Year In Review
Proceedings were concluded covering a wide range of issues and misconduct.1 The enforcement proceedings highlighted below illustrate our priorities, the regulatory misconduct we confront, and how we target our investigative and litigation resources.
Although most cases are resolved by way of settlement agreement, where a negotiated resolution is not achievable, Enforcement will not hesitate and is always prepared to advance our allegations in contested hearings.
Where CIRO detects any potential market-related violations by clients of CIRO-regulated firms, we refer such matters to the relevant Canadian Securities Administrators’ (CSA) jurisdiction. Both Enforcement and CIRO’s Trade Review & Analysis department work with CSA jurisdictions on matters of mutual interest. In FY23, Trade Review & Analysis referred 93 market-related cases to the CSA: Manipulation (25), Insider Trading (49) and other Securities Act Violations (19).
1 See Appendix for a complete list of proceedings concluded in 2022-2023.
Selected Case Highlights
Suitability and Unauthorized and Discretionary Trading
The CIRO requirements relating to investment and mutual fund dealers, require that Approved Persons and Dealer Members know detailed information about their clients’ risk tolerance, investment knowledge and financial position. The Approved Person is required to determine whether an investment is suitable for a client, which requires them to understand the investment product and know the client. Approved Persons are prohibited from engaging in activities that pose a conflict with the interests of the client or engaging in activities that cannot be properly supervised by their firms:
Joseph Debus, after a disciplinary hearing, a hearing and review to the Ontario Securities Commission, and an appeal to the Ontario Superior Court of Justice, Divisional Court, the Court upheld the original merits and sanction decisions which found that Debus recommended that his clients purchase shares outside the Dealer Member, that he conducted unauthorized and discretionary trades, and that he failed to recommend suitable investments to a client. Debus was fined $65,000, ordered to disgorge $10,000 and pay costs of $30,000 and suspended for 9 months.
Shirley Locke, after a disciplinary hearing, a hearing and review to the Nova Scotia Securities Commission, and an appeal to the Nova Scotia Court of Appeal, the Court upheld the findings that Locke failed to use due diligence to learn and remain informed of the essential facts relative to certain clients, made unsuitable recommendations, and engaged in unauthorized trading. Locke was fined a total of $58,750 for the contraventions, ordered to pay costs of $25,000, suspended for 6 months, and required to be under six months of close supervision upon re-approval.
James Michael Lewis, in a settlement, for facilitating stealth advising by an unregistered individual, Rosborough, who had sold their book of business to Lewis but continued to provide investment advice to clients and gather Know-Your-Client information. Lewis submitted account forms under his representative code without meeting with or communicating with the clients. Lewis knew or ought to have known that Rosborough had provided the investment advice to the clients and gathered the Know-Your-Client information. Lewis failed to use due diligence to learn the essential facts relative to the clients and to ensure that the transactions were suitable. Lewis was suspended for 30 months, fined $20,000 and ordered to pay costs of $5,000.
Sergio Salina, in a settlement, for recommending that a 95-year-old client switch $498,511 from a no-load mutual fund to the DSC version of the same mutual fund with a 7 year DSC schedule. Salina received a commission of $18,943 from the switch that he would not have otherwise received had the client’s monies remained invested in the no load mutual fund. The client passed away 18 months after the trade. The Dealer Member compensated the client’s estate for the DSC fees incurred, and clawed back Salina’s commission earned for the trade. Salina also failed to disclose to the Dealer Member that he had been named as a beneficiary in the same client’s will and continued to service the client’s estate account. Prior to her death, the client had written a letter stating that Salina did not know about the bequest. At the direction of the Dealer Member, Salina disclaimed the benefit under the client’s will. Salina paid a fine of $30,000 and costs of $5,000.
Joel Henry Attis, in a contested hearing for processing 1,782 discretionary trades in client accounts by means of four bulk trades. Attis exercised his discretion with respect to the timing of three bulk trades. For one of the bulk trades, Attis emailed clients stating that trades would be processed in their accounts unless the clients instructed Attis, within 24 hours, not to proceed with the trade. Attis also failed to maintain adequate records of clients’ authorization (including dates and details of trade instructions received) for some trades. Attis was prohibited from conducting securities related business for two years, and ordered to pay a fine of $50,000 and costs of $15,000.
