Regulator says sanction will be a deterrent to others
A former mutual fund rep has been permanently banned from operating within a CIRO registered Dealer Member for facilitating ‘stealth advising’ by another individual.
At two hearing panels of the Canadian Investment Regulatory Organization, Zahir Hussain Lehri was found to have committed serious misconduct in a case that the regulator’s staff say appears to be unique.
Lehri, a former Approved Person at Shah Financial in Ontario, allowed Muhamad Asghar Sadiq, a former dealing representative with Sterling Mutuals, to use his access codes to open accounts and implement a leveraged strategy and make unsuitable investments which resulted in significant financial harm to the clients.
This was deemed to be ‘stealth advising’ or allowing an unregistered individual to open investment accounts and make investment recommendations and was called “very serious conduct” by the panel. Sadiq was able to submit KYC forms and process trades, all using Lehri’s codes.
Lehri and Sadiq had worked together at two previous firms and Sadiq was permanently banned for stealth advising and misappropriation of funds in 2022.
“This case is about the core values of the securities industry: the privilege and the corresponding responsibility of being an Approved Person,” the panel noted. “It is about the trust clients place in the hands of an Approved Person and the regulatory system.”
Lehri was found to have failed to use due diligence to learn the essential facts relative to the clients and to ensure that the leveraging strategy and investments that were recommended and implemented for clients were suitable.
Further, the investigation found that Lehri “breached a client’s and another individual’s trust by misappropriating US$31,000 from the client and the individual and failed to cooperate with MFDA [predecessor to CIRO] Staff.” Overall, the decision was that Lehri was “ungovernable.”
The CIRO decision notice also stated that “Staff was unable to provide a case like this one where stealth advising resulted in financial harm. The fines issued in the stealth advising cases provided by Staff ranged from $15,000-$40,000. None of the respondents in those cases was the subject of a permanent prohibition.”
The panel imposed the following sanctions on Lehri:
- a permanent prohibition from conducting securities related business in any capacity while in the employ of or associated with any Dealer Member of CIRO
- a fine of $185,523 which includes disgorgement of $35,523.
He is also required to pay costs in the amount of $25,000.
