2016 Enforcement Report

ENFORCEMENT 2016
REPORT
Protecting Investors and Supporting
Healthy Capital Markets Across Canada
THE ROLE OF ENFORCEMENT
IIROC’s Enforcement Department
(Enforcement) is responsible for
the enforcement of IIROC’s Dealer
Member Rules, relating to the sales,
business and financial conduct of its
Dealer Members and their registered
employees, as well as the Universal
Market Integrity Rules (UMIR) relating
to the trading activity on all Canadian
debt and equity marketplaces.
IIROC’s Enforcement plays a key role
in protecting investors and supporting
healthy capital markets across Canada.
Enforcement works with IIROC’s other
departments (including Complaints
and Inquiries, the various compliance
groups, Trading Review & Analysis,
and Registration) to ensure timely
identification, investigation and
prosecution of regulatory misconduct,
as well as the detection and pre-emptive
disruption of potential misconduct.
Enforcement must be:
TABLE OF CONTENTS
FAIR
1
About IIROC
2
Joint Message from the CEO and Vice President,
Enforcement
4
IIROC’s Enforcement Process
IIROC’s enforcement process is fair
and impartial. Prosecutions are based
on thorough investigations; hearings
are transparent and conducted by
impartial hearing panels, chaired by legal
professionals.
6
Enforcement Activities
EFFECTIVE
7
Selected Case Highlights
16
Enforcement Priorities
21
Enforcement Statistics
28
Appendix A – IIROC Disciplinary Actions Enforcement aims to promote compliance
within the investment industry by sending
strong regulatory messages that deter
potential wrongdoers and help to build
investor confidence in the Canadian capital
markets.
29
Appendix B – Enforcement Information Sources
TIMELY
30
Appendix C – Types of Disciplinary Proceedings
31
Glossary of Terms
Timely investigation and prosecution
of misconduct protects investors and
strengthens the public’s confidence in
self-regulation.
ABOUT IIROC
1
The Investment Industry Regulatory Organization of Canada (IIROC)
is the national, self-regulatory organization (SRO) responsible for the
oversight of Canada’s investment dealers, as well as trading activities
on debt and equity marketplaces in Canada.
IIROC is one part of the Canadian securities regulatory framework that consists of 10 provincial
and three territorial securities regulators (collectively the Canadian Securities Administrators
[CSA]), as well as SROs including IIROC and the Mutual Fund Dealers Association (MFDA),
whose activities are overseen by CSA members.
IIROC’s regulatory mandate is to set and enforce high-quality regulatory and investment
industry standards, protect investors and strengthen market integrity while supporting healthy
capital markets. IIROC pursues this mandate by developing, testing for compliance with and
enforcing a broad spectrum of member and market proficiency, conduct and prudential rules.
All investment dealers (also referred to as Dealer Members) and Canadian marketplaces
overseen by IIROC are subject to a rigorous regulatory approval process. Individuals wanting
to work at IIROC-regulated firms in specific roles (for example, client-facing advisors and
individuals in a supervisory role who have responsibility for ensuring compliance with IIROC
rules and other applicable regulations) must apply to IIROC for approval. Individual applicants
must satisfy all of IIROC’s proficiency requirements and be assessed to be “fit and proper”
before IIROC will approve them to work at a Dealer Member in these types of roles. They must
also invest in their professional development by completing a minimum number of continuing
education requirements over the course of a three-year continuing education cycle.
IIROC’s vision is to be known for its integrity, transparency, fairness and balance. IIROC aims for
excellence and regulatory best practices. Its actions are driven by sound, intelligent deliberation
and consultation.
2
JOINT MESSAGE FROM THE CEO
& VICE PRESIDENT, ENFORCEMENT
We are pleased to present IIROC’s 2016 Enforcement Report.
This report highlights our investor protection efforts and charts our
progress in pursuing more effective legal enforcement tools. With a
mandate to protect investors and support healthy Canadian capital
markets, IIROC sets and enforces high regulatory standards in the
investment industry through fair, effective and timely enforcement.
Our enforcement actions send a strong deterrent message to potential
wrongdoers and hold accountable those who harm investors.
This past year we saw significant results from our work to ensure the fines we impose are
collected, when two jurisdictions announced changes that will make IIROC’s enforcement
actions more effective.
Most recently, in March 2017 the Ontario government announced its intention to strengthen
investor protection in that province by introducing legislative amendments to give IIROC the
ability to pursue the collection of disciplinary fines directly through the courts.
Ontario’s announcement followed a similar move by the Prince Edward Island Office of the
Superintendent of Securities in January 2017, when it granted IIROC the authority to directly
register our disciplinary decisions with the Supreme Court of PEI.
As a public interest regulator, having this enforcement tool in two additional provinces will
enable us to provide stronger protection to the investing public and collect fines – which IIROC
uses to fund investor protection, investor education and financial literacy initiatives – from
wrongdoers who have previously evaded paying the penalty for their misconduct. This will also
send a strong message of deterrence to potential wrongdoers: if you harm investors, you will be
held accountable for your actions and pay the penalty.
Ontario and PEI join Alberta and Quebec as provinces that have granted IIROC the ability to
collect disciplinary fines directly through the courts. Our collection rates are significantly higher
than the national average over sustained periods of time in Alberta and Quebec and we expect
similar results in PEI and Ontario over the years to come.
Over the past year, we’ve had ongoing discussions with other provincial and territorial
governments across the country urging them to give us the legal authority to collect unpaid
fines. Since IIROC was established in 2008, almost $32 million in fines remains uncollected
from individuals who simply walk away from discipline without facing any repercussions.
Last year our national collection rate among individuals was only eight per cent.
In the effort to gain more effective legal authority, we’re heartened by the support we’ve received
from many stakeholders: consumer advocates like CARP, Prosper Canada and the Canadian
Foundation for Advancement of Investor Rights; and those in the investment industry - market
participants and industry associations - who want to see wrongdoers pay the price for breaching
our rules and harming investors.
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3
To quote Prosper Canada: “Effective protection against financial fraud and wrongdoing
is critical to Canadians’ capacity to build their financial health and security and includes
both well-crafted laws and regulations and the ability to enforce these. This is particularly
important for vulnerable Canadians who are often the targets of financial wrongdoing, but
lack the resources to bring perpetrators to justice on their own.”
In addition we are seeking broader authority to collect evidence more effectively for our
investigations and disciplinary hearings. We are also seeking statutory immunity for actions
taken in good faith to protect investors under the regulatory responsibilities assigned to us
by members of the Canadian Securities Administrators (CSA).
This year we also continued our collaboration with our regulatory and government partners
across Canada to strengthen protection for consumers by closing a number of gaps in our
regulatory system. For example, we executed co-operative and disciplinary information-sharing
agreements to ensure that rule-breakers cannot evade fine payment or their past misdeeds by
simply ceasing to work for an IIROC-regulated firm.
In 2016 and early 2017, IIROC signed agreements with the Financial Services Commission
of Ontario, the Insurance Council of British Columbia and the Alberta Insurance Council,
allowing us to share relevant information in a timely fashion including recent disciplinary
actions and conduct joint investigations where warranted.
ANDREW J. KRIEGLER
President & CEO
Investors in these provinces will benefit from early detection of wrongdoing because of
our collaboration and coordination with these regulatory authorities. Investors will also be
protected from investment advisors who have broken IIROC’s rules and try to avoid sanctions
by moving to another part of the financial services industry where potential clients and other
regulators are unaware of what they’ve done.
We will continue to negotiate similar agreements with other regulators to provide more
effective and consistent regulation across Canada and give investors greater confidence in
our regulatory system.
IIROC dedicates its enforcement resources to actively prosecuting wrongdoers with a focus
on behaviours that harm investors. This year, our report once again highlights cases and
decisions that demonstrate our continuing focus on unsuitable investment recommendations
and protecting seniors and vulnerable investors. It also highlights how working in
collaboration with our regulatory partners, particularly the CSA and its members, can result in
even stronger enforcement results that protect the investing public.
