Decisions
LYLE B. REGIER [Decision]
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BCSECCOM #:
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Document Type:
Decision
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Published Date:
1997-04-04
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Effective Date:
1997-03-25
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Details:
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COR#97/063
IN THE MATTER OF THE SECURITIES ACT
S.B.C. 1985, c. 83
AND
IN THE MATTER OF LYLE B. REGIER
HEARING AND REVIEW
| PANEL: | ADRIENNE R. WANSTALL | MEMBER |
 | PETER A. MANSON, Q.C. | MEMBER |
| DIANE K. WOLCH | MEMBER |
| DATE: | JANUARY 7, 1997 |
| APPEARING: | PATRICK D. ROBITAILLE | FOR COMMISSION STAFF |
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| LYLE B. REGIER | FOR HIMSELF |
DECISION OF THE COMMISSION
1. INTRODUCTION
On November 22, 1996, the Director of Registration of the British Columbia Securities Commission made a decision refusing to allow the transfer of registration of Lyle B. Regier (the “decision”). Also on November 22, 1996, Regier applied to the Commission under section 147(3) of the Securities Act, S.B.C. 1985, c.83 for a hearing and review of the decision. The hearing and review was held on January 7, 1997, as a hearing de novo.
2. BACKGROUND
Regier was registered under the Act as a mutual fund salesperson from November 18, 1975, to July 23, 1996. During the entire period, he was employed by Investors Group Financial Services Inc., a mutual fund dealer. Regier worked in Investors’ Vernon office and, from 1986 to 1996, managed that office.
Regier considers himself to be a financial planner. He has taken the Chartered Financial Planner’s course and is currently working towards obtaining a Certified Financial Planning Certificate. Regier provided advice to a number of his clients respecting investments other than mutual funds offered by Investors. Regier would advise the client to make a purchase and the client would then make the purchase directly through a brokerage firm, bank, trust company or mortgage company, depending on the nature of the investment. At least some of the investments that Regier advised his clients to buy were “individual stocks”.
The majority of Regier’s approximately 300 clients were in the Okanagan, particularly around Vernon, and they held a total of $40 million in Investors’ products. Most were older people; forty or fifty percent of them were retired. Regier testified that he always tailored his advice to the individual client, that the bulk of his clients were fairly conservative and that his clients generally followed his advice.
During the years that Regier was with Investors, he gambled regularly, going to Las Vegas two to four times a year and occasionally to other cities such as Reno and Nassau for that purpose. In the mid-1980s, he began losing and eventually became heavily indebted to several casinos. Regier estimates that his gambling losses over the past nine years have been around $2 million. As a result, Regier began borrowing heavily, both from banks and, starting in 1988, from his clients. Some of the bank loans were through a company called LBR Enterprises Ltd., the shares of which were held by Regier, his wife and his children; others were personal loans. However, most, if not all, of the client loans were through LBR. Regier did not tell Investors of the client loans at the times they were made.
In the beginning, the client loans to LBR were backed by investments, specifically GICs purchased from various financial institutions. However, as time passed, the GICs were cashed, the original loans paid off, and new loans incurred, generally with the same clients. These new loans were evidenced by promissory notes of Regier and were unsecured. At no time did Regier suggest to his clients that they get independent investment advice concerning these loans. Regier admitted that lending money to him was probably not the best investment the clients could have made.
In his testimony, Regier explained the client loans as follows:
- [The decision] said some borrowings may have taken place before individuals were clients and some borrowings were done later with client/dealer relationship in place. This is true. But the bottom line, it says proper disclosure could not have been given to your clients at the time borrowing was made. My understanding of disclosure was that they understood fully that the monies were being loaned to me and they understood that Investors wouldn’t be happy if they knew about it, so the clients were aware of that. Some of the initial loans years ago were set up because clients were afraid of downturn in the market, and after giving them several options, we -- my clients and I collectively came to an agreement that through the use of a promissory note, that the money would be invested into LBR Enterprises, and they were fully aware that the risk was that the only method they had of getting paid back was my word to do so, and they were fully aware of that, even though I told them that I would likely purchase some GICs through the corporation just as added security. And going way back to the initial ones, this was the sole purpose of that, and when the GICs matured, the money was returned to them or reinvested in some other form. And all of the initial notes were done that way.
