RBC Dominion Securities fined $350,000 plus costs for not supervising veteran advisor

A retired RBC Dominion Securities Inc. (RBC DS) representative, Roberta Benson, is being sanctioned with a fine of $30,000, costs in the amount of $10,000 and a suspension, while her former firm has been ordered to pay $350,000 and costs in the amount of $50,000 after it failed to adequately supervise the registered representative. 

The Investment Industry Regulatory Organization of Canada (IIROC) accepted both settlement agreements after Benson admitted that she failed to use due diligence to learn and remain informed of essential facts related to her clients. IIROC formally initiated an investigation into her conduct in September 2018 and initiated an investigation into RBC DS’s conduct in March 2019.

Benson, who began her career in 1978, joined RBC DS in 2007. She retired in March 2016 and is no longer a registered representative. The settlement outlines Benson’s failure to discharge her know your client (KYC) obligations relative to three clients and one chartered professional accountant who handled one client’s finances. (The accountant has since had his license revoked in connection with the events described in both settlement agreements.)

An elderly, high-net worth client 

According to the agreement, client SK was an elderly, high-net worth client. Prior to her death, she was also the president, director and sole shareholder of SKL, a corporate client of RBC DS. SC was the accountant who managed SK’s finances. He was also a director and officer of SKL. Both SK and SKL were clients of Benson’s dating back to the late 1990s. When SK’s accounts were transferred to RBC DS, SC was assigned trading authority. New client account forms incorrectly stated that SK was a sophisticated investor.

The accountant’s spouse, known only as BC in the settlement agreements, also opened a margin account at one point, giving SC trading authority. The agreements state that SC then began to use the account as his own. Despite the fact that new client forms indicated that $100,000 was the most money she had in the market at any time, the margin account consistently exceeded that amount, often by millions of dollars.

Prior to that, four margin accounts were also opened for SKL with SC listed as the sole trading authority. Between 2009 and 2010, guarantees were signed by SC, BC and SKL wherein SC guaranteed SKL’s accounts, SKL guaranteed SC’s accounts, SC and SKL guaranteed BC’s accounts and BC guaranteed SC and SKL’s accounts.

“SC signed the guarantees on behalf of SKL to guarantee his own and BC’s accounts,” the settlement agreement reads. “As a result of the various guarantees, a cross-guarantee relationship was established but only SKL was ever called upon to satisfy the obligations of the other parties to this relationship.” 

The settlement agreement further states that Benson did not explain the nature, or the significance of the guarantees, and that profiles were not updated to reflect their existence.

Beginning in November 2009, “SC embarked upon a self-directed, unsolicited strategy of high-risk and aggressive trading, including excessive margin trading, in both his and BC’s margin accounts,” the settlement agreement states. “SC relied on the guarantees and in particular, the excess loan value of the SKL accounts to meet the margin requirements.” 

SC ultimately caused the debit balance in his accounts to exceed his documented total net worth. “At its highest, the total debit balance for all SC’s margin accounts was more than 6.8 times his documented net worth,” they write. “SC similarly incurred significant margin debt in the BC margin account.” In response to queries from RBC DS, Benson adjusted KYC forms without conducting due diligence to support any changes. 

High margin debt 

“In the circumstances, the use of margin in SC’s and BC’s accounts in excess of their stated net worth and in reliance of the guarantees with SKL, should have been a red flag for Benson,” the agreement states. “In particular, the high margin debt and the deteriorating equity position of SC’s margin accounts and the BC margin account warranted further suitability assessments, which Benson failed to conduct.” 

When SK died in October 2014, Benson also failed to inform RBC DS until the following January. “Starting approximately ten weeks after SK’s death, SC, on behalf of SKL, directed a series of transfers from an SKL account to his and BC’s margin accounts.” The three transfers totalled nearly $3-million.

“At the time the April 2015 letters of authorization were processed, RBC DS had not been provided with a copy of SK’s will and had not received instructions from SK’s estate,” they write. “Moreover, the transfers pursuant to the letters of authorization amounted to transfers of a substantial part of the assets of SKL.” 

Benson has since made a voluntary payment of $180,000 to SKL while RBC DS made a similar voluntary payment of $500,000 to the company. In addition to this and fines imposed by IIROC, the retired representative is also banned from working in the industry for a period of five years.