Securities commissions across the country continue to be our strong regulatory partners and
we appreciate their ongoing support in our quest to strengthen our enforcement abilities and
to ensure a consistent level of consumer protection coast to coast.
Moving forward, we will continue to take concrete steps to make our enforcement actions
even more effective while ensuring investors are protected and Canada’s investment industry
is well regulated.
ELSA RENZELLA
Vice President, Enforcement
4
IIROC’S ENFORCEMENT PROCESS
INTERNAL SOURCES
Registration Department
Compliance Departments
(Business Conduct Compliance (BCC),
Financial & Operations Compliance (FinOps),
and Trading Conduct Compliance (TCC))
Trading Review & Analysis (TR&A)/
Market Surveillance
Complaints & Inquiries (C&I)
(For more information go to Appendix B)
CASE ASSESSMENT
INVESTIGATIONS
Initial review to determine
whether there is sufficient
evidence of a breach of
IIROC’s rules that warrants
the opening of a formal
investigation.
Collection, review of relevant
evidence relating to the case.
If the evidence can establish a
breach of IIROC’s rules, the
matter will be forwarded to
prosecutions.
EXTERNAL SOURCES
Closed with
no action or the
issuance of a
Cautionary Letter
Public Complaints &
ComSet* Reports
Referrals from Outside Agencies
(Securities Commissions, other SROs,
police & other agencies)
IIROC’s Whistleblower Service
(For more information go to Appendix B)
* IIROC rules require Dealer Members to report client
complaints and disciplinary actions through IIROC’s
Complaint and Settlement Reporting System.
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5
DISCIPLINARY
PROCEEDINGS
Contested Hearings
Settlement Hearings
Expedited Hearings
Temporary Order Applications
Protective Order Applications
Referrals
(For more information go
to Appendix C)
Refer to Securities
Commissions, other domestic
or foreign regulators/agencies
or police if there is evidence
of criminal activity.
Penalties
PROSECUTIONS
The initiation of formal disciplinary
action against a Respondent (Dealer
Member or individual registrant).
The formal hearing will take place
before an IIROC hearing panel, an
expert administrative panel
consisting of an independent chair
from the legal community and
two industry members.
If a Dealer Member or individual registrant is found to have violated
IIROC rules, the following penalties may be imposed:
FIRMS
INDIVIDUALS
A reprimand
A reprimand
Fines, up to a maximum of
$5 million per contravention
or an amount equal to three
times the profit made, or loss
avoided
Fines, up to a maximum of
$5 million per contravention
or an amount equal to three
times the profit made, or loss
avoided
Imposition of conditions on
membership
Imposition of conditions
on registration
A period of suspension
A period of suspension
Expulsion
A permanent ban
Use of Fines and Cost Awards
Generally speaking, all fines collected and payments made under
settlement agreements can only be used for the benefit of investors
through education programs, the administration of disciplinary
panels and/or the development of programs or systems to address
emerging regulatory issues. See Fine Collection rates on page 27.
The Canadian Securities Administrators’ Recognition Order of IIROC
requires that all fines collected and all payments made under
settlement agreements entered into with IIROC can only be used for
the above purposes.
6
ENFORCEMENT ACTIVITIES
For IIROC Enforcement, 2016 was a very active year.
We experienced an increase in activity in terms of complaint
intake, investigative work and actions pursued.
Specifically, we:
• Received 1,459 total complaints1, an increase from 1,341 in 2015.
• Completed 138 investigations, a 10 per cent increase from 2015.
• Commenced 55 proceedings2, a 25 per cent increase from 2015.
• Conducted 21 contested hearings3, an increase from 13 in 2015.
The increase in the number of hearings this past year, some of which were still continuing
in 2017, resulted in a marginal decline in the total prosecutions. This active hearing list
demonstrates our willingness to pursue even the more difficult and contentious cases and seek
the appropriate sanctions that we feel are necessary to send a strong regulatory message and
deter future wrongdoing.
Suitability and cases involving seniors remained two key areas of focus. Suitability was once
again the top complaint reviewed by our Case Assessment unit, and represented over 40 per cent
of our prosecutions. Cases involving seniors represented approximately one-third of both the
Case Assessment matters reviewed and prosecutions completed.
Enforcement also pursued a variety of other cases to ensure the proper protection of investors
and the integrity of the capital markets. Some highlights include the following:
• We pursued more cases involving manipulative and deceptive trading. Specifically, we
disciplined three individuals for spoofing/layering or artificial pricing and issued a proceeding
against a fourth individual (scheduled to commence in 2017) for trading conduct that created
a false or misleading appearance of trading activity.
• We prosecuted four misappropriation cases (a four-fold increase from the previous year).
• We experienced an uptick in the number of matters where individuals failed to cooperate with
IIROC, thereby resulting in permanent bans (five cases up from two the previous year).
• A stable level of supervision cases both against the firms and individual supervisors including
an Ultimate Designated Person and Chief Compliance Officer. We also initiated a proceeding
against a Chief Financial Officer, which will take place in 2017.
Complaints include direct complaints received from the public and matters reported to Dealer Member firms
and reported to IIROC on ComSet. For a breakdown of complaint sources go to page 21.
2
The initiation of proceedings means cases which started by way of an issuance of a Notice of Hearing,
a Settlement Agreement between the parties, or the commencement of an expedited hearing.
3
This includes hearings which may not have been completed and/or continued from prior years. It does not
include settlement hearings.
1
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SELECTED CASE HIGHLIGHTS
Enforcement started to use some new and innovative approaches for some of its
prosecutions. This year, IIROC’s mediation program was introduced and the litigation
team participated in two mediations for cases which were ultimately resolved by way of
settlement. In addition, we used technology, namely Skype, in two contested hearings to
facilitate the testimony of witnesses including a senior.
Suitability of Leveraged & Inverse Exchange-Traded Funds
In 2016, IIROC Enforcement completed a number of discipline cases against advisors
who made unsuitable recommendations to purchase leveraged and inverse exchangetraded funds to their clients.
In its simplest form an exchange-traded fund (ETF) is a security that trades on an
exchange and tracks the performance of an underlying benchmark or index. That
underlying benchmark or index may be a commonly known index such as the S&P 500,
a more sector specific one such as the TSX Junior Gold Index, or other assets such as
commodities or currencies.
ETFs may be further characterized as “leveraged” or “inverse or short”. Leveraged
ETFs seek to double, triple, or achieve some other multiple of the performance of the
index or benchmark they track. An inverse or short ETF seeks to deliver the opposite
performance. If the index or benchmark that it tracks goes down, the inverse or short
ETF will go up and vice versa. To add further complexity, some ETFs are leveraged and
inverse or short at the same time.
As IIROC explained in June 2009 in the published Guidance Notice 09-0172, leveraged
and inverse or short ETFs “reset” daily, meaning they are designed to achieve their
stated objectives on a daily basis and therefore should not generally be held for longer
periods. Due to the effects of compounding, their performance can differ significantly
from the performance of the underlying benchmark or index over longer periods of
time. Despite IIROC’s clear guidance some advisors continued to make unsuitable
recommendations of these products.
7
8
SELECTED CASE HIGHLIGHTS
Kim Husebye (Disciplinary Hearing) – Oakville, Ontario
In this case, the advisor was a portfolio manager who had 26 years of experience. Following a
market recovery, Husebye believed that markets would go down and that the Canadian dollar
would decrease in comparison to the U.S. dollar. Husebye purchased ETFs that were both
leveraged and inverse for two clients in their managed accounts.
After a contested hearing, an IIROC hearing panel ruled that the purchases were unsuitable.
The first client was a married couple in their 50s. They lost approximately $130,000 or roughly
30 per cent of their $400,000 portfolio. The second client was a 52-year-old woman who lost
approximately $25,000 or roughly 30 per cent of her portfolio. She was compensated by the
Dealer Member firm.
