The Mutual Fund Dealers’ Association of Canada (MFDA) has ordered a former financial advisor in Prince Edward Island to pay $50,000 in fines.

The MFDA levied the fines against Lloyd Snyder for failing to properly explain the risks of an investment leveraged scheme and ensuring that such recommendations were suitable for clients.

Between 2005 and 2007, Snyder recommended two leveraged investment strategies called the “Smith-Snyder Manoeuver” and “Forced Savings Program” to 15 clients. According to the MFDA, the clients borrowed roughly $1.4 million to invest with Snyder. During this time, Snyder was a mutual fund salesperson with Quebec City-based Investia Financial Services Inc.

The recommended strategies involved borrowing money to invest in return of capital (ROC) mutual funds. As part of the Forced Savings Program, clients would use proceeds from the ROC mutual funds to pay down their investment loans at an accelerated rate.

In the case of the Smith-Snyder Manoeuver, clients would use the proceeds generated from the funds to make additional mortgage payments, say MFDA documents. Clients would then obtain a Home Equity Line of Credit (HELOC) to make payments on their investment loans and receive a tax credit on the interest. The tax refund would then be used to make additional payments on the clients’ mortgages. This cycle would then continue until the mortgage and investment loans were repaid.

Snyder failed to properly explain the risks of these leveraged investment strategies, according to MFDA, including that the monthly returns were not guaranteed and that a reduction in payments could lead to out-of-pocket expenses for the clients.

Furthermore, Snyder did not properly account for the clients’ suitability for such investments. For example, 13 of the 15 clients who invested in these strategies had loan-to-net-worth ratios of between 80% and 140%, says the MFDA. The remaining clients had no material net worth during the time in question.

In addition to the fine, Snyder is prohibited from conducing securities business as an MFDA member for 10 years. Snyder must also pay $50,000 in costs.