Canaccord faces stiff fine from IDA

The IDA has levied a fine of $750,000 on Canaccord Capital Corporation and co-branch managers Donald Grant Macdonald and Paul Peter DiPasquale. The fine is the result of an admission that the firm failed to properly supervise the activities of John Frederick Pryde, who is no longer with the firm.

In the settlement reached with the IDA, Canaccord also admitted it failed to have proper systems, procedures and personnel in place to ensure effective supervision over the branch on Burrard Street in Vancouver, between November 1998 and June 2001.

Pryde had been a registered representative at the Burrard Street office since 1987, when the branch was Brink, Hudson & Lefever Ltd. The company was bought by Canaccord in November 1998. Throughout his tenure, he specialized in trading small cap stocks listed on the Vancouver Stock Exchange and its successor, the TSX Venture Exchange.

“On or about July 30, 1998, during a business discussion, Pryde had a significant breakdown in Macdonald’s office in the presence of Macdonald,” says the IDA summary of facts. Pryde was admitted to hospital later that day and was diagnosed with bipolar disorder.

“Macdonald and DiPasquale denied they were aware Pryde was in hospital for the entire month of August but acknowledge they were aware he was away from the office being treated for a chemical imbalance, and failed to make sufficient inquiry to determine the extent of his condition,” the IDA report says.

Despite his absence, several trades were placed under Pryde’s broker code.

“Neither Macdonald nor DiPasquale made any inquiries of Pryde, his trader or any of his clients to ensure that the trading conducted while he was in the hospital was authorized and in the best interests of his clients.”

Upon Pryde’s return to the office, neither Macdonald nor DiPasquale placed him under supervision, despite knowing that he had been treated for mental illness or despite the “significant volume of trading” that took place while he was hospitalized.

“[Pryde] routinely made transactions in client accounts without authorization and without regard to whether the transaction was in the best interests of the client or whether there were any funds available in the client account to pay for the purchases,” the IDA report says. “As a result, a significant number of debits began accumulating in client accounts for trades that were not authorized in the first place.”

By February 25, 2000, those debits had reached nearly $3.5 million.

If that were not enough to suggest something was amiss, on or about January 13, 2001, several of Pryde’s clients’ cash accounts were converted to margin accounts, despite the fact that their small cap holdings were not margin eligible.

Pryde was eventually suspended on May 25, 2001, before being fired by Canaccord on June 26, 2001.

For their combined failure to properly supervise his activities, the firm was fined $500,000, Macdonald, $125,000, and DiPasquale, $100,000. They are also liable for $25,000 in costs.

Macdonald has been banned from returning to the industry, while DiPasquale is suspended from acting as a branch manager for a period of six months and must successfully re-complete the branch manager’s course before re-registering as a branch manager. He is permanently prohibited from acting in any higher supervisory position, with any Member firm.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com