CIRO cites Hampton's Deeb for risky trades, short sales
2023-11-13 18:27 ET - Street Wire
by Mike Caswell
The Canadian Investment Regulatory Organization has filed a case against Toronto's Hampton Securities Ltd. and its chairman, Peter Deeb, claiming that Mr. Deeb improperly obtained access to credit and entered high-risk trades using his firm's inventory account. He also entered short sales to obtain money to participate in new issues, with the resulting activity generating commissions for Hampton, CIRO says. Mr. Deeb's actions caused Hampton's carrying broker to bear unnecessary and significant risk, according to CIRO.
The allegations are contained in a notice of hearing that CIRO released on Friday, Nov. 10. The case mostly targets Mr. Deeb, who is the chairman, chief executive officer and ultimate designated person at Hampton Securities. CIRO has also named the firm itself as a respondent, with the possible penalties including suspension of its membership.
The case centres in part around Mr. Deeb's misuse of Hampton's average price inventory account. These accounts ordinarily allow firms to place multiple small orders at once without the inconvenience and paperwork associated with placing the orders individually. The accounts can also be used when an institutional order is to be prorated amongst internal accounts.
The problem, at least according to CIRO, is that Mr. Deeb misused Hampton's account to obtain access to credit. The events at issue mostly occurred in January and February, 2020, when Hampton established a short position of over $4-million (U.S.), CIRO says. According to CIRO, the short position came from risky trades entered by Mr. Deeb that were not ticketed to any client account. CIRO says that the risk for those trades was ultimately borne by Hampton's carrying broker, National Bank Independent Network.
Around the same period, Mr. Deeb also used short sales to generate money so that Hampton could participate in new issues, CIRO says. These included a $1.3-billion offering that Telus Corp. was expecting to close on Feb. 26, 2020. About a week before that date, Hampton's financial position was such that it could not participate in the offering, CIRO claims. To get around that problem, Mr. Deeb began entering short sales in one of the firm's inventory accounts, the notice states. Hampton was then able to participate in the offering and generate commissions, CIRO claims.
This activity, as set out by CIRO, left Hampton in a tenuous financial position by March 9, 2020. The firm had unrealized losses that should have resulted in it taking a $2-million charge against its risk-adjusted capital (a measure of a firm's financial health), CIRO says. The charge would have wiped out the firm's capital, according to the notice. Facing this problem, Mr. Deeb told one of Hampton's officers that he would "trade his way out" of the situation, the notice states. CIRO does not say exactly how that trading turned out, but it does say that Mr. Deeb placed orders in the following weeks that should have resulted in millions of dollars in additional demands on Hampton's capital position.
Lastly, CIRO says that Hampton failed to keep appropriate records of the trading at issue, or at least it could not provide those records on request. According to the notice, enforcement staff had to partially reconstruct the trading by obtaining files from National Bank Independent Network and from Hampton's U.S. executing broker. CIRO further says that a report prepared after a 2022 review of Hampton's operations showed that the firm could not provide supervisory records.
CIRO has not yet spelled out the penalties it is seeking, but the hearing notice states that those penalties could includes fines of up to $5-million per violation. CIRO could also seek bans or prohibitions that would effectively curtail Hampton's ability to conduct business.