A local investment company has been ordered to pay $70,000 in fines and penalties for failing to properly supervise one of its past advisers.
Professional Investments, which has been headquartered in Kingston since 1984 and has five other locations between Belleville and Ottawa, faces the penalties from the Mutual Fund Dealers Association of Canada (MFDA). The settlement hearing was released publicly on Friday. It states Professional Investments failed to supervise Patrick Caicco, who admitted in a statement of agreed facts and to the Whig-Standard to engaging in securities outside of a MFDA member.
Between May 12, 2009, and March 12, 2010, Caicco was registered as a mutual fund salesperson with Professional Investments based in Ottawa. Without initially notifying or asking permission from the local company, Caicco incorporated Advantage Wealth Building Strategies Inc. to carry out wealth coaching and wealth planning services, reads a November 2015 MFDA case summary.
Caicco said on Thursday that, at the time, he was moving out of the mutual fund game and into alternative investments. One of those investments was The Skyline Real Estate Investment Trust, between March 2008 and May 2010. Caicco referred 21 people, four of whom were clients of Professional investments, to invest a combined $1,343,449. Caicco collected one per cent in referral fees from Skyline. Caicco said that the Skyline investment was a success and that some of his clients have doubled their investments.
Things went south in 2009 when Caicco started to work with the Assaly Group. Caicco recommended that 21 people, including five Professional Investments clients, invest a combined $1,838,000 in the Assaly Groups Natures Walk Gated Community and one person to invest $171,000 in Villa Montague. Natures Walk was going to be a gated community and golf course in North Grenville while Villa Montague was a real estate investment pool to redevelop an existing retirement residence located in Smith Falls.
Investors were initially receiving returns on this investments but they suddenly stopped in February 2011. Suing The Assaly Group, the court process revealed the two projects were hopelessly insolvent and in stages of abandonment. The settlement from MFDA says there is no reasonable prospect that investors will recover the full amount of their investments.
For his actions, Caicco was banned from the MFDA and from ever working in the mutual fund business. He was also fined $50,000 and ordered to pay $5,000 in proceedings costs. Caicco said on Thursday he likely wont pay the penalties.
I havent paid the fine and probably never will because I dont have the money to pay it, Caicco said.
While Caicco didnt invest in the Assaly ventures and made three per cent in referral fees, he said he went bankrupt going after The Assaly Group.
I spent a whole year trying to fight Assaly with the lawyers, because I wanted to get them, so I didnt work for a year, lost probably $100,000 of income, and I get bankrupt and I lost all my assets, Caicco said. If [Assaly] hadnt defaulted, MFDA wouldnt have found out and I wouldnt have had to go bankrupt and my clients wouldnt have lost money.
His default set a cascading effect right across the board.
Caicco said one of the advisers at Professional Investments knew he was working in a grey area because he was transferring his mutual fund clients to him. MFDA and Professional Investments agree in the settlement that when they found out about Caiccos actions, they didnt initially report it to the MFDA. Caicco said Professional Investments had eventually suggested that he resign from the company.
Because Professional Investments wasnt adequately supervising Caicco and it failed to report to the MFDA that Caicco was working outside its domain, panelists Martin Friedland and Guenther Kleberg fined Professional Investments $60,000 and $10,000 in proceedings costs.
This is not the first time Professional Investments has been penalized by the MFDA. In December 2008, the company entered a settlement with MFDA that stated it did not establish, implement and maintain two-tier compliance structure. A compliance structure ensures investments are right for the individual investor. Investments must be approved by a manager and the companys head office.
Professional Investments was fined $10,000, was ordered to pay the $2,500 for the costs of the MFDA disciplinary proceedings, and was ordered to retain KPMG Inc. to help set up and monitor the compliance structure.
Caicco now works in mortgage investments with FMP Mortgage Investments Inc. but would like to expand further into the food services industry.