Re Toll Cross Securities Inc.
A Settlement Agreement was approved relating to a contravention of Dealer Member Rule 3400 (Research Restrictions and Disclosure Requirements) and specifically the requirement that any research reports issued by Members state information regarding it or its analyst’s relationship to the issuer that is the subject of the report. Rule 3400 further provides that those involved in the preparation of a research report cannot trade in any securities issued by the subject of the report for a period of 30 days prior and 5 days after the release of the report (the “Research Quiet Period”).
The Respondent admitted that an analyst employed by the Respondent traded in securities, which were the subject of a research report, on their own behalf and on behalf of others within the Research Quiet Period and, furthermore, traded contrary to the recommendations in the report.
The Respondent further admitted it failed to supervise its employees and failed to ensure that the research reports disclosed potential conflicts of interest.
The Hearing Panel approved a fine of $15,000 and costs to Staff in the amount of $5,000.
Re Moldovan & Holmes
The Panel released its decision in this matter following a hearing comprised of an Agreed Statement of Facts and 3 witnesses, being former clients of the Respondents who provided, in essence, victim impact statements.
The Panel found that the harm to clients/witnesses exceeded their financial losses (those intending on retiring now were working full time again, plans to pay for children’s education abandoned and depression diagnosed). The Panel further derived that their settlements with the dealer comprised only partial compensation of their losses.
The Respondents were registered representatives, neither of whom were employed in the industry at the time of the hearing. They had operated an investment program known at the “Strategy”. The Strategy involved clients investing in TBills and other low risk securities and then writing uncovered puts and calls on major indices. Profits were derived from premiums received from the sale of options that expired unexercised.
According to the Agreed Statements of Facts, 25 accounts (as opposed to individuals) had complained to IIROC about the conduct of the Respondents. These accounts represented $8.8 million in assets as at July 31, 2008. The Agreed Statement of Facts focused on the 2008 period only and the losses arising in the summer and fall of that year, in the context of a global economic crisis.
It was agreed that the Respondents were required to purchase protective puts and options that would have the effect of limiting losses suffered by clients in volatile markets, which they did not do. The Agreed Statement of Facts also stipulated that the Respondents’ failure to do so would have been clear from the clients’ review of their monthly statements.
It was also agreed that the Respondents did not understand the complexities and risks associated with the strategy.
IIROC Staff had recommended a 24 month suspension which was rejected by the Panel who imposed a 3 year suspension on the rationale that should the Respondents choose to become employed again in their registered capacity, they would be required to requalify and successfully complete all exams in the same manner as a nonindustry participant.
A fine of $100,000.00 was imposed.