The Investment Industry Regulatory Organization of Canada (IIROC) has fined John Phillip Watts, an investment advisor, $115,000, including disgorgement, for unsuitable recommendations and unauthorized trading.
According to IIROC documents, Watts failed to use sufficient due diligence between 2007 and 2010 to ensure that his investment recommendations to four clients were suitable. During most of that time, Watts was an advisor with Wellington West Capital Inc., which was later acquired by National Bank Financial Ltd. in 2011.
The unsuitable recommendations came from an investment strategy, which focused on high-risk securities based in China and included small-capitalization and/or startup companies, according to IIROC. The self-regulatory organization found that the four clients were not suited to such a strategy because of limited annual incomes and investment knowledge. Despite the extensive research Watts conducted for all the securities he recommended, the four clients saw a decline in their investments ranging from $30,150 to $122,363.
As well, IIROC documents state that Watts executed trades in an estate account without the authorization all three executors. Instead, between May and June of 2008, Watts executed trades in the account on the instruction of one executor who had a different risk tolerance than the other executors. Subsequent to a review in July 2008 of the assets and the preparation of an investment policy statement by all of the executors and the estate’s four beneficiaries, the estate account was divided into separate accounts for each beneficiary.
Watts has been on leave as an advisor since 2011 and does not intend to return to the securities industry.
In addition to the fine, Watts is prohibited from re-registering with IIROC until June 30, 2017, at which point he will be subject to six months of strict supervision. Watts also agreed to pay $20,000 in costs.
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