IPC to pay $100,000 as part of settlement with the MFDA

IPC Investment admitted that it did not report to the MFDA the suspected prohibited trading activities of Jeffrey Mushaluk, an advisor with the firm who sent an email to 22 of his clients in August 2012 that recommended they sell some of their existing investments to explore a share-buying opportunity in a mining company.

IPC Investment has an arrangement with its securities dealer affiliate, IPC Securities Corp., in which the firm’s mutual fund advisors can refer clients who are interested in non-mutual fund securities. However, the mutual fund advisors must avoid providing advice or recommendations about non-mutual fund investments that would be available through the referral arrangement.

Although IPC Investment learned of the email and spoke to Mushaluk about his actions in May 2013, the firm did not notify the MFDA of the situation. Instead, the self-regulatory organization (SRO) learned of Mushaluk’s activities when it conducted its own sales compliance review around that same time period.

The MFDA requested that IPC Investment formally report the advisor’s activities to the SRO and begin an official investigation; the firm complied. Mushaluk was terminated in July 2014.

The dealer also acknowledges that it failed to adequately supervise the investment recommendations of an advisor referred to as “JEC” in the settlement agreement.

The firm initially terminated JEC in November 2013 for his inappropriate concentrated use of a moderate-risk gold fund, which made up 100% of a specific client’s portfolio. However, JEC asked that his termination be rescinded due to personal extenuating circumstances.

The firm agreed to the request but set the condition that JEC would be required to meet with clients whose portfolios were highly concentrated in this particular gold fund to discuss concentration and recommend appropriate diversification where necessary. The risk tolerance for the fund in question had changed to “medium-to-high” at this point.

Instead, JEC met with clients in early 2014 to convince those clients to change their risk tolerance on their know-your-client forms to keep the gold fund within their portfolios. He then presented to his firm the list of clients who had done so in order to maintain their investment in the gold fund.

The firm did get in touch with JEC’s clients through a letter to suggest that clients consider diversifying their portfolios and that those clients can contact JEC to discuss the issue or get in touch with the firm’s compliance department if they had any questions.

“Based on all the information the respondent possessed by May 2014, it ought reasonably to have concluded that JEC had not had a balanced discussion with the clients and had merely re-papered the accounts, and that it was not appropriate to direct clients with inquiries back to JEC,” the settlement agreement states.

The firm then terminated JEC this past October.

The settlement agreement notes that there are mitigating factors in these two situations. For example, in the case of Mushaluk, IPC Investment was given credit for having very clear policies surrounding its referral arrangement with IPC Securities.
In addition, the firm has revised its compliance and supervision structure to ensure there’s easier detection of high concentrations of riskier funds within clients’ portfolios.

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