Regulators have imposed a lifetime ban on a former Calgary stockbroker at the centre of a mountain of legal action and fined him $500,000 for plowing money into risky stocks on behalf of dozens of clients, regardless of their tolerance for big losses.
The Investment Industry Regulatory Organization of Canada's penalty on Adam Woodward, a former high-flying energy deal maker at Richardson GMP, follows a more than year-long investigation into code-of-conduct breaches. It includes a $450,000 fine, $50,000 in costs and the prohibition on his ever working in the sector again.
He faced a series of charges stemming from a sample of seven clients, who suffered losses in their accounts of between 21 per cent and 94 per cent over 3.5 years. All told, the agency received complaints from 58 RGMP clients who were heavily invested in small, privately held oil-and-gas stocks, regardless of their personal and financial circumstances, an IIROC lawyer said during a hearing in Calgary on Friday.
Such securities performed well when oil prices hovered around $100 (U.S.) a barrel, but plummeted when crude prices collapsed in late 2014, and they became nearly impossible to sell. "Most of Mr. Woodward's clients were vulnerable investors, some of which were seniors, who relied on his investment expertise," Andrea Zviedris, spokeswoman for IIROC, said in a statement. "The seven clients in this case suffered losses totalling more than half a million dollars – so it was important that this significant penalty reflect the seriousness and scope of the allegations."
Mr. Woodward and RGMP are also co-defendants in a $50-million (Canadian) lawsuit brought by former clients who say the ex-adviser tailored paperwork to ensure they would be able to buy high-risk securities, even if they had minimal investment knowledge. The suit, which has not yet been heard in court, alleges the brokerage failed to supervise Mr. Woodward adequately.
IIROC's lawyer David McLellan case said Mr. Woodward employed a one-size-fits-all strategy in which he appeared to be concerned more with finding "the next hot home run" among the securities he identified than providing personalized advice to clients.
The Globe and Mail has chronicled the story of Mr. Woodward, who had been a star broker during the oil patch boom years, but descended into addiction and the breakdown of his personal life when the market turned against him and client complaints over losses piled up. He entered an alcohol-treatment program in late 2015, and emerged several months later pledging to admit his wrongdoings. RGMP fired him last summer.
The case also raises questions about how closely the brokerage supervised Mr. Woodward and his team, and looked for warning signs, as they went about putting their investment strategy into practice.
Mr. Woodward did not attend the hearing on Friday, and the IIROC enforcement panel made its ruling in his absence. His lawyer did not respond to a request for a reaction to the penalties on Friday. RGMP declined to comment.
The counts against Mr. Woodward involved failing to use due diligence to remain informed about clients' individual circumstances and failing to make sure investment recommendations were suitable. In addition, he engaged in discretionary trading on behalf of clients without being authorized. He also failed to make sure clients were qualified to invest in private placements of securities that were exempt from the disclosure requirements that are standard with traditional public companies.
In one case, he breached rules regarding personal dealings with clients, when he borrowed $565,000 from one investor who was also a director of some of the private companies that were in many client accounts.
The hearing concerned only Mr. Woodward's conduct. Ms. Zviedris declined to say if the organization was preparing more charges or could reach a settlement with RGMP or other staff members in connection with the case.
"It wouldn't be appropriate to comment on the possibility of any future investigations, for confidentiality and privacy reasons," she said.