Enforcing High Standards of Conduct and Ethics
CIRO Rules address business conduct that demonstrates an unreasonable departure from the high standards and ethics expected of regulated persons or that is detrimental to the public interest. The rule is enforced against a wide range of business conduct, including misappropriation and fraudulent conduct. Hearing panels imposed sanctions against:
Jeffrey Rutledge, after a disciplinary hearing, for misappropriating more than $2 million from two client accounts. The misappropriation involved approximately 35 wire transfers over a 27-month period. Rutledge was ordered to pay a fine of $2,468,974, which included amounts for disgorgement, and was permanently barred from approval and employment in any capacity with a Dealer Member.
Marc St. Pierre, after a disciplinary hearing, for misappropriating approximately $4,000,000 from client accounts over six-year period. St. Pierre transferred these funds to his personal back accounts owned or controlled by him. St. Pierre was permanently barred from approval, ordered to pay a fine of $1,000,000 and disgorge $4,840,000.
Gary Ng, after a disciplinary hearing where he failed to appear, for engaging in fraudulent conduct by deceiving lenders into providing $172 million in loans on the basis of falsified securities accounts and documentation that demonstrated that he had substantial assets that did not in fact exist. The loans were obtained to purchase a Dealer Member. Ng failed to cooperate with the investigation. He was fined $5,000,000, ordered to pay costs of $194,000 and permanently barred.
Paul Anthony Dwyer, following a contested hearing, for submitting two commission-generating trades after being informed by the Branch Manager that the trades would not be approved. Dwyer’s client was mentally incapacitated and the client’s nephew served as guardian. The guardian signed account forms to transfer the client’s investments to Dwyer’s Dealer Member and conduct two trades in the account. Before the investments were transferred, the guardian informed Dwyer that the client had passed away. The Branch Manager told Dwyer that, as a result of the client’s death, the investments needed to be transferred into a new estate account and the trades could not be processed. Dwyer disregarded the Branch Manager’s instructions and placed two trades which generated $16,279 in commissions. Dwyer deliberately created records to make it appear as though Dwyer was not aware of client’s death at the time of the trades. The Hearing Panel imposed a three-month suspension, 6 months of close supervision, and ordered Dwyer to pay a fine of $12,500 and costs of $20,000. Dwyer’s appeal of the merits and sanction decisions to the Alberta Securities Commission was dismissed.
Paul Bannab, in a settlement, for failing while acting as alternate branch manager to report to the Dealer Member in close supervision reports that an Approved Person had borrowed monies from clients. The Ontario Securities Commission had imposed terms and conditions requiring the Dealer Member to conduct close supervision on the Approved Person and Bannab was assigned responsibility for completing monthly close supervision reports. Had Bannab reported the borrowing, the Dealer Member would have taken steps to ensure that Wilkins ceased borrowing from clients and reported his conduct to CIRO. The Hearing Panel imposed a permanent prohibition on acting as a branch manager or in any supervisory capacity, and a fine of $5,000 and costs of $5,000.
Strengthening Market Integrity
Enforcement’s efforts to strengthen market integrity focus on enforcing the Universal Market Integrity Rules (UMIR), the rules governing trading on CIRO-regulated marketplaces, and ensuring that regulated persons perform their role as gatekeepers to the capital markets, monitoring and identifying improper, manipulative, or disorderly trading. Investments dealers and their Approved Persons occupy a privileged role in the securities regulatory framework and act as intermediaries, providing access to the markets. The gatekeeper role is a fundamental obligation to protecting market integrity and the reputation of the capital markets.
Settlements were approved by hearing panels in relation to the following market integrity issues:
Tiffany Sweeney was facilitating activity in seven accounts for five different clients, which generated several indicators or red flags that suggested that the accounts may have been engaged in suspicious activity. In addition, Sweeney used instant messaging platforms to communicate with clients preventing her Dealer Member from monitoring all her communications in accordance with their regulatory obligations. Sweeney was fined $50,000, ordered to pay disgorgement of $28,806 in commissions, costs of $15,000 and suspended for 1 month.
RBC Dominion Securities Inc., in a settlement, for failing to include proper order designations on numerous orders entered on CIRO-regulated marketplaces as required by UMIR 6.2. CIRO’s Market Surveillance department relies on proper order designations to effectively monitor trading activity. In addition, RBC’s internal surveillance and trade supervision in respect of the orders was based on erroneous underlying data. RBC paid a fine and costs of $162,500.
