A hearing panel of the Canadian Investment Regulatory Organization (CIRO) has, once again, found in favour of a pair of reps who were accused of breaching their gatekeeper obligations — rejecting an appeal from CIRO staff.
In 2023, the self-regulatory organization brought enforcement allegations against a pair of reps at PI Financial Corp. (now known as Ventum Financial Corp.), alleging that they violated CIRO rules between December 2017 and October 2018 by failing to adequately question clients’ trading activity amid a series of potential red flags of suspicious trading activity — thereby failing to fulfill their gatekeeper obligations.
Following a hearing in June 2024, the panel dismissed the allegations against the reps — Teymur Englesby and Cale Nishimura — finding that CIRO staff failed to prove that they had violated the rules in this area.
While there was broad agreement on the facts of the case, the two sides disagreed over whether the trading activity in question raised actual red flags that required greater investigation by the reps. The panel ultimately concluded that there wasn’t a “triggering event” that should have caused the reps to question their clients’ trading activity more closely — and therefore that they hadn’t breached their gatekeeper obligations.
The SRO sought a review of that decision by the British Columbia Securities Commission (BCSC), which sided with CIRO enforcement staff — finding that the panel made several errors, and failed to adequately consider the public interest in dismissing the allegations — and sending the case back to the hearing panel to be reconsidered.
Now, the panel has effectively reiterated its initial conclusion, ruling in favour of the reps and dismissing the allegations against them.
Again the panel found that the activity that CIRO staff argued represented “red flags” weren’t necessarily red flags, particularly in the context of trading in venture stocks.
In its latest decision, the panel also said it did not agree with the position of CIRO enforcement counsel that “a single act of negligence outside the context of other improper activity is sufficient to make a finding of the respondents breaching their gatekeeper obligation…”
It also rejected the assertion that the reps’ conduct was “unbecoming” and in need of sanctioning.
While the panel acknowledged that the evidence showed that the two reps didn’t “always ask the questions that other registered representatives in their position might have done, the panel finds it difficult to conclude … that the evidence before it clearly demonstrates that this failure to act and ask questions constituted negligence on the part of the respondents sufficient to constitute the failure of their gatekeeper role and, therefore, conduct unbecoming…”
Finally, the panel acknowledged the public interest considerations in the case — CIRO argued before the BCSC that the original decision could lower the bar on reps’ gatekeeper obligations. But in its latest decision, the panel stressed that “the rights of the respondents are also part of this public interest concern.”
“Industry participants in carrying out their duties must have confidence that for a member of the industry to be found to have breached one or more of the rules, that enforcement counsel in making the case against such a member has clearly met the onus of proof … in order to secure a finding of liability…”
As a result, it, once again, dismissed the disciplinary action against Englesby and Nishimura.