A regulatory hearing panel fined and banned a former mutual fund rep at Royal Mutual Funds Inc., after finding that he violated securities rules by encouraging several clients to open online brokerage accounts and allowing him to trade their accounts for them.
Following a hearing, a Canadian Investment Regulatory Organization (CIRO) hearing panel ruled that Lorne Stuart Allison, a former rep with Royal Mutual Funds in Vancouver Island, breached the self-regulatory organization’s rules by engaging in securities business outside of his dealer.
Specifically, the panel found that Allison convinced a number of clients to move their investments to an online broker, and to give him access to their accounts so that he could trade in a wider selection of securities beyond mutual funds and GICs — which he was limited to trading under his registration as a fund rep.
According to the panel’s decision, Allison’s clients moved almost $3.9 million to these accounts, and he charged them almost $20,000 in fees for the trading he carried out on their behalf in equities, options, ETFs and foreign exchange.
The panel said that it rejected Allison’s argument that his actions were intended to help his clients save money.
“To the contrary, it is plain that the respondent deliberately and repeatedly advised his … clients to engage in risky investments and investment strategies they did not fully understand with the intention that the respondent would profit by collecting fees,” it said. “The respondent acted deliberately and deceptively. There can be no excuse for his actions.”
It also noted that Allison didn’t disclose his activities to his dealer, even though he, “was aware of conflicts or potential conflicts of interest that arose when he charged clients and investors fees for executing trades in their online brokerage accounts and accepted payments from them.”
The panel said that Allison continued to trade some of his former clients’ brokerage accounts after he left the industry in 2021.
Ultimately, the panel ruled that Allison should be permanently banned.
“Given his conduct even after resignation there is a significant risk that the respondent would continue misconduct outside a CIRO dealer member if he were permitted to ever reregister,” it said, adding that a “significant fine” was also necessary in the case.
The panel imposed a $70,000 fine, which represented $20,000 in disgorgement for the fees he charged for trading clients’ online brokerage accounts, and a $50,000 penalty.
“It is hoped that this fine will send a message to the mutual fund industry that significant penalties will result for misconduct of this nature,” the panel said.
He was also ordered to pay $10,000 in costs.