Stuart (Re), 2021 ONSEC 8

Ontario Securities Commission

Citation: Stuart (Re), 2021 ONSEC 8 Date: 2021-03-03 File No.: 2021-1

In the Matter of Marilyn Dianne Stuart

Reasons and Decision (Subsections 127(1) and 127(10) of the Securities Act, RSO 1990, c S.5)

Hearing: In Writing Decision: March 3, 2021 Panel: Wendy Berman, Vice-Chair and Chair of the Panel

Submissions: Ryan Lapensée, For Staff of the Commission No submissions made by or on behalf of Marilyn Dianne Stuart

I. OVERVIEW

1On December 2, 2019, Marilyn Dianne Stuart (Stuart) was convicted by Justice Rose of the Ontario Court of Justice (the Ontario Court) of defrauding investors of approximately $1.1 million.¹ After pleading guilty to the offence, Stuart was sentenced to a conditional custodial sentence of two years less a day, to be served in the community, and ordered to pay $1.1 million in restitution to the MFDA Investor Protection Corporation.²

2Staff of the Ontario Securities Commission (Staff) applies for a protective order in the public interest pursuant to s. 127(10) of the Securities Act (the Act),³ which provides that an order may be made under s. 127(1) of the Act against a person who has been convicted in any jurisdiction of an offence arising from a transaction, business or course of conduct related to securities or derivates. Staff submits that this precondition has been met and that it is in the public interest based on these circumstances to make an inter-jurisdictional enforcement order permanently prohibiting Stuart from participating in Ontario’s capital markets.

3For the reasons that follow, I find that Stuart’s conviction arose from a course of conduct related to securities, and that it is in the public interest to permanently prohibit Stuart’s participation in Ontario’s capital markets by issuing the order requested by Staff.

II. SERVICE AND PARTICIPATION

4Staff served Stuart with the Notice of Hearing, Statement of Allegations and Staff’s hearing brief, written submissions and brief of authorities by courier at her last known address.⁴ Following service of these materials, Staff received an email from Stuart in which she advised, among other things, that she did not intend to participate in the hearing due to her financial and health circumstances.⁵

5Staff elected to proceed by way of the expedited procedure for a written hearing provided for in the Commission’s Rules of Procedure and Forms.⁶ As stated in the Notice of Hearing, Stuart had 21 days from the date of service to file a request for an oral hearing, and 28 days from the date of service to file a hearing brief and written submissions. The deadlines for Stuart to request an oral hearing and to serve and file written submissions have passed. No request for an oral hearing was made and no materials were filed by or on behalf of Stuart.

6Pursuant to the Statutory Powers Procedure Act⁷ and the OSC Rules of Procedure,⁸ the Commission may proceed in the absence of a party who has been provided adequate notice of a proceeding. I am satisfied that Stuart was provided with adequate notice of this proceeding and that I may proceed in her absence.

III. FACTUAL BACKGROUND

A. Conduct at Issue, Guilty Plea and Conviction

7Stuart was registered in Ontario as a mutual fund dealing representative with W.H. Stuart Mutuals Ltd. (WH Stuart) from September 28, 2009 to May 9, 2013 and as the ultimate designated person from November 20, 2009 to May 9, 2013.⁹

8Stuart’s criminal conduct is described in the agreed statement of facts filed as part of the guilty plea before the Ontario Court. The key facts are as follows.

