The Investment Industry Regulatory Organization of Canada (IIROC) has fined two former investment advisors of British Columbia $100,000 each for failing to use proper due diligence and to ensure recommendations were suitable for clients.
While employed at the Kelowna branch of Canaccord Capital Corp., Traian Moldovan and Robert Holmes focused on the operation of an investment program called the “Strategy” for several months in 2008, according to IIROC documents.
The program involved investing clients in T-bills and other low risk securities and placing uncovered puts and calls on some of the major indices. According to IIROC, the Strategy was meant to provide reasonable returns and preserve capital when markets had a low volatility index. The ex-advisors had roughly 100 clients invested in the “Strategy” at the time of the infraction.
In August 2009, IIROC received complaints from the representatives of 25 accounts regarding the investment program and losses they incurred between July and October 2008.
According to IIROC documents between July and August of 2008 clients lost $3.86 million. Despite these losses the advisors continued to employ the “Strategy” causing clients to lose an additional $2.85 million, for a total of $6.7 million, in September and October of the same year.
IIROC found that contrary to their employment agreements, Moldovan and Holmes were required to purchase “insurance” options or “protective puts” to limit losses, however, they stopped buying such options on one indices and never purchased on others.
As well, in its penalty decision, IIROC said the advisors did not understand the complexities and risks of the investment program and thus were unable to properly assess its suitability for clients.
In addition to the fine, IIROC also prohibited the approval of Moldovan and Holmes for three years and ordered both individuals to pay $25,000 in costs. Neither is currently employed in the industry.