Later on, in the later years, once my gambling kind of got out of hand, I went back to some of these people and some other friends and borrowed money specifically to be loaned to me where there was no security in place. And this money was loaned not because of downturns in the market or anything else. It was just clients were fully aware that it was being loaned to me to cover my -- some of my deficits in different areas.
I don’t think there was any time where the clients were not fully aware of the risk that was involved in loaning me the money. The former clients and friends loaned me the money in good faith because of my longevity, because of the years that I’d worked with them and the amount of money that I’d made for them, and they trusted me to do this.
In November 1995, Investors asked Regier to advise them of any salesperson in the Vernon office who had borrowed money from or loaned money to a client, or who had agreed to act as executor for a client. Regier testified that this was the first time he had ever heard that Investors had a policy prohibiting such activities and that he immediately gave Investors all the details of his own activities in this regard.
Over the next few months, Investors and Regier had several discussions in an attempt to remedy the situation. Initially, Investors advised Regier that they would loan him the money to pay back his clients. However, they decided not to do so when they learned the magnitude of the amount owing. In January 1996, Investors moved Regier from management back into sales. Their discussions continued until July 1996, during which time Investors publicly lauded Regier’s sales performance at two sales conferences.
Finally, on July 23, 1996, Investors terminated Regier’s employment and notified the Commission of the termination. The termination notice notes the reason for termination as: “Breach of Corporate policy against borrowing from clients of Investors Group. Representative has not left in good standing.”
The table prepared by Regier in August 1996, is the only indication we have of the various amounts owing by Regier and LBR at the time he left Investors. The table shows loans from several banks totalling $385,000, debts to four casinos totalling US$180,000 (approximately CDN$248,400 at 1.38) balances on three credit cards totalling $46,000, and loans from five Investors clients totalling $1,019,891. Therefore, Regier’s total debts at that time were approximately $1,699,291.
After leaving Investors, Regier began talking to other mutual fund dealers. One of the dealers he approached was Great Pacific Management Co. Ltd., who agreed to employ him and contacted the Vancouver Stock Exchange in that regard on August 22, 1996.
In a letter of September 3, 1996, from Gary Bowerman of the Exchange to Great Pacific, which was copied to Regier, Bowerman advised that Exchange policy does not allow financial dealings between registrant and client and that Regier would need to “liquidate all loans between himself and his clients” before his application would be considered. In a letter of September 9, 1996, from Bowerman to Regier’s counsel at the time, which was also copied to Regier, Bowerman advised further that the Membership Committee of the Exchange would consider transferring Regier’s registration to Great Pacific only if Regier provided, among other things, proof that “there no longer exists any loans between Mr. Regier and any of his clients.”
In response, Regier sent an undated letter to the Exchange, which was received on September 14, 1996. The letter was also sent to the Director of Registration, with a cover page stating: “Mr. Bowerman of the VSE has stated as per letter attached that proof of payment on loans in question be submitted. Please find same attached ...” The letter itself reads as follows:
- With reference to your letter of Sept. 03/96, please find five duly signed letters as your proof that the promissory notes that were written between LBR Enterprises Ltd. and the former clients of Lyle Regier are paid in full.
I submit that there are no loans nor will there be any loans between clients and myself or my corporation as long as I am allowed to hold my securities licenses. Incidentally, and for your information, under my contract with my former sponsor Investors Group, it is clear that I do not have any clients. The clients that I did have were, under my contract, are the property of Investors Group and all data and pertinent information regarding same was left with my former sponsor.
