Regulators target Jory Capital

The suspension has arisen because the Investment Industry Regulatory Organization (IIROC) informed the MSC on Oct. 18 that Jory had failed to maintain sufficient risk-adjusted capital (RAC).

This setback comes just five months after IIROC, the MSC and Jory had agreed to a package of sanctions after previous indiscretions by the firm. The sanctions included establishing an independent advisory committee and hiring an external compliance consultant to serve as the firm’s chief compliance officer (CCO) until a regulator-approved CCO could be brought in.

The earlier package of sanctions also required that: Jory secure a capital injection of $200,000; Cooney pay a fine of $100,000; and the firm pay costs of $50,000.

The latest regulatory action flowed from an MSC order in May that stipulated if Jory became deficient in RAC and the situation wasn’t rectified in five days, a suspension would immediately follow.

“There was an agreement in place outlining how the firm was to operate,” says Doug Brown, the MSC’s director of legal and enforcement. “That’s what has been violated with this RAC issue.”

Jory has responded with a request to appear before an MSC panel to defend itself and protest the suspension. The panel will have three options at its disposal: uphold the suspension; lift it completely; or lift it but impose one or more conditions.

“This is a big deal,” Brown says. “It’s possible the firm won’t be allowed to continue. Part of what the panel will consider is [the firm’s] past behaviour.”

Art Stacey, the lawyer with Thompson Dorfman Sweatman LLP in Winnipeg who represents Cooney, did not return Investment Executive’s phone calls.

Warren Funt, IIROC’s vice president for Western Canada, agrees with Brown on the severity of the situation Jory is facing: “We consider capital deficiencies that continue on for any length of time to be quite serious.”

Funt says he was frustrated that he had to request the suspension because the May package of sanctions was supposed to mean he wasn’t “going to the commission every three months” over Jory-related matters.

IIROC was lenient with Jory, Funt adds, in that the regulator gave the firm five days to correct its RAC deficiency, which is three more than the regulator typically provides.

If not the most penalized firm in Manitoba, Jory is certainly among the top offenders in the province. In the past 10 years, IIROC has fined both Jory and Cooney because of compliance failures and capital deficiencies.

Last year, IIROC fined Cooney and Jory a total of $220,000 and banned Cooney from running the firm. (He was permitted to remain a trader and broker.)

IIROC’s predecessor, the Investment Dealers Association of Canada, suspended Cooney for five years in 2005 for taking $10,000 out of the firm – a move that violated a restriction previously placed on the firm. After an appeal, that suspension was lifted.

Another penalty in 2008 prevented Jory from taking on new advisors or clients. Cooney has been referred to as “practically ungovernable” in regard to IIROC’s financial compliance.

Despite Jory’s small size, Cooney has garnered headlines for his usually bearish views on the market. He also has been openly critical of unregulated trading of derivatives, which he cites as a primary reason for the extra attention he receives from regulators.

Brown was quick to point out that although the firm is getting called onto the carpet, client accounts were not at risk. Under the terms of the suspension, Jory isn’t allowed to conduct trades for clients, who are permitted to liquidate positions or move their accounts to other brokerages.IE

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