Regulators have come down hard on trader David Connacher, levying $571,000 in fines and court costs and a lifetime ban from the securities industry after he was found to have violated trading rules in a scandal that brought down a small brokerage.
The Investment Industry Regulatory Organization of Canada said late Tuesday that Mr. Connacher would have to pay a fine of $500,000 plus $71,000 in costs. He will be banned for life from seeking the IIROC registration needed to trade in Canada.
IIROC found this month that Mr. Connacher "Intentionally and through deceptive means, improperly traded in his firm's inventory account, contrary to the account's purpose and without any instructions from clients; and engaged in personal financial dealings with two of his clients without the knowledge or consent of his employer."
His employer at the time was a small boutique dealer called Evergreen Securities. Evergreen shut down in late 2008 after taking big trading losses when Mr. Connacher was head trader.
IIROC formally initiated the investigation into Mr. Connacher's conduct in November, 2008. The violations occurred when Mr. Connacher was the head trader and a registered representative with Evergreen Capital Partners Inc. in Toronto. Mr. Connacher is no longer a registrant with an IIROC-regulated firm.
Mr. Connacher had already had a long run on Bay Street when he joined Evergreen, a small employee-owned boutique. He was also well known on the Street for his connections.
Mr. Connacher is the son of Jimmy Connacher, who was CEO at Gordon Capital in the 1980s and 1990s, when that firm was one of the hottest independents in Canada.
IIROC found that during the summer and fall of 2008, Mr. Connacher traded in an Evergreen account that was supposed to be used to accumulate client orders without any instructions from clients.
Mr. Connacher piled up shares in the account, and "would only later decide which clients would receive the securities positions" and "there were many instances where the respondent would allocate the trades to a client only once a profit was generated."
However, as markets tanked in 2008, the positions Mr. Connacher had accumulated dropped in value, which IIROC said made it more difficult for him to book the trades for clients.
When, in October, attempts were made to allocate $63-million in securities to two of the trader's biggest clients, the clients said they didn't place the orders. The trades failed to settle. Evergreen couldn't cover the trades and shut down.
All the documents related to the case are on IIROC's web site, at this link.