IIROC issues sanction, finds respondent 'failed in his duty to protect the financial markets'
The Investment Industry Regulatory Organization of Canada (IIROC) has handed down a $70,000 penalty and a five-year ban against former investment advisor Christian Desmarais for making recommendations and buying stocks based on company information that wasn’t publicly available.
In a settlement agreement, IIROC said Desmarais was an IIROC-registered representative from February 10, 1998 to February 24, 2016. He was last employed as an IIROC registrant with Desjardins Securities (DS), which is where the relevant contraventions occurred.
On January 28, 2016, he was contacted by a client by phone with instructions to buy $30,000 worth of shares in Rona, Inc for his account. Desmarais followed the order, buying 2,500 shares for the client, then proceeded to buy 5,000 shares of the company for his own account.
In a conversation held shortly after the transactions, Desmarais allegedly learned from the client that the latter wanted to buy the shares partly because he caught wind of a due diligence audit that had recently been conducted on Rona.
“Until that moment, the Respondent had never, since 2015, purchased Rona shares for his own account, nor recommended the purchase of this security to his clients,” IIROC noted.
The following day, Desmarais recommended the stock to three of his other clients, who all ultimately accepted his recommendation. He bought a total of 7,700 shares for those clients, and purchased 1,700 shares for the spouse of one client, who had an Authorization to Trade for his spouse’s TFSA account.
“For both [the client and his spouse], the cost of purchasing these Rona shares represented, at the time, the maximum contribution permitted in their respective TFSA accounts,” IIROC said.
On the morning of February 3, 2016, an offer by Lowe’s Inc. to purchase Rona was announced to the public. That was followed by a jump in Rona’s share price from $11.77 as of the previous day’s close to $23.44 when the markets opened on February 3.
Later that day, after checking with compliance at DS, Desmarais proceeded to sell all the Rona shares he had bought for himself and his clients, resulting in gross gains of $193,440. The net after-tax gain from the trades totalled $30,000, according to IIROC. DS later conducted an internal investigation, after which it dismissed Desmarais.
IIROC noted that Desmarais made investment recommendations to clients and conducting trades in his own account based on “information regarding [Rona] that had not been disclosed to the public,” and therefore “failed in his duty to protect the financial markets.”
Aside from the $70,000 penalty and five-year prohibition from registering with IIROC in any capacity, Desmarais is to pay $2,500 in costs to IIROC. He must also undergo strict supervision for 12 months in the event that he re-registers.
