33. Between April and September 2009, these six Canaccord clients received in share certificates for a total of 194 million shares of an OTCBB company, Spongetech Delivery Systems Inc. ("Spongetech"). There were 12 deposits that accounted for all 194 million shares. Almost immediately after they were deposited to the accounts at Canaccord, these shares were then sold for proceeds of just over $15 million (USD). The sale proceeds were then wired to bank accounts in Hungary. Canaccord approved the deposit of the share certificates and the outgoing wire transfers.
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Canaccord to pay $1.1-million to settle lax supervision claims
The Globe and Mail
Published Friday, Nov. 29 2013, 4:54 PM EST
Last updated Friday, Nov. 29 2013, 5:18 PM EST
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Canaccord Genuity Corp., Canada’s largest independent brokerage firm, will pay $1.1-million to settle claims by regulators that the firm was lax in oversight of investment advisers.
Canaccord admitted in the settlement with the Investment Industry Regulatory Organization of Canada (IIROC) to failing to “adequately supervise retail client account activity.” The issues in contention included not doing enough to ensure clients that said they qualified as “accredited investors” really did, and allowing numerous incidents of inappropriate trading in client accounts. The activity in question stretched over a six-year period from 2005 to 2011.
The firm will pay a fine of $750,000, and pay $310,000 in disgorged commissions. It will also pay $50,000 to cover investigative costs. The settlement must still be approved by a panel.
IIROC said that from 2005 to 2010, Canaccord “failed to ensure that certain of its branch managers properly carried out their responsibility to supervise retail account activity at the branch level.” IIROC also said that head office “failed to detect various instances of unsuitable holdings and excessive trading.”
Examples included representatives who traded so much that the entire portfolio value of a client was bought and sold six times or more each year, and employed high-risk options strategies.
IIROC also pointed to Canaccord’s resistance to putting in more stringent requirements to ensure that clients really qualified as accredited investors.
None of the people whose activity was cited in the settlement work at Canaccord today, said Scott Davidson, the firm’s head of marketing and business development. The company has also spent $1-million on new systems and processes to ramp up supervision, he said.
He said that chief executive officer Paul Reynolds has since taken over as the ultimate designated person, making him responsible for compliance.
In the three years since that happened, Mr. Reynolds “has made great strides in addressing the issues outlined and worked closely with IIROC to reach this agreement,” said Mr. Davidson. “We remain committed in future to being a highly compliant firm.” .
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