A pair of former executives of failed investment dealer PACE Securities Corp. (PSC) are facing disciplinary allegations from the Investment Industry Regulatory Organization of Canada (IIROC).
The self-regulatory organization has initiated enforcement action against the Mississauga, Ont.-based firm’s former CEO Joseph Anthony Thomson and former chief compliance officer Douglas Gerald McRae alleging that they violated several IIROC rules.
Among other things, IIROC alleges that Thomson failed to address material conflicts of interest in connection with the sale of two proprietary products offered by related firms PACE Financial Ltd. (PFL) and First Hamilton Holdings Inc. (FHH), and failed to ensure that the products were suitable.
IIROC also alleges that McRae failed to ensure the firm’s compliance with the SRO’s rules and that he failed to adequately supervise Thomson.
None of the allegations have been proven.
An appearance to set a date for a hearing into the allegations will be held by teleconference on August 17.
In the meantime, an Ontario court will hold a virtual hearing on June 19 to consider an application from PSC’s court-ordered liquidator, Ernst & Young Inc. (EY), to approve a process for transferring the firm’s clients to new dealers.
Currently, clients’ assets are in limbo. PSC was an introducing broker, which held clients’ assets at Laurentian Bank Securities Ltd.
According to EY’s application, PSC managed approximately 2,000 accounts for about 1,200 clients, worth approximately $117 million.
Nearly half of those accounts contain proprietary products — preferred shares of PFL and/or FHH — that the new dealers are refusing to accept as part of an account transfer process, amid concerns about their valuation and the fact that the companies are being liquidated, among other issues.
According to the IIROC allegations, PSC sold approximately $16.3 million worth of PFL preferred shares, including $10.7 million to its clients, and FHH sold approximately $29.8 million of its preferred shares, including $12.8 million to PSC clients.
To enable the accounts to be transferred, EY is proposing to take control of the PFL and FHH securities on behalf of the clients until the companies are wound up.
Once the securities are removed from clients’ accounts, those accounts could be transferred to new dealers, and returned to the clients’ control.
The application also notes that most of PSC’s advisors have moved to Aligned Capital Partners Inc., one has gone to CIBC Wood Gundy, and another may be moving to Manulife.
IIROC suspended PACE’s membership in the SRO on May 21.
The Ontario Securities Commission (OSC) also subsequently revoked its fund manager registration.