A former mutual fund representative who misappropriated more than $450,000 from an elderly client has been fined and banned by a hearing panel of the Canadian Investment Regulatory Organization (CIRO) — and also faces criminal charges.
According to an agreed statement of facts filed in the case, Michael Rolland Smith, a former rep with Investors Group Financial Services Inc. in Amherst, N.S., admitted to a series of regulatory violations. These included misappropriating money from a client, changing the beneficiary designation on the same client’s mutual fund accounts, and failing to cooperate with the self-regulatory organization’s investigation.
Between March 2017 and May 2023, Smith processed 236 fund redemptions and 200 cash withdrawals from a 74-year-old client’s accounts, totalling $460,126. The money was directed to his own accounts based on falsified banking information and covered up with false account statements. He also used four signed blank cheques to take another $26,500 from the same client.
In addition to the $486,000 that was misappropriated, the client was also hit with more than $41,000 in tax expenses and almost $1,700 in deferred sales charges, the panel noted.
In March 2022, Smith also made unauthorized changes to the beneficiaries on the client’s accounts, switching them from a relative of the client to people close to him.
The misappropriation was uncovered by the client’s accountant, who filed a complaint in May 2023, prompting an investigation by CIRO.
In an interview with self-regulatory organization staff, Smith claimed that he hadn’t misappropriated the money, but that it was loaned to him by the client to “assist paying his business expenses so that he could continue to act as a mutual fund advisor” — and that he was repaying the loan with monthly deposits.
However, after failing to produce records to support those claims, he later admitted to misappropriating the money.
Investors Group paid the client almost $600,000 to fully compensate her for the money that was misappropriated, the added expenses she faced, and the gains she missed out on as a result of the misconduct. It also reversed the unauthorized beneficiary designations.
The firm has launched civil proceedings against Smith to try to recover the money it paid. That case is ongoing, as are criminal proceedings against him. He has been charged with several criminal offences, including theft and fraud, the regulator reported.
Additionally, the firm conducted an internal investigation involving Smith’s other clients, which did not find any evidence of similar misconduct.
The hearing panel banned Smith from the industry, imposed a $1.5-million fine, and ordered him to pay $20,000 in costs.