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Postby admin » Sat Jan 14, 2006 6:39 pm

I have found some degree of help with the law called FREEDOM OF INFORMATION AND PROTECTION OF PRIVACY ACT. (FOIPP)


Aside from the obvious protective intentions towards personal information this act has elements in it that allow you to request any information and or files on yourself (or perhaps others files you may have a legitimate interest in).

This means that the law provides for you to seek info into any file where you may not have been properly helped. I have yet to see if this act gets actually followed, and I have been led to believe that corporations and government agencies who are asked to comply with the law are often able to ignore and blow off many legitimate requests.........but we knew that going into it..............and forward we go anyway if the matter is important enough.


If you have made legitimate complaint, or are about to do so, against a corporation or government agency, I might suggest a written letter of enquiry into your file under the FOIPP Act. It will not guarantee a professional response and might result in yet another level of dissapointment, but you gotta take each and every step of proper procedure if you are fully intending to have a major corporation accept blame, admit fault, or open a wallet and make your losses whole again.
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Postby admin » Sat Jan 14, 2006 12:01 pm

The above is interesting commentary from the inside of the investment industry. If you read between the lines on this kind of communication, you will no doubt separate the professionals from the posers.

Professionals in the investment game do several things well:

1. They follow a very dilligent, well defined process to make investment plans, and justify investment decisions.
2. They are experienced and competent enough to know the process, understand it, and be able to clearly and simply, in plain language translate it to the client.
3. The document the process, and the client understanding, agreement and co-operation in the overall, plan. A written investment policy is but one essential document to begin this process.
4. They follow this process carefully, reviewing it and making sure that any and all investment advice is in the clients best interest, and no others.
5. They act professionally and represent the advisor title properly, using only "best industry practices".

These people have nothing to fear from clients, nor from compliance or other regulators. Compliance will be your best friend towards keeping your business on a "best practices" level.

The other kind of salesperson fears the compliance department, documents poorly, places his or her interests ahead of the client often, makes investment decisions based on how his or her compensation will be affected. They feel a compliance department is their worst enemy and they are right. They are the old dinosoars from the "sales pitch" days and they are out there. The sooner they are drummed out of the business the better.

If you have been the victim of a bad advisory relationship, where a professional standard of practice has not been followed, I think you should be consulting lawyers immediately and demanding that your account be "made whole" as per best industry practices. You will not receive much help from industry, or from regulators, as they are in many cases a dozen years behind the times and have other interests. But you will prevail if you have a case. (not simply an "I lost money" case)

Investor advocates is happy to help abused investors at no charge. We consist of ex-industry people, who have come to the sad realization that the industry does not live up to it's promises to investors, and we feel strongly enough about it to want it to change for the better.

e-mail your thoughts to investoradvocate@shaw.ca if you would like to engage in some no cost, no obligation, no expectation discussion.

best regards
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Postby admin » Sat Jan 14, 2006 11:45 am

The message here for naive investors with scare resources who seem to expect natural justice if things go wrong is that they can expect a spirited fight by a much better resourced organization. When you ask for justice (in the event of some malfeasance on their part), they go to war - against you!

http://www.advocis.ca/print.htm?token=public&id=3007

Dated but telling......


When Compliance Comes a Calling
By Caroline Spivak (09/06/2004)


In an ever-changing, complex, and sensitive regulatory environment, advisors are increasingly faced with tightening compliance rules and regulations. Should you unexpectedly find yourself the subject of a regulatory investigation, there are steps you can take to ensure your livelihood and reputation are protected.

Reason and knowledge have always played a secondary, subordinate, auxiliary role in the life of peoples, and this will always be the case. A people is shaped and driven forward by an entirely different kind of force, one which commands and coerces them and the origin of which is obscure and inexplicable despite the reality of its presence.

Fyodor Dostoyevski

Throughout their careers, advisors – with books of business both big and small – are invariably faced with complex regulatory requirements imposed by lawmakers, regulators, and dealers. While most interactions with compliance regimes tend to be obliging, accommodating, and even co-operative, there too often comes a time in an advisor’s career where the dark side of compliance rears its ugly head, reeking havoc on an advisor and the very livelihood that sustains his or her business.

Compliance – friend or foe?

For most advisors, the experience of receiving a call from their compliance department probably ranks right up there with having a root canal. Viewed as more of a nuisance and added headache rather than a function of helping advisors meet their duties and obligations under provincial securities law, compliance teams tend to enjoy the kind of reputation one generally reserves for necessary evils rather than welcome intruders.

Nevertheless, as a necessary nuisance, the very existence of the compliance function, its rules, regulations, and requirements, when administered effectively and justly, can help to protect the reputation of advisors, market participants, and the overall industry. Ideally, this contributes to greater overall investor confidence and, ultimately, to greater market participation and ongoing business for advisors.

