Respondent failed to ensure clients' investments in high-risk, speculative securities were suitable, says IIROC
A former investment dealer has agreed to a five-year prohibition on re-registration with Investment Industry Regulatory Organization of Canada (IIROC) after admitting that he had failed to ensure the suitability of a high-risk, speculative security held in his clients’ accounts.
According to a settlement agreement document dated July 2, 2020, Darren Maurice Sampson was employed with Gravitas Securities from February 2011 until June 2, 2017. He has not been registered in the securities industry since June 2017.
Sampson was the registered representative on the accounts of the majority of investors who purchased units in the Creative Wealth Monthly Pay Trust. He reportedly had no prior experience as a registered representative, except for a 90-day training program he underwent at another dealer member.
The assets primarily held by Creative Wealth, which aimed to provide a 9% annual fixed rate of return, were a series of promissory notes issued by Cangap Merchant Capital LP. According to the Creative Wealth OM, the securities were “only suitable for sophisticated investors with a high tolerance for risk and seeking a targeted fixed yield over the long term,” and “more suitable to diversify assets in a larger portfolio rather than as a core portfolio holding.”
The settlement agreement focused on how Sampson accepted orders for units of Creative Wealth from three clients, and recommended them to another one, “without taking steps to ensure that they had sufficient tolerance for high-risk securities or [were] properly qualified to purchase exempt securities.” Across all cases, the purchases represented either all their assets or almost 100% of their net liquid assets held at Gravitas.
A new account application form (NAAF) completed on behalf of one retired client showed she had net liquid assets of $1 million, but she said her net financial assets did not surpass $1 million and was thus not qualified to purchase units of Creative Wealth. Sampson did not meet in person with her, instead relying on the documentation she signed to facilitate purchases of units of Creative Wealth.
In the case of another retired couple, Sampson facilitated purchases based on a subscription agreement that relied on an exemption extended to accredited investors under NI 45-106. However, their NAAFs indicated that their liquid assets did not exceed $1 million.
“[T]he Respondent did not question the [clients’] reliance on this exemption nor did he take any steps to confirm that the Ms had the net financial assets required to rely on this exemption,” IIROC said in the settlement agreement.