The president and chief compliance officer of a mutual fund dealer has been fined $20,000 by the Mutual Fund Dealers Association of Canada (MFDA) for selling securities to clients without ensuring they were suitable, and providing clients with inaccurate information about the risk level of the investments, among other violations of MFDA rules.

In a settlement agreement approved by an MFDA hearing panel in Toronto on Tuesday, the regulator outlines penalties facing Douglas Lawson, president and chief compliance officer of Toronto-based Wealth Advisory Services (WAS).

The MFDA found that between August 2002 and November 2005, Lawson sold shares of Promittere S & P 500 Limited – a company related to WAS – to clients, as a means of investing in S&P 500 Futures Index Contracts and other similar instruments on the Chicago Mercantile Exchange. Both Promittere and WAS were owned and controlled by the same individual, Robert Thiessen.

In total, 48 clients of WAS invested US$2,883,993 in shares of Promittere on the advice of Lawson. As a result of these sales, Lawson earned fees of approximately $50,000, paid to him through WAS in the form of shares in Promittere.

In September 2006, Lawson was informed that a fraud had occurred, and that Promittere could not account for the WAS clients’ funds.

In facilitating the sale of the shares to clients, the MFDA found that Lawson failed to provide clients with written disclosure of the relationship between WAS and Promittere, or of WAS’ financial interest in the sale of the shares, thereby giving rise to a potential conflict of interest.

Lawson also failed to conduct adequate due diligence on the product, failed to ensure that the product was suitable for sale to clients of WAS, and provided clients with incomplete and inaccurate information as to the risk level associated with the product, according to the MFDA.

Furthermore, in the sale of shares to nine of the clients, Lawson relied on the accredited investor exemption without obtaining sufficient documentation to enable him to qualify them as accredited investors.

Lawson also relied on the closely held issuer exemption for some of the transactions, while failing to comply with the requirements of that exemption.

According to the settlement agreement, Lawson has paid a fine of $20,000 and costs of $5,000. He also faces a permanent ban from holding the position of officer, director, compliance officer, ultimate designated person or branch manager of any MFDA member firm, except with respect to his continuing status as president and chief compliance officer of WAS, for the purpose of ensuring the orderly resignation of the firm.