IIROC rules former investment advisor engaged in excessive trading that led to losses of more than $1.3 million
The Investment Industry Regulatory Organization of Canada (IIROC) has deemed a former Toronto investment advisor liable for failing to know his client and excessive trading outside the bounds of good business practice.
According to an IIROC document dated July 6, Alfred Drose was an investment advisor registered at Chippingham Financial Group Limited when he took on GA, a 66-year-old former lawyer, as a client in February 2014. A little more than a year earlier, the Law Society of Upper Canada, known today as the Law Society of Ontario, had determined that GA did not have the capacity to practice law as he was suffering from cognitive decline due to Alzheimer’s Disease.
In early February 2014, Drose met with a person identified as GS to open an account for GA. In the days leading up to the meeting, he emailed several account opening documents to GS including blank NCAF, a blank Irrevocable Power of Attorney – Securities form, and a blank Trading Authority Authorization form, among others.
In his testimony provided to IIROC, Drose reportedly said that the meeting to open the account for GA lasted “five minutes tops,” which the regulator said was too short for a prospective client that Drose had no prior relationship with. The account opening forms were already filled when Drose collected them, IIROC said, and he did not discuss the content of the forms with GA before opening an account for him.
According to IIROC, the NCAF indicated GA’s investment objective as 100% speculative, his risk tolerance as 100% high, and his investment knowledge as Good.
IIROC said that over the following seventeen months, Drose engaged in excessive trading within the GA account, which represented approximately 73% of his assets under administration over the time that it was open. During that time, he executed 168 high-risk, speculative, and short-term trades, compared to seven trades he did in all his other clients’ accounts combined.
“This trading was not profitable and resulted in losses to the client in excess of $1.3 million,” IIROC said. “In comparison, the total gross commissions on the GA Account exceeded $232,000, resulting in a commission to equity ratio of 39.09 (annualized), which, in our view, constitutes further evidence of the excessive trading in the account.”
The penalty to be imposed on Drose has yet to be determined.