Galligan (Chair) David W. Kerr (Member) F. Michael Walsh (Member)