9During the period January 1, 2004 to May 31, 2013, Stuart participated in an investment scheme to defraud investors. The investors, consisting primarily of retired teachers and police officers, invested their commuted valued pensions with WH Stuart in instruments marketed by WH Stuart as guaranteed investments with an annual interest rate of five percent to ten percent or as cash accounts.¹⁰

10Stuart was a co-owner and a director of WH Stuart and related entities. Stuart controlled the bank accounts in which investor funds were deposited and directed the financial affairs and operations of WH Stuart.¹¹

11The investors had varying understandings of the specific investment product that they were purchasing but they all expected that their funds would be held in cash or cash equivalents or used for purchases of investment products that would return five to ten percent annually.¹²

12The investor funds were not invested as promised and instead were diverted without investor authorization and used to pay interest and return principal to other investors or paid to other entities and persons related to WH Stuart.¹³

13Stuart manipulated the information available to investors regarding their investments to give them the false impression that their funds were growing and could be redeemed, when in fact this was not true.¹⁴

14Investors invested at least $7.2 million in the investment program and many suffered financial and personal hardship as a result of the loss of all or some of their invested pension funds.¹⁵

15The Mutual Fund Dealers Association (MFDA) compensated most of the investors (as WH Stuart became insolvent and ultimately bankrupt¹⁶), but only to the original amount of their principal investment. The total loss paid out by the MFDA to the investors following the bankruptcy of WH Stuart was approximately $7.2 million.¹⁷

16On December 2, 2019, Stuart pled guilty before the Ontario Court to fraud over $5000¹⁸ contrary to section 380(1)(a) of the Criminal Code.¹⁹

B. Sentencing

17On December 19, 2019, Stuart was sentenced to a conditional custodial sentence of two years less a day, to be served in the community, followed by a probation period of two years.²⁰ Stuart was also ordered to pay restitution in the amount of $1.1 million to the MFDA Investor Protection Corporation.²¹

18In addition, Stuart was prohibited for twenty years from seeking, obtaining or continuing any employment, or becoming or being a volunteer in any capacity, that involves having authority over the real property, money or valuable security of another person.²²

19In ordering this sentence, Justice Rose noted that Stuart’s conduct “caused real harm to many people and many organizations” who trusted her to take care of their investment funds and instead of doing so, she ran a Ponzi scheme.²³ Justice Rose also considered the scope of the financial loss, Stuart’s position as a senior officer at WH Stuart and the sophistication and lengthy time period of the scheme.²⁴

20Justice Rose found that although the overall investor loss was approximately $7.2 million, the proven loss was only $1.1 million.²⁵

21Finally, Justice Rose also considered various mitigating factors including that: Stuart was 72 years old and had no prior criminal record; Stuart had health issues; Stuart pled guilty and accepted responsibility; and, Stuart cooperated with the investigation from the beginning, which ultimately resulted in her personal bankruptcy.²⁶

IV. LEGAL FRAMEWORK

22Subsection 127(10) of the Act provides that an order may be made under s. 127(1) where a person has been convicted in any jurisdiction of an offence arising from a transaction, business or course of conduct related to securities or derivatives. If that precondition is met, the Commission must consider whether it should exercise its jurisdiction to make a protective order in the public interest.

23In determining whether such an order should be made in the public interest, the Commission may consider, among other factors, the seriousness of the misconduct, the harm suffered by investors, specific and general deterrence and any aggravating or mitigating factors.²⁷ The purpose of such an order is “protective and preventative” and made to restrain potential conduct that could be detrimental to the integrity of Ontario’s capital markets and therefore prejudicial to the public interest.

V. ANALYSIS AND CONCLUSION

24Stuart participated in a scheme, while she was registered with the Commission as a dealing representative, to solicit and defraud investors of their investment funds by purporting to invest their funds in guaranteed investments. I am satisfied that Stuart’s conviction arises from a course of conduct related to securities. Therefore, the precondition for an order under s. 127(1) of the Act has been met.

25Stuart’s misconduct was extremely serious. Over a period of at least nine years, Stuart used her position as a registrant to solicit funds from investors, consisting primarily of retired teachers and police officers, and these investors entrusted their pension funds to her control. Stuart also manipulated the information available to investors regarding their investments to give them the false impression that their funds were growing and could be redeemed.

26Fraud is one of the most egregious securities regulatory violations.²⁸ It causes direct and immediate harm to investors and significantly undermines confidence in the capital markets.

