Toronto dealer faces $2 million fine

A Toronto-based dealer member faces a $2.05 million penalty after failing to adequately supervise more than $340 million in U.S. over-the-counter securities trades by two offshore clients.

A CIRO hearing panel accepted a settlement agreement on April 15, 2026, finding that Independent Trading Group Inc. (ITG) failed to fulfil its gatekeeper obligations in relation to trading activity carried out by two foreign broker dealer clients — Seven Mile Securities Inc. and Blacktower Financial Management (International) Limited — between August 2020 and December 2021.

Under the terms of the settlement, ITG agreed to pay a $500,000 fine, disgorgement of $1.5 million, and costs of $50,000.

Accounts opened without sufficient due diligence

ITG opened accounts for both Seven Mile, incorporated in the Cayman Islands, and Blacktower, registered as a broker-dealer in the Bahamas, in May and June 2020. At account opening, both foreign broker dealers were assigned a medium risk designation with a score of 64 — the highest possible within the medium range.

In September 2020, ITG implemented a policy requiring that any client approved to trade in OTC securities be designated as high risk for anti-money laundering monitoring purposes. The firm did not apply this policy to either Seven Mile or Blacktower, and did not change their risk designations throughout the relevant period.

The settlement agreement noted that ITG treated each foreign broker dealer client the same way regardless of risk rating, and that the medium risk categorisation did not increase the firm's review of either client's activity.

Red flags not adequately addressed

During the relevant period, both clients followed a consistent pattern: depositing large volumes of OTC securities, selling them — often immediately — and wiring the proceeds to bank accounts in offshore jurisdictions, with very few purchases.

Seven Mile's total sales through ITG amounted to $160,225,094, against purchases of $4,195,987. Sale proceeds of $143,250,000 were wired to Seven Mile's accounts at the Standard Bank of South Africa, with a further $2.8 million sent to the Butterfield Bank in the Cayman Islands.

Blacktower's sales totalled $181,761,250, against purchases of $3,793,558. Funds were regularly transferred to accounts at Butterfield Bank and Fidelity Bank in the Cayman Islands.

Both clients, during the early months of trading, also placed orders on behalf of a third entity, Gel Direct Trust (GEL), which was not an ITG client. In November 2022, GEL was named in a U.S. Securities and Exchange Commission complaint alleging it acted as an unauthorised broker to execute more than 19,000 trades of more than 300 billion shares of stock for over 400 issuers.

Trading continued despite warning signs

The settlement agreement outlined that ITG allowed both Seven Mile and Blacktower to sell securities while the OTC Markets Group had assigned promotional activity flags to those securities — a signal of potential market manipulation. Ongoing monitoring of those flags and risk scores was not referred to in ITG's approved policies and procedures manual.

In October 2021, the Cayman Islands Monetary Authority fined Seven Mile $250,000 for deficient anti-money laundering policies and procedures. ITG did not change its risk assessment of Seven Mile following the fine and continued to allow it to trade until February 2022.

There were 1,883 instances between January 4 and December 15, 2021, where Blacktower's daily trading volume for a specific security exceeded 25 per cent of the daily total market volume. In 751 of those instances, Blacktower's volume exceeded 50 per cent of the daily total market volume.

CIRO enforcement staff and ITG agreed that $1.5 million was a reasonable approximation of the amounts obtained by ITG as a result of its failure to discharge its gatekeeper obligations.

Inadequate supervision policies

The settlement noted that while ITG did ask questions in some instances and rejected certain deposit requests — including declining a deposit package for securities connected to a person who had previously pleaded guilty to fraud — the firm did not adequately monitor ongoing trading activity once deposits were approved. Legal opinions obtained from Seven Mile and Blacktower were described as standard form and did not always address key elements of transactions, including the identity of the ultimate beneficial owners.

The settlement agreement stated that no later than October 2021, when ITG became aware of the CIMA fine on Seven Mile, the firm should have taken steps to address multiple issues with Seven Mile's trading and recognised that its supervision was inadequate.

Gatekeeper obligations

CIRO's settlement agreement cited a contravention of Investment Dealer Rule 1400, which requires dealer members to act as gatekeepers to capital markets to help prevent and detect potentially illegitimate, abusive, or fraudulent practices.

ITG ceased accepting DWAC deposits for clients trading in U.S. OTC securities as of July 31, 2024.