Canada's mutual fund industry regulator has imposed its largest-ever fine against a former Investors Group mutual fund salesman accused of stealing almost $12-million from his clients in Toronto.
A hearing panel of the Mutual Fund Dealers Association of Canada ruled Thursday that Paul Yoannou is banned for life from working in the industry and must pay a $6-million fine related to the thefts as well as a further $50,000 fine for failing to co-operate with an investigation and $7,500 in investigation costs.
The fine is the largest the MFDA has ever imposed against an individual. It is unlikely to be paid, however, because Mr. Yoannou has declared bankruptcy and is currently serving a six-year jail sentence in connection with the fraud.
MFDA lawyer Francis Roy told the hearing panel it was important to award a substantial fine to reflect the seriousness of the case and to act as a deterrent to others.
"I don't expect the aggrieved investors will ever actually trust people working in the mutual fund industry, but the penalties should try to help reestablish the trust of the public," he said.
Mr. Yoannou was accused of misleading clients by telling them their funds were being invested in Investors Group products, but instead he took their money for himself, deposited their funds in his own bank accounts, and sent them falsified account statements.
Although the MFDA alleged Mr. Yoannou stole $11.6-million from 55 clients, he was charged criminally with a subset of cases involving 32 clients who lost $6.6-million. He pleaded guilty in the case and was sentenced Feb. 28 to six years in jail. As a result of the guilty plea, the MFDA based its hearing Thursday – and calculated its fine – on the amount cited in the criminal case.
The MFDA fine comes on top of a court order in the criminal trial requiring Mr. Yoannou to repay $6.6-million stolen from victims. His lawyer said at the February court hearing that his chances of paying the restitution are "remote."
At his sentencing in February, Crown attorney Scott Patterson said Mr. Yoannou had a gambling problem and lost most of the money on gambling websites.
Mr. Yoannou did not attend the MFDA hearing Thursday and was not represented by a lawyer. Mr. Roy said Mr. Yoannou's lawyer contacted the MFDA last September to say they would not make any defence in the case.
Mr. Yoannou's conduct was "egregious" and "outrageously outside the bounds of conduct" required of people working in the industry, Mr. Roy told the MFDA panel, adding he abused the trust of clients who had known him for years and even decades.
"Without exaggeration, it has jeopardized their financial futures," Mr. Roy said.
Victims who attended Thursday's hearing said the outcome was appropriate, but was no surprise.
"I think it's an industry responsibility to do what they did," said Bill Dolan, who lost almost $1-million in the fraud. "He had pleaded guilty, so it's really following a format."
Mr. Dolan said he remains frustrated with Investors Group, which has refused to compensate him for his losses because he was among a group of investors the firm says were not recorded as clients. Mr. Dolan argues he thought he was a client and didn't know Mr. Yoannou hadn't registered him as one.
Another woman, whose 83-year-old mother lost over $300,000 in the fraud and has also not been compensated, said the MFDA hearing is a "moot point" because Mr. Yoannou is no longer working in the industry, but said "it's a good thing – it's a very good thing."
Many of Mr. Yoannou's victims were old friends who knew him as fellow members of the Toronto Cricket Club.