The Investment Industry Regulatory Organization of Canada (IIROC) has temporarily prohibited a former executive and portfolio manager from registration, and ordered him to pay costs of $100,000, for misconduct that included failure to address proprietary product conflicts and failure to use due diligence.
Between June 2017 and June 2019 — the period of the misconduct — Joseph Anthony Thomson was CEO, CFO and ultimate designated person of PACE Securities Corp., which offered preferred shares of PACE Financial Ltd. (PFL) and First Hamilton Holdings Inc. to its clients. Thomson also held roles with those two companies.
While PACE and Thomson’s relationships with PFL and First Hamilton were disclosed in offering memoranda, Thomson failed to “fully consider the implications of the conflicts or address them in a fair, equitable and transparent manner, consistent with the best interests of [PACE]’s clients,” the settlement agreement said.
Those conflicts related to his role in executing management agreements, including fee arrangements, between PACE and PFL on behalf of both parties.
Thomson admitted to the misconduct. He also admitted that he failed to ensure investments were made in accordance with the offering memorandum, specifically regarding leverage; and to use due diligence to ensure suitability for clients. Thomson was the portfolio manager of the investments.
In May 2019, IIROC raised concerns with PACE about its governance and compliance, the settlement agreement said. IIROC suspended PACE the following year, after the Ontario Superior Court of Justice issued an order directing the firm to be wound up and appointing Ernst & Young Inc. as its liquidator.
Thomson hasn’t been registered with IIROC since, the settlement agreement said.
As a result of the misconduct, IIROC prohibited Thomson from being approved as an ultimate designated person for five years and as a registered representative for one year, the settlement agreement said. IIROC also ordered Thomson to pay costs of $100,000.
In July 2021, the Ontario Superior Court of Justice approved a settlement of certain investor claims related to the PFL and First Hamilton preferred shares, the settlement agreement noted. About 700 shareholders, including PACE clients, were compensated $40 million.