The Investment Industry Regulatory Organization of Canada (IIROC) announced July 9 that it has accepted a settlement agreement, with sanctions, between IIROC staff and Darren Maurice Sampson after Sampson admitted he failed to ensure the suitability of a high-risk, speculative security purchased and held in his client’s accounts.
According to the settlement agreement, Sampson, a registered representative with Gravitas Securities Inc. until June 2017, accepted orders to purchase open-ended unit trusts of the Creative Wealth Month Pay Trust (Creative Wealth), without knowledge of client’s personal and financial circumstances needed to determine whether an investment in the security was suitable for them. The settlement agreement states that Sampson was the registered representative on the accounts of the majority of investors who purchased Creative Wealth.
The security’s offering memorandum stated that the securities were only suitable for sophisticated investors with a high tolerance for risk, seeking a targeted fixed yield over the long term. The investment was also described as being more suitable for diversifying assets in a larger portfolio, than as a core portfolio holding. The investment objective of Creative Wealth was to provide unitholders with a fixed rate of return equal to nine per cent annually. Later, in October 2015, Creative Wealth advised unitholders that it would be implementing changes that would reduce the trust’s net asset value to $5.00 per unit, down from $10 per unit, and reduce the rate of return to unitholders from nine per cent per annum to zero per cent. In December 2018, a court appointed receiver “indicated that there is no prospect that the investors will receive the full return of their principal investments.”
“The respondent recommended and accepted orders for units of Creative Wealth from clients without taking steps to ensure that they had sufficient tolerance for high-risk securities or properly qualified to purchase exempt securities. In most cases, Creative Wealth was the only or the primary holding in the client’s accounts that were open with the respondent.” On at least one occasion, 100 per cent of the client’s liquid net assets were invested in the security.
For failing to use due diligence to ensure that orders accepted and recommendations made were suitable for certain clients and within the bounds of good business practice, Sampson agreed to pay a fine in the amount of $25,000, and costs in the amount of $2,500. Sampson is also barred from re-registering with any IIROC firm for a period of five years.