I do still have some indebtedness to the banks, casinos and to some personal friends but none of these are clients and I will not solicit further business from them until these loans have also been paid in full.
- Please accept this letter as your proof that we, the undersigned, acknowledge that the promissory note between ourselves and LBR Enterprises Ltd., that you referred to in your letter to Mr. Lyle Regier, has been paid in full, and there is no client, registrant relationship between us at this time.
The fifth letter contains the same paragraphbut states as well that they have made a new loan to Regier secured by a new promissory note from LBR.
In fact, it emerged during Regier’s testimony that the promissory notes referred to in the first four letters had also been replaced by new promissory notes. As Regier explained:
- I understood, as I explained earlier, from Mr. Bowerman that what I -- where the problem was is that there was loans between a client and a registrant, okay? And so I had gone to the clients and told them that there was a problem. I had done something wrong here. I explained to them what the situation was and this is why I had lost my job, because -- that I wasn’t supposed to borrow money or loan money to my clients, and in that, and he says, “Well, you know, we did it as a friend, so what do we do?” And I says, “Well, as I understand from Mr. Bowerman, we have to have proof that these notes are paid off,” so they signed a letter saying that they paid the new notes off and we issued notes between friends as opposed to a client/registrant relationship.
On October 11, 1996, the Commission, pursuant to section 159.1(3) of the Act, withdrew from the Exchange and the Investment Dealers Association and referred to the Executive Director “any application for registration or renewal of registration under the Act regarding Lyle B. Regier”. The same day, the Vice President, Compliance of the Exchange responded as follows:
- Further to the letter of October 11, 1996, from the Vice Chair of the Securities Commission, we enclose Regier’s application for transfer which was being processed. We refer the consideration of this application to your office.
If you have any questions, please do not hesitate to contact me.
On November 22, 1996, Regier applied to the Commission for a hearing and review of the decision, which was held on January 7, 1997.
By the date of the hearing, Regier had reduced his outstanding debts by selling some of his assets. The updated table prepared by Regier shows that, at that time, his debts included loans from several banks totalling $412,000, debts to three casinos totalling US$153,000 (approximately CDN$211,140 at 1.38), balances on three credit cards totalling $41,000, and loans from four former clients totalling $786,000. Therefore, Regier’s total debts at the date of the hearing were approximately $1,450,140.
During the hearing, Regier produced many testimonial letters from former clients, which noted the number of years he had been their financial planner and expressed their belief that he had always kept their interest ahead of his own, their comfort with his advice and their desire to hear from him in this capacity in the future. The vast majority of these testimonials are signed form letters that Regier sent to his former clients in December 1996, along with his Christmas cards. When he sent the form letters, Regier did not enclose a copy of the decision or any other information regarding the concerns of the regulatory authorities. Regier testified, however, that he did keep his former clients informed verbally as to what was going on and did show the decision to former clients who came to see him.
Regier also testified that he has been a member of Gamblers Anonymous since 1995 and that he has stopped gambling. However, he continues to visit Las Vegas regularly to attend sporting events, on at least on one occasion last year at the expense of a casino. Regier admitted that he has made mistakes, but argued that he has always tried to keep his clients’ interest ahead of his own. He also argued that he has learned a lot because of these proceedings and that he is committed to doing things right and to making sure that his former clients and friends get proper advice and proper investments.
3. PROCEDURAL ISSUES
Section 25 of the Act provides that, if the employment of a salesperson with a registered dealer is terminated, the registration of the salesperson is immediately suspended until the Executive Director receives notice that the salesperson is once again employed by a registered dealer and the Executive Director approves the reinstatement of registration of the salesperson. The power of the Executive Director to approve a reinstatement of registration under this section may be exercised by the Director of Registration, pursuant to section 7(7) of the Act and section 23(2) of the Interpretation Act R.S.B.C. 1979, c. 206. By refusing to allow the transfer of Regier’s registration to Great Pacific, the Director of Registration, in effect, refused to approve the reinstatement of Regier’s registration pursuant to section 25 of the Act.
