For agreeing to participate in a deal which resulted in a capital deficiency of $370,000 for Gravitas Securities Inc., the firm’s ultimate designated person (UDP), Blayne Creed, must disgorge his commissions from the deal which created the deficiency (the firm must also disgorge its share of the commissions) and Creed must pay a fine and the investigation costs.
The Canadian Investment Regulatory Organization (CIRO) also banned Creed from acting as a UDP for a period of one year.
The violations occurred while Creed was a registered representative, interim president and CEO of the now-suspended firm, which had been a dealer member since 2008.
A registered representative with the company since 2016, Creed became the CEO and UDP in February 2020. Prior to that he had no experience in supervision or compliance. In May 2020, despite contrary advice from the company’s chief financial officer, he bought a private placement on behalf of the firm which caused the CFO to report a capital deficit to CIRO. Gravitas, at the time of the contravention, was already in the early warning designation since December 2019.
“If a firm is placed in early warning, it is monitored closely to measure certain characteristics likely to lead to financial difficulty. It does not imply that any contravention has taken place, although it may lead to increased reporting obligations,” the regulator’s reasons for decision states.
Creed accepted the invitation to participate in the private placement, worth $1-million, earning the firm and Creed commissions of $78,688.80 which they split. “Having been warned by the chief financial officer and the chief compliance officer that Gravitas lacked the capital to participate, he arranged with the majority shareholders of Gravitas that they would fund a capital injection. Mr. Creed accepted the invitation to participate in the transaction before receiving the capital injection, thus triggering a capital deficiency,” the regulator writes.
The deficiency was paid within 48 hours by allocating the transaction shares to clients, rather than by capital injection.
“Mr. Creed’s conduct was willful and/or reckless; however, it was a single incident and he had no prior disciplinary history to aggravate the situation,” the reasons state. “The level of penalties and costs, in conjunction with the one-year prohibition from acting as UDP is appropriate.”
In addition to both the firm and Creed disgorging their commissions from the transaction, Creed must also pay a fine of $40,000. Although he admitted the offence, “thereby avoiding the delay and expense of an enforcement hearing,” he was also assessed the costs of the investigation and ordered to pay an additional $15,000.