The Investment Industry Regulatory Organization of Canada (IIROC) has banned former registered representative, Alfred Drose, for two years, requiring him to pay a fine of $137,171, costs in the amount of $35,000, and requiring that he submit to a 12-month period of strict supervision if his registration with IIROC is approved in the future. The sanctions come after an IIROC hearing panel found that Drose was liable for failing to know his client, and for excessive trading that was outside the bounds of good business practice.

The violations occurred while Drose was a registered representative with the Toronto branch of Chippingham Financial Group.

In its decision and reasons on penalty, IIROC states that Drose diverged from the standard expected of him when he failed to exercise due diligence to obtain the essential facts about GA, a 66-year-old client who had already been found more than a year earlier by a Law Society of Ontario tribunal, to lack capacity due to Alzheimer’s disease.

“Although there was no prior relationship between the respondent and GA, the initial client meeting lasted five minutes, during which the respondent collected pre-filled account opening forms, including the NCAF (new client application form). He did not discuss the content of the pre-filled forms, including KYC (know your client) information with the client,” IIROC states in its reasons for decision. More, they add that after opening the account, Drose had no further contact with GA.

After opening the account, Drose then engaged in excessive trading for 17 months. “The GA account represented more than 76 per cent of the respondents AUA (assets under administration) when the account was opened and averaged approximately 73 per cent of the respondent’s AUA over the life of the account.” Drose executed 168 trades and engaged in high risk, speculative and short-term trading. “This trading was not profitable and resulted in losses to the client in excess of $1.3-million. In comparison, the total gross commissions on the GA account exceeded $232,000, resulting in a commission to equity ratio of 39.09 (annualized).” 

When considering the appropriate sanction, IIROC considered the pattern of misconduct, the fact that the client was vulnerable, and suffered financial harm in the form of trading losses and excessive commissions charged to his account.

“Excessive trading, one of the contraventions in respect of which the respondent was found liable, involves a mental element. The respondent’s misconduct in connection with excessive trading was, accordingly, intentional misconduct,” they write. “Harm to the reputation of the marketplace is a likely result of the respondent’s misconduct.” 

More, they say Drose did not accept responsibility for his actions, preferring instead to shift the focus to supervisors. There is no evidence that he was subject to any internal discipline, he did not voluntarily employ corrective measures to avoid recurrence of the misconduct, and there is no evidence that Drose made any voluntary act of compensation or restitution. “The respondent was not proactive in providing assistance to IIROC staff, nor would his cooperation in the investigation be considered as exceptional,” they add. “His conduct in connection with the proceeding caused unnecessary delay and added to the cost.”

In addition to paying the fine and costs, Drose must also rewrite the CPH examination prior to being reregistered with IIROC.