The Commission’s letter of October 11, 1996, withdrawing this matter from the Exchange and the Investment Dealers Association, refers to “any application for registration or renewal of registration”, rather than to an application for approval of reinstatement of registration. However, it is clear from the Exchange’s response, which was copied to Regier, and from the subsequent actions of the Director of Registration and Regier, that everyone concerned understood that, from the date of the letter, any decision respecting Regier’s registration was in the hands of the Executive Director.
4. DECISION
The purpose of the Act is to regulate the capital markets and to protect the people investing in those markets. A cornerstone of the regulatory regime established in the Act is the requirement that people advising or trading in securities on behalf of others be registered. The importance of this requirement was recognized by the Supreme Court of Canada in Gregory & Co. v. Quebec Securities Commission, [1961] S.C.R. 584, where Fauteux J. stated at page 588:
- The paramount object of the Act is to ensure that persons who, in the province, carry on the business of trading in securities or acting as investment counsel, shall be honest and of good repute and, in this way, to protect the public, in the province or elsewhere, from being defrauded as a result of certain activities initiated in the province by persons therein carrying on such a business.
See also: Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557 and Brosseau v. Alberta Securities Commission, [1989] 1 S.C.R. 301.
Section 21(1) of the Act provides that the Executive Director must grant a reinstatement of registration if the Executive Director considers the applicant to be suitable for registration in the capacity applied for. In making this determination, the Executive Director must be satisfied that the registration would not be prejudicial to the public interest: Re: First Vancouver Securities Inc. (1989), 103 B.C.S.C. Weekly Summary.
Of necessity, suitability for registration must be determined primarily on the basis of the applicant’s past conduct. As recognized by the Ontario Securities Commission in Re: Mithras Management Inc. (1990), 13 O.S.C.B. 1600:
- We are here to restrain, as best we can, future conduct that is likely to be prejudicial to the public interest in having capital markets that are both fair and efficient. In so doing we must, of necessity, look to past conduct as a guide to what we believe a person’s future conduct might reasonably be expected to be; we are not prescient, after all. And in so doing, we may well conclude that a person’s past conduct has been so abusive of the capital markets as to warrant our apprehension and intervention, even if no particular breach of the Act has been made out.
The first is that, for many years while he was registered as a mutual fund salesperson, Regier borrowed significant amounts of money from several of his clients. After generating substantial gambling losses, Regier began borrowing from his clients in 1988 and, at the time his registration was suspended in July 1996, owed five clients a total of $1,019,891. The table prepared by Regier also shows that, at that time, his total debts were approximately $1,699,291. This table was the only financial record Regier produced respecting the amounts he borrowed from his clients between 1988 and July 1996.
Investors had a policy against their salespeople borrowing from clients of Investors; it was Regier’s contravention of this policy that caused Investors to terminate his employment with them. The Exchange and the Investment Dealers Association have similar rules requiring registrants to avoid personal financial dealings with clients. These rules were developed in recognition of the fiduciary duty that has generally been found to exist between a registrant and his or her clients: Hodgkinson v. Simms,[1994] 3 S.C.R. 377; Beaulieu v. L.O.M. Western Securities Ltd., [1993] B.C.J. No. 1088 (British Columbia Supreme Court). The rules are intended to prohibit personal financial dealings between registrants and clients that could create a conflict of interest for the registrant or enable the registrant to personally benefit from confidential client information.
Regier claimed that he did not learn of Investors’ policy until November 1995. There is no evidence before us as to when Investors put the policy in place. However, Regier had worked for Investors since 1975 and had managed the Vernon office since 1986. As an experienced registrant and an office manager with supervisory responsibilities, he ought to have known when the policy was put in place and ensured that not only he, but the mutual fund salespeople under his supervision, complied with it.
