IDA bans brokers in Toronto, Vancouver

(November 21, 2005) A Toronto broker who was involved in a locked-in RRSP scam has been banned by the IDA for five years and must pay a $100,000 fine if he chooses to rejoin the industry. In a separate decision, a Vancouver broker was fined $30,000 and suspended for one year in a case involving investment suitability.

In the Toronto case, Barry Leung of Octagon Capital admitted in a settlement agreement that between July 2002 and June 2003, he failed to use due diligence relative to a group of clients in Ontario, Alberta and B.C. who opened accounts for the purpose of purchasing convertible debentures by way of a private placement in Bright Star Ventures.

Two others, identified by the IDA as H.J. and J.C., were involved in the scheme, taking out ads in newspaper promising investors access to their locked-in accounts.

According to the IDA, H.J. and J.C. devised a plan by which investors would liquidate their locked-in holding at other financial institutions and transfer the proceeds of sale to an account opened in their name at Octagon under the administration of Leung. The investors would then use the proceeds in their Octagon accounts to purchase Bright Star debentures.

The amount the purchasers received was approximately 30% of the amount they invested in the debentures. The scam attracted 97 people in three provinces, who invested more than $2 million. Leung received $200 in commission for each account opened at Octagon, which was split with the firm, leaving him with $9,700.

Bright Star has been under a British Columbia Securities Commission–imposed cease-trade order since April 2004 for failing to file audited financial statements.

The IDA says Leung failed to learn the essential facts relative to the clients and to ensure that the acceptance of purchase orders were within the bounds of good business practice; and engaged in conduct detrimental to the public interest. He was also ordered to pay $20,000 in costs and must re-write the Conduct and Practices Handbook Practices exam. He will be under strict supervision if he returns to the brokerage industry following his five-year ban.

In a separate decision also released on Monday, the IDA fined David Yanor, formerly with Edward Jones in Vancouver, $30,000 for a variety of rule contraventions related to the suitability of a client’s investments.

The IDA panel found that between November 1999 and December 1999, Yanor failed to use due diligence to ensure that his recommendations were suitable for his client, when he recommended that the client sell mutual funds from her accounts, which resulted in the client incurring deferred sales charges.

Between October 1999 and April 2002, Yanor recommended that the same client purchase securities for her accounts, which caused the total amount of aggressive securities in those accounts to unreasonably exceed her investment objectives.

And between April 2000 and April 2002, Yanor recommended that the client use her margin facility to purchase securities for her account, a strategy which was unsuitable for her. Edward Jones made restitution to the client.

Yanor was also suspended for one-year, must rewrite both the Canadian Securities Course and the Conduct and Practices Handbook and pay an additional $15,000 in costs as further conditions of re-approval.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com