After noting that Husebye had already been out of the securities industry for almost three
years at the time of its decision, the IIROC hearing panel added a further six-month prohibition
against future registration and ordered Husebye to pay a fine of $20,000 and $10,000 toward
IIROC’s costs.
Christian Cloutier (Disciplinary Hearing) – Mont-Laurier, Quebec
In this case, Cloutier formed his own opinion that it was suitable to hold leveraged ETFs for a
period of approximately three years. He indicated that he came to this opinion based on his own
research, and from a one-day introduction “course” and discussions he had over lunch with a
salesperson for Horizons BetaPro, a company that manages and markets these products.
Cloutier recommended the purchase of leveraged ETFs for a client in her 60s who had no spouse
or children, a net worth of approximately $170,000 and limited investment knowledge. Although
there were no new purchases of leveraged ETFs after IIROC’s guidance notice in 2009, the
advisor did not fully sell all the leveraged ETFs until late 2011, which was a holding period of
more than 32 months. Still, the IIROC hearing panel felt that slowness in selling these positions
was certainly better than continuing to buy them. In total $52,000 was invested in leveraged
ETFs which declined 35 per cent. The client suffered a monetary loss of $18,000. She was
compensated for her losses.
In its decision the IIROC hearing panel noted that Cloutier had not worked for an IIROC-regulated
firm for almost five years. It ordered that any future re-approval to work at an IIROC Dealer
Member be conditional on a combined one-year period of strict and close supervision. The
hearing panel also ordered Cloutier to pay a fine of $15,000 and pay $5,000 in costs.
2 0 1 6 E N F O R C E M E N T R E P O RT
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Suitability of Fee-Based Accounts
Scott Douglas Ford (Settlement) – Richmond Hill, Ontario
This case dealt with a failure to know your clients and unsuitable recommendations including
the inappropriate use of fee-based accounts. In 2008, Scott Ford opened accounts for two
related clients who had no tolerance for high-risk investments. One client was a senior
citizen whose main income was a disability pension. The clients required their investment
funds for retirement and assisting their children to attend university. When the accounts
were opened, the risk tolerance was accurately stated as 100 per cent medium risk. However,
subsequently the accounts were updated to reflect 30 per cent high risk which was inaccurate
and unsuitable for the clients given their personal and financial circumstances. Further, the
clients’ holdings were in excess of the stated risk holdings (which were already too high), and
consisted at times of a 20 per cent concentration in precious metal issues.
In early 2012, Ford moved the clients’ assets from two registered accounts to fee-based
accounts. The clients were receptive to this idea as they felt they were paying too much in
commissions. Ford did the same with another couple in 2012. Ford opened these accounts
without considering other fee options available at his firm that would have been more suitable
and economical for them. His actions resulted in the clients paying higher fees than they would
have paid in commission-based accounts.
Ford was fined $30,000 and was required to re-write the Conduct and Practices Handbook
course (CPH) and be subject to strict supervision for six months. He was also ordered to pay
costs of $5,000. Disgorgement was not ordered because Ford partially reimbursed his clients.
Inappropriate Mutual Fund Switches
Nadir Janmohamed (Settlement) – Toronto, Ontario
Janmohamed engaged in a pattern of selling mutual funds and then repurchasing similar funds
for four of his clients, three of whom were seniors. As a result, these clients incurred Deferred
Sales Charges (DSC) and other unnecessary fees including approximately $3,900 in redemption
fees paid by the clients to the mutual fund companies.
The advisor also obtained undue commissions from the mutual fund companies by purchasing
new DSC funds for his clients that re-set the redemption fee period and using distributions to
purchase the same or different funds, instead of automatically reinvesting them.
Janmohamed admitted that his trading was not within the bounds of good business practice
and that such a high turnover of mutual funds purchased in this manner was not consistent
with the clients’ best interests.
10
SELECTED CASE HIGHLIGHTS
Janmohamed also engaged in discretionary trading when he failed to discuss the mutual
fund investments with his clients, and did not accurately explain the locked-in period and the
redemption and switch fees.
Janmohamed was fined $25,000 and required to disgorge commissions of $22,000. In the event
of re-registration with IIROC, he would be required to re-write the CPH and be subject to
six months close supervision. Janmohamed was also ordered to pay costs of $3,000.
Suitability & Vulnerable Clients
John Phillips Watts (Settlement) – Charlottetown, Prince Edward Island
Over an approximate three-year period, Watts engaged in a trading strategy for four of his
clients involving high-risk securities of Chinese companies including small capital and/or
start-up companies. Notwithstanding that Watts conducted extensive research on the securities
in question, it was admitted that these securities were unsuitable for these clients. The clients
affected were vulnerable with many having limited income. One client was retired. As a result
of these unsuitable investments, the clients incurred significant losses ranging from
approximately $30,000 to over $120,000.
Watts also admitted that he did not obtain the necessary authorization from an estate client.
There were three executors of the accounts who were required to provide instructions on the
account. However, over the course of a few months, Watts executed six purchases upon the
instruction of only one of the executors.
As part of the settlement, Watts agreed to pay a fine of $115,000 (inclusive of disgorgement),
a period of prohibition from applying for re-registration with IIROC until June 30, 2017, to be
subject to a period of strict supervision for six months should he become re-registered, and pay
costs to IIROC of $20,000.
Misappropriation
Wasseem Dirani (Disciplinary Hearing) – Hamilton, Ontario
Dirani engaged in numerous acts of misconduct between 2012 and 2015. His misconduct
included misappropriating $68,000 in funds from a couple instead of investing the funds on his
clients’ behalf as the clients expected. He executed unauthorized transactions in clients’ accounts
in order to deposit funds into their bank accounts which were presented as dividends from the
alleged yet fictitious investments. Dirani also engaged in personal financial dealings with another
client couple by borrowing $50,000 from them and issuing three promissory notes for the
loans. As well, he promised to compensate another client for account losses and executed five
agreements to reflect that promise. Dirani also failed to cooperate with IIROC by failing to
attend an interview.
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11
Most of Dirani’s conduct occurred after Dirani had entered into a previous settlement
agreement with IIROC Staff in 2014. The hearing panel found Dirani’s conduct to be a serious,
egregious and intentional breach of IIROC Rules involving significant harm to the investing
public, the integrity of the markets and the securities industry. Dirani’s misconduct involved
an element of criminal or quasi-criminal activity, and his actions were intentional and reckless
regarding regulatory requirements. Dirani demonstrated a resistance to governance by IIROC
and could not be trusted to act in an honest and fair manner in dealing with clients and the
securities industry.
As a result, Dirani was permanently banned from approval with IIROC in any capacity, and
ordered to pay a fine of $266,000 and costs of $12,000.
Shaun Wayne Howell (Settlement) – Red Deer, Alberta
Over the course of seven years, Howell fraudulently solicited approximately $692,000 from
his clients by claiming to have access to certain attractive investment opportunities. He then
misappropriated the funds by depositing them into a personal bank account, and used them
for his own benefit. He paid approximately $290,000 to certain clients for what he falsely
represented to them was an investment return, and provided falsified account statements to
some of his clients when they requested documentation as evidence of their investment.
Howell’s actions constituted a fraud on his clients and a breach of their trust. Many of Howell’s
clients were long-time personal friends, and relied on him to act in their best interests.
Howell also engaged in personal financial dealings with a client by borrowing $50,000 without
his Dealer Member firm’s knowledge. He made some interest payments but did not repay any
of the principal.
In approving the settlement hearing, the Panel concluded that this was clearly an egregious
case, and that Howell had preyed upon his clients, exploiting their trust and friendship in order
to defraud them. Howell was permanently banned from registration in any capacity with IIROC,
fined $500,000, and ordered to pay costs of $10,000.
Manipulative and Deceptive Trading
Robert Sole (Settlement) – Toronto, Ontario
Sole was a proprietary trader who agreed that over two separate three-month periods he
entered orders that he ought reasonably to have known could be expected to create an
artificial price for the securities.
