A former fund rep has been hit with a permanent ban and a hefty monetary penalty after raising money from clients to finance a startup, which resulted in his clients losing their investments.
A hearing panel of the Canadian Investment Regulatory Organization (CIRO) banned former Equity Associates Inc. rep Paul O’Brian Walker, imposed a $1.7-million penalty and $15,000 in costs. Walker admitted to violating the self-regulatory organization’s rules by soliciting clients to invest in IFS Global Technologies Inc. (IFS), a fintech he founded that sought to develop software for mutual fund advisors.
Walker and CIRO submitted an agreed statement of facts, so the only issue for the hearing panel was to rule on sanctions.
Walker admitted to selling shares and debentures in his company, thereby engaging in unapproved outside business activity, and taking a loan from a client, which gave rise to conflicts of interest that weren’t resolved in clients’ best interests.
According to the panel’s reasons, the SRO’s staff asked for a disgorgement order in the case, but also acknowledged the regulator’s rules don’t specifically provide authority for disgorgement.
According to the panel, Walker “argued that he should not be penalized because his intention was to benefit the mutual fund industry.” However, the panel said that Walker received a benefit of $1.57 million and the investors collectively lost $1.57 million “as a result of the failure of IFS to become a successful operating business and its ultimate collapse.”
“The respondent abused his status as [a rep] to solicit clients and individuals to invest in his company. He failed to disclose to his clients that a dealer had not approved his outside activities or the securities that he was selling to raise capital to invest in a corporation he controlled and acted as president and CEO,” the panel said in its reasons on sanctions, which included a permanent ban.
“Just because there was no evidence of fraud does not negate the fact that the respondent broke [SRO] rules and investors suffered losses as a result. Had there been evidence of fraud, it would have been appropriate to impose a larger penalty,” the panel said.