Judge's gavel with magnifying glass on black.
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A regulatory hearing panel of the Canadian Investment Regulatory Organization (CIRO) erred when it dismissed enforcement allegations against a pair of Vancouver brokers, a panel of the British Columbia Securities Commission (BCSC) found.

Following a hearing last June, a CIRO tribunal rejected the self-regulatory organization’s allegations against a pair of reps at PI Financial Corp. (now known as Ventum Financial Corp.) — Teymur Englesby and his assistant, Cale Nishimura. The pair were accused of breaching their gatekeeper obligations in connection with trading on the Canadian Stock Exchange (CSE) that SRO enforcement staff alleged should have raised alarms with the brokers.

In particular, the SRO alleged that trading by a handful of their clients raised “red flags” and signalled possible suspicious trading activity that should have prompted further inquiries from the reps.  

However, the panel dismissed the allegations against them, concluding that CIRO staff failed to prove that the reps’ conduct breached their gatekeeper obligations.

“… The panel finds that enforcement staff have not proved factors which, on the balance of probabilities, should be considered one or more triggering events which should have reasonably raised a concern to the respondents as registered representatives active in the investment industry,” the SRO panel said in its decision, rejecting the allegations.

Now, following an appeal by CIRO staff, a hearing panel of the BCSC has found that the SRO hearing panel erred in its ruling and that it “… proceeded on an incorrect principle, made an error in law and failed to adequately consider the public interest.”

Among other things, the BCSC panel found that, while the CIRO panel was correct that it’s necessary to examine the context surrounding various red flags, it “went too far when it treated potential speculative explanations unsubstantiated through inquiry which might or might not apply as resolving obvious issues.”

“The error in question can be characterized as a legal error in that the CIRO hearing panel asked itself the wrong question in assessing whether a triggering event was present,” the BCSC panel said. “The error in question could alternatively be characterized as failing to protect the public interest or as proceeding on an incorrect principle.”

While both sides had asked the BCSC panel to make its own decision on the merits of the allegations, instead it ordered that the case be returned to the CIRO panel to reconsider its original ruling and to “decide on an approach consistent with [the BCSC panel’s] decision.”

The BCSC panel said it considered whether it should try to resolve the outstanding issues in the case itself, but decided that it makes more sense to return the case to the CIRO panel, given its expertise on the issues. 

“Some of the other issues regarding whether there are indicators suggesting the existence of suspicious activity are subtle and can be better answered by the CIRO panel given its better familiarity with the evidence and specialized expertise of CIRO panels,” it said in ordering the case returned to the SRO panel.