Investment firm Mackie Research Capital Corporation has been fined $75,000 and costs of $10,000 after it agreed that it failed to adequately supervise a Regina-based portfolio manager. Mackie also settled with five of the advisor’s clients for $115,000.
A hearing panel of the Investment Industry Regulatory Organization of Canada (IIROC) sanctioned Darryl Yasinowski in June 2018, consisting of a suspension from registration in any capacity for six months, close supervision for 18 months upon return to the industry, a $90,000 fine, and $10,000 in costs.
The decision was made public November 24, 2020.
Portfolio strategy used options, leveraging and inverse ETFs
The hearing panel said that between May 2010 and October 2014, Yasinowski pursued an investment strategy with the five clients that involved using options (covered and uncovered) and leveraged ETFs. In addition, he increased leverage by the use of margin in some of the clients’ accounts.
The clients sustained losses of between 32% and 56% of their portfolios. The 2011 market correction had a significant impact on the clients’ accounts, leaving the clients with limited opportunity to recover the loss of their investment capital.
Yasinowski admitted that he failed to meet the necessary “know your client” standard and failed to use due diligence to ensure that his investment recommendations were suitable for his clients.
Company should have known better
But the hearing panel also noted that red flags should have been raised by the company itself. The clients stated on the new client application form that their investment knowledge was “limited” or “poor.” As well, their stated investment objective simply indicated “growth” as their objective and did not provide enough information about the clients’ risk tolerance or asset allocation to allow the supervisors to make a reasonable assessment of whether the investments in the clients’ portfolios were suitable. The clients were also approved for Level 4 options trading, the highest risk level for retail options trading, despite their lack of investment knowledge and experience.
In failing to adequately question the account activity Mackie failed to adequately discharge its obligations to conduct supervision, said the hearing panel.
Mackie has since clarified how it interprets different risk tolerance categories, allowing its supervisors to monitor client accounts.
“These changes demonstrate Mackie’s commitment to a strong supervisory structure and are a mitigating factor,” the hearing panel said.