Specifically, in the first period, Sole entered orders that he did not intend to execute during the
pre-opening session of the TSX Venture Exchange with the intent of affecting the Calculated
Opening Price (the price at which a security will open trading) of securities to his own
advantage. This practice is commonly known as “spoofing”.
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SELECTED CASE HIGHLIGHTS
In the second period, Sole entered orders that he intended to execute on one side of the market
while simultaneously placing non-bona fide orders on the other side of the market in order
to induce other market participants to react and trade with one of his bona fide orders at an
artificial price. This practice is commonly known as “layering”. Sole’s manipulative and deceptive
trading strategies misrepresented the supply, demand, and/or price for the securities in question.
As a result of his misconduct, Sole was able to secure a price advantage for the purchase or sale
of securities. This conduct was in violation of UMIR.
Sole was suspended from access to IIROC-regulated marketplaces for one month and fined
$10,000. In addition, Sole was ordered to pay costs of $1,000.
Teymur Englesby & Cale Nishimura (Settlement) – Vancouver, British Columbia
Englesby and Nishimura were registered representatives who failed in their roles as gatekeepers
to the capital markets and to be alert to potentially manipulative and deceptive trading activity
which occurred over a four-month period.
Englesby was the broker of record for certain client accounts and Nishimura was his assistant.
They both entered orders and executed trades in the client accounts that may have maintained
and supported the price of securities of an issuer at a level predetermined by the clients, and
thereby may have created an artificial price for the securities. The client accounts were controlled
by individuals whom Englesby and Nishimura ought to have known may have been acting in a
collective manner to increase the share price.
The entered orders and executed trades in the client accounts also caused numerous upticks in
the share price and had the effect of raising the price of the securities so that the exercise of
certain share purchase warrants became economically feasible. This resulted in cash proceeds to
the issuer, which were then used to further a mining development project in which one of the
client account holders had an interest.
Englesby agreed to a two-month suspension from access to IIROC-regulated marketplaces and
a fine in the amount of $45,000. Nishimura agreed to a one-month suspension from access to
IIROC-regulated marketplaces and a fine in the amount of $15,000. Englesby and Nishimura
agreed to pay costs in the amount of $5,000 each.
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Misleading IIROC Staff
Kelly Robinson (Settlement) – Vancouver, British Columbia
For six and a half years, Robinson maintained two offshore brokerage accounts in Panama and
Switzerland without the knowledge or consent of his Dealer Member firm. During his interview
with IIROC Staff, Robinson misled them about his involvement with a certain corporation, in
addition to some of the activity in his Panamanian offshore account.
During the interview, questions were asked regarding a certain company, shares of which were held
in Robinson’s offshore account. Robinson stated that he did not know any of the principals of the
corporation in question, when in fact Robinson’s own cousin was a senior officer and director. He
also misled Staff about how and when he first learned of this company. Further, he falsely stated
the source and payment of his purchase of shares in this company. Specifically, he stated that he
sent a wire transfer to one of his offshore accounts for the purchase of shares of the corporation,
when in fact he did not. Robinson also stated that he did not know why his offshore account
statements indicated a transaction of a share certificate deposited into his offshore account, when
in fact the share certificate was for shares that had been purchased earlier by Robinson’s wife.
The hearing panel considered, among other things, that Robinson’s failure to disclose to his
firm the existence of his outside accounts compromised his firm’s ability to properly discharge
its supervisory activities, and heightened the possibility of damage to the integrity of the
securities market.
Robinson was fined $50,000, suspended for one year, and ordered to pay costs of $5,000.
Retail Account Supervision
Edward Jones (Settlement) – Ontario
This case addressed Edward Jones’ failure to meet the minimum standards for retail supervision
in regards to five of its advisors who were also disciplined for failing to know their clients and/or
making recommendations that were not suitable.4
During the relevant time, Edward Jones supervised its retail account activity with a centralized
supervisory system consisting of a dedicated team of Field Supervision Directors (FSDs) who
were responsible for the daily and monthly supervision. FSDs also conducted reviews of the
Know Your Client (KYC) information at the time of account openings/updates. In the five specific
cases, Edward Jones did not sufficiently review KYC information submitted by the advisors as
4
See Re Dirani 2014 IIROC 09, Re Sloan 2014 IIROC 36, Re Opaleke 2015 IIROC 10, Re Munro 2016 IIROC 47,
and Re Austin 2017 IIROC 09.
14
SELECTED CASE HIGHLIGHTS
contained in the clients’ New Client Account Forms (NCAFs). The information was approved
without any or sufficient query. In some instances, the firm did not query the frequent and
significant increases in risk tolerances over a short period of time. In other instances, the firm
failed to query KYC updates that followed in response to trade queries.
Edward Jones did not effectively carry out its responsibility to identify or question trading which
appeared suspicious or potentially unsuitable for the client, and did not sufficiently monitor
the performance of its Field Supervisor Directors. This included oversight of FSD queries and
responses, to determine whether they were substantively adequate and effectively addressed
the issues identified, or required further queries and, if necessary, escalation.
As part of the settlement, Edward Jones took continual and proactive steps to improve its
compliance system. Improvements include: (1) new procedures for KYC information collection
to ensure that the risk tolerance and objectives recorded by advisors are consistent with client
circumstances and are suitable; and (2) enhanced procedures and tools for trade review, with the
addition of several new tools and enhanced systems to better assist FSDs in identifying patterns
and isolated issues.
Edward Jones agreed to pay a fine of $250,000 and costs of $50,000.
Walter Nick Silicz (Settlement) – Winnipeg, Manitoba
This case deals with Silicz’s failure as a branch manager to supervise 18 client accounts which were
investing in the high-risk securities of Flow-Through Limited Partnership Units. The advisor for all of
the accounts was Donald Earl Phillips who was disciplined by IIROC the previous year.5 Silicz failed
to adequately supervise the opening of these 18 client accounts or the trading that took place in
these client accounts, or both.
The clients involved were mainly retired railway workers who were referred to Phillips by their
mutual fund representative. The referral was part of a strategy that involved these clients investing
a portion of their pension proceeds in Flow-Through Units in order to reduce this tax burden, as
they could potentially receive a 100 per cent tax deduction for the amount invested. While Silicz
was branch manager, 80 accounts were opened at the firm as part of this referral arrangement.
Silicz failed to supervise 18 of the client accounts by failing to take further supervisory action as the
circumstances required. Some of the factors which should have prompted some query included the
significant amount of money invested given some of the clients’ assets and net worth; and the high
risk and complex nature of the investments being made for clients who were at or near retirement.
5
2 0 1 6 E N F O R C E M E N T R E P O RT
See Re Phillips 2015 IIROC 20.
15
Had Silicz taken further supervisory action in regard to these 18 clients, he would have been in a
better position to assess whether or not the recommended trading strategy, and the amount of
money that was invested in Flow-Through Units, was suitable for them.
Silicz agreed to pay a $30,000 fine, a two-year suspension from acting in a supervisory capacity
and pay costs of $10,000.
Failure to Conduct Strict Supervision
IPC Securities Corporation (Settlement) – Ontario
This case stresses the importance of a Dealer Member firm’s obligation to fulfil the strict
supervision requirements imposed by IIROC. IPC Securities Corporation (IPC) was the employer
of Wasseem Dirani, who was under investigation by IIROC Staff for conduct which took
place at another firm.6 As a result of Staff’s ongoing investigation, terms and conditions
were imposed on his registration including that he would be subject to strict supervision. IPC
provided acknowledgement and consent to IIROC to conduct strict supervision over Dirani.
As part of an IIROC settlement, Dirani was required to extend the period of his strict
supervision. It was around this time, and as a result of a Business Conduct Compliance (BCC)
examination of the firm, IIROC learned that IPC did not conduct all of the requirements of
strict supervision. Some of the failures included: (1) a failure to conduct full pre-trade approval
reviews; (2) failure to review client signatures documents to ensure authenticity; and (3) failure
to send executed client documents back to clients to ensure no discrepancies with clients.
