Keybase Financial Group has been levied a $35,000 fine, plus costs, after it failed to adequately handle a number of client complaints, according to a hearing panel of the Central Regional Council of the Mutual Fund Dealers Association of Canada (MFDA).
Keybase admitted that between 2011 and 2019 it failed to handle 13 client complaints dealing with a leveraged investment strategy that certain clients had implemented in their mutual fund accounts.
Clients lost money
Between 2008-2009, in the context of the global financial crisis, the unit values of these mutual funds declined, the distributions paid by the funds to investors were reduced, and the clients were left with investment loans that required repayment. The clients experienced investment losses and they complained to Keybase about the situation.
The client complaints to Keybase alleged that advisors failed to adequately explain to them the features of the strategy to clients. They said they were told that the strategy would generate enough returns to pay their borrowing costs and also allow them to pay down their mortgages more quickly and/or generate excess discretionary income, so that the clients would not have to incur any out-of-pocket expenses.
Some clients launch civil suits
A number of the clients who submitted complaints also commenced civil lawsuits seeking recovery of their money. It took Keybase between seven months and three years to provide a substantive response to seven of these client complaints.
In August 2015, the Ontario Securities Commission imposed terms and conditions on Keybase and its IIROC affiliate, Argosy Securities Inc., requiring them to hire an outside consultant to recommend changes to the governance structure and compliance resources of Keybase and Argosy, which they did.
In addition to the $35,000 fine, Keybase has to pay costs of $5,000 and ordered to comply with its complaint handling duties.
