A hearing panel of the Investment Industry Regulatory Organization of Canada (IIROC) accepted a settlement agreement between the IIROC staff, Trapeze Capital Corp., Herbert Abramson and Randall Abramson.

Trapeze Capital Corp., Herbert Abramson and Randall Abramson admitted they inaccurately assessed the risk associated with many of the investments purchased on behalf of clients in managed accounts. They didn’t give adequate consideration to certain risks, resulting in purchased securities being assessed as lower risk than they were.

As a result of their misclassifications of risk of securities, Trapeze Capital Corp., Herbert Abramson and Randall Abramson failed to ensure investments made were suitable for all of their clients.

Also as a result, statements made in marketing materials distributed to their clients understated the risks associated with Trapeze’s investing strategy and a number of recommended investments. Further, in some cases, Trapeze Capital Corp. failed to adequately ascertain clients’ investment needs, experience, investment objectives and risk tolerance, prior to investing their assets.

Specifically Trapeze Capital Corp., Herbert Abramson and Randall Abramson admitted to the following violations:

  1. Between 2007 and 2010, in the manner described in paragraphs 24-31 of the Settlement Agreement, Trapeze Capital Corp., Herbert Abramson and Randall Abramson failed to ensure the investment recommendations made to clients were suitable for all of them, contrary to IIROC Dealer Member Rules 1300.1(a), (p) and (q) (IDA Regulations 1300.1(a), (p) and (q) prior to June 1, 2008).
  2. During the Material Time, Trapeze Capital Corp., Herbert Abramson and Randall Abramson failed to ensure all sales literature and correspondence issued or sent to clients adequately presented the potential risks of investing with Trapeze Capital Corp., Herbert Abramson and Randall Abramson in the manner described in paragraph 32 of the Settlement Agreement, thereby engaging in business conduct detrimental to public interest, contrary to IIROC Dealer Member Rule 29.1(IDA By-law 29.1 prior to June 1, 2008).
  3. During the Material Time, Trapeze Capital Corp. failed to properly discharge its Know-Your-Client obligations for a number of client accounts in the manner described in paragraphs 33 and 34 of the Settlement Agreement, contrary to IIROC Dealer Member Rule 1300.1(a) (IDA By-law 1300.1(a) prior to June 1, 2008).

Pursuant to the Settlement Agreement, Trapeze Capital Corp., Herbert Abramson and Randall Abramson agreed to the following penalty:

a) Trapeze shall submit to a review of its practices and procedures by an independent consultant, to be approved by staff at Trapeze’s expense;
b) Trapeze shall send a written communication to all clients, in a manner and form acceptable to staff, outlining Trapeze’s intention to conduct account reviews, and explaining the reviews are required by IIROC to ensure (i) each client’s current Know-Your-Client information is collected and documented, and (ii) the investments in each client’s account(s) are suitable given the client’s age, financial circumstances, investment needs and objectives, and risk tolerance;
c) Trapeze shall conduct account reviews with all of their clients, and shall explain to each client the review is required because of concerns regarding understatement of risk arising from Trapeze Capital Corp.’s, Herbert Abramson’s and Randall Abramson’s failure to adequately consider factors such as concentration risk, price volatility risk and liquidity risk;
d) Trapeze agrees it shall not increase its fees or take any other steps that would result in its clients bearing any costs or expenses incurred by it relating to the Settlement Agreement, including any costs associated with retaining the consultant; and
e) Trapeze Capital Corp., Herbert Abramson and Randall Abramson shall pay, jointly and severally, a $500,000 fine to IIROC.

Trapeze Capital Corp., Herbert Abramson and Randall Abramson also agreed to pay costs in the amount of $200,000.

IIROC formally initiated the investigation into Trapeze Capital Corp.’s, Herbert Abramson’s and Randall Abramson’s conduct in July 2009. Trapeze Capital Corp is an IIROC-regulated firm. The violations occurred when Herbert Abramson and Randall Abramson were registered representatives and portfolio managers with Trapeze Capital Corp. Randall Abramson was president, chief compliance officer and ultimate designated person of Trapeze, and Herbert Abramson was the chairman, alternate designated person, and a director of Trapeze when the violations occurred. Herbert Abramson and Randall Abramson continue to be registered representatives with Trapeze Capital Corp.

Read the settlement agreement.