A hearing panel of the Investment Industry Regulatory Organization of Canada (IIROC) has fined an advisor $60,000 for failing to use due diligence to learn “essential facts” about a client, IIROC said in a release on Tuesday.
The advisor also failed to ensure that market orders and account positions were suitable for a client account managed by a power of attorney, according to a settlement agreement.
In July 2014, Lelio De Cicco, an advisor with the Oakville, Ont., branch of Scotia Capital Inc. who remains registered with the firm, became the advisor of an elderly, mentally incapacitated woman in B.C. The woman’s son, an Ontario resident, managed her account through a power of attorney and a court order appointing him his mother’s committee. The account was subject to oversight from B.C’s public guardian.
At the time that the account was transferred to him, De Cicco failed to “take adequate steps to know the client or ensure the positions held in the client’s account were suitable,” the settlement agreement said.
For example, De Cicco failed to secure a meeting with the client’s son to discuss the account, despite being informed that the client’s previous advisor had concerns about the son’s short-term trading in the account.
The settlement agreement said that between August 2014 and September 2015, De Cicco failed to take adequate steps to prevent the client’s son from unsuitable actions in the client’s account, including buying high-risk securities exceeding the client’s risk tolerance and engaging in short-term and speculative options trading.
During this period, 180 trades were executed in the account, 137 of which were marked unsolicited, the settlement agreement said. Of the 180 trades, 67 were entered by De Cicco; the rest, by the branch’s licensed assistants. The son “aggressively pressed” the assistants to place orders, the agreement said.
The agreement also said that De Cicco acknowledged that he should’ve acted sooner to prevent the client’s son from unsuitable trading in the client’s account.
The trading resulted in the account declining in value by about $94,430, of which $52,540 was due to trading losses, the agreement said. The rest of the decline was attributed to cash transfers to the client’s bank account.
De Cicco earned about $3,500 in fees from the account, which was fee-based.
In a letter dated Sept. 30, 2015, B.C.’s public guardian directed Scotia to freeze the account. In May 2017, IIROC received a complaint from the public guardian and formally initiated an investigation into De Cicco’s conduct later that year.
Scotia Capital has reimbursed the client about $141,000, for which De Cicco reimbursed the firm by way of withheld compensation, the settlement agreement said. The payment included full disgorgement of De Cicco’s fees.
In addition to the fine of $60,000, De Cicco must pay costs of $3,000, undergo two months’ strict supervision and rewrite the Conduct and Practices Handbook exam.
For full details, read the settlement agreement.