Penalties in artificial bid case

A Hearing Panel of the Investment Industry Regulatory Organization of Canada (IIROC) has imposed penalties against five former employees of TD Securities Inc., who were found to have violated the Universal Market Integrity Rules (UMIR) by entering artificial closing bids in 323 instances over a six-month period.

In its penalty decision dated April 30, 2011, the panel imposed the following penalties.

• Kenneth Nott: $15,000 fine and $7,500 in costs. Mr. Nott is also required to work under close supervision for six months, the terms of which shall be determined by his employer. The panel also stated that there would be no order of suspension because Mr. Nott has been unable to obtain employment since September 2008.

• Aidin Sadeghi: $5,000 fine. The panel also noted that it would not impose an order of suspension or for supervision against Mr. Sadeghi, and strongly recommended that the close supervision order which is currently in effect against him be rescinded.

• Christopher Kaplan: $35,000 fine and $15,000 in costs. Mr. Kaplan is also required to work under close supervision for six months, the terms of which shall be determined by his employer. The panel also noted that there would be no order of suspension as Mr. Kaplan was unable to obtain employment for 13 months after September 2008.

In addition, the panel ordered that the trade restrictions in effect against Mr. Kaplan shall cease to apply immediately;

• Robert Nemy: $75,000 fine and $37,500 in costs. Mr. Nemy is also required to work under close supervision for six months, the terms of which shall be determined by his employer. The panel also noted that there would be no order of suspension as Mr. Nemy has been unable to obtain employment since September 2008.

• Jake Poulstrup: $20,000 fine and $10,000 in costs. Mr. Poulstrup is also required to work under close supervision for six months, the terms of which shall be determined by his employer. The panel also noted that there would be no order of suspension as Mr. Poulstrup was unable to obtain employment for 13 months after September 2008. In addition, the panel ordered that the trade restrictions in effect against Mr. Poulstrup shall cease to apply immediately.

“They have paid an extremely heavy price for their errors in judgment,” the panel stated in issuing the penalties. “The panel is satisfied there is no risk of them repeating their conduct.”

The penalty relates to the panel’s revised decision on the merits dated April 30, 2011, which found that these five individuals entered orders without the intent of executing them, but rather to create artificial closing prices that would misrepresent the performance and actual demand for securities in the market, contrary to UMIR 2.2(2)(b) and UMIR Policy 2.2.

After reviewing the five individuals’ trading activity in five stocks, the panel found that each had entered artificial closing bids for one or more of the five stocks as follows:

• Kenneth Nott, 230 times

• Aidin Sadeghi, three times. The panel dismissed 54 other allegations of entering artificial closing bids against Mr. Sadeghi, and noted that none of the three bids were part of a pattern of entering artificial closing bids

• Christopher Kaplan, 37 times. The panel dismissed four allegations of artificial closing bids

• Robert Nemy, 39 times

• Jake Poulstrup, 14 times. The panel also dismissed 15 allegations of artificial closing bids against Mr. Poulstrup

The violations occurred between May and October 2005, while the five individuals were Registered Representatives at TD Securities Inc., an IIROC-regulated firm. Market Regulation Services Inc. (now part of IIROC) began its formal investigation into the individuals’ conduct in January 2006. Christopher Kaplan, Jake Poulstrup and Aidin Sadeghi are currently Registered Representatives with W.D. Latimer Co. Limited, an IIROC-regulated firm. Kenneth Nott and Robert Nemy are no longer registered with an IIROC-regulated firm.