An Investment Industry Regulatory Organization of Canada (IIROC) hearing panel has suspended an investment advisor for 30 days and fined her $65,000 for making unsuitable recommendations associated with margin use and leveraged investing in the accounts of two senior clients.
Sheron Crane, a.k.a. Sheron Lau, was a dealing representative with the Toronto branch of Industrial Alliance Securities Inc. when the conduct occurred, from October 2014 to November 2016, IIROC said in a release. Crane recommended and implemented extensive margin use for the two retired clients, who had borrowed funds from lines of credit on their homes to invest with her—as Crane was aware, the settlement agreement said.
The double leverage wasn’t suitable for the clients, considering their personal and financial circumstances. “They were retired seniors who were entirely dependent on their investments for income and did not understand the risks associated with the leverage,” the agreement said.
In addition to the unsuitable investments, Crane used personal email to communicate with her clients due to technical difficulties, which was contrary to the dealer’s policies and prevented dealer supervision. Further, she deleted critical client communications requested during the investigation, the agreement said.
One of the mitigating factors in the case was that the clients’ portfolios generated “modest” profits, net of borrowing costs and redemption fees, the agreement said. Redemption fees were incurred because Crane invested the clients in mutual funds with deferred sales charges (DSCs).
Other mitigating factors included Crane’s regular communication and meetings with the clients, and the fact that she had no disciplinary history.
In addition to the suspension and fine, Crane must also pay costs of $5,000 and have six months of close supervision upon re-registration.
Crane no longer has a contractual relationship with Industrial Alliance Securities as of May 1, 2019, the firm said in an email to Investment Executive.
For full details, read the IIROC settlement agreement.