Scotia Capital Inc. has agreed to pay a fine of $500,000 in a settlement with Canada's brokerage industry regulator after acknowledging more than 1,700 clients were allowed to invest in various funds even though they did not meet criteria for accredited investors permitted to participate in the offerings.
The investors were clients of DWM Securities Inc., which was acquired by Scotia Capital in 2011. The Investment Industry Regulatory Organization of Canada, which regulates Canada's brokerage industry, said most of the investments occurred before Scotia Capital bought DWM, although some occurred after the purchase but before the division was amalgamated into Scotia's operations.
IIROC said Scotia Capital notified the regulator about the problems when it discovered that 1,710 clients had made investments in exempt funds – which can only be sold to wealthy or accredited investors – even though information on file about them showed they did not qualify for the investments.
While most of the clients made a profit on the investments, IIROC said 594 people had net losses totalling $4.5-million. As part of the settlement agreement, the brokerage firm has agreed to reimburse their losses, IIROC said. Those who still hold the funds will be encouraged to redeem them to receive compensation for the losses.
Scotia Capital said it will also require advisers who improperly sold the exempt funds to pay internal fines totalling $440,000, which will be donated to charity. The advisers will also have to cover some of the money being repaid to clients who suffered losses.