Hampton Securities’ Chairman Peter Deeb has been cleared of “Conduct Unbecoming” allegations, which were the subject of a three-year investigation conducted by IIROC staff. The learned panel assembled by the Investment Industry Regulatory Organization of Canada or IIROC, to hear the allegations, held IIROC to a very high standard resulting in the dismissal of the allegations. These latest proceedings come on the heels of a 2012 disciplinary hearing, which concluded with a split decision.
The case apparently unfolded when two of Deeb’s former employees at Hampton Securities submitted a total of four letters to the Investment Industry Regulatory Organization of Canada, alleging wrong-doing.
Curiously, the four letters that served as the entire basis of the investigation were sent to the IIROC “anonymously”. Ultimately, the letter writers’ identities were revealed, and police are investigating. Notably, one of the two alleged letter writers and his wife, a lawyer at Wilson & Partners, were recently slapped with a lawsuit for fraud and misappropriation. The other alleged co-author was no stranger to the IIROC either having previously been given a lifetime ban by IIROC for misappropriating a whopping $1 million from the firm.
This has made some wonder whether the allegations were brought forth as the result of personal vendettas and whether IIROC, who may well have been played by the letter-writers, should have considered this before issuing the damaging and potentially malicious allegations against Deeb which were ultimately dismissed as without merit. A motion to address this apparent weakness in the enforcement process is being by IIROC member firms at an upcoming special meeting.
The hearing panel dismissed the claims that Deeb had allegedly engaged in, “Conduct Unbecoming” when he reportedly co-mingled client and pro orders and allocated trades after the business day had ended. It was also alleged that Deeb had conceptually engaged in “free riding”. So-called free-riding entails buying securities despite the fact that sufficient funds are not available in your brokerage accounts. Oddly enough IIROC does not have any specific rules prohibiting the specific trades alleged in the Deeb case, and hence tried to frame them as “Conduct Unbecoming”. It also appears that IIROC staff Susan Lasaredo and Ken Lo who testified at the hearing failed to understand IIROC’s own rules entirely when making the allegations in the first place.
The panel heard the case, after a three year long investigation by IIROC staff. They found that while co-mingling had indeed occurred, it was not inappropriate in nature. In fact, it was discovered that the act of co-mingling was deliberate in that Deeb wanted to give his clients a better price — something that would not have been possible otherwise. What’s more, the panel members found that the transactions were performed at Deeb’s own personal risk and his actions had been performed in what was described as a clear effort to provide a benefit to his clients in the form of better pricing. As a result of these findings, the matter was dismissed by the panel members.
According to public records on the matter, not only did none of Deeb’s clients file any complaints, but the clients in question wrote to IIROC in support of Deeb’s handling of the trades in question long before the Notice of Hearing was even issued. IIROC tried vehemently to have these letters thrown out of evidence as being “irrelevant”, despite the fact that they would potentially fully exonerate Deeb.
Notably, transcripts from the proceedings revealed that the attorney working on behalf of the IIROC and staff members who offered testimony on the matter were unable to point to a specific act that constituted a violation of any of the rules that is set forth in the official IIROC handbook, or of any OSC regulations.
Instead, IIROC counsel Andrew Werbowski attempted to offer up hypothetical scenarios of trades that never occurred in the first place. What’s more, the information that was collected during the investigation into Deeb’s business matters with Hampton Securities offered no evidentiary support to the theory that these fictitious trades were representative of something that had actually occurred.
Despite the fact that the IIROC’s claims of a $150 loss per client were unsubstantiated, Deeb made a good faith offering to settle the matter by providing a $150 credit to each client in order to cover their hypothetical losses. IIROC declined Deeb’s offer to settle. Instead, they demanded a cash settlement in the amount of $150,000. On top of it, they demanded that the cash payment be made payable to the IIROC — not the alleged victims. So the victims stood to gain nothing for their supposed losses; but the IIROC sought to gain a significant sum.
Ultimately, in Deeb’s case, a “no costs” order was issued by the panel. The ruling was made based on the fact that Deeb was cleared of the allegations of wrong-doing, which had accounted for a vast majority of the proceedings. He had also incurred significant fees in the course of presenting his defense, so no additional fees were assessed to Deeb.
In all, the situation has many dealer members and registrants questioning the IIROC and the fairness of its contract with its member firms. Some individuals are calling for the consideration of a new oversight process that would prevent the IIROC from imposing unnecessary burdens upon its members, such as in the Deeb case and that of David Berry, the subject of another defeat for IIROC at the hands of its own hearing panel.
What’s more, it has been suggested that case law supports claims that if the IIROC’s procedures are found to be unfair or even “abusive,” this may very well be found to be in breach of their dealer-member contract.