Rep sanctioned for overlooking red flags

The Canadian Investment Regulatory Organization (CIRO) has sanctioned a broker for failing to question a client’s suspicious trading activity.

A hearing panel of the self-regulatory organization approved a proposed settlement with Robert Barber, a rep with Research Capital Corp. in Vancouver, who admitted to violating its rules regarding reps’ gatekeeper responsibilities.

According to the settlement, Barber failed to meet those responsibilities by overlooking a series of red flags in a client’s account — including suspicious short-selling activity, uneconomic trading and the fact that some of the trading was being directed by a convicted market manipulator.

The settlement noted that Barber should have conducted due diligence on the individual directing the trading — who was the spouse of the account owner, but didn’t have formal trading authority over the account, and had been convicted of market manipulation in Germany in 2012 — and that, since he didn’t investigate, the firm wasn’t made aware of possible concerns with the account.

Instead, the firm continued to accept orders from an account engaged in trading that was out of line with the client’s KYC information, included several short sales that were flagged by the firm’s compliance department, and trades that were uneconomic (resulting in substantial losses relative to the account’s stated annual net income and net worth).

“The respondent executed the client’s transactions without learning necessary facts related to the client and the orders accepted. By failing to make inquiries, the respondent failed to fulfil his gatekeeper responsibilities,” the settlement said.

Under the settlement, Barber agreed to a $25,000 fine, to disgorge $27,776 in commissions, and to pay $5,000 in costs.

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.