The Mutual Fund Dealers Association of Canada (MFDA) has permanently banned a former dealing representative who advised multiple clients with low risk tolerances to concentrate their investment portfolios in the precious metals sector.
The MFDA announced on Wednesday that it had approved a settlement agreement with David Michael Gordon that will see him permanently banned from the industry. Gordon has also agreed to pay a $25,000 fine and $2,500 in costs.
According to the agreement, Gordon worked for FundEX Investments Inc. in Campbell River, B.C., from November 2006 until his retirement in May 2016.
The document stated that, beginning in 2009, Gordon advised at least six clients to concentrate their investment holdings in the precious metals sector without assessing the suitability of his recommendations on a client-by-client basis.
Among other things, Gordon suggested to clients that an imminent stock market decline would bolster the price of gold and silver, and that investing in precious metals was a safer alternative to investing in the stock market generally.
The six clients described in the settlement agreement were retired or approaching retirement, with low risk tolerances, limited net worth, limited investment knowledge and a limited ability to withstand investment losses. The MFDA said that Gordon failed to accurately record his clients’ investment knowledge and risk tolerance in know-your-client (KYC) documentation.
Each client transferred a substantial portion of their investment portfolio into precious metals sector funds and suffered losses. One client who was worried about the value of their portfolio emailed Gordon, writing, “At this rate we won’t have any money left in 10 months.” Gordon encouraged the client to stay the course.
The clients collectively suffered total losses of at least $73,585. Each of them transferred their investment accounts out of FundEx and were compensated by FundEx for their losses.
By agreeing to the settlement, Gordon admitted that he violated MFDA rules by failing to ensure his recommendations were suitable with regard to his clients’ KYC factors, and by failing to adequately explain the risks and benefits of investing in precious metals sector funds.
The MFDA noted that Gordon has not been the subject of previous disciplinary proceedings and cooperated fully with MFDA staff during the course of its investigation.