Former fund rep sanctioned for loans from clients

A former fund rep who borrowed money from clients, tried to start a medical marijuana business with some of that money, and misled his dealer, has been fined and permanently banned by a regulatory hearing panel.

Following a hearing, a panel of the new self-regulatory organization ordered that Stephen Scott Smockum — a former rep with Desjardins Financial Securities Investments Inc. and GP Wealth Management Corp. — is permanently banned, fined $275,000 and ordered to pay $10,000 in costs after it found that he violated several rules of the former Mutual Fund Dealers Association of Canada (MFDA).

According to the panel decision, Smockum admitted the misconduct in an agreed statement of facts. Specifically, he admitted to engaging in unapproved personal financial dealings with clients by repeatedly borrowing money from clients.

In total, he borrowed over $900,000 from various clients over the years. While much of the money was eventually repaid, he ultimately failed to pay back over $200,000 — money that was instead repaid by his dealer at the time, Desjardins.

One of the reasons for his borrowing from clients was to finance an effort to start a medical marijuana business with his brother — without prior approval of his dealer. However, the company failed to secure operating licences from the government.

He also admitted to recording false notes about activity in clients’ accounts. For instance, in one case, he claimed that clients were redeeming $475,000 in mutual funds to finance the construction of new houses, when in fact the funds were redeemed so that they could be loaned to him. He also admitted to misleading his dealer during its investigation into his personal financial dealings with clients.

Enforcement counsel for the MFDA sought a $325,000 fine in the case, while counsel for Smockum argued that a $24,000 fine would be more appropriate.

However the panel said that the fine suggested by Smockum’s counsel is “simply unrealistic.”

Instead, it set the fine with reference to the penalties handed down in similar cases, along with credit for his cooperation with the SRO, admitting the misconduct, and the fact that Smockum had no prior disciplinary record.

“The respondent took advantage of his professional relationship with his clients to his financial advantage and placed his clients’ money at risk. Such misconduct is considered a serious breach of the MFDA rules,” the panel said in its reasons.

Smockum was last registered with GP Wealth in 2019. The firm terminated him after discovering his misconduct.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.