Toronto-based brokerage firm Clarus Securities Inc. is being sanctioned for failing to adequately guard against potentially manipulative trading activity by a former client.
A hearing panel of the Canadian Investment Regulatory Organization (CIRO) approved a settlement with the firm that imposed a $425,000 fine and ordered $25,000 in costs for violating the self-regulatory organization’s rules.
“Clarus admitted it had failed to adequately supervise and monitor trading in certain accounts and to act as a gatekeeper to help prevent and detect manipulative and deceptive activity,” CIRO said.
According to the settlement, in 2017 and 2018, Clarus failed to ensure that client orders in a CSE-listed issuer in the cannabis sector, Liberty Health Sciences, weren’t part of a manipulative trading scheme.
“The trading activity consisted of pre-arranged trades executed by Clarus with other participants, that were being coordinated by [a trader] who directed and controlled a group of related accounts,” it said. It noted that the “pre-arranged trades were between related accounts held at Clarus and related accounts held at other participants.”
The settlement said that “Clarus also executed two intentional crosses that were potentially manipulative and deceptive for two related accounts held at Clarus.”
The settlement noted that the firm knew about the connections between the related accounts and the trader’s connections with Liberty Health, and that the trading instructions for the various accounts were connected to the trader’s private equity firm.
It also said the trading activity the accounts engaged in should have prompted questions from Clarus about “whether these pre-arranged trades were consistent with a bona fide trading strategy or were potentially manipulative given the pattern of matching size, timing and price.”
“In the circumstances, Clarus failed to adequately supervise and monitor the trading by the related accounts held at Clarus and to act as a gatekeeper to help prevent and detect manipulative and deceptive activity,” the settlement said.
Since the misconduct, the firm has adopted new trade supervision processes and procedures, the settlement noted. Further, it said the firm has no prior disciplinary history, and that settling the allegations saved the regulator the time and expense of a hearing.