The firm agreed to pay a fine of $65,000 and costs of $5,000.
6
See page 10 in this Report.
16
ENFORCEMENT PRIORITIES
IIROC STRATEGIC PLAN (2016-2019)
In May 2016, IIROC published its three-year Strategic Plan which serves as the blueprint to
achieve its mission to protect investors and support healthy capital markets. As part of the Plan’s
five principal strategies, Enforcement’s strategic focus is to pursue credible enforcement action in
a timely, responsible and robust manner using a variety of tools and remedies by:
1.Increasing our fine collection through expanded legal authority;
2.Developing alternative forms of disciplinary action; and
3.Strengthening the process of compliance referrals to Enforcement.
Enforcement is also pursuing two additional legislative amendments to strengthen its
effectiveness:
1.Statutory immunity for IIROC and its personnel when acting in the public interest; and
2.Additional powers to strengthen evidence collection.
1. Authority to Collect Fines
The ability to collect fines continued to be a key priority for Enforcement this past year. While firms
and individuals must pay their fines if they wish to remain Dealer Members or registrants of IIROC,
many individuals choose to avoid payment by simply leaving the securities industry and abandoning
their registration with IIROC. While IIROC generally collects 100 per cent of fines against Dealer
Members, collecting from individuals has proven to be much more challenging. In 2016, IIROC
collected approximately eight per cent of penalties levied against individuals nationally.
IIROC’s limited collection ability undermines the credibility and integrity of its disciplinary process
and the sanctions imposed. Individuals who break IIROC rules should be subject to real penalties
which can be collected by IIROC.
Currently, IIROC has the legal authority to enforce fines in Alberta, Quebec and since January
2017, in Prince Edward Island (PEI). As well, in March 2017 the Ontario government announced
its intention to introduce legislative amendments that would give IIROC the ability to pursue
the collection of disciplinary fines directly through the courts. Over time, these powers can result
in improved collections rates (such is the case in Alberta and Quebec). Extending this authority
further would send a strong message of deterrence to potential wrongdoers and would increase
investor confidence in the system. At the time this report was published, IIROC has taken active
steps to pursue this authority, reaching out to various stakeholders, namely the securities
regulators and government officials responsible for securities regulation across the country.
2 0 1 6 E N F O R C E M E N T R E P O RT
17
Authority granted in PEI
IIROC sought and in September 2016 received an Order from the PEI Superintendent of
Securities that authorized IIROC to file one of its disciplinary decisions7 with the Supreme
Court of PEI. That Order allowed us to take steps to enforce payment of the fine. As a result
of further collaboration with PEI, in early 2017, and prior to the publication of this report,
the PEI Office of the Superintendent of Securities issued a broader authorization Order which
gives IIROC the authority to collect fines against disciplined individuals directly through
the Supreme Court without having to seek approval in every individual case. The Order also
authorizes IIROC to summon and enforce the attendance of witnesses at disciplinary hearings,
which is further discussed below.
As IIROC continues with this pursuit, it still makes every reasonable effort to collect
penalties imposed against disciplined firms and individuals. A disciplined party’s failure to
pay their fine will result in IIROC taking immediate steps to suspend them until payment is
made. IIROC also publishes the Unpaid Fines Report which lists individual registrants who,
since 2008, have failed to pay fines, disgorgement, and/or costs imposed as a result
of disciplinary action taken against them. This list is available on IIROC’s website
(www.iiroc.ca) and is updated on a quarterly basis.8
2. Alternative Forms of Disciplinary Action
It is important for Enforcement to be both strong and fair in the execution of its mandate.
We recognize that this requires us to have the right complement of tools that will ensure
a properly tailored enforcement response that is firm, timely and proportionate to the
circumstances. For this reason, as part of our three-year Strategic Plan, we are considering
alternative forms of disciplinary actions and tools that will provide greater variety and
flexibility and result in a more responsive Enforcement department.
This past year, we have commenced a review of potential options to consider. It is our
intention to seek public and stakeholder input in the coming year regarding these potential
Enforcement measures.
3. Compliance Referrals
IIROC’s three compliance departments (BCC, FinOps and TCC) are the source of some of our
most significant prosecutions. These cases often deal with systemic firm issues and highlight
IIROC’s expectations of a strong and effective compliance structure. Given the potential
severity of the issues, the timely identification, referral and investigation of such matters is
7
See Watts at page 10.
8
Please note that the report is intended to enhance transparency relating to IIROC’s collection rate for fines and
other monetary sanctions and is not meant to be a list of individuals currently indebted to IIROC. Accordingly,
the report may include the names of individuals who received a bankruptcy discharge subsequent to the order
being made.
18
ENFORCEMENT PRIORITIES
of paramount importance. As a result, we have undertaken to review the compliance referral
process. We are committed to making any necessary improvements to create a more robust
approach that ensures firm deficiencies that warrant an Enforcement response are promptly
identified and referred to Enforcement for swift and appropriate action.
4. Statutory Immunity
IIROC is seeking statutory immunity for its good faith performance of all of its regulatory
functions undertaken pursuant to its Recognition Orders, including action taken by
Enforcement. While there are limited common law protections, statutory immunity would
ensure that IIROC and its employees have the same protection as provided to the provincial
securities commissions and other regulatory bodies. We strongly believe that this immunity
is necessary in order to allow us to take appropriate regulatory action in the public interest
without fear of reprisal.
5. Powers to Strengthen Evidence Collection
To more effectively ensure compliance with IIROC rules and take the necessary enforcement
action, IIROC has taken steps to seek additional legal authority that would allow us to
compel evidence in our disciplinary investigations and hearings. Under our current rules
and jurisdiction, IIROC can compel its registrants and Dealer Members to cooperate with
our investigations and prosecutions. With few exceptions, IIROC has no ability to compel
cooperation of individuals and entities that are not regulated by us, even where they may have
relevant evidence to give to us. Not surprisingly, this imposes limitations on our ability to fully
investigate certain cases and obtain the best evidence.
Currently, we have the ability to compel individuals and evidence not under our jurisdiction in
both Alberta and recently in PEI9 for IIROC disciplinary hearings. This past year, we have
reached out to all CSA jurisdictions and their governments to obtain similar powers as well
as the authority to allow us to obtain potentially critical evidence for our investigations.
This would better ensure that we have the tools necessary as a public interest regulator
to protect investors and maintain confidence in the capital markets.
9
2 0 1 6 E N F O R C E M E N T R E P O RT
As part of the authorization Order obtained in early 2017 which also included the ability to register IIROC
disciplinary decisions directly with the court.
19
INFORMATION SHARING AGREEMENTS
As a public interest regulator, IIROC recognizes the importance of collaborating with the other
regulators who oversee the financial services industry to strengthen investor protection and
provide more effective regulation. Over the years IIROC has entered into various Memoranda
of Understanding (MOUs) with several regulators in Canada and abroad, including a MOU
with the Chambre de la sécurité financière in Quebec in 2015. In our continuing efforts of
collaboration, we entered into two similar accords in 2016.
In March, IIROC entered into a MOU with the Financial Services Commission of Ontario which
allows the two regulators to share their respective disciplinary information and prompt a review
of the sanctioned individual’s activities by the recipient regulator to consider the suitability of
the individual for approval, licensing or registration. This agreement will also facilitate, where
appropriate, joint investigations and the sharing of relevant records and documents when both
regulators are investigating the same individuals.
In July, IIROC entered into a MOU with the Insurance Council of British Columbia (ICBC). Under
the agreement, IIROC and ICBC will inform each other of refusals of registration/licensing of
individuals who are registered/licensed with the other regulator and inform each other of new
investigations of individuals who are dually registered with both of them. As well, IIROC and
ICBC may conduct joint investigations and share relevant information where appropriate.
In January 2017, IIROC signed a similar MOU with the Alberta Insurance Council.
These arrangements aim to prevent disciplined individuals from avoiding regulatory
consequences by merely changing their registration to another organization, carrying on
business with unsuspecting consumers and regulators under another designation or
continuing to work in an unregistered capacity.
