Toronto investment advisor, Steven Carinci, must pay a $40,000 fine to the Toronto-Investment Industry Regulatory Organization of Canada (IIROC) for failing to use proper due diligence in recommending suitable investments to clients.
While an advisor with Canaccord Genuity Corp. in 2008, Carinci sold high-risk leveraged exchange traded funds (LETF) to about 50 clients. Over 90% of the clients who purchased the products had indicated that they wanted zero high-risk investments in their portfolios, according to IIROC documents.
Carinci first became aware of these products through representatives of the Horizons BetaPro LETFs, says IIROC, and while he read the product’s fund fact sheet and researched LETFs he did not read the prospectus. IIROC found that the prospectus clearly labels the products as speculative and high risk. Carinci told the regulator that he recommended the products to clients because they were doing well while the rest of the market was in decline.
Two clients of Carincis’, a husband and wife who were in their late thirties, lost roughly $75,000 as a result of investing in the LETFs, according to IIROC. While Carinci discussed the products generally with the husband he did not explain the high-risk nature of LETFs or the potential risks of leveraged investing. The clients were compensated for their losses.
As well, Carinci also made unsuitable recommendations to another client couple of other products including two high-risk securities and an exchange-traded note (ETN). According to IIROC, this couple lost roughly $63,000 as a result of purchasing the LETFs and the ETN.
The $40,000 fine includes the disgorgement of commissions for the trades. In addition to the fine, Carinci is suspended from approval with IIROC for one month and must successfully complete the Conduct and Practices Handbook (CPH) course within six months. As well, Carinci will pay $2,500 in costs.
Carinci is currently employed by Desjardins Securities Inc.