A hearing panel of the Investment Industry Regulatory Organization of Canada (IIROC) has suspended and fined a Toronto advisor for off-book transactions, unauthorized and discretionary trades, and unsuitable recommendations, the self-regulatory organization said Wednesday in a release.
Joseph Debus, a registered representative with the Toronto branch of Macquarie Private Wealth Inc. during the period in question, was suspended for nine months for the misconduct, and ordered to pay a total of $105,000 in fines, disgorgement and costs.
In April and July 2019, Debus filed applications to review the IIROC hearing panel’s liability and penalty decisions. “First attendance” for the review of the liability decision was set for Aug. 21, 2019 back in May.
The hearing panel’s reasons for decision document, dated June 25, 2019, said the misconduct occurred over a period of four years, from 2009 to 2013. (Richardson GMP acquired Macquarie in late 2013.)
In the document, the hearing panel said Debus recommended to two clients that they purchase shares of My Screen Mobile outside their accounts without disclosing the activity to the firm.
An aggravating factor was that the misconduct came after the firm had prohibited Debus from any activity with the high-risk stock, the panel said. The two clients bought the shares for more than US$83,000 and sold them about two years later for an “insignificant” return, it said. The panel fined Debus $40,000 for the infraction.
The panel also found that Debus made unauthorized trades in one client’s account, and engaged in discretionary trading in another client’s account without approval, for which he was fined $20,000 and ordered to pay disgorgement of $10,000.
The unauthorized and discretionary trading included numerous acts in two different accounts, thus demonstrating a pattern, the panel said. Further, Debus received net commissions of about $12,200 for the trades (before income tax), and the discretionary trading resulted in an unrealized loss to the client of $4,694.
The panel said that the unauthorized and discretionary trading, along with the off-book transactions, were “deliberate and intentional.”
For recommending unsuitable investments (to the same client for which he made discretionary trades), Debus was fined $5,000. The hearing panel concluded that the client’s high-risk investments were unsuitable because they exceeded the client’s 20% high risk allocation. The investments ranged from 23.3% in March 2012 to 21.1% in February 2012, with a peak in September 2012 of 23.9%, the panel said.
It also ordered Debus to pay costs of $30,000.
Factors in the case
Vulnerability — a commonly considered factor in disciplinary cases — wasn’t a significant issue. “Although affected clients experienced losses, the clients in question were experienced investors with multiple accounts,” the panel said. Further, “All trades in question represented a small percentage of each client’s overall portfolio,” it said.
And, though Debus had no prior disciplinary record, the panel noted that the misconduct occurred while Debus would have had “a heightened appreciation for the importance of regulatory requirements,” because he was under supervision at Macquarie during the period in question, except for about five months.
In fact, Debus spent an “unusually long time” under firm-imposed supervision during his time at Macquarie, the panel said.
Overall, the sanctions reflect that the misconduct “involved multiple transgressions, at least three clients, continued over a prolonged period of time and caused harm to both clients and the integrity of the markets,” the panel said.
In addition to the monetary sanctions, IIROC has imposed strict firm supervision for 12 months upon re-registration. Debus must also rewrite and pass the Conduct and Practices Handbook exam within six months of re-registration.
Debus has worked in the industry since 1995, and is currently an IIROC registrant employed by Echelon Wealth Partners Inc. in Toronto.
IIROC formally initiated the investigation into Debus’s conduct in June 2014 and placed Debus under close supervision in September 2017, the panel said. Debus has continued under that supervision without incident throughout the proceedings.
Since the misconduct, Debus has “demonstrated an ability to work within the requirements of the regulations,” the panel said. “Echelon’s confidence in [Debus] as well as the apparent success of its IIROC‐imposed supervision for the past 20 months are evidence of an acceptance of governance by [Debus] and some measure or indication of his potential for rehabilitation.”
For full details, read the reasons for decision.