20
ENFORCEMENT PRIORITIES
CONSOLIDATED ENFORCEMENT RULES PROJECT
On September 1, 2016, the IIROC Consolidated Enforcement, Examination and Approval Rules
(the “Consolidated Rules”) came into effect. The Consolidated Rules combine and replace
various provisions of IIROC’s Dealer Member Rules and the Universal Market Integrity Rules
and constitute a new rule set. A number of the Consolidated Rules bring important changes to
the work of the Enforcement Department. These changes include:
• a new rule consolidating the existing standard of conduct rules (Section 1402);
• the authority to enter business premises without notice (Section 8103);
• the possibility of obtaining an order maintaining the confidentiality of an IIROC
investigation (Section 8106); and
• a new rule requiring that disciplinary proceedings be initiated within six years of the events
in question (Section 8206).
The Consolidated Rules will also affect the powers of IIROC hearing panels. Some notable
changes in Sections 8209 and 8210 include:
• an increase to the maximum fine that a hearing panel can impose on an individual at the
conclusion of a disciplinary hearing from $1 million to $5 million per breach of IIROC Rules;
• the power to impose a monitor over the business and affairs of a Dealer Member firm; and
• the power to prohibit an individual from being employed by a Dealer Member firm in
any capacity in the future.
In addition, the Consolidated Rules give IIROC hearing panels the power to impose a
new type of order, namely Temporary Orders. Under Section 8211 of the new rules, IIROC Staff
can bring an application without notice to an individual or Dealer Member firm requesting
a temporary order imposing certain restrictions on their registration and/or membership
privileges in addition to other terms and conditions considered appropriate. These applications
can only be brought in certain defined circumstances and will only last for 15 days unless a
further extension is granted by a hearing panel or by a securities commission.
The new rules also have renamed expedited hearings and require that such hearings must
provide notice to the party in question. These proceedings are now called Protective Order
applications but essentially operate similar to the previously known expedited hearings.
They are intended to address urgent matters where a Dealer Member or individual registrant
is not able to continue in business without contravening IIROC’s rules. The hearing panel can
take certain immediate action in the form of a Protective Order where certain circumstances
are met. (Section 8212).
2 0 1 6 E N F O R C E M E N T R E P O RT
ENFORCEMENT STATISTICS
COMPLAINTS
21
Sources of Complaints Received by IIROC Enforcement
SOURCE
2016
2015
2014
2013
2012
198
209
222
280
252
1,207
1,076
1,058
1,307
1,529
Internal (from other IIROC
departments)
32
43
53
78
52
Other SROs and Commissions
20
11
12
17
26
2
2
5
8
13
1,459
1,341
1,350
1,690
1,872
Public
ComSet*
Other (media, Dealer Member firms
and whistleblowers)
TOTAL
*IIROC Complaints and Settlement Reporting System
Most Common Complaints Received By IIROC and Opened by Case Assessment
(Per cent)
40
37
35
36
35
33
35
30
25
20
15
17
16
16
14
12
10
7
5
3
5
8
4
0
2016
Unsuitable
investments
2015
Unauthorized and
discretionary trading
2014
Misrepresentation
2013
2012
22
ENFORCEMENT STATISTICS
INVESTIGATIONS
2016
2015
2014
2013
2012
138
124
174
200
256
Number of Investigations completed
49%
Percentage of files referred to Prosecutions
59%
Investigations – by Province
59%
80-100 60-80
58%
40-60
50%
20-40
0-20
YUKON
NUNAVUT
NORTHWEST
TERRITORIES
NEWFOUNDLAND
AND LABRADOR
BRITISH
COLUMBIA
20
ALBERTA
MANITOBA
6
SASKATCHEWAN
ONTARIO
2
86
<1%
FIN OPS
1%
TCC
30%
REGISTRATION
COMSET
6%
BCC
9%
SECURITIES COMMISSIONS/SROS
15%
19%
TR& A
PUBLIC
17%
ENFORCEMENT
2 0 1 6 E N F O R C E M E N T R E P O RT
16
1
NEW
BRUNSWICK NOVA
SCOTIA
1
Investigations – by Source
3%
PRINCE EDWARD
ISLAND
QUEBEC
2
4
ENFORCEMENT STATISTICS
PROSECUTIONS
23
Prosecutions – by Province
Prosecutions refers to completed prosecutions where an IIROC hearing panel, Securities Commission or
court has made a final decision including any sanction ordered. Any decisions under appeal are not included.
20-30
10-20
0-10
YUKON
NUNAVUT
NORTHWEST
TERRITORIES
NEWFOUNDLAND
AND LABRADOR
BRITISH
COLUMBIA
11
ALBERTA
MANITOBA
2
QUEBEC
1
ONTARIO
SASKATCHEWAN
25
6
PRINCE EDWARD
ISLAND
1
NEW
BRUNSWICK NOVA
SCOTIA
PROSECUTIONS
24
ENFORCEMENT STATISTICS
PROSECUTIONS
Appeals
In general, either a disciplined individual or IIROC staff can appeal IIROC disciplinary
decisions to the relevant provincial/territorial securities commission or applicable reviewing
body. An appeal will involve a review of the merits of the liability and/or penalty decision.
Where an appeal is dismissed, this means that the original IIROC decision remains in effect
including any penalties imposed. In 2016, appeals were launched and/or argued in a
number of matters including:
Shaun McErlean (Ontario) – Appeal dismissed.
Paul Darrigo (Ontario) – Appeal dismissed.
Lucy Marie Pariak-Lukic (Ontario) – Appeal dismissed.
Krishna Sammy (Ontario) – Appeal pending.
Ravindra Suppal (Manitoba) – Appeal pending.
All the above appeals were initiated by the individual respondents.
Lucy Marie Pariak-Lukic (Appeal) – Ontario
In 2016, the Ontario Divisional Court dismissed an appeal by Pariak-Lukic stemming from a 2014
IIROC disciplinary decision. Between 2006 and 2008, Pariak-Lukic was an investment advisor who
persuaded a number of her clients to invest in a private company. Pariak-Lukic’s husband was the
sole director and officer of this company and received a percentage of any funds invested in it as
a management fee. Pariak-Lukic did not inform her Dealer Member firm that she was soliciting her
clients to invest in this company, and did not disclose the fact that her clients had invested nearly
$3 million in it. The entire amount of this investment appears to have been lost when the company
later became insolvent.
In its merits decision, the IIROC hearing panel found that Pariak-Lukic had facilitated off-book
investments for her clients, and that the investments in this company constituted an illegal
distribution of securities. As a result, they found that she had engaged in conduct unbecoming and
not in the public interest. The hearing panel imposed a fine of $50,000, a six-month period of close
supervision, the completion of two industry courses, and costs of $45,000.
IIROC Staff appealed the sanction decision to the Ontario Securities Commission (OSC), arguing that
the hearing panel’s sanctions were too lenient and should also have included a two-year suspension
of her registration as an advisor. In a decision released in June 2015, the OSC agreed and imposed
the requested suspension. Pariak-Lukic appealed the OSC’s decision to the Divisional Court. The
Divisional Court upheld the OSC’s decision to impose the two-year suspension.
