IIROC fines former advisor $150K for excessive trading, client borrowing

A former investment advisor has been fined and suspended for violating securities rules — including engaging in unsuitable, excessive trading and borrowing money from a client — in pursuit of an ultimately unsuccessful trading strategy.

An Investment Industry Regulatory Organization of Canada (IIROC) hearing panel ruled that Edward Ho Rha, a former representative with Richardson GMP Ltd. and Mackie Research Capital Corp. in Calgary, should be fined $150,000 and suspended for 12 months, after finding that he violated IIROC rules, to carry out his tactical trading strategy.

The panel also ordered that Rha, who hasn’t been registered since 2018, should pay costs of $15,000 and, if he ever seeks registration again, should be subject to 12 months of close supervision.

The sanctions follow the panel’s findings that, during 2016 and 2017, Rha engaged in excessive, unsuitable trading for two sets of clients — both retired couples — and that he borrowed $95,000 from a client in 2017 who died two years later without being repaid.

Both the excessive trading and borrowing were driven by Rha’s misplaced confidence in his tactical trading strategy, according to the panel.

The panel noted that, in May 2017, Rha’s firm at the time, Richardson GMP, said, “It appears that [Rha] has only the one ‘tactical’ trade strategy that is being applied across a number of client accounts, and that the client accounts do not appear to be benefiting, while [he] appears to be earning a commission.”

Throughout 2016 and 2017, Rha was going through a number of personal, professional and financial difficulties, the panel noted, including a divorce. In October 2016 he’d been placed under close supervision by his firm due to concerns about his ability to maintain adequate margin in his personal trading account, “which has lost approximately $3 million over the previous five years,” the decision said.

In May 2017, Rha moved firms and later that year borrowed $95,000 from a client, which went to fund his troubled trading account.

The hearing panel said it viewed the loan from the client “as a reflection of the respondent’s desperate and misguided faith in his ‘tactical’ trading strategy, which was also the root cause of the other contraventions.”

While the trading strategy generated commissions for Rha, that wasn’t the objective, the panel said.

“In this case, the commissions were not the motive – they were merely a by-product of the respondent’s ‘tactical’ strategy, and his misguided, but evidently sincere, belief in that strategy,” it said. “The excessive and unsuitable trading here stemmed from the respondent’s inability to recognize defects in his strategy […].”

In interviews with IIROC investigators, Rha acknowledged that the trading was excessive and that the loan was prohibited, the panel said.

Rha didn’t participate in the disciplinary proceeding, so the panel accepted the allegations of IIROC enforcement staff as proven and imposed sanctions.

The $150,000 fine comprised disgorgement of the $95,000 unpaid loan, disgorgement of $35,000 (which represents a portion of the excessive trading commissions) and $20,000 for the violations.

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.