Improving Industry Standards
In every investigation, Enforcement assesses whether a Dealer Member has fulfilled its supervision obligations and met stringent supervision requirements. When advancing proceedings against firms, Enforcement’s focus is not merely on sending a deterrence message to prevent a repetition of the failure by that firm, but on ensuring that the firm has implemented adequate remedial measures to prevent against reoccurrence. Remedial measures that are tailored to the specific compliance and supervision failings are an important element in improving overall business standards and practices. Hearing panels imposed sanctions against:
CIBC World Markets-Inc., in a settlement, for failing to establish and maintain a system of internal controls and supervision to ensure client fee agreements were accurately recorded in its fee management systems and clients were charged appropriate fees. In 2021, CIBC discovered a few instances where fees charged to clients in fee-based accounts differed from the fees documented in its client account management system. Subsequently, the firm identified that the issue affected more than just a few clients. The firm worked with a professional accounting firm to identify and correct all accounts impacted by the fee issue and implement new internal controls. CIBC issued refunds of the overcharges, plus tax and opportunity costs, to all clients with accounts that were overcharged. The amount of the remediation was calculated to be $7.02 million in respect of 12,780 accounts. CIBC also undertook a comprehensive review and action plan to address the root causes of the fee issue through the implementation of system changes and more effective internal controls. Enforcement Staff agreed to reduce the fine that was imposed on the firm on the basis of the proactive and exceptional cooperation demonstrated by the firm through its self-reporting and comprehensive review and action plan, the compensation paid to clients, and its willingness to agree to a timely resolution. The firm paid a fine and costs of $124,000.
MD Management Limited, in a settlement, for failing to establish adequate internal controls relating to the secure management of cheques made payable to its clients. In 2021, Joan McCarthy, an Approved Person at MD Management, was found to have falsified signatures and appropriated funds from client accounts. She was permanently barred from approval and fined $1,000,000 for misappropriating nearly $775,000 from clients. MD Management launched an internal investigation upon discovering the misconduct and a complaint was filed with the provincial police of Newfoundland and Labrador. In this subsequent proceeding, MD Management admitted its internal controls relating to supervising its employees in relation to the delivery and safekeeping of client cheques resulted in failing to promptly detect the activity of McCarthy. MD Management provided compensation and lost opportunity costs to clients in connection with the misconduct in the amount of $782,362. The firm paid a fine and costs of $225,000 and adopted new policies and procedures and internal controls.
National Bank Financial Inc., in a settlement, for failing to establish and maintain adequate internal controls which resulted in the erroneous opening of four options accounts and the failure to detect the improper processing of trading error corrections in eighteen accounts when in fact there were no errors. The firm paid a fine of $250,000 and costs of $40,000.
Scotia Securities Inc., in a settlement, the Dealer Member admitted it failed to implement adequate policies and procedures and an adequate system of controls and supervision to:
- ensure its Approved Persons processed certain transactions as switches, rather than as redemptions and purchases, to avoid exposing the clients to a risk of loss
- prevent its Approved Persons from establishing and subsequently cancelling pre-authorized contribution plans without adequate evidence of client authorization
- prevent its Approved Persons from manually adjusting their sales results on the Dealer Member’s sales tracking system
These supervisory deficiencies resulted in Approved Persons receiving increased performance credits which counted towards their sales targets.
In addition, Scotia Securities admitted it failed to implement adequate policies and procedures and an adequate system of controls and supervision to ensure that:
- it provided redemption cheques to clients in a timely manner
- clients did not purchase certain mutual funds in non-registered accounts which were not suitable to be held in those accounts
- client account transfer requests sent to one of its fax servers were processed in a timely manner
Scotia Securities imposed internal discipline against several of its Approved Persons, developed process and governance enhancements to prevent similar contraventions from occurring, and implemented a comprehensive client remediation plan. Scotia Securities paid a fine of $1,000,000 and costs of $75,000. In addition, Scotia Securities has paid $10,800,000 in remediation to clients.
Wealthsimple Advisor Services Inc., in a settlement Agreement, the Dealer Member admitted it implemented a process for onboarding Approved Persons of other Dealer Members which failed to ensure that potential clients had consented to the disclosure of their confidential information prior to that information being sent to a company affiliated with Wealthsimple. If the Approved Persons subsequently became registered with Wealthsimple, the clients would be asked to consent to the release of their information from the affiliate to Wealthsimple. The affiliate company would destroy the confidential information if the client did not consent within 180 days.
In addition, Wealthsimple admitted that, on two occasions, its supervisory controls failed to prevent Staff of the affiliate company from viewing and accessing the back-office system of another Dealer Member without that Dealer Member’s knowledge or consent. Staff of the affiliate company accessed the back-office system in order to assist an incoming Approved Person to transfer confidential client information to it. Wealthsimple paid a fine of $100,000 and costs of $20,000.
