Calgary-based brokerage firm Leede Financial Markets Inc. and a branch manager with the firm have both settled allegations that they failed to properly supervise a former rep who committed a series of regulatory violations by employing aggressive, high-risk trading strategies with several vulnerable clients.

An Investment Industry Regulatory Organization of Canada (IIROC) hearing panel has accepted a settlement agreement between the firm, branch manager Brian Bergen and IIROC staff. In the agreement, Bergen and Leede admitted that they failed to effectively supervise registered rep Grant Matthews.

Back in September 2014, an IIROC hearing panel found that Matthews violated IIROC rules when he employed an aggressive strategy that included recommending unsuitable investments to four clients, churning the accounts of three of those clients, and engaging in unauthorized discretionary trading for two clients. Earlier this year, Matthews was fined $200,000, banned for five years and ordered to pay $20,000 in costs, as a result of those violations.

Leede and Bergen, Matthews’ branch manager at the time of these offences, admitted to supervisory shortcomings when it came to Matthews. In addition Bergen admitted that he failed to report a client complaint.

As part of the settlement, Leede was fined $90,000, and ordered to pay costs of $10,000; Bergen was fined $50,000 and hit with a $2,500 cost bill. Bergen was also prohibited from acting in a supervisory capacity for one year, and is required to rewrite the branch manager’s course before returning to a supervisory role.

According to the settlement, there were “numerous red flags” involving the clients’ accounts, including the fact that they were retired, or nearing retirement, and had very little investment knowledge; that the strategy being employed was very aggressive and speculative, involving leveraged ETFs, As well, the trading volumes were very high for retirement accounts.

Yet, despite all of these red flags,Matthews’ supervisors failed to question the trading activity, failed to ensure suitability and failed to require that client account information was updated in line with the firm’s policies, the settlement agreement notes. “In failing to adequately question the account activity in light of the above noted red flags, the respondents failed to effectively perform their respective supervisory responsibilities,” the settlement agreement says.

The settlement notes several mitigating factors including:Leede has since strengthened its policies regarding leveraged ETFs; the firm requires clients who trade in these products to have a high level of investment knowledge, and a minimum value of liquid assets; and Bergen has no previous disciplinary record.