What happens then when compliance assumes a more sinister role in the “governance” of advisor behaviour, particularly in the area of unexpected audits and investigations? What happens when compliance comes knocking on your door? Does your friend suddenly become your foe?

All audits are not equal

Audits can be broken down into two general categories: general or reinforcement audits and specific or enforcement audits. General audits typically emphasize reinforcement of procedures, tend to be educational, and can be viewed as helpful. Routine in nature, general audits tend to be characterized by a visit from your dealer or auditor who reviews the books and records maintained on behalf of the dealer. Here, as a general rule, the dealer is entitled to look in the representative’s files – but cannot go into the advisor’s client files unless there is a specific reason to do so. This can happen in instances where there is a perceived breach that requires clarification or corroboration to be found in advisor files.

Advisors are typically required to maintain documents such as know your client forms, general account-opening documentation, purchase orders, and communications related to securities held and advice-giving relating to those transactions, in addition to client tracking information in their dealer files.

Brian Mallard, CFP, CLU, CH.F.C., past chair of Advocis, cautions advisors to be clear on what they are required to maintain in their dealer files. “Advisors tend to complicate things when they maintain advice-and insurance-related plans and documents and anything related to overall client information. Client files of this nature are far over and above what is required to be maintained in the dealer file. Advisors forget this distinction.”

Depending on the contractual relationship, the dealer may not have the right to look at insurance files and other advice-giving documentation. Advisors should have a clear understanding of what their dealer contractual obligations are,” says Mallard. “Files should be appropriately divided and, in order for the dealer to access advisor files, the dealer needs permission from clients to view them. Clients have a legal right to privacy and an ethical expectation of confidentiality.”

Ellen Bessner, LLB, a partner at Gowling, Lafleur, Henderson who specializes in representing and training advisors, concurs with Mallard. “If it’s purely a general audit, then let them in and let them see what they need.”

Specific or enforcement audits, on the other hand, have an entirely different flavour. Generally viewed as more invasive, a specific audit can be triggered by a consumer complaint, an employee allegation, or the general suspicion of a dealer. This kind of an audit is carried out under the authority of a superintendent order and has far more serious implications for advisors. In this instance, an advisor is subjected to a more rigorous investigation and will need to defend him or herself with supporting documentation.

“The difference between a regular audit and an investigation,” adds Mallard, “is that a regular audit looks to confirm that you are complying with the established rules and regulations, whereas an investigation looks to determine how many rules you are breaking.”

This does not bode well for what is viewed by the regulators as an opportunity for advisors to improve their business. Noulla Antoniou, senior accountant at the Ontario Securities Commission (OSC) compliance capital markets branch, tells us that when the regulators come in to conduct an audit, “We are not there to find something wrong. We come from the perspective of open communication and advisors should feel at ease to share information openly.”

Mallard disagrees. “Advisors do not benefit from the presumption of innocence and due process,” he says. “Our current regulatory environment, which assumes advisor guilt, facilitates a poisoning of the relationship between advisors and compliance enforcers.”

Guilty until proven innocent?

Most client complaints are not about specific transactions. Typically, what is at the core of the complaint is the breakdown between an advisor’s advice and a client’s action, or inaction, based on that advice. When clients decide to litigate, an advisor finds him or herself on the defensive on two fronts: one is the courts and the other, the governing regulators.

Court sympathies typically tend to fall on the side of investors, notes one industry insider. There is a prevailing presumption that the statement of claim is valid and that puts every advisor at significant risk.

On the other hand, investor protection advocates, including Stan Buell, head of the Small Investor Protection Association, has been cited as stating that the investment landscape in Canada is in fact tilted in favour of the industry because it has the ear of the regulators. Interestingly enough, he feels that it’s the voice of the client that is not being heard.

An advisor in British Columbia disagrees, noting that the societal perspective is that if you are an advisor and are accused of something, then you must be guilty. There is a presupposition of guilt.

Mallard further warns advisors not to dismiss employees in the realm of possible accusers. Employee risk can be even greater than that of client risk as employees are privy to more information than a client is in the overall course of your business. “Advisors are at such a huge risk [from] vindictive clients and employees. This can become very serious very quickly. An advisor’s very livelihood can be at stake.”

In either circumstance, an advisor will need to quickly take on a defensive position to attempt to clear his or her reputation.

Role of the regulators

So what is the role of the regulator in all of this – specifically, provincial securities commissions, the Mutual Fund Dealers Association (MFDA), and the Investment Dealers Association of Canada (IDA)?

Primarily, the collective role of these individual organizations is that of investor education and protection through registration, compliance, and enforcement in conjunction with enhancing the capital markets across Canada.

Essentially, the focus is on educating investors. Advisors, however, say that investors don’t necessarily want all the education thrown at them and that the reason that investors seek the help of advisors is because they don’t want to know all that an advisor knows. Just as one goes to their doctor or accountant for advice, one seeks to engage the services of advisors to fulfil a professional advisory function.

