A regulatory hearing panel imposed a permanent ban and $560,000 in monetary sanctions against a former rep that has already pleaded guilty to misappropriating money from investors in a parallel criminal case.
Following several days of hearings last November, a hearing panel of the Canadian Investment Regulatory Organization (CIRO) banned Kevin Douse, a former rep with Quadrus Investment Services Ltd., from the industry, and ordered him to pay a $530,000 fine and $30,000 in costs.
The regulatory sanctions follow criminal charges, which resulted in Douse pleading guilty to fraud over $5,000 in the Ontario Court of Justice — admitting that, between 2016 and 2023, he misappropriated over $1.8 million from 25 victims, including the investors covered in CIRO proceedings. Douse is scheduled to be sentenced in that case on Feb. 5.
The regulatory proceedings covered a handful of the victims including five clients and two other investors who were misled into believing that they were clients by Douse, who told them that he had opened investment accounts for them at Quadrus.
The panel found that Douse breached CIRO’s rules by misappropriating $277,172 from these seven investors, providing the investors with falsified account statements, and by failing to co-operate with CIRO’s investigation.
According to the panel’s decision, the various investors wrote cheques that they believed would be used to make investments in their TFSAs or RRSPs, and that Douse instead deposited the investors’ money into his personal bank accounts. For certain investors, accounts were never opened, and they were provided with falsified account statements that purported to show their holdings.
This activity continued after Douse resigned from Quadrus in 2021, the panel said.
When certain investors sought to redeem some of their funds, the panel said Douse made transfers directly into their accounts from his bank accounts.
Ultimately, after the scheme was uncovered, Quadrus ended up settling with most of the clients, or their estates, and has paid out over $270,000 in these settlements. One client didn’t accept the dealer’s settlement offer, the panel noted.
In its case, CIRO staff sought a permanent ban against Douse, a fine of $527,172 — comprised of $277,172 in disgorgement, a $200,000 fine for misappropriation, and a $50,000 fine for failure to co-operate — along with $30,0000 in costs.
According to the panel, at the hearing, Douse accepted a ban from the industry, but argued that a fine would prevent him from making restitution, and could harm his victims. It also noted that he said that he “accepted full responsibility for his actions, was deeply sorry and knew that he had broken trust.”
In its ruling on sanctions, the panel said that it considered the criminal proceedings “to be an important factor when deciding on an appropriate monetary sanction in this case.”
And, it said that, while it considered imposing a fine that amounted to three times the amount that was misappropriated from investors, ultimately it concluded that a total fine of $530,000 “is still commensurate with the seriousness of the respondent’s wrongdoing and takes into account the particular circumstances of this respondent, including the fact that he is facing civil and serious criminal proceedings arising out of his misconduct.”
It also found that the regulator’s request for $30,000 in costs “is reasonable, given the time actually spent by CIRO personnel in investigating and prosecuting a somewhat complex case…”