Former Ontario dealing rep fined $1 million by CIRO

Misappropriation of client funds accounted for most of the penalty

Former Ontario dealing rep fined $1 million by CIRO
Steve Randall

A former dealing representative is to pay a $1 million penalty to the Canadian Investment Regulatory Organization.

A CIRO hearing panel decided that two allegations of conduct contrary to the Mutual Fund Dealer Rules against Ontario based Carren Au were proven and imposed the substantial sum due to the nature of the alleged conduct.

Au was registered as a dealing representative of HSBC Investment Funds (Canada) Inc. between 1997 and 2021 and employed by HSBC Bank Canada, but his employment was terminated in June 2021 as a result of the conduct investigated by CIRO staff.

The allegations were that Au had misappropriated at least C$2,897,097.18CAD and US$813,178.34 from eleven people including five of the bank’s clients, between 2009 and 2021. His methods included unauthorized redemptions of mutual funds and of term deposits, unauthorized cheques and bank drafts, fake bank accounts, and unauthorized cash withdrawals.

Concealing actions

Au then used several ways to conceal his misconduct including unauthorized transfers between accounts before withdrawing cash, redirecting mail from the bank to a PO Box under his control, and restoring funds to accounts when clients intended to make withdrawals.

HSBC identified kiting activity using 12 accounts that Au managed involving at least $158,537.70. This prompted a full investigation where the other misconduct was discovered and admitted by Au in an interview.

Au paid more than $433K to the bank, which had compensated clients affected and obtained a judgment against Au for more than $4 million. CIRO’s Reason for Decision notice states that it is unaware if nay payments have been made relating to the judgment.  

The matter was reported to the heritage regulator MFDA in June 2021 but Au failed repeatedly to cooperate with their investigation and did not attend the May 2024 hearing.

Appropriate sanction

CIRO staff initially recommended that the penalty imposed should be up to $500K for the misappropriation of funds, and up to $100K for failing to cooperate with the investigation, together with a permanent ban.

However, the hearing panel determined that factors including the age of some of the clients involved and the lack of remorse or recognition of wrongdoing by Au, means that the financial penalties should be $900K and $100K respectively, plus $21,375 in costs.

“A sanction of a permanent prohibition and a total fine of $1,000,000 reflects the seriousness of the misconduct and the absence of mitigating factors in this case. The sanction should deter the Respondent and send a message to other Approved Persons and the public that misappropriation and failing to cooperate with a regulatory investigation will not be tolerated in the mutual fund industry,” the hearing fund decision notice stated.