IDA fines Union Securities $1M

The IDA has announced a settlement agreement with Union Securities and its CEO and chief compliance officer, John P. Thompson, over deficiencies in the firm’s compliance reviews.

Thompson was not only the head of compliance, but was listed as the company’s ultimate designated person, a position he has now been barred from holding. The IDA has also fined the company $1 million.

Under the settlement, Union and Thompson admitted failure to develop and implement adequate compliance systems to ensure effective supervision of activity at the firm to the required standards of the IDA.

During an IDA sales compliance audit, the firm was found to have numerous regulatory violations, ranging from improper supervision of staff, to dealing with U.S. residents. Some of these short-comings found during the 2005 audit had been noted in past audits.

In 2001, the IDA issued Member Regulation Notice 114, which warned member firms that they could not deal with clients living in the U.S. unless they held an exemption from the jurisdiction of residency. Any accounts violating this notice had to be closed by March 1, 2002.

Union consulted with a U.S. legal team, which advised the firm that it could carry on business with U.S. residents if the clients set up holding corporations in the Yukon.

“With this opinion, Union advised its Registered Representatives (RR), who in turn advised their U.S. resident clients, that if the client chose to establish Yukon holding companies, Union would open an account for the Yukon holding company,” the IDA said in a press release. The IDA says the plan was still in violation of regulations because the person making all the decisions for such a holding company remained a U.S. resident.

Union also ran afoul of the IDA by failing to comply with the U.S. Securities and Exchange Commission’s rules on short selling in the American markets. Union allowed its U.S. market makers to perform the “locate” function in its short-selling transactions with over-the-counter stocks.

Other infractions included in the settlement announced Tuesday concerned improper supervision of reps. One such instance included a rep referred to simply as “L” who worked in Union’s Calgary office. During the mandatory 90-day close supervision period for new registrants, “L” launched a trading strategy for two clients which ultimately failed and lost money for both clients.

“Union and Mr. Thompson failed to take the necessary steps to effectively prevent such losses,” the IDA said. “Failure to supervise was detrimental to the public interest, and therefore collectively constituted a violation of By-law 29.1.”

Another case of failure to supervise involved a rep referred to as “F” in Union’s Toronto office. While most of this reps trade tickets were properly documented, there were certain trades for which no pre-approval could be found. To make matters worse, Union refused to grant the IDA complete access to the rep’s computer archive, granting only limited access. For this, Union was slapped with a failure to co-operate charge.

During the subsequent investigation, the IDA found both Union and Thompson to be more co-operative, listing that as a mitigating factor in the settlement agreement. The IDA also noted that Thompson had no prior disciplinary history.

Union has agreed to pay the fine and to retain the services of Grant Thornton LLP as compliance monitor for a three-year period. Union will pay an additional $500,000 for these services.