After engaging in a relationship with a former approved person wherein he helped the unregistered, former dealing representative to conduct business by way of a stealth advising arrangement, the Mutual Fund Dealers Association of Canada (MFDA) has fined Dmitri Graham $30,000 and ordered him to pay costs of $10,000.
The former Quadrus Investment Services Inc. and Sterling Mutuals Inc. dealing representative has also been barred from conducting any securities related business with any MFDA member firm for a period of five years.
Before returning to the industry, Graham must also pass the Ethics and Professionalism Conduct Course offered by the IFSE Institute prior to being re-registered.
The penalties are an increase over the penalties sought by the MFDA’s own staff – counsel for the MFDA submitted that Graham be barred for three years and assessed penalties of $25,000 and costs in the amount of $10,000. “We agree with the recommendation as to costs but believe that the prohibition from conducting securities related business should be longer and that the fine should be higher,” the MFDA writes in its decision (penalty) and reasons.
From November 2017 until July 2018, Graham reportedly opened new accounts, processed Know Your Client (KYC) forms, and processed trade forms without learning about clients in question or ensuring that the transactions were suitable. He also signed and submitted documentation obtained by the unregistered individual – Trevor Rosborough – during the same period.
“Neither Sterling nor the MFDA knew about these arrangements until investigators at an Ontario Securities Commission (OSC) hearing into alleged insider trading in a marijuana company by Rosborough, the respondent, and another person, disclosed the stealth advising relationship that is the subject of the present hearing,” the MFDA writes.
“The OSC brought a disciplinary proceeding against Rosborough for stealth advising, which resulted in Rosborough’s registration being suspended for five years,” they add. “The evidence is clear that he (Graham) had little or nothing to do with them (the clients), apart from signing the documents and transferring the commissions to Rosborough.” They add that it was Rosborough or his assistants who met with the clients, solicited new clients, made investment recommendations, collected KYC information and took instructions.
The MFDA says although the stealth advising engagement affected 16 to 18 clients at least, “it appears more than likely that all 46 of the respondent’s clients were being advised by Rosborough,” they write, adding that “the evidence about the respondent’s conduct is overwhelming.” The total asset value of all accounts being serviced by Rosborough was over $7-million.