The SRO hearing panel had no choice but to permanently ban a former Investors Group advisor who recommended leveraged investments for at least 10 clients without the approval of his employer making this one of the most ‘egregious’ cases the MFDA has ever heard.
The advisor wasn’t done.
In addition to unapproved leveraged investment activity, Frank also borrowed approximately $245,000 from client AF, of which the advisor repaid just $73,100, creating a conflict or potential conflict of interest with the client contrary to MFDA Rules 2.1.4 and 2.1.1.
The hearing panel’s reasons for decision fined Frank $400,000, permanently prohibited him from any industry activity and ordered $5,000 in costs.
“The conduct in the case before us is one of the most egregious that we have dealt with. The word ‘egregious’ has sometimes been used in overkill in other MFDA cases to refer to less seriously abusive and unacceptable conduct than that of the Respondent’s in our case. In this case, we are not using the word in overkill,” writes the MFDA hearing panel. “This Respondent is ungovernable. This Respondent, by his conduct with his employer, engaged in undisclosed conflict of interests, personal financial dealings, borrowing from clients, lying to clients about the use of proceeds, and using the proceeds for his own personal business and benefit.”
MFDA staff recommended a minimum fine of $200,000 but the hearing panel was so outraged by the facts of this case that it doubled the fine. It’s unlikely that the MFDA will recover the fine, but industry players are pointing to the due diligence of the dealer in this case (IG), which appeared to bend over backwards to ensure the advisor followed the rules, although ultimately those efforts would fail.