IIROC suspends, fines advisor $100K for unsuitable investments

IIROC has suspended an advisor for two months and fined him $107,500, including disgorgement of $40,000, for suitability failures and for trading his own funds in a client’s account.

From November 2012 to September 2016, John Reyes, an advisor with Richardson GMP in Calgary, failed to use due diligence to ensure his investment recommendations were suitable for his client—an administrative assistant who retired during the period in question, says a settlement agreement. The client had “moderate investment experience,” it says, and her husband, who sometimes made deposits to her accounts, was an “inexperienced investor.”

Reyes recommended an increasingly high-risk investment strategy that involved concentrated positions in speculative energy sector investments, some of which were private placements in thinly traded or illiquid securities.

The client’s investment objectives were too aggressive for someone nearing and reaching retirement, says the agreement. Stated investment objectives for her accounts were “inconsistent with her actual financial situation, investment knowledge, investment objectives and risk tolerance,” it says.

Between January 2014 and September 2016, about 91% of the client’s holding were in high-risk securities, and the client suffered losses of about 37% during the period, while the S&P/TSX composite index increased by 7.35%.

The client’s husband, who became Reyes’ client in January 2013, was forced into retirement in January 2016. He was likewise in unsuitable high-risk securities during the same time period and suffered losses of 22%, the agreement says.

Further, between June 2013 and November 2014, Reyes provided funds totalling about $70,000 to another client to purchase securities in three separate private placements, says the agreement.

The client, who worked in the oil and gas sector, invited Reyes to participate in the private placements. Securities were bought and sold in the client’s account for Reyes’ benefit, without the knowledge or consent of the firm, and Reyes realized gains of more than $81,000 from the transactions, the agreement says. Following an internal investigation in April and May 2016, the firm fined Reyes $40,000 for trading in the client’s account.

Reyes has no prior disciplinary history, and he fully cooperated with the firm’s investigation, says the agreement.

In addition to the suspension and fine, Reyes must pay costs of $2,500, be closely supervised for 12 months and rewrite the Conduct and Practices Handbook exam.

For full details, read the settlement agreement.

Staff

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