Advisor handed $50,000 penalty for putting client in high-risk coal firm, taking instructions from client’s husband without authorization
The Investment Industry Regulatory Organization of Canada (IIROC) has accepted a settlement agreement with Vancouver-based investment advisor Brian Anthony Peters.
In a document dated February 25, IIROC said that in 2008, Peters began providing investment recommendations to a husband and wife, both of whom were born in 1961. Between them, they had an annual income of approximately $180,000, and a net worth of approximately $950,000. The wife had no experience in venture situations or investing on margin, and the husband had a sophisticated knowledge of the junior mining and oil and gas sectors.
At first, Peters’ recommendations to the couple were primarily conservative, in line with the investment objectives of 33% low-medium risk, 33% medium risk, and 34% medium-high risk that were set for all the accounts the two had with his firm. But in 2009, the couple decided to engage in a more aggressive trading strategy to achieve their financial objectives.
After a series of successes over the following years, including a lucrative investment in a TSX-listed coal company recommended by Peters, the husband asked if he could recommend any coal companies listed on the TSX Venture Exchange. Peters recommended Colonial Coal, a junior exploration company that was classed as a high-risk investment.
By January 31, 2011, around 448,900 shares of Colonial Coal had been bought and held in the wife’s accounts, representing roughly 47% of all the holdings in those accounts. In February, Peters updated the wife’s investment objectives to 100% speculative (high risk), stating in the account update form that she had “capacity for increased risk.”
Shortly thereafter in April, the husband emailed Peters to say that his wife was being let go from her job as a pharmacist, and that her employer would continue to pay her for 18 months unless she found another position, and then she would be paid half of what she would have received. During that time, the couple were in the course of borrowing money from a bank so they could buy more shares of Colonial Coal.
Peters continued to recommend and purchase Colonial Coal shares in the wife’s accounts; by June 30, 2012, the wife’s accounts held 580,950 shares of the company, which had declined in value by roughly 54%. The following month, the wife opened a locked-in RRSP account at Peters’ firm and transferred in the entirety of her pension from her employer, which was just over $260,000. The full amount was used to purchase Colonial Coal shares.
The husband told Peters that his wife wanted to keep purchasing shares of the company, and Peters kept recommending them. By November 2012, the wife’s accounts had purchased some 974,300 shares for around $1,098,598, with almost the full market value of her accounts placed in Colonial Coal.
But in the succeeding years, the company’s market value declined steadily. Between May and September 2014, 260,763 shares of the companies were unloaded from the wife’s accounts for prices ranging from $0.13 to $0.19, far below the original purchase price range of $0.62 to $1.82.
“The high level of concentration in shares of Colonial Coal in [the wife’s] accounts, in combination with the use of borrowed funds to purchase some of the shares, resulted in a high level of risk, which was not suitable for [the wife] given her financial circumstances,” IIROC said.
IIROC also noted that nearly all communications regarding the wife’s accounts happened between Peters and the husband, with a few instances where the wife had her husband relay instructions to Peters. There was no written trading authorization that granted the husband authority to give instructions with respect to any of the accounts.
IIROC various mitigating factors. Aside from the fact that he had no prior disciplinary history with IIROC, his employer firm entered into a $275,000 settlement with the couple, toward which Peters contributed $135,000. He had not advised the couple to borrow money to invest, and he at times warned them about the risks of purchasing high-risk securities.
Peters agreed to pay a fine of $50,000, which included a disgorgement of roughly $9,192 in commissions he had earned from the contraventions, and to serve a 30-day suspension from registration with IIROC. He also agreed to pay costs of $2,500.
