TD Waterhouse fined $2m for inappropriate hedge fund sales

Date: Friday, August 1, 2008
Author: Barbara Shecter, Canwest News Service

Brokerage TD Waterhouse Canada has agreed to pay a fine of $2 million as part of a settlement with regulators over the sale of hedge funds to clients who weren't qualified to own them.

The settlement reached with the investment Industry Regulatory Organization of Canada on Thursday stems from the sale of Olympus funds between 2001 and 2005.

According to the settlement, TD "failed to establish and maintain alternative investment review or approval procedures" and failed "to ensure that the purchase of hedge funds were appropriate for its clients."

In addition, the brokerage failed to provide sufficient training and guidance to its brokers, IIROC said.

Alex Popovic, vice-president of enforcement at IIROC, said the size of the penalty was reduced by TD's cooperation, the repayment to clients of nearly $2 million, and a number of initiatives taken to correct the problems uncovered by the investigation.

"But for the fact they acted appropriately ... the fine would've been significantly higher," he said.

TD Waterhouse added training programs and internal controls, and fined or otherwise disciplined three brokers who sold Olympus funds to clients who were not deemed to have the required level of investment sophistication. Olympus funds were managed by Norshield Asset Management, a scandal-plagued fund manager that regulators ordered to cease doing business with clients in 2005.

An investigation into TD Waterhouse was started by IIROC's predecessor, the Investment Dealers Association, in the spring of 2006.

According to the settlement agreement, 31 TD Waterhouse clients subsequently complained about their investments in Olympus hedge funds, with most complaining that the funds had been portrayed as low risk, safe or conservative.

The receiver for troubled Norshield Asset Management says about 1,900 retail investors in Canada invested in the group's funds. Olympus United Corp. raised some $265 million from retail investors, according to RSM Richter Inc.

"TD was certainly involved in selling this particular product, and there were others," said Popovic.