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by Mike Caswell

The Canadian Investment Regulatory Organization has fined BMO Nesbitt Burns Inc. and one of its employees, Yujie (Jared) Liu, over a trading strategy that inflicted $39.7-million in losses on Mr. Liu's clients. CIRO says that Mr. Liu's strategy, which involved short sales of government bonds as a form of margin, was not suitable for his clients. His supervisors learned of his strategy, but did little to address the problem, CIRO claims.

The penalties for BMO and Mr. Liu are contained in a settlement agreement that CIRO released on Friday, April 5. BMO has agreed to pay a $1.5-million fine and to disgorge commissions of $146,876. Mr. Liu has agreed to pay an $80,000 fine and to disgorge $63,258 in commissions. Mr. Liu must also complete the Conduct and Practices Handbook course before becoming registered again.

The sanctions arise from a trading strategy that Mr. Liu began using in 2015. The strategy involved clients entering short sales of long-term government bonds and using the proceeds to purchase preferred shares. The preferred shares were in well-established companies and were lower risk in nature.

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