Toronto-based investment dealer Octagon Capital Corp, has been placed into bankruptcy,and a regulatory hearing panel has suspendedthe firm.

The Ontario Superior Court ofJustice on Friday issued an order judging Octagon Capital to bebankrupt and appointing Ernst & Young Inc. as its trustee. As a result, E&Y has taken control of the firm’sproperty and operations and is working with the Canadian Investor Protection Fund (CIPF) tofacilitate the transfer ofits clients’ accounts to other investment dealers.

On Dec. 3, the Investment Industry Regulatory Organization of Canada (IIROC) held an expedited hearing into the status of Octagon, which decided to close its doors after it was discovered to besuffering a capital deficiency. The IIROC hearing panel granted an order sought by IIROC staff to suspend the firm and impose various other restrictions on it, pending the eventual termination of its membership in the self-regulatory organization.

See: IIROC hearing to consider Octagon Capital suspension

According to the application from IIROC staff seeking that suspension order, Octagon was found to have a capital deficiency in late November. Its chief financial officer (CFO) left the firm, and all of its employees were let go soon after. As well, IIROC reported that there was a $4.7 million discrepancy between the records of its carrying broker, and the firms’ accounts.

The apparent shortfall in client assets stems from “a large balance owing from a related company,” reports Barbara Love, senior vice president and secretary at Toronto-based CIPF. Love indicates that the collection of that balance is “uncertain”, which is creating a shortfall in the cash that it owed to the firm’s clients. Now that a trustee has been appointed, CIPF can fund the shortfall under its coverage policy.

EY”intends to initiate the transfer of customeraccounts to other dealers as soon as possible”, CIPF says in a statement, so that clients can regain control over their accounts. “In the meantime, although no withdrawals can be made from an Octagon Capital accountuntil it has been transferred, customers may request emergency liquidating tradesto convert securities in their accounts to cash,” the CIPF statement says.