Canadian investment regulators have fined a Vancouver stockbroker $25,000 after facilitating millions of dollars’ worth of “suspicious” stock transactions for a man well-known to have been criminally convicted of fraud.
A Canadian Investment Regulatory Organization (CIRO) hearing panel approved a settlement agreement between the regulator and broker Robert Barber of Research Capital, on May 26.
Barber’s actions lift a curtain on the integral role regulated stockbrokers can play in trading arrangements.
“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 settlement agreement states Barber failed in his gatekeeper role by working for “AM” who, between December 2017 and August 2018, directed trades on behalf of Northwest Marketing and Management Inc., whose beneficial owner was “DT.”
Northwest’s principal director is Denise Trainor, whose spouse is the manager Aly Babu Mawji, according to corporate records and the B.C. Securities Commission.
Mawji was sent to prison in Germany, in 2012, after his well-publicized role in manipulating De Beira Goldfields Inc. stock.
In addition to failing his gatekeeping duties as a broker, Barber, who remains a senior investment advisor for Research Capital, was found to have sold shares that had yet to exist in Northwest’s account and made trades that resulted in losses in the hundreds of thousands of dollars, at the direction of Mawji, despite Mawji not having formal trading authorization.
Trades related to company consulting contracts
In November 2018, the commission cited the couple, plus dozens of other “purported consultants” for an alleged fraudulent scheme involving BridgeMark Financial Corp.
It was alleged 11 Vancouver-based penny stock companies sold over $50 million of new shares to the Bridgemark Group consultants, who simultaneously received lucrative consulting contracts nearly matching the cost of the shares. The consultants then quickly re-sold the new shares (often at a loss) to retail investors, the commission said.
Those administrative proceedings against the consultants were dropped in 2019, but the commission amended allegations against seven companies for alleged private placement misrepresentations, in addition to four individual citations for insider trading and conduct abusive to the capital markets.
Mawji, who was able to return to Vancouver’s capital markets scene following a criminal conviction in Germany for conducting a Vancouver-connected pump-and-dump scheme, was banned by the commission in February 2020, months after the Ontario Securities Commission banned him.
Barber shorted accounts and facilitated ‘uneconomic trading’
The CIRO settlement agreement states Mawji introduced Trainor to Barber in January 2016, to open accounts on behalf of Northwest.
Barber “understood Northwest to be a holding company for DT and her investments. However, AM controlled Northwest. AM directed trading in the Northwest accounts but did not have formal trading authorization.”
In December 2017, Barber started selling shares of four of the 11 companies previously cited by the commission in the consulting case. Barber began with selling shares of Abattis Bioceuticals Corp. despite not yet having them in Northwest’s account.
The settlement agreement states the credit department for Research Capital (formerly Mackie Research) flagged the short position.
This happened a second time but with Affinor Growers Inc. in March 2016.
Barber also facilitated “uneconomic trading” for Northwest at the direction of Mawji when he sold shares of Beleave Inc. and New Point Exploration Corp. for a loss. Directors for each of those companies at the time have since admitted to making misrepresentations. A hearing is scheduled for Affinor in October.
The settlement agreement outlined how Northwest bought over $5 million of Abattis shares and sold $8.1 million. Via Affinor, Beleave and New Point, Northwest bought $1.975 million and sold $1.65 million.
The settlement agreement states Barber never disclosed to the compliance department Mawji was directing the trades.
Barber was issued a hearing notice on Aug. 11, 2022, which also contained allegations he did not verify Northwest’s consulting contracts, as requested by the compliance department, despite using an unrestricted trade exemption for consultants.
Additionally, the notice stated Barber used WhatsApp to communicate with Mawji and subsequently deleted those messages — a violation of monitoring requirements that helped keep the true relationship from others in the firm. The settlement agreement does not address these allegations.
The settlement agreement also does not address under what circumstances Research Capital could not have known about Mawji and what checks and balances were in place, or not, to ensure its compliance department fully understood who was directing the trades despite the department inquiring with Barber about the short positions and the fact millions of dollars’ worth of penny stock transactions were “no longer consistent” with Northwest’s account information (Know Your Client).
Research Capital chairman Patrick Wash and president Geoffrey Whitlam did not respond to Glacier Media in time for publication.
In 2019, Mawji claimed in a civil defence filing that Barber contacted him to present him with an opportunity to invest in PreveCeutical Medical Inc., which had launched the still ongoing lawsuit against consultants named in the commission’s initial hearing notice.
In addition to the fine, Barber is to disgorge the $27,776 of the nearly $60,000 he earned in commission, per the settlement agreement.
Barber is the second broker at Research Capital to be sanctioned for facilitating trades linked to the Bridgemark case.
Tiffany Sweeney of Research Capital reached a settlement with the Investment Industry Regulatory Organization of Canada (IIROC) in September 2022, after admitting she “failed to fulfil her gatekeeper responsibilities” and “communicated with her clients using unapproved third-party communication applications” contrary to IIROC rules.
Sweeney was suspended for one month and paid a $50,000 fine.
The Barber settlement is among the first issued by CIRO, which is an amalgamation of IIROC and the Mutual Fund Dealers Association.
