RE: Pariak-Lukic 2014 IIROC 01 (January 2, 2014) (Decision)

A Summary
Off Book Investments

Pariak-Lukic (“Lukic”) as adviser, suggested second mortgages to long time clients through a private company (Lakepoint). Her husband was the promoter and owner of Lakepoint. She did not advise her dealer of this activity.

Lukic’s husband received advice from a lawyer acting for Lake Point that the mortgages would not be required to be qualified by prospectus because of the availability of an exemption.

It was found that Lukic had engaged in conduct unbecoming contrary to IIROC ByLaw 29.1 by making recommendations to clients regarding Lake Point and without reasonable inquiries that the issuance of the Lake Point investments were prospectus exempt.

Penalty to be Decided Separately

The Evidence – Good Notes, Good Witness, Caution Provided

Lukic was found to have kept “meticulous and impressively full notes made more or less contemporaneously with events as they occurred giving details of meetings, suggestions, possible motivations and disclaimers and cautionsgiven by her to clients regarding her not being licenced to deal in second mortgages”.

It was found that in many cases she also noted suggestions by her or her husband that the clients seek independent legal advice.

She was found to be forthright and straightforward in her testimony as was her husband.

Most of the clients were her longstanding clients at the time of the events in question.

Disclosure

Lukic told clients that she was not licenced to deal in second mortgages and that they should look to her husband who had a mortgagebroker licence. Her husband was not registered or otherwise licenced to advise or deal in securities, but Lukic was.

Lukic advised clients that her husband was her husband, that he was mortgagebroker, that he was owner, promoter and director of Lake Point and that he would earn 1% for managing Lake Point. She also disclosed any other management fees to be earned by others, all of which was reflected in the documentation provided to clients.

Compensation

Lukic received no compensation for these activities or any benefit from clients investing in Lake Point. The benefit her husband received was disclosed to clients.

Reporting

Several clients requested Lukic to include their investments in Lake Point and periodic statements of financial position she prepared for the purpose of discussing their investments and financial planning. These statements were prepared by her on the letterhead of her dealer because it was a requirement that any statement of assets provided to clients had to be attached on such letterhead.

Recommending or Facilitating

It was found that Lukic did more than provide factual information about Lake Point but rather discussed the opportunity to invest in portfolio reviews with their clients, shared her husband’s enthusiasm for the investment and advised them of her personal investments including anticipated yield, and cash flow. She contrasted and compared the investments to other options available including her unfavourable views of the stock market at the time.

The inclusion of Lake Point investments in periodic financial reports prepared by Lukic would incline a reasonable person to conclude that Lake Point was among the investments that she was advising on. This might not otherwise have been a clear conclusion.