A host of remedial measures, a $2-million fine, restitution in the amount of $703,478.91 USD for clients with unresolved recommendation-related complaints, and an order to establish a $6-million fund to be used to make payments to eligible clients with similar complaints were just some of sanctions the Canadian Investment Regulatory Organization (CIRO) levied against order execution only (OEO) firm, Fortrade Canada Limited.
The London, England-headquartered firm accepted the settlement agreement with CIRO staff, also agreeing to retain all client phone calls and communications for seven years in an Ontario location and pay costs in the amount of $100,000.
“CIRO rules prohibit firms from providing recommendations to clients holding OEO accounts. In the settlement agreement, Fortrade admitted to making recommendations to clients, failing to establish and maintain a supervisory system that was reasonably designed to achieve compliance with CIRO requirements and failing to retain adequate records to demonstrate compliance with CIRO requirements,” the regulator’s announcement about the settlement agreement states.
Unsophisticated investors
The settlement agreement continues, saying the majority of Fortrade’s clients were unsophisticated investors with incomes of less than $50,000, liquid assets of less than $25,000, limited trading knowledge and no previous “contracts for differences” (CFD) trading experience.
“A CFD is an agreement to exchange, at the closing of the contract, the difference between the opening and closing price of the underlying asset, multiplied by the number of units of that asset detailed in the contract,” the settlement agreement states. “A CFD allows one to speculate on whether the price of the underlying asset will increase or decrease, without owning the underlying asset. CFDs are derivatives and are generally traded over the counter. CFDs are recognised as complex, high-risk products.”
Fortrade agents meanwhile, not regulated persons, also encouraged clients to deposit funds into their trading accounts to complete the trades based on their recommendations.
When asked to provide recordings of all client phone calls for a specified period, it was found that Fortrade did not keep these longer than a week. The call recordings and emails that were obtained, however, showed Fortrade agents in a pattern of making recommendations to clients in connection with trading CFDs.
Calls discussed strategies
The unsolicited calls discussed strategies, purported opportunities, predictions, profit calculations and included recommendations based on client transaction histories, current account holdings and previous trades. They also cited predictions and recommendations from Fortrade’s research department. Some callers suggested to clients that they may be missing out on profitable trades.
“Fortrade knew or ought to have known that some clients were seeking advice and relying on the recommendations provided by Fortrade agents,” the settlement agreement states. It also notes that the company breached its own account opening appropriateness review procedures.
The settlement agreement with CIRO includes a plan for establishing the fund to be administered by Fortrade for the purpose of making payments to eligible clients. CIRO adds that it will conduct a compliance review before March 2025.