IIROC statement describes abuses of employer trust through backdated and cancelled transactions
The Investment Industry Regulatory Organization of Canada (IIROC) has fined a portfolio manager $250,000 for abuses of employer trust through deceptive misconduct, among other infractions.
In a statement of liability, IIROC described how Dwight Cameron Mann, a portfolio manager in British Columbia, made misrepresentations to his former employer National Bank Financial (NBF) in order to artificially improve the performance of numerous client accounts.
Between 2015 and 2018, Mann took advantage of an NBF policy under which an advisor who fails to execute a trade on behalf of a client could do so for up to 30 days following the error. The trade would be executed at the current market price, but the transaction would be registered in the client account at the price at which the original trade should have occurred; the advisor would be the one to absorb any cost difference arising from the price differential.
Over the relevant period, Mann executed 29 backdated transactions, which he reportedly told NBF were done to correct failures to execute trade orders. However, the backdating was actually done to create an impression of better performance in certain client accounts; he would either buy securities that had increased in value between the supposed and actual purchase dates, or sell securities that had decreased in value over the period.
“The effect of the 29 falsified backdated transactions was to confer at least $83,420 in economic value from the Respondent to the benefit of 14 different client accounts,” IIROC said.
The statement also said Mann exploited another NBF policy for correcting orders that had been mistakenly executed in the wrong client account. Under that policy, an advisor could cancel the erroneous transaction and transfer the security position to the correct account at the original price. In such cancel and correct transactions, the advisor would not incur any charges or costs.
According to IIROC, he executed 103 cancel and correct transactions for the purpose of benefitting certain client accounts. Through those transactions, a total of $145,885 in economic value was conferred to 18 account holders through the transfer of unrealized gains and losses between accounts.
Additionally, IIROC cited instances in which Mann offered unjustified promises of specific results to clients, including through email correspondence and written guarantees promising 5% or 10% annual returns, in violation of IIROC rules. He also failed to report a complaint lodged by an individual who held control over accounts belonging to two clients through a general power of attorney.