An Investment Industry Regulatory Organization of Canada (IIROC) hearing panel accepted a settlement agreement between IIROC staff and former CIBC World Markets Inc. investment advisor, Scott Andrew Hanson, wherein Hanson admits to discretionary trading in client accounts and conflicts of interest related to outside business activities.
According to the settlement agreement, the Barrie, Ontario area former advisor engaged in discretionary trading in the accounts of a husband and wife while the couple were away for a month on an overseas vacation. He also engaged in outside business activity when he participated as a member of an investment club, and failed to disclose or address the material conflicts of interest that arose when he opened client accounts for two individuals who were also members of the investment club.
The discretionary trading was discovered after the two clients submitted a complaint to CIBC about trading losses, informing CIBC that Hanson had engaged in discretionary trading while they were on vacation. Following an internal review, CIBC settled the complaint, compensating the couple $190,000.
In addition, Hanson admits in discretionary trading in the accounts for four other client households. None of these clients have complained to CIBC or to IIROC.
In the investment club, meanwhile, members would research and discuss stocks and one member would often make a presentation to other members. Hanson was one of the top three members giving the most presentations. When he presented to the group he used CIBC research. When the investment club had cash available or when a stock was sold, the members would collectively make buy decisions. “The respondent understood that other members relied on his opinion because of his influence as an advisor,” the agreement states. Hanson was a member of the club from 1995 until 2012 and again from 2015 until 2018. Between 1995 and 2008 he was the club’s president. Trading authority was held by other club members.
When the investment club transferred its accounts from one dealer to another, Hanson’s status as an approved person was flagged. He subsequently withdrew as a member due to his concern that he should not have personal assets comingled with client assets. He awarded his units in the investment club to one of his adult children while retaining his voting status as a permanent proxy. He ceased all activity in the club in August 2018.
In a disciplinary letter sent in April 2020, CIBC informed Hanson that his failure to disclose the outside business activity was a violation of the firm’s policies and regulatory requirements. The firm fined Hanson $40,000 and put him under close supervision. In July 2020 he admitted to the discretionary trading. In August 2020 CIBC terminated Hanson for cause. The $40,000 internal discipline fine remains unpaid.
Because Hanson made use of the regulator’s Early Resolution Offer process, accepting IIROC’s settlement offer, enforcement staff granted a 30 per cent reduction in the fine it would otherwise have sought. In the settlement agreement Hanson agrees to pay a global fine of $42,000, agrees to disgorge the $1,111.72 he earned from the discretionary trading, and agrees to pay costs in the amount of $10,000.