Canaccord kept trading for Crito LLP despite SEC complaint and internal red flags, CIRO finds
The Canadian Investment Regulatory Organization (CIRO) has accepted a settlement agreement with Canaccord Genuity Corp. (Canaccord) on May 16, following a hearing conducted under the Investment Dealer and Partially Consolidated Rules.
Canaccord admitted it failed to act as a gatekeeper to the capital markets in connection with trading activity involving low-priced securities listed or traded over-the-counter in the US.
The settlement imposes a $600,000 fine, a $2.2m disgorgement, and $50,000 in costs on Canaccord.
The settlement agreement was jointly recommended by CIRO Enforcement Staff and Canaccord, and was approved by a CIRO hearing panel chaired by Philip Anisman, with industry members Leo Ciccone and Charles Macfarlane also sitting on the panel.
According to the settlement, from May 2021 to September 2023, Canaccord opened and operated accounts for Crito Capital LLP (Crito LLP).
These accounts, known as the Crito Accounts, were held for a UK-based, FCA-regulated entity affiliated with a US FINRA-regulated broker-dealer, Crito Capital LLC. Crito LLP used the accounts to execute thousands of trades in low-priced securities on behalf of various underlying clients.
These trades, conducted primarily on the NASDAQ and OTC markets, generated proceeds of over US$779m, with Canaccord earning US$4.76m in commissions.
The settlement outlined that Canaccord failed to identify or appropriately address several red flags.
These included the use of COD/DAP accounts without deposits or transfers, the trading of securities by clients with past regulatory actions, and acquisition methods such as debt conversion and discounted private placements.
Some Canaccord traders flagged issues internally, but concerns were not escalated or properly addressed by compliance or senior staff.
Despite becoming aware of a November 2022 SEC civil complaint against GEL Direct Trust, its principal Stuart Jeffery, and others—alleging unregistered broker activity involving penny stocks—Canaccord continued facilitating trades for Crito LLP.
Between that date and September 2023, trades in the Crito Accounts generated over US$573m in proceeds.
Crito LLP's underlying clients included Esousa Holdings LLC, Acuitas Capital LLC, Iliad Research and Trading LP, and GenCap Fund I LLC. Several individuals connected to these entities had been subject to prior enforcement actions or criminal convictions.
Notably, Canaccord approved multiple trades involving Naked Brand Group Limited (later Cenntro Electric Group), Mullen Automotive, Progressive Care, Ilustrato Pictures International, and Trio Petroleum Corp., despite documents linking these transactions to individuals or entities under regulatory scrutiny.
Canaccord’s policies and procedures flagged characteristics such as high-risk clients, OTC securities, and offshore corporations as potential money laundering risks.
Nonetheless, the firm did not follow through effectively in mitigating these risks.
The firm has since undertaken remediation measures, including staff training, upgraded AML surveillance, enhanced onboarding procedures, and external consultations.
CIRO confirmed that, under the agreement, it will not pursue further action on the contraventions identified unless Canaccord fails to comply with the settlement terms
