From the Regulators

Blackmont Capital, Vancouver rep fined for participating in an arrangement with Clarion Finanz

By Megan Harman |

The Investment Industry Regulatory Organization of Canada has imposed a $732,500 fine against Blackmont Capital Inc. and a $265,000 fine against Dean Shannon Duke for violating business conduct and trade authorization rules.

An IIROC hearing panel found that Blackmont and Duke violated IIROC rules between January 2003 and October 2007, when Duke was a registered representative with the Vancouver branch of Blackmont.

Specifically, IIROC found that Blackmont and Duke participated in an arrangement which involved paying commissions to a third party who placed orders in the accounts of seven clients, without informing the clients of this agreement.

They also effected trades in four client accounts based on third-party instructions without having written trading authorization, according to IIROC.

The third party was Clarion Finanz AG – a Switzerland-based portfolio manager which acted as an “external asset manager” for seven banks based in Switzerland and Liechtenstein.

Clarion was authorized to manage the portfolio of securities owned by the banks; customers.

Under the commission agreement, Duke began executing trades based on Clarion’s instructions in several accounts beneficially owned by customers of the banks. But in some cases, there was no written documentation authorizing Clarion to place orders in these accounts.

Between 2003 and 2007, more than $2.8 million in gross commissions were generated from trading in the accounts based upon trading instructions from Clarion.

Duke and Blackmont acted inappropriately “by effecting trades in the accounts of their clients based upon the instructions of a third party without the existence of a duly executed trading authorization enabling them to take trading instructions from such third party,” IIROC said.

The IIROC panel also found that Blackmont failed to meet the requirements of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations by failing to obtain the documentation for certain client accounts. This included corporate records which indicated the “power to bind” a corporate client; signature documentation regarding trading authorization; and/or identity verification for authorized trading individuals.

In the penalty decision, IIROC gave Duke a six-month prohibition against re-approval for registration commencing Jan. 1, 2011. The penalty also stipulates that if Duke wants to apply for re-registration after June 30, 2011, he must successfully complete the Conduct and Practices Handbook examination and his first six months of re-registration must be done under strict supervision.

In imposing the penalty, IIROC noted that in the trading on the accounts, there was no finding of fraud, nor were there any client complaints or any finding of client loss.

The regulator said that its “primary goal in determining an appropriate penalty is one of prevention and not punishment.”

IIROC noted that Duke had previously been disciplined twice during his career as a registered representative in the securities industry.

“In determining an appropriate penalty for Mr. Duke, an element of specific deterrence should be included to ensure that if in the future Mr. Duke chooses to become employed in the securities industry, he will better appreciate his obligation to understand and uphold the Rules and will not repeat the conduct that has led to his current and previous disciplinary sanctions,” the panel said in its decision.

Duke is no longer registered in any capacity with an IIROC-regulated firm.

Blackmont Capital Inc. is now Macquarie Private Wealth Inc., following a name change on Feb. 1, 2010.