Chairman and CEO <strong>Northern</strong> <strong>Securities</strong> Vic Alboini at his office on King St., TorontoFernando Morales/The Globe and Mail
Vic Alboini's regulatory problems are growing.
The CEO of Northern Securities Inc. is facing new allegations by Canada's brokerage industry regulator, which has accused the firm of operating without sufficient capital in late 2012 and early 2013.
The Investment Industry Regulatory Organization of Canada said it will hold a hearing on the matter February 7, but the hearing will simply be to set a date for a disciplinary hearing.
The latest IIROC case alleges Northern Securities had a "risk adjusted capital" level less than zero on 38 days between Nov. 21, 2012, and Jan. 25, 2013, which is contrary to IIROC rules.
"Without sufficient risk adjusted capital, Northern is at risk of defaulting on its financial obligations and being unable to carry on normal business operations," IIROC said in a notice of hearing issued Thursday.
IIROC's notice alleges Northern "bolstered the appearance of its risk adjusted capital level" between November and January "through certain unusual intercompany transfers" between the firm and its parent company, Northern Financial Corp. The brokerage firm began unwinding those transfers on Jan. 7, 2013, IIROC alleged, which caused its capital deficiency to grow from $223,000 on January 4 to $470,000 by January 7.
By January 25, IIROC said the capital deficiency had risen to $638,000.
The company is also accused of failing to have a chief financial officer in place "to ensure regulatory compliance." The firm's former CFO departed last June, and an unidentified new CFO hired on January 7 quit by January 22, IIROC said.
Northern issued a press release early last week warning investors it had been contacted by IIROC about its capital ratios and saying the regulator's financial staff had referred the matter to enforcement staff for an investigation.
The firm said it tried to raise $500,000 worth of new capital by selling shares earlier this month, but said the sale effort failed, leaving it unable to improve its capital ratios.
The company's capital problems worsened in December when IIROC ordered the firm to transfer all its client accounts to other dealers and get out of the business of managing client money. The decision meant Northern Securities could only work on merger and acquisition deals, provide research and do corporate finance work.
The regulator took the step after Northern lost its business agreement with its carrying broker, Pension Financial Services Canada, and was unable to find a new carrying broker to provide clearing, settlement and custodial services.
Northern said last week it cannot feasibly run a corporate finance business while facing a restriction on selling securities, and would ask IIROC for approval to sell securities in some cases, including to wealthy or "accredited" investors.
The firm's problems come on top of sanctions Mr. Alboini is facing himself. In November, IIROC suspended him for two years and banned him from being the "ultimate designated person" at a brokerage firm for failing to comply with several industry trading rules. He has appealed the decision, but a hearing has not been held yet.
(Janet McFarland is a Globe and Mail Business Reporter.)
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Janet McFarland