On February 28, 2014 the MFDA released its decision in Sarker (Re), a case involving unsuitable leveraged investments. MFDA Staff and Sarker submitted an agreed statement of facts to the hearing panel, whereby Sarker acknowledged in respect of two separate clients that he:
- induced the clients to borrow $150,000 and $140,000 respectively from two financial institutions to purchase mutual funds;
- filled in most of the information on the clients’ New Client Application Forms; and
- knew or ought to know that the information he inserted was false in that he inflated the clients’ assets and investment knowledge. Sarker further acknowledged that he had a poor understanding of leveraging as an investment strategy.
He admitted that in respect of one of the clients who borrowed, he failed to explain the risks and potential costs of the strategy, including the possibility that the client might not be able to repay the loan if the mutual funds declined in value and that a rise in interest rates might adversely affect the client’s financial position. The client’s loan was unsuitable in that it represented more than 40% of his net worth and his investment knowledge was limited. The client ultimately incurred substantial investment losses.
The Hearing Panel held that Sarker had to be “punished for his actions”, yet noted that he cooperated with Staff, acknowledged his errors, and took responsibility for them. He also appeared at the hearing, which was included as a mitigating factor. The Hearing Panel also noted that Sarker had taken out a $150,000 loan himself to purchase mutual funds, leading to “financial ruin” for him and his family, and that he had therefore already suffered “grievously” for his actions.
The Hearing Panel ordered a three year prohibition on registration, a fine of $20,000 and costs of $2500 against Sarker.