27Registration is a cornerstone of securities law designed to protect investors by ensuring that those who sell or promote securities are proficient, solvent and act with integrity. Improper or fraudulent conduct by a registrant undermines investor protection and the integrity of the capital markets.

28It is important that this Commission impose sanctions that will protect Ontario investors by specifically deterring Stuart from engaging in similar or other misconduct in Ontario, and by acting as a general deterrent to other like-minded persons.

29Staff submits that an order permanently prohibiting Stuart from participating in Ontario’s capital markets is necessary in the circumstances. I agree that such an order is in the public interest.

30For the reasons set out above, a permanent ban prohibiting Stuart from participating in the capital markets is necessary to adequately protect investors and the capital markets. I therefore order that:

a. pursuant to paragraph 2 of subsection 127(1) of the Act, trading in any securities or derivatives by Stuart shall cease permanently;

b. pursuant to paragraph 2.1 of subsection 127(1) of the Act, acquisition of any securities by Stuart is prohibited permanently;

c. pursuant to paragraph 3 of subsection 127(1) of the Act, any exemptions contained in Ontario securities law do not apply to Stuart permanently;

d. pursuant to paragraphs 7, 8.1 and 8.3 of subsection 127(1) of the Act, Stuart resign any positions that she holds as a director or officer of any issuer or registrant;

e. pursuant to paragraphs 8, 8.2 and 8.4 of subsection 127(1) of the Act, Stuart is prohibited permanently from becoming or acting as a director or officer of any issuer or registrant; and

f. pursuant to paragraph 8.5 of subsection 127(1) of the Act, Stuart is prohibited permanently from becoming or acting as a registrant or promoter.

Footnotes

1. 1Exhibit 1, Staff’s Hearing Brief, Transcript of Guilty Plea Proceedings before the Honourable Justice D.S. Rose dated December 2, 2019 (Ontario Court of Justice) in the matter of R v Marilyn D. Stuart, Tab 3 (Guilty Plea Transcript), at 7
2. 2Exhibit 1, Staff’s hearing Brief, Transcript of the Reasons for Sentence before the Honourable Justice D.S. Rose dated December 19, 2019 (Ontario Court of Justice) in the matter of R v Marilyn D. Stuart, Tab 4 (Sentencing Transcript) at 9, 16 and 17
3. 3RSO 1990 c S.5
4. 4Exhibit 2, Affidavit of Service of Michelle Spain, sworn January 22, 2021 at para 2
5. 5Exhibit 3, Supplementary Affidavit of Service of Michelle Spain, sworn February 18, 2021 at Exhibit A
6. 6(2019) 42 OSCB 9714 (OSC Rules of Procedure), r 11(3)
7. 7RSO 1990, c S.22, s 7(2)
8. 8OSC Rules of Procedure, r 21(3)
9. 9Exhibit 1, Staff’s Hearing Brief, Tab 2, Section 139 Certificate Re: Marilyn Dianne Stuart dated April 3, 2020
10. 10Guilty Plea Transcript at 7-8
11. 11Guilty Plea Transcript at 8-10
12. 12Guilty Plea Transcript at 8-9
13. 13Guilty Plea Transcript at 9
14. 14Guilty Plea Transcript at 10
15. 15Sentencing Transcript at 3-4
16. 16Guilty Plea Transcript at 9
17. 17Guilty Plea Transcript at 9
18. 18Guilty Plea Transcript at 7
19. 19RSC 1985, c C-46
20. 20Sentencing Transcript at 9 and 17
21. 21Sentencing Transcript at 16
22. 22Sentencing Transcript at 17
23. 23Sentencing Transcript at 7
24. 24Sentencing Transcript at 4-5
25. 25Sentencing Transcript at 3
26. 26Sentencing Transcript at 4-5
27. 27Reeve (Re), 2018 ONSEC 55, (2018) 41 OSCB 9433 (Reeve) at para 27
28. 28Reeve at para 28