Regulators have suspended a Calgary investment adviser and fined him $110,000 in the latest fallout from a case involving inappropriate investments and major losses among clients at Richardson GMP Ltd.
The Investment Industry Regulatory Organization of Canada (IIROC) imposed the penalties in a settlement with John Reyes, an adviser at Richardson GMP’s Eau Claire office in Calgary, over code-of-conduct breaches. They included failing to adequately determine clients’ tolerance for risk and to ensure his recommendations were suitable when he invested their money into shares of risky, privately held junior oil companies as the clients – a married couple – approached and entered retirement.
In another instance, Mr. Reyes provided funds to invest through a client’s account for his own benefit, unbeknownst to the firm, according to the settlement.
Mr. Reyes faces a two-month suspension, a fine of $107,500 and costs of $2,500. He must also rewrite an industry exam that deals, in part, with know-your-client rules, a key aspect of industry code of conduct aimed at protecting clients against buying securities that do not fit with their income, lifestyle, level of financial knowledge and tolerance for risk.
Mr. Reyes had been part of a team at the brokerage led by Adam Woodward, a broker who had forged a stellar reputation for notching major gains for clients by investing in private energy securities during the boom years of the oil patch. He descended into addiction and the breakdown of his personal life when the market turned against him and complaints over losses piled up.
The Globe and Mail documented his case in 2017 in a story that raised questions about oversight of client accounts at Richardson GMP’s Calgary office. Last January, IIROC banned Mr. Woodward from the industry for life and fined him $500,000 following a lengthy investigation into the situation. Mr. Woodward and Richardson GMP are also defendants in a $50-million lawsuit brought by former clients who suffered hefty losses. A judge is preparing a ruling on whether to certify it as a class action.
Mr. Reyes assumed management of accounts that Mr. Woodward was responsible for when Mr. Woodward took a leave of absence in late 2015 to enter a substance abuse program, and was subsequently fired by Richardson GMP in 2017. However, Mr. Reyes had been the adviser of the clients in question from the time they first came to the brokerage in late 2012 and early 2013.
According to the settlement, most of the investments he made on behalf of the married couple were concentrated in speculative, private securities, two of which lost all their value when the companies went bankrupt in 2016. One of the clients had moderate investment knowledge while the other was inexperienced, according to IIROC. Still, both were listed on compliance documents as having tolerance for aggressive investing.
Those clients, Kathleen Beever and Dwayne Erickson, have also launched a lawsuit against Mr. Reyes and Richardson GMP. Their lawyer, Kelly Colborne, said they had not made a decision yet on whether to proceed with the court action in light of the IIROC settlement.
Neither Richardson GMP nor Mr. Reyes would comment on the settlement.