Richardson GMP will pay a $500,000 fine to settle a case over its failure to adequately supervise two Calgary brokers whose risky investment decisions led to hefty losses among scores of the brokerage’s clients.
RGMP agreed to the settlement with the Investment Industry Regulatory Organization of Canada (IIROC), along with the branch manager of its Eau Claire office in Calgary, Blair Pytak.
Mr. Pytak was fined $24,000 for failure to keep sufficient tabs on one of the former brokers, Adam Woodward, and prohibited for two years from acting as a supervisor. The other former RGMP broker is Preston Smith.
“The fine reflects the seriousness of the failure by Richardson GMP to properly supervise two advisers who made unsuitable recommendations for their clients, as well as a failure to maintain adequate internal controls relating to certain trading,” IIROC spokeswoman Andrea Zviedris said.
The investment dealer will also pay $50,000 in costs after investigations into the actions of its staff between 2011 and 2016. Including prior penalties, the regulator has handed out at least $1.1-million in fines and costs related to the cases in RGMP’s Calgary office.
IIROC previously fined the brokers for breaches of know-your-client rules, which are requirements for assessing investors’ tolerance for risk based on factors such as financial wherewithal, age and investment goals.
The cases raised questions about the checks and balances that RGMP brought to bear in its operations amid the client losses, which also triggered lawsuits.
The Globe and Mail chronicled the story of Mr. Woodward, who had been successful during the oil-patch boom years, but descended into personal turmoil when the market turned and client complaints piled up. He entered an alcohol-treatment program in late 2015, and emerged pledging to admit his wrongdoing. RGMP fired him in 2018.
Mr. Woodward invested large proportions of clients’ money into small, privately held oil stocks regardless of their personal and financial circumstances. The securities became unsalable after oil prices crashed. IIROC investigated and fined him $500,000 and imposed a lifetime ban from the industry.
Mr. Smith also placed clients’ funds into unsuitable investments in oil and gas, the industrial sector, and high-risk corporate debentures starting in 2011, the regulator concluded last year. It fined him $100,000 and levelled a two-year suspension.
In the settlement announced on Friday, IIROC said RGMP and Mr. Pytak failed in obligations to provide proper supervision, and in some cases had been aware of “red flags” but did not address them.
The settlement also said RGMP failed to maintain adequate controls over the pricing of some options in client accounts. This resulted in equity and collateral being incorrect.
RGMP president Andrew Marsh said the settlement ends regulatory actions related to the cases, which he asserts “do not represent who we were then, nor who we are today, in any way, shape or form.”
“Since 2015, we have taken the necessary actions to help ensure similar matters do not surface in the future. We have added significant new talent, improved tracking and awareness of risk exposure, and introduced automated portfolio risk tools to ensure consistency of supervision across the firm,” Mr. Marsh said in a statement. The settlement took note of the dealer’s actions to improve its controls over compliance and risk.
Last year, a judge rejected a class-action certification for dozens of clients suing Mr. Woodward and RGMP over their losses, and that decision is being appealed.
The lawyer for the case said the settlement bolsters their arguments, in either a class action or individual lawsuits. “Having made the admissions they made in the settlement agreement, it would be unusual for RGMP and Pytak to now try and resile those admissions,” lawyer Robert Hawkes said.
Some of the clients have agreed to settlements with RGMP.
With a report from Clare O’Hara in Toronto.
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