Toronto-based investment firm Trapeze Asset Management Inc. has settled allegations of breaching know your client and suitability obligations, agreeing to a $1.25 million monetary penalty.
The Ontario Securities Commission Friday approved a settlement agreement today between OSC staff, Trapeze, and the firm’s co-founders, Herbert and Randall Abramson, who admitted to breaching their KYC and suitability obligations by, “inaccurately assessing the risk associated with many of the investments purchased on behalf of clients in managed accounts between Sept. 30, 2006 and Aug. 31, 2010, and to purchasing investments on behalf of virtually all clients in securities of the same issuers, resulting in a failure to ensure that the investments made on behalf of clients were suitable for all clients.”
Additionally, the regulator says that Trapeze and the Abramsons admitted that, in some cases, they failed to adequately ascertain clients’ investment needs, experience, investment objectives and risk tolerance prior to investing their assets. And, that some of the inaccurate statements regarding the risk levels of certain securities and/or issuers were repeated in Trapeze’s written marketing materials.
Under the terms of the settlement agreement, Trapeze and the Abramsons must pay an administrative penalty of $1 million, plus $250,000 towards the costs of the investigation. The firm is also required to retain a consultant to review its practices and procedures regarding its KYC and suitability obligations, and to conduct client account reviews for all client accounts in accordance with those new practices and procedures. It also agrees not to increase its fees or otherwise cause clients to bear the costs incurred by the settlement, including the cost of retaining the consultant.
“Participation as a registrant in Ontario’s capital markets is a privilege that comes with significant responsibilities,” said Tom Atkinson, director of enforcement at the OSC. “The KYC and suitability obligations on registrants are key protections for investors and the appointment of a consultant at Trapeze’s expense should ensure future compliance by Trapeze with these obligations.”
