Failure to set a “tone from the top”: CIRO orders significant sanctions against a firm and its Ultimate Designated Person

The Canadian Investment Regulatory Organization (CIRO) recently issued its decision on sanctions in Re Deeb and Hampton Securities¹. This decision follows a previous decision on liability in which CIRO found that (i) Mr. Deeb (the Executive), who was Hampton’s Ultimate Designated Person (UDP), engaged in improper trading practices and failed to promote compliance within the firm, and (ii) Hampton failed to maintain adequate books and records². In its sanctions decision, a CIRO hearing panel (the Panel) imposed significant financial penalties and restrictions on the respondents. This decision sends a strong message that individuals responsible for promoting and protecting compliance are expected to set a “tone from the top”. A failure to do so—such as by engaging in misconduct that undermines core compliance responsibilities—will attract harsh penalties.

What you need to know

• Misconduct by individuals responsible for promoting and protecting compliance will attract harsh penalties. The Panel emphasized that the Executive’s position as UDP of Hampton exacerbated the seriousness of his misconduct, which was “inimical to the obligation to promote a culture of compliance at his firm and to set a tone from the top”.
• The fines ordered against the respondents were at the higher end of the range of fines awarded in similar cases, which underscores the Panel’s view of the seriousness of the misconduct.
• The sanctions included a disgorgement order against the Executive for over $1.2 million. The Panel made this order based on its finding that the Executive was a “directing mind” of Hampton, even though Hampton is a public company with an experienced board of directors.

Background

The liability decision

In April 2025, the Panel found that the respondents—the Executive and Hampton Securities Ltd.—breached the Dealer Member and Investment Dealer and Partially Consolidated (IDPC) Rules:

• Breach #1: The Executive engaged in “conduct unbecoming”³. The Executive—who was the co-founder and UDP of Hampton—engaged in improper trading practices involving the firm’s average price accounts. Specifically, he improperly accessed credit by trading in Hampton’s average price and inventory accounts without adequate margin. He also failed to allocate trades promptly or properly. This resulted in, among other things, a $1.9 million trading loss for the firm when markets declined during the early pandemic period. Although the Executive took responsibility for the loss, there was insufficient margin to support the trading. The Panel also concluded that the Executive was dishonest and misled CIRO about his trading activities.
• Breach #2: Hampton failed to maintain adequate books and records and failed to provide records of trading activity, contrary to its regulatory obligations⁴.
• Breach #3: The Executive, as Hampton’s UDP, failed to promote and enforce compliance within the firm⁵.

These findings formed the basis for the Panel’s decision on sanctions and costs.

Evidence on sanctions

At the sanctions hearing, CIRO Enforcement Staff (Staff) tendered evidence about the respondents’ profits and commissions on the impugned trading. In response, the Executive provided evidence that he did not benefit from the trading: he did not earn any commission, remuneration, percentage, or benefit from the impugned trades. The trading was in the firm’s proprietary account, and all trading was for the benefit of the firm.

The Panel concluded that the total benefit to the respondents from the impugned trading was over $1.2 million. Of this, the vast majority—over $1.1 million—was attributed to Hampton. The remainder (approximately $77,000) was attributed to the Executive.

The decision

Sanctions and costs

The Panel ordered significant sanctions against the Executive, including (i) a $500,000 fine; (ii) over $1.2 million in disgorgement; and (iii) $230,000 in costs. The Panel also prohibited the Executive from registering as a representative with any dealer for one year, banned him from serving as an Executive or Supervisor at any Dealer Member or Regulated Person (with limited exceptions) for three years, and permanently barred him from ever serving as a UDP.

The Panel also imposed significant sanctions on Hampton. In addition to a $250,000 fine and $20,000 in costs, the Panel prohibited Hampton from delegating supervisory duties to the Executive and required Hampton to change its leadership and adopt enhanced reporting requirements.

In the Panel’s view, the Executive’s role as UDP of Hampton exacerbated the seriousness of the conduct. The Panel held that the Executive’s conduct in “intentionally breaching the rules governing average price accounts and his dishonest dealing with CIRO is inimical to the obligation to promote a culture of compliance at his firm and to set a tone from the top”⁶.

Application of the Sanction Guidelines

While the determination of appropriate sanctions is always fact-specific, the panel is guided by CIRO’s Sanction Guidelines. The Guidelines provide a three-part framework to guide the determination of sanctions:

• Part I: sanctions principles to be applied in all cases;
• Part II: key factors that may be taken into consideration; and
• Part III: additional considerations that may be relevant to a particular case.

Under Part I of the Guidelines, the Panel affirmed the general principle that sanctions should be preventative in nature and should protect the public, strengthen market integrity, and improve business standards. To achieve this, sanctions should be significant enough to prevent and discourage future misconduct by the respondent (specific deterrence) and to discourage others from engaging in similar misconduct (general deterrence).

Under Part II of the Guidelines, the Panel highlighted the key factors relevant to the sanctions against both the Executive and Hampton⁷:

• The scope of the misconduct was significant. The misconduct occurred over an extended period, the trading involved a high-risk security, and the transactions were large (both in terms of volume and monetary value).
• Most of the Executive’s misconduct, including his trading practices and dishonest dealings with CIRO, was intentional and evidenced a pattern of misconduct.
• The Executive’s conduct, both in his personal capacity and as UDP of Hampton, harmed market integrity and the reputation of the marketplace. Notably, the Executive’s failure as UDP was extensive. He failed to conduct himself in the manner to be expected of a UDP, and he failed to promote compliance with the CIRO requirements and securities laws.
• The Executive created a risk of harm to clients and other market participants, including by putting Hampton’s capital (and thus its clients) at risk. However, the Executive accepted personal responsibility for the $1.9 million loss, and compensated Hampton.
• Both Hampton and the Executive profited from some of the impugned trading. The total benefit to the respondents was over $1.2 million.
• Neither the Executive nor Hampton accepted responsibility for, or acknowledged, the misconduct before detection and intervention by CIRO. Instead, the Executive was dishonest in responding to CIRO and Hampton failed to provide records, which ultimately delayed CIRO’s investigation.
• The Executive had a prior disciplinary history, though his prior contraventions were relatively minor, isolated incidents.

Under Part III of the Guidelines, the Panel reviewed additional considerations relevant to this case, including disgorgement, aggravating and mitigating factors, and sanctions awarded in similar cases. The Panel ultimately ordered fines that were at the higher end of the range of fines awarded in similar cases, which underscores the seriousness of the misconduct.

A note on disgorgement

Staff asked for a disgorgement order against the Executive that would include the amount that Hampton benefitted ($1,147,362) and the amount that the Executive benefitted ($77,875). Staff did not seek a disgorgement order against Hampton.

The Executive argued that the Panel could not order disgorgement against him for amounts that Hampton received. Hampton is owned by a public company and has an experienced board of directors. He also argued that disgorgement should be limited to the net profits from the impugned trading (i.e., any disgorgement order should account for significant trading losses that were incurred).

The Panel rejected these arguments. Given that the Executive was Hampton’s co-founder and UDP, and had voting control of Hampton’s ultimate parent, the Panel concluded that the Executive was the directing mind of Hampton. Accordingly, the Panel ordered disgorgement against the Executive for the amount that Hampton benefitted from the impugned trading without accounting for losses (i.e., without limiting the amount to net profits).