Two 小蓝视频 stockbrokers are facing a hearing for alleged failures to properly assess their clients’ stock transactions involving penny stock companies that have admitted to or face allegations of misrepresentations.
In a hearing notice, the Canadian Investment Regulatory Organization (CIRO) alleges Teymur Englesby and Cale Nishimura of PI Financial “facilitated activity for several accounts which generated a number of indicators or red flags” suggesting they “may have engaged in suspicious activity.”
Englesby and Nishimura failed to fulfill their roles as “gatekeepers” to the capital markets during client transactions, stated the regulator, which ensures brokers and brokerage firms follow securities regulations. The red flags included “uneconomic” and abnormal trading patterns from the client accounts managed by the two stockbrokers, stated CIRO.
“These red flags should have caused the respondents (Englesby and Nishimura) to question the clients about the activity in the client accounts, however, the respondents failed to do so,” stated the hearing notice.
Englesby was registered as a broker in 2005 and has been employed by PI Financial since 2009; Nishimura is Englesby’s assistant and has been registered and employed by PI Financial since 2012, according to CIRO.
A hearing for the unproven allegations against Englesby and Nishimura is scheduled to commence June 3, 2024.
'Gatekeepers' guard against fraud and market abuse
Stockbrokers are considered gatekeepers as they facilitate trades via registered accounts and are compelled to conduct know-your-client checks.
“Gatekeepers must act in the best interests of the capital markets by taking action when observing activity that may threaten market integrity,” notes the Canadian Securities Institute.
The hearing notice provides some examples of the transactions in question. First, it says trades occurred with eight companies listed on the Canadian Securities Exchange, a junior venture (penny stock) exchange now supervised by the 小蓝视频 Securities Commission.
Those eight companies were respondents to an unprecedented November 2018 hearing notice from the commission that alleged a group of more than 50 individuals and their firms — dubbed the Bridgemark Group — entered into consulting agreements with 11 CSE firms.
The companies raised more than $50 million by selling shares to the consultants who, according to the commission, performed little or no consulting work. The shares were then sold by consultants (via brokers) to retail investors, often at a loss. The consulting contracts made up those trading losses, the commission said at the time.
Several companies listed in the CIRO hearing notice against Nishimura and Englesby have since admitted to making misrepresentations. The commission had determined the firms failed to inform investors that much of the money raised (in the private placements) went to pay the very consultants who bought the shares.
The commission has dropped the vast majority of consultants and firms as respondents from its November 2018 hearing notice. The amended allegations include illegal insider trading on the part of four remaining respondents: Anthony Jackson, Justin Liu, Robert John Lawrence and Cameron Paddock. The former two face a hearing next over while the latter two have already admitted to the misconduct.
CIRO says red flags included large deposits, questionable trading losses, short selling
The allegations specifically claim Englesby and Nishimura facilitated uneconomic trading with a client identified as “CP” and “CP Corp.”
The trading involved depositing large amounts of shares not in line with CP's account history followed by trading those shares for a loss, in 2018.
As one example, the notice states CP bought 16-cent shares of a company but sold them for 12 cents per share within two days of depositing them with PI Financial.
The notice also states CP “short sold” stock through the accounts managed by Englesby and Nishimura.
Furthermore, Englesby and Nishimura did not ask for the source of $2.5 million of assets listed by client "YK" who listed employment as "student/homemaker."
Englesby and Nishimura “demonstrated a lack of knowledge about certain details involving their clients,” the notice alleges.
stated Englesby earned $147,081 in commission from the sale of shares in 10 CSE companies, all of which were named as respondents to the commission’s notice in 2018. Englesby’s personal payout was 50 per cent, or $73,540, while Nishimura earned $2,941.
Two stockbrokers have previously faced similar allegations of failing to fulfill gatekeeper obligations.
In September 2022 admitted to failing her gatekeeper responsibilities with clients connected to the Bridgemark case. Sweeney was suspended as a registered representative for one month, and ordered to pay a $50,000 fine and repay commission fees of $28,806.
And last May of Research Capital also admitted to failing gatekeeper duties after facilitating trades of clients linked to the Bridgemark case. In addition to a $25,000 fine, Barber is to disgorge $27,776 of the nearly $60,000 he earned in commission, per the settlement agreement.