2 0 1 6 E N F O R C E M E N T R E P O RT
25
Prosecutions – by Respondent Type
12
57
57
10
12
40
47
45
56
2015
2014
2013
2012
57
73
46
12
52
6
12
40
2016
80
60
73
17
40
20
0
Firms
Individuals
Prosecutions – by Hearing Type
See Appendix C for description of Hearing types
80
46
52
57
19
60
40
20
13
21
19
31
39
36
38
54
2016
2015
2014
2013
2012
15
0
Discipline
Settlement
26
ENFORCEMENT STATISTICS
PROSECUTIONS
Prosecutions – by Regulatory Violation
Individuals Disciplined
2016
2015
2014
2013
2012
19
19
18
19
25
Inappropriate personal financial dealings
7
6
5
7
9
Misappropriation
4
1
1
3
8
Misrepresentation
3
5
8
3
9
10
9
5
5
5
Forgery
0
5
4
3
6
Unauthorized trading
7
6
10
1
6
Manipulative & deceptive trading
3
1
1
3
4
Outside business activities
4
2
3
4
4
Supervision
7
5
6
4
5
Gatekeeper
0
4
2
2
3
Failure to cooperate
5
2
5
3
4
Trading conflict of interest
0
2
0
0
2
Off book transactions
1
0
2
5
1
Trading order violation
0
0
0
0
1
Trading without appropriate registration
0
0
0
1
1
Fraud
0
0
0
2
0
Undisclosed conflict of interest
1
1
0
0
0
Inadequate books and records
0
0
2
1
0
Supervision
4
8
5
5
10
Expedited Hearing - Firm Winding Down
1
3
4
1
3
Failure to handle client accounts
1
0
0
0
2
Failure to meet best price obligations
0
0
0
0
2
Inadequate books and records
0
2
2
0
1
Internal controls
1
2
1
2
2
Capital Deficiency
1
2
0
4
1
Suitability/Due Diligence/Handling
of client accounts
Discretionary trading
Firms Disciplined
2 0 1 6 E N F O R C E M E N T R E P O RT
27
Sanctions Imposed
Individuals
2016
2015
2014
2013
2012
40
40
47
45
56
Fines
$2,684,000
$2,283,000
$3,035,500
$4,382,500
$11,245,355
Costs
$412,000
$337,500
$366,000
$655,454
$590,667
$24,084
$331,569
$20,637
$220,117
$142,189
$3,120,084
$2,952,069
$3,422,137
$5,258,071
$11,978,211
20
26
21
25
32
6
5
8
8
10
21
23
23
23
20
6
12
10
12
17
Fines
$360,000
$1,495,000
$224,000
$2,220,000
$1,361,667
Costs
$65,000
$97,500
$27,000
$100,000
$309,333
$0
$0
$0
$310,000
$0 $425,000
$1,592,500
$251,000
$2,630,000
$1,671,000
Permanent suspension
0
3
2
3
4
Termination
2
0
2
2
0
Decisions
Disgorgement
TOTAL
Suspension
Permanent bar
Conditions
Firms
Decisions
Disgorgement
TOTAL
Fine Collection Rates
The chart below sets out the percentage of fines assessed in a given year collected as of December 31, 2016. Assessed fines
do not include fines imposed during the year for cases that have been appealed or are still within the time period to appeal.
While we typically collect 100% of fines from firms, there are circumstances where firms do not pay such as insolvency
issues and/or where they are suspended by IIROC. Firms who do not pay fines are no longer allowed to operate as an IIROCregulated firm.
10
2016
2015
2014
2013
2012
Individuals
8.3%
15.8%
21.3%
16.3%
16.4%10
Firms
100%
84%
100%
100%
89.6%
This rate has been updated due to a calculation error discovered since the 2015 Enforcement Report.
28
APPENDIX A
IIROC DISCIPLINARY ACTIONS
January 1 to December 31, 2016
Individuals
Discretionary Trading
Richard Stanford Smith
Shaun Gerard McErlean
Ferdinand Renaud
Kenneth Gottfred
Yu Qioung (Kevin) Li
Nadir Janmohamed
Sherman Dahl
Paul Wayne Lynch
Henry Sojka
Matteo Marricco
Suitability/Due Diligence/
Handling of Client Accounts
Allen Samuel Mendelman
John Phillip Watts
Shaun Gerard McErlean
Paul Christopher Darrigo
Ferdinand Renaud
Kenneth Gottfred
Kim Husebye
Scott Douglas Ford
Christian Cloutier
Michael William Sawisky
Patrick Lilly
Andrew Munro
Daniel Desautels
Nadir Janmohamed
Sherman Dahl
Henry Sojka
Jeffrey Edward Gebert
Samuel Kloda
Matteo Marricco
Denyse Giroux-Garneau
Failure to Cooperate
Wasseem Dirani
Kenneth Gottfred
Yu Qioung (Kevin) Li
Henry Sojka
Jeffrey Edward Gebert
2 0 1 6 E N F O R C E M E N T R E P O RT
Inappropriate Personal Financial
Dealings
Allen Samuel Mendelman
Wasseem Dirani
Shaun Gerard McErlean
Paul Christopher Darrigo
Jack Jason Trueman
Shaun Wayne Howell
Samuel Kloda
Unauthorized Trading
Wasseem Dirani
John Phillip Watts
Dominic Tersigni
Daniel Desautels
Yu Qioung (Kevin) Li
Paul Wayne Lynch
Denyse Giroux-Garneau
Undisclosed Conflict of Interest
Manipulation & Deceptive
Trading
Patrick Lilly
Robert Sole
Teymur Englesby
Cale Nishimura
Firms
Misappropriation
Wasseem Dirani
Thi Sen Chher
Shaun Wayne Howell
Denyse Giroux-Garneau
Misrepresentation
Rizwan Suleiman
Kelly Robinson
Yu Qioung (Kevin) Li
Off Book Transactions
Lucy Marie Pariak-Lukic
Outside Business Activities
Allen Samuel Mendelman
Jack Jason Trueman
Patrick Lilly
Kelly Robinson
Supervision
Robert Graydon Oldfield
John Donnelly
Patrick Lilly
Linda Kennedy
Dennis Denischuk
Walter Nick Silicz
Capital Deficiency
Union Securities Ltd.
Expedited Hearing –
Firm Winding Down
E3m Investments Inc.
Failure to Handle Client
Accounts
D&D Securities Inc.
Internal Controls
D&D Securities Inc.
Supervision
W.D. Latimer Co. Limited
D&D Securities Inc.
IPC Securities Corporation
Edward Jones
APPENDIX B
ENFORCEMENT INFORMATION SOURCES
29
Enforcement cases are based upon information drawn
from a variety of internal and external sources.
Internal Sources
Registration Department:
On occasion, the circumstances surrounding the termination
of an individual registrant requires further investigation.
Compliance Departments (Business Conduct
Compliance (BCC), Financial & Operations
Compliance (FinOps), and Trading Conduct
Compliance (TCC)):
Issues and deficiencies noted in compliance examination
reports sometimes form the basis for some of Enforcement’s
most significant disciplinary cases.
Trading Review & Analysis (TR&A)/
Market Surveillance:
The TR&A and Market Surveillance Departments oversee
all equity and debt trading on Canadian marketplaces and
serve as Enforcement’s primary source of market-related
information and enforcement referrals.
Complaints & Inquiries (C&I):
The C&I team is the primary contact for direct investor
inquiries and complaints. C&I refers the majority of
the complaints it receives, involving alleged regulatory
violations, to Enforcement for further assessment.
C&I can be reached by phone (1-877-442-4322),
email ([email protected]) or by filing an
online complaint form (www.iiroc.ca).
External Sources
ComSet Reports
IIROC’s Whistleblower Service
IIROC rules require Dealer Members to inform IIROC, using
IIROC’s Complaints and Settlement Reporting System
(ComSet), when certain events occur, including when a
Dealer Member receives a written client complaint, when
criminal charges are laid against a Dealer Member or any
of its individual registrants, or when a securities-related
civil claim is brought by a client. These reportable events
represent Enforcement’s primary source of external
enforcement-related information, and the most significant
source of Enforcement cases.
IIROC operates a Whistleblower Service designed to
receive, evaluate and take prompt and effective action on
information based on first-hand knowledge or tangible
evidence of potential systemic wrongdoing, securities
fraud and/or unethical behaviour by IIROC-regulated
individuals or firms. The Whistleblower Service can
be reached by phone (1-866-211-9001) or email
([email protected]).
Outside Agencies
Enforcement receives referrals from Canadian provincial
securities regulators, international securities regulatory bodies
and other public agencies, including law enforcement officials.
