A former financial advisor in Ontario must pay a global fine of $115,000 to the Toronto-based Investment Industry Regulatory Organization of Canada (IIROC) for triggering unnecessary deferred sales charges (DSC) for his clients, and engaging in inappropriate personal financial dealings.
Between 2009 and 2011, Paul Darrigo, who was an advisor with HSBC Securities (Canada) Inc. in Oakville, Ont., repeatedly bought and sold mutual funds with a DSC for clients. An IIROC investigation found that many of these mutual funds were held for a short period of time — less than one year — and that Darrigo would often purchase similar funds following a redemption of a DSC fund. Clients who testified at the IIROC hearing said they either did not understand DSC fees, or had explicitly instructed Darrigo to avoid such transactions.
In total, IIROC found that Darrigo redeemed over $2.9 million in DSC mutual funds for nine clients during the time in question. As a result, these clients were charged $116,000 in DSC fees. Furthermore, IIROC documents state that Darrigo received $69,000 in commissions as a result of these transactions while the clients incurred a loss of $72,000.
As well, the IIROC hearing panel found Darrigo borrowed a total of $45,000 from clients in 2010. According to IIROC, Darrigo advised the clients to redeem investments in order to lend him the money. HSBC was not aware of the loans. Darrigo failed to repay the loans, according to IIROC. Instead, HSBC repaid clients their principle but not the interest on the loan.
Out of the total fee, $95,000 represents a disgorgement of Darrigo’s commissions and the loan proceeds. In addition to the fine, Darrigo must undergo a 12-month period of strict supervision and pay $65,000 in costs. HSBC terminated Darrigo’s employment in 2011 and he is not currently a registrant with an IIROC-member firm.