A three-year probe has led to the dismissal of allegations that Hampton Securities Chairman Peter Deeb engaged in improper practices. The investigative panel also tossed out $75,000 in fines and sanctions, which were assessed by the Investment Industry Regulatory Organization of Canada (IIROC).
Deeb also escaped $15,000 in costs, which IIROC had sought in an attempt to cover the costs of their proceedings. The panel issued a “no costs” order on the basis that Deeb had been cleared of wrong-doing, combined with the fact that he had already expended a significant sum of money to fund his own legal defense costs.
Deeb's exoneration comes after a lengthy battle, that saw many twists and turns. The allegations first surfaced in 2010. Deeb had requested a judicial review of the case, but the request was denied – a decision that was upheld on appeal – because it had been ruled that a judicial review would have been premature. This led to a 2012 IIROC hearing, which led to the issuance of the fines and sanctions in November 2012. Of course, that verdict has now been overturned and tossed out by the panel.
Relatively few cases of this type proceed to this point, as many investment industry professionals who face IIROC charges of wrong-doing opt to settle the matter for fines with amounts reaching six figures. But since a multi-year defense can result in legal costs and fees in the millions, it's the “easy” way out for many individuals, who opt to settle the case rather than dragging it out on a matter of principle.
But Deeb did precisely that – he fought the allegations on principle.
IIROC had reportedly performed hypothetical calculations based on fictitious trades in an attempt to determine a dollar amount for the losses that they claimed Deeb's clients had suffered. They came up with an amount of $150 per client for 5 clients, arguing that had the trades been executed in a different manner, they would have benefited by this amount. Even in-depth IIROC audits failed to uncover any support for the claim that clients lost out, but despite this, Deeb offered to settle the case by providing a $150 credit to each and every client, in an attempt to make up for the alleged losses.
The IIROC declined Deeb's good faith offer to cover those supposed client losses. Instead, they sought a sum of $150,000 – a cash settlement that was to be made payable directly to the IIROC.
Deeb declined, opting to seek exoneration, which has finally been granted by the investigatory panel members.
This case unfolded when two now-former employees of Hampton Securities submitted a total of four letters to the IIROC. Those letters were sent anonymously. Even more telling, the two individuals – who were ultimately identified – are both accused of their own wrong-doings, which brings their motives into question. One letter writer was slapped with a lifetime IIROC ban for allegedly misappropriating an incredible $1 million from Deeb and his firm. The other letter writer is facing a lawsuit for allegedly engaging in misappropriation and fraud-related activities.
To compound matters, none of Deeb's clients have stepped forward to complain. Not only were Deeb's clients seemingly satisfied, but the IIROC's audit failed to reveal any evidence to support their own allegations.
Specifically, it was alleged that Deeb engaged in “unbecoming” conduct in his business proceedings. IIROC claimed that Deeb had engaged in “co-mingling” -- an action that did reportedly occur, but it was not inappropriate as the IIROC had alleged. In fact, Deeb's clients didn't lose as a result of co-mingling, they benefited! And what's more, Deeb personally assumed the risk – all in an attempt to help benefit his clients. This fact conflicts with the IIROC's claim that Deeb had failed to place his clients first and foremost; a claim which the hearing panel dismissed as without merit.
IIROC also alleged “free riding,” which involves purchasing securities in an improper manner, without the proper financial availability. But hearing transcripts told a different story. The IIROC was unable to offer up a single example with evidentiary support. The attorneys for IIROC were unable to point to a specific IIROC handbook rule violation. And it seems that the nature of the allegations was rather dynamic and slightly-evolving during the proceedings. Former IIROC head of compliance Larry Boyce testified as to his review of Deeb’s trades and established that IIROC staff were simply miscalculating margin using settlement-dates and trade-dates as it suited their case. Boyce found no significant instance of any improper trading and told the panel that at all time what he saw was, “the normal operation of a margin account.”
Now that Deeb is cleared of all allegations, he wants IIROC to change their approach entirely when it comes to their dealings with Member Firms and their employees. To that end he is reportedly pursuing legal action against the IIROC. Deeb's case brings to light some very clear points for concern when it comes to IIROC and its investigation procedures.
Some are bringing into question whether IIROC's Dealer Member contract is indeed fair. Are the processes and procedures unjust, or at worse, abusive? Should there be a limitation on the amount of damages and professional losses that an individual can incur in a situation? Particularly when there is little or no supportive evidence and the individual has not yet been found to be guilty of any wrong-doing?
Questions such as these will continue to swirl in the coming weeks and months. The establishment of an oversight body or new oversight processes may very well be considered for the self-regulatory body