The British Columbia Securities Commission (BCSC) has fined Victoria broker Carolann Steinhoff $100,000 plus $20,000 in costs and the return of $6,813 in commissions because it ruled she made recommendations to a Victoria couple that were not suitable for the couple’s investment objectives.
Her recommendations included investing a couple’s entire life savings in risky investments in mid-2008, causing the couple to lose 56% of their investment.
The Investment Industry Regulatory Organization of Canada (IIROC) had recommended financial penalties for Steinhoff but a BCSC panel in August 2013 deferred that recommendation pending submissions from both parties.
Other IIROC recommendations were that Steinhoff be suspended for one year, be subject to strict supervision for another year and to close supervision for a further year.
It also suggested that she be prohibited from acting as a director or senior officer of an IIROC member for five years and that she be ineligible for reinstatement until she rewrites and passes an exam.
The BCSC’s panel ruled out a suspension, noting that, “the penalty we are imposing is appropriate in the circumstances and will adequately deter Steinhoff and other registrants from failing to meet suitability requirements.”
The IIROC proceedings arose from Steinhoff investing money in the summer of 2008 on behalf of a couple in their 30s, AK and CK, according to the BCSC’s August hearing decision.
The Ks had received $125,000, representing the equity they had realized from the sale of their house. At the time, these funds were essentially all of their savings and they deposited the $125,000 with Steinhoff for investment. They would need the funds about three or four months later to complete the purchase of their next house, then under construction.
Steinhoff invested the funds in 12 equity investments, 11 on June 26 and the 12th on July 8. The amount invested totalled about $245,000. The $120,000 difference between the Ks’ deposit and the total invested was margin, representing a leveraging of the Ks’ investment of nearly 100%.
By late August 2008, following the onset of severe market declines associated with the global credit crisis, the portfolio had sustained a serious loss in value. Steinhoff recommended to the Ks to stay the course. The portfolio continued to fall in value, and the Ks’ losses were crystallized when the portfolio had to be liquidated so they could have the funds for completion of the purchase of their house.
“When the dust settled, the total loss to the Ks was 56% of the amount they invested,” a the BCSC panel wrote in August. “After paying off the margin call, the Ks were left about $65,000 short of what they needed to complete their house deal.”
