The Toronto-based firm admitted that between July, 2018, and June, 2022, it broke industry rules by failing to do due diligence on four foreign brokerage companies, according to the settlement.ravphotographix/iStockPhoto / Getty Images
Independent wealth manager Ventum Financial Corp. has reached a $2.3-million settlement agreement with regulators after confirming that it failed to supervise trading in U.S. over-the-counter stocks.
After a hearing, the Canadian Investment Regulatory Organization, or CIRO, accepted a settlement agreement with Ventum Financial – formerly known as Echelon Wealth Partners Inc. – and Stephen Burns, an investment adviser and former managing director of electronic trading at Echelon.
According to the settlement, the Toronto-based firm admitted that between July, 2018, and June, 2022, it broke industry rules by failing to do due diligence on four customers – all foreign brokerage companies – that used accounts at the dealer to trade heavily in U.S. OTC stocks.
OTC shares are typically illiquid and receive little regulatory oversight – and have been frequent targets of stock-manipulation schemes in the past. U.S. and Canadian regulators say fraudsters often target OTC stocks for what are called pump-and-dump schemes – heavily promoting shares and driving up the price, then selling quickly before a crash.
The agreement says the investment dealer did not use due diligence “to learn and remain informed of the essential facts” relative to the accounts and orders of four customers based in the Caribbean: Financials Worldwide Inc., Weiser Asset Management, Blacktower Ltd. and Valor Capital Ltd.
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Those customers, and their clients, have been tied to multiple cases of securities fraud – some criminal – alleged by U.S. regulators and prosecutors.
In addition, Echelon failed to act as a gatekeeper and did not properly control or supervise U.S. OTC trading by its customers, the settlement said.
In the four years after Mr. Burns joined the investment dealer in 2018, regulators say, Echelon executed more than $185-million of trades in shares on the U.S. OTC market. Prior to Mr. Burns joining the firm, CIRO said, OTC trades were “infrequent.”
As part of the agreement, which was signed by both parties last week, Ventum agreed to pay a $500,000 fine, a disgorgement of $1.7-million and $100,000 in costs.
Mr. Burns, who departed Echelon in April, 2024, agreed to pay a $100,000 fine, $25,000 in costs and accepted a six-month suspension from working in the industry in any capacity.
He could not be reached for comment by The Globe and Mail.
Ventum chief executive officer David Cusson said in an e-mail to The Globe that over the past two years, “significant enhancements have been made to compliance, risk management and oversight across the organization.”
“This matter is now closed,” Mr. Cusson said. “Ventum Financial remains committed to the highest standards of integrity and ethics, compliance and client service.”
Echelon first launched in 2010 as Euro Pacific Canada. In 2016, it tripled in size by acquiring Dundee Goodman Private Wealth, and renamed itself Echelon. In March, 2023, Echelon announced a merger with PI Financial, whose former owner, Gary Ng, has been charged with fraud and money laundering, fined and banned from the securities industry.
Later that year, in November, Echelon placed a $30-million lien on the assets of hedge-fund manager Traynor Ridge Capital Inc. after the fund collapsed and its owner, Christopher Callahan, died in late October. As a result of the failure by Traynor Ridge, Echelon suffered losses of about $19.8-million to settle certain trades.
In 2024, Echelon and PI Financial Corp. amalgamated and continue to operate as Ventum Financial Corp.
CIRO said in the agreement that its enforcement staff began to investigate the excessive trading at Echelon after an unnamed Canadian brokerage company filed a report in October, 2018, six months after Mr. Burns joined the dealer.
Ventum’s Mr. Cusson told The Globe that the settlement concerned “legacy business operations” that were closed at Echelon prior to the merger that formed Ventum Financial.
He confirmed that the company has closed the accounts of all clients noted in the investigation, appointed new leadership, and implemented “updated and enhanced governance policies and procedures.”
Within the past year, Ventum appointed a new chief operating officer and new vice-president of legal and regulatory affairs.
As part of the settlement, as of June, 2024, it is now Ventum’s policy to refuse to accept physical certificate deposits of U.S. unlisted securities that are greater than US$10,000, or in excess of 50,000 shares.
Deposits now require a completed U.S. securities deposit letter, and exemptions must be granted through a policy exception request and approved by two partners, directors or officers on a case-by-case basis.