Toronto-based brokerage firm Gravitas Securities Inc. has been sanctioned for suitability violations involving a risky, exempt market product that ultimately ran into financial trouble.
An Investment Industry Regulatory Organization of Canada (IIROC) hearing panel accepted a settlement with the firm that will see it pay a $100,000 penalty, disgorgement of $16,242 (representing the commissions and trailer fees generated by the unsuitable trades), and $5,000 in costs.
In the settlement, Gravitas (which was formerly known as Portfolio Strategies Securities Inc.) admitted that it violated securities rules by failing to ensure that sales of an exempt security, the Creative Wealth Monthly Pay Trust, were suitable for certain clients.
The settlement noted that the firm failed to question whether the trades, which took place in 2011, were a fit based on know-your-client information.
One client’s investment in Creative Wealth represented 100% of their liquid assets.
The settlement said that neither the firm nor the rep who made the sale “questioned whether this concentration in a high risk, exempt market product was appropriate…”
In 2015, Creative Wealth reduced payouts and suspended redemptions.
And, in 2018, it was put into receivership, leaving investors with “no prospect” of receiving the full return of their principal investments, the settlement noted.