TeamMax Investment Corporation, after a contested hearing, for failing to adequately supervise an Approved Person in response to concerns they were not accurately recording client KYC information, failing to take adequate steps to ensure its compliance with the terms of a previous Hearing Panel order that limited its ability to open leveraged accounts, failing to implement an adequate branch review program, and failing to adequately detect and query KYC uniformity.
The branch review and KYC uniformity contraventions were the subject of a 2017 settlement with TeamMax. After the hearing, TeamMax resigned as a Dealer Member, ceased operations and transferred its accounts to another Dealer Member. The Hearing Panel imposed a fine of $60,000 and costs of $10,000.
Queen Financial Group Inc., in a settlement, the Dealer Member admitted that it approved and allowed the sale of seven exempt products without using adequate due diligence to understand the material attributes, features and risks of the products and ensuring the products were suitable for clients. Queen Financial’s failure to meet its Know-Your-Product obligation limited its ability to provide the necessary direction and supervision to Approved Persons to ensure that it was fulfilling its suitability obligations with respect to the exempt products that it approved for sale to clients. Queen Financial subsequently gathered additional information from the product issuers necessary to fulfill its Know-Your-Product obligation and reviewed each exempt product sale to ensure it was suitable. Queen Financial also hired additional staff to address the issue and a new compliance officer who has experience with exempt products to assist with its new product approval process. Queen Financial paid a fine of $30,000 and costs of $7,500.
Enforcing High Standards of Conduct and Ethics
A respondent or Enforcement Staff may seek a hearing and review or appeal of a hearing panel’s decision to the relevant securities commission or applicable reviewing body. After a hearing and review or appeal, a further appeal may be brought to a court in the applicable jurisdiction.
The following hearing and reviews and appeals were commenced, ongoing, or concluded during FY23:
Joseph Debus (Ontario) - the hearing and review commenced by the respondent on April 16, 2019 was dismissed by the Ontario Securities Commission in a decision released August 31, 2021; the respondent commenced an appeal to Ontario Divisional Court in September 29, 2021, which was dismissed in a decision released November 14, 2022.
Shirley Locke (Nova Scotia) – the hearing and review commenced by the respondent on June 26, 2020, was dismissed in part by the Nova Scotia Securities Commission in a decision released June 24, 2021; an appeal to the Nova Scotia Court of Appeal was commenced by the respondent on August 5, 2021, which was dismissed in a decision released April 12, 2022.
Douglas John Eley (Ontario) – the hearing and review commenced by the respondent on October 7, 2020, was dismissed by the Ontario Securities Commission in a decision released on March 5, 2021; an appeal to Ontario Divisional Court was commenced by the respondent on August 24, 2021, which was dismissed in a decision released April 6, 2023.
Alvin Rupert Jones (Ontario) – the respondent commenced a hearing and review on February 2, 2021. On June 29, 2022, Jones withdrew his application for a hearing and review.
Philippe Bélisle (Québec) – On November 11, 2021, the respondent filed an application with the Tribunal administratif des marchés financiers (TMF) for review of the penalty decision made on October 12, 2021 by an IIROC hearing panel. The TMF released its decision on December 22, allowing Bélisle’s application for hearing and review. The TMF upheld the hearing panel decision on liability but overturned the sanctions decision. The TMF ordered that Bélisle be suspended for a period of 10 years minus 14 months, that he be subject to strict supervision upon reapproval, pay a fine of $12,6000 and costs of $10,000.
Mark Odorico (Ontario) - On August 15, 2022, the Respondent filed an application for a hearing and review to the Ontario Securities Commission (OSC), seeking a review of IIROC hearing panel decisions dated April 7, 2022 and August 15, 2022. The hearing and review has not yet been decided.
Amin Mohammad Ali (Ontario) – on March 14, 2022 (while the disciplinary proceeding was ongoing), the respondent applied for a hearing and review; on June 30, 2023, the Ontario Securities Commission dismissed a motion by the respondent to stay the hearing panel’s misconduct and sanction decisions, and to have all aspects of the proceeding be confidential; the hearing and review is scheduled to be heard on September 26, 27 and 29, 2023.
Paul Dwyer (Alberta) – on May 11, 2022, the respondent appealed the misconduct and sanction decisions of a MFDA hearing panel; in a decision dated April 11, 2023, the Alberta Securities Commission dismissed the appeal.
Lucillia Sok Cheng Tan (British Columbia) – on November 2, 2021, the respondent applied for a hearing and review of the misconduct and sanction decision; on July 5, 2022, the respondent withdrew the application.