Canadian regulators have suspended a former RBC Dominion Securities stockbroker from Vancouver from registered investment activity. This comes after he was found to be conducting high-volume and high-risk trading on behalf of high net-worth clients from China, resulting in losses of $8.7 million over the course of 30 months, while still collecting $4.8 million in commissions.
RBC registered representative and futures advisor Hongia Liu and the Canadian Investment Regulatory Organization (CIRO) struck a settlement agreement June 18. Liu agreed to a six-month suspension from registered investment activity, a $75,000 fine and a promise to repay clients $225,000 in total.
Liu, the agreement states, “engaged in widespread discretionary trading across a significant portion of his futures book of business,” between June 2017 and December 2019.
“The conduct involved large volumes of high-risk trading, routinely exposing clients to significant potential losses. Many of the clients suffered substantial losses while generating significant trading commissions for Liu and [RBC].”
Liu took a “one size-fits-all” approach to his futures clients, who he said were aware of and agreed to this high-risk trading strategy.
Liu’s commissions were more than double the next highest producing futures advisor at RBC.
Liu placed over 15,000 orders in this time and did not obtain approval for the specifics of each trade in advance. Instead, he only discussed broad strategies with the clients, most of whom were from China, the settlement states.
There is no documentation indicating the clients understood they were granting Liu discretionary authority over their account.
Specifically, “the strategy used by Liu was to write naked futures contracts and receive premiums for the contracts sold. This is a high-risk strategy whereby the maximum profit is the premium received but the maximum loss is potentially unlimited. The inherent riskiness was exacerbated by the volume of trading which took place.”
What accounted for the massive losses? Liu claims, according to the settlement, that the losses were incurred “in large part” as a result of tariffs imposed by China against U.S. soybean imports.
RBC investigated Liu after one of the clients formally complained that Liu had been investing her money in speculative future contracts without her knowledge or authorization.
Liu’s net commission from these clients was nearly $2.4 million, or half of the total commissions collected by the firm.
The gulf between Lu’s commission and his repayment order of $225,000 is explained in the settlement: “The amount of sanction reflects the personal financial circumstances of Liu, and that he has not worked in the industry since his termination in September 2020.”
Liu self-reported his conduct to CIRO and paid the regulator $10,000 for costs, .