30
APPENDIX C
TYPES OF DISCIPLINARY PROCEEDINGS
Following the completion of an investigation, Enforcement staff will assess the evidence collected and
decide whether to prosecute a Dealer Member or individual registrant for a breach of IIROC rules.
When the decision is made to prosecute, formal disciplinary action will be initiated against the Dealer
Member or individual registrant (both referred to as the Respondent in a disciplinary proceeding).
Formal disciplinary action will take the form of either a
contested hearing or a settlement hearing.
Contested Hearings
Where the Respondent does not admit the alleged violation
of IIROC rules, a contested hearing will be held. In that
case, staff must prove the allegations set out in the Notice
of Hearing – the formal document that initiates disciplinary
action. Similar to traditional court proceedings, an IIROC
hearing involves staff presenting documentary evidence
and oral evidence, through witnesses, in making its case.
Respondents have the right to challenge IIROC’s case
by cross-examining witnesses and presenting their
own evidence.
The hearing panel, which is normally comprised of one
former judge and two active or retired industry members,
decides whether IIROC has proven its case against the
Respondent and if so, determines the appropriate penalty.
If a Respondent fails to attend the hearing, the hearing may
still proceed in the Respondent’s absence and the hearing
panel may accept the allegations as proven without any
formal evidence being called.
Enforcement also has the ability to initiate two other types
of proceedings: (1) Protective Order Applications and (2)
Temporary Order Applications.
Protective Order Applications
Generally speaking, a protective order application is an
emergency proceeding that permits Enforcement staff
to quickly initiate a proceeding against a Respondent.
The purpose of the proceeding is to protect investors in
circumstances where the Respondent is not able to continue
in business without contravening IIROC’s rules. Typically,
such circumstances include:
• Bankruptcy;
• Financial or operating difficulty of a Dealer Member
firm; and
• Criminal charges laid against the Dealer Member firm
or individual registrant.
At the conclusion of a protective order proceeding, the
hearing panel has the authority to impose a variety of
sanctions on the Respondent similar to those available
in the regular disciplinary process. Examples of potential
sanctions include:
• The suspension of IIROC membership;
Settlement Hearings
Settlement hearings are held when staff and the Respondent
agree, in writing, on the rule(s) violated by the Respondent,
the underlying facts and the penalties to be imposed on
the Respondent for the agreed violations. The parties must
present the agreement to the hearing panel and explain why
the panel should accept it. The panel may accept or reject
the settlement agreement.
Like many other professional regulatory bodies, the
majority of IIROC’s disciplinary matters are resolved by
way of settlements.
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• A requirement to immediately cease dealing with the
public; and
• A requirement to preserve books and records for a
specified period of time.
Temporary Order Applications
Temporary order applications are another form of emergency
proceeding, and are brought when Enforcement staff believe
that the length of time required to convene a disciplinary
hearing could be contrary to the public interest. A temporary
order proceeding can be brought without prior notice to the
Respondent. The order can either suspend the Respondent’s
registration with IIROC or impose terms and conditions on
that registration. Temporary orders last for 15 days, after
which time they can be further extended by a hearing panel
or by a securities commission.
GLOSSARY OF TERMS
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AMF (Autorité des marchés financiers)
The AMF regulates Quebec’s financial markets and provides
assistance to consumers of financial products and services.
It was established under an Act respecting the Autorité des
marchés financiers on February 1, 2004, and oversees the
regulation of Quebec’s financial sector, notably in the areas of
insurance, securities, deposit institutions (other than banks)
and the distribution of financial products and services.
ETFs (Exchange-traded funds)
An investment fund that holds a group of investments such as
stocks, bonds, commodities that trades on a stock exchange
like a stock. ETFs generally track an index, such as a stock
index like the S&P 500. Leveraged ETFs aim to deliver multiples
of the performance of the index they track. Some leveraged
ETFs are “inverse” or “short” funds, meaning that they seek to
deliver the opposite of the performance of the index they track.
COMSET (Complaints and Settlement Reporting System)
IIROC requires registered firms to report client complaints
and disciplinary actions including internal investigations,
denial of registration and settlements; and civil, criminal or
regulatory action against the firm or its registered employees.
This information is reported through IIROC’s computerized
Complaints and Settlement Reporting System.
Flow-Through Limited Partnership
A flow-through limited partnership is an investment vehicle
managed by a portfolio manager. The limited partnership
invests in flow-through shares of resource companies.
Resource companies flow-through eligible Canadian
Exploration Expenses and Canadian Development Expenses
to shareholders, in this case, to the unit holders of the
limited partnership, providing tax benefits to the investors.
CPH (The Conduct and Practices Handbook Course)
This is a course offered by the Canadian Securities Institute.
Individuals seeking to become an investment advisor or
investment representative with IIROC must pass this course
in order to meet IIROC’s proficiency requirements. The
course covers the rules, policies and by-laws of the securities
commissions and SROs, in addition to the standards of
conduct and practices when dealing with client accounts,
special transactions and products.
CSA (Canadian Securities Administrators)
The CSA is the council of ten provincial and three territorial
securities regulators in Canada. The mission of the CSA is to
facilitate Canada’s securities regulatory system by protecting
investors from unfair fraudulent practices and by promoting
fair, efficient and transparent markets through the development
of harmonized securities regulations, policies and practices.
MFDA (Mutual Fund Dealers Association)
The MFDA regulates the operations, standards of practice and
business conduct of its members and their representatives.
Its mandate is to enhance investor protection and strengthen
public confidence in the Canadian mutual fund industry.
NCAF (New Client Account Form)
Securities firms and registered representatives are required to
have new clients complete this form to ensure the firm and the
representative is aware of the client’s financial position and
investment objectives so that the firm and the representative
can assess the suitability of their advice.
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GLOSSARY OF TERMS
Spoofing/Layering
Both are trading strategies that are considered manipulative
and deceptive. Spoofing is a practice using limit orders
that are not intended to be executed to manipulate prices.
Some spoofing strategies are related to the open or close of
regular market hours that involve distorting prices through
the entry of non-bona fide orders, checking for the presence
of an “iceberg” order, affecting a calculated opening price
and/or aggressive trading activity near the open or close
for an improper purpose. Layering is a strategy which
initiates a series of orders and trades in an attempt to ignite
a rapid price movement either up or down and induce
others to trade at artificially high or low prices. An example
is a “layering” strategy whereby a market participant
places a bona fide order on one side of the market and
simultaneously “layers” the book with non-bona fide
orders on the other side of the market to bait other market
participants to react to the non-bona fide orders and trade
with the bona fide order.
SRO (Self-Regulatory Organization)
SRO refers to an organization that sets standards, monitors
members for compliance with those standards and takes
appropriate action when those standards are not met.
UMIR (Universal Market Integrity Rules)
Market Regulation Services introduced the Universal
Market Integrity Rules as a common set of equity trading
rules designed to ensure fairness and maintain investor
confidence. The UMIR continues to be IIROC’s market
integrity rules.
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Protecting Investors and Supporting
Healthy Capital Markets Across Canada
MONTREAL
5 Place Ville Marie, Suite 1550
Montreal, Quebec H3B 2G2
Tel.: (514) 878-2854 Fax: (514) 878-3860
Enforcement Matters only Fax: (514) 878-6324
TORONTO
121 King Street West, Suite 2000
Toronto, Ontario M5H 3T9
Tel.: (416) 364-6133 Fax: (416) 364-0753
Enforcement Matters only Fax: (416) 364-2998
CALGARY
Bow Valley Square 3
255-5th Avenue S.W., Suite 800
Calgary, Alberta T2P 3G6
Tel.: (403) 262-6393 Fax: (403) 234-0861
Enforcement Matters only Fax: (403) 265-4603
VANCOUVER
Royal Centre
1055 West Georgia Street, Suite 2800
P.O. Box 11164
Vancouver, B.C. V6E 3R5
Tel.: (604) 683-6222 Fax: (604) 683-3491
Enforcement Matters only Fax: (604) 683-6262
1-877-442-4322
www.iiroc.ca