As a mutual fund salesperson, Regier was aware of the financial circumstances of his clients and would have known which of those clients could afford to lend him money. Regier testified that the clients knew at the time they made the loans that they were, in effect, personal loans to Regier evidenced only by his promissory notes. However, Regier did not suggest to the clients at any time that they get independent investment advice concerning these loans. As well, Regier admitted that lending money to him was probably not the best investment the clients could have made. Finally, the amount Regier borrowed from his clients was significant, both as an absolute amount and as a percentage of his total debts. At the time his registration was suspended in July 1996, he owed his clients over $1,000,000, which accounted for sixty percent of his total debts at the time. We are of the view that Regier’s conduct, in borrowing money from his clients in these circumstances, was prejudicial to the public interest.
The second aspect of Regier’s past conduct that causes us serious concern relates to Regier’s consistent failure to provide his employer, his possible future employer, his former clients and the regulatory authorities with complete and accurate information concerning his personal financial dealings with his clients, and later his former clients. His employer, Investors, was not told by Regier that he was borrowing money from his clients until Investors specifically asked for this information in November 1995. His possible future employer, Great Pacific, was told by Regier that “all the clients with whom he has borrowed money from have been paid in full, by refinancing through banks and friends” when, in fact, the clients whose loans were repaid and the friends who provided the refinancing were one and the same. At least some of his former clients were asked by Regier to sign a form of testimonial letter drafted by Regier without having seen the decision, which outlined the problems that gave rise to the need for such a letter. Finally, the regulatory authorities were led to believe by Regier’s letter of September 1996, that Regier’s former clients had been paid in full when, in fact, Regier continued to owe money to these people. We find Regier’s representations to Great Pacific and to the regulatory authorities particularly disturbing. We are of the view that they represented a deliberate attempt by Regier to deceive Great Pacific, the Director of Registration and the Exchange as to the true nature of the personal financial dealings between Regier and his former clients, and that, in making those representations, Regier’s conduct was prejudicial to the public interest.
Finally, we note that Regier acted as a financial planner for his clients and, in so doing, provided advice to at least some of them respecting investments other than mutual funds, some of which were “individual stocks”. Section 1 of the Act defines an adviser as “a person engaging in, or holding himself out as engaging in, the business of advising another with respect to investment in on the purchase or sale of securities or exchange contracts”. Section 20 of the Act requires that a person may not act as an adviser without being registered as such under the Act. Regier was registered under the Act only as a mutual fund salesperson; he was not registered as an adviser. Therefore, we find that Regier acted as an adviser without registration, contrary to section 20 of the Act. As a registrant, Regier ought to have known the limits of his registration. His conduct in advising clients was not only beyond his registration, but contravened the Act, and we find it to be prejudicial to the public interest.
We realize that refusing to reinstate Regier’s registration could cause significant financial hardship to both Regier, who has been employed as a mutual fund salesperson for over twenty years, and to his former clients, whose loans Regier may be unable to repay. However, we are of the view that Regier’s past conduct renders him unsuitable for registration as a mutual fund salesperson and that reinstating his registration would be prejudicial to the public interest.
Therefore, pursuant to section 147(4) of the Act, we consider it proper to deny Regier’s application for reinstatement of registration. We would expect that the Executive Director would not grant Regier registration under the Act for a period of three years from the date of this decision. Should Regier seek registration after that period, we would expect that the Executive Director would grant Regier registration only if he is no longer indebted to his former clients and on the condition that he be strictly supervised for at least two years, the terms of such supervision to be approved by the Executive Director.
We direct the Executive Director to obtain from Investors a list of the clients with whom Regier dealt during the period between November 1995 and July 1996, and to send to those clients a copy of this decision.
DATED on March 25, 1997.
FOR THE COMMISSION
| Adrienne R. Wanstall | Peter A. Manson, Q.C. |
| Member | Member |
| Diane K. Wolch Member |