What then of advisor education? “Advisors don’t get education, they get regulation,” notes Mallard. “Today, dealers are running around scaring advisors with the regulatory boogie man,” which Mallard suggests does not really exist.

How real is the regulatory boogie man?

“If you read rulings of the IDA and securities commissions across Canada, they are reasonably even handed – not entirely punishing and pejorative,” says Mallard. “The logical reason for this is that within Canada, every citizen is entitled to a process of natural justice. Findings, even in the instance of guilt, need to be sustainable on appeal and few of the IDA findings are appealed. The reason being is that they ultimately deal with guilty people in a fair manner.

“Dealers, on the other hand, aren’t equipped to provide objective access to the process of natural justice. They are economically and environmentally conflicted due to pre-existing relationships, both business and personal, and therefore cannot come to the table with clean hands.”

Dealers will typically defer to the IDA with its established processes, procedures, and requisite powers of investigation and enforcement.

On the other hand, the MFDA, which stipulates on its Web site that it is responsible for regulating the actions of member firms, does not seem to have the authority to regulate the actions of advisors. In fact, investors with complaints are directed to their advisor dealer firm and to the Ombudsman for Banking Services and Investments to proceed with a complaint.

So it seems that although regulators and the courts can be fair, the real danger lies in the resulting damage to an advisor’s reputation. Damage that can halt and effectively end an advisor’s career.

Regulating advice

If the focus of existing regulation and enforcement is on transactional breaches of an advisor, and the majority of client complaints are borne of discrepancies arising from advice-giving, who then regulates the advice- giving process?

With the advent of proposed models for national securities regulation, it seems that most everyone is attempting to carve out a role for regulating the advice-giving process including, most notably, the OSC’s Fair Dealing Model (FDM). The FDM dissects the advisor-client relationship into specific categories with associating parameters to govern each relationship.

When it comes to regulating advice effectively and fairly, Mallard suggests that it is the role of professional membership associations to fill this vacuum. He further suggests that the associations not only regulate the advice-giving process, but also guide advisors on governing themselves appropriately in the event of a claim.

Advisor protect thyself

In the event that an advisor is faced with an investigation, documentation is key. Consistent, clear, and concise documentation of client and advisor records is key to protecting both the advisor and the client in audit situations. Advisors must always maintain evidence of client contact, correspondence, and instructions. Consistency of process is crucial in these circumstances as regulators and the courts alike will look not only at the specific case in question – your entire business process and recordkeeping and management system will come under scrutiny. Advisors need to be able to effectively demonstrate that a process is in place and, therefore, there is an increased likelihood that information has been recorded accurately. Emphasizing the importance of recordkeeping, Bessner counsels that, “advisors should be making sure that they are complying with compliance requirements. It is not a question of if [the auditors] will come in – it’s a question of when they will come in.”

ADVISOR AUDIT DOS AND DON'TS
Consider the following in the event of an audit:

ADVISOR AUDIT DOS ADVISOR AUDIT DON'TS
Do show respect. Be polite and co-operate.

Do call a lawyer, preferably a securities lawyer with the perspective of a mediator, not a litigator. In the event of a specific order, you have the right to have a lawyer review it before the investigation takes place.

Do grant access to specific requests.

Do ensure that investigators are supervised when they are in your office or branch.

Do keep a record of all files removed from your office and have an understanding of when and how the files will be returned to you.

Do understand your contractual obligations and the limitations of same.

Do understand the rules and regulations that govern your conduct.
Do not touch any of your files or attempt to change any notes.

Do not meet with compliance alone.

Do not volunteer additional information.

Do not leave investigators alone in your office.

Do not allow for the removal of any files other than those specifically requested


The OSC’s Antoniou echoes this sentiment, noting that audits and investigations should not be any more taxing if an advisor is where he or she should be. “It’s when [an advisor] is deficient in their compliance processes that he or she may have difficulty in catching up with a changing environment. It depends on where you currently are in your books and records – are you catching up or keeping up?”

Mallard goes further and suggests that advisors should “assume that someone is coming to look at the transaction at some point in time to try to figure out what’s wrong with it.”

In the final analysis

A client or employee claim can result in the suspension of an advisor’s licences, termination, and the resulting inability to obtain and maintain professional liability insurance. And all of this before an advisor has had a chance to respond and to defend him or herself against the charges levied.

Fulfilling compliance functions helps an advisor’s business and is better for clients in the long run. Bessner suggest that it is not a choice of compliance versus clients. “Compliance should not be perceived as a cost of doing business and a means of warding off the enemy. Compliance is here to stay. As soon as it is embraced, advisors are going to be more productive. They will have procedures in place for compliance and they will have a better sense of their business. Clients are going to feel that advisors are professionals.”



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Postby admin » Tue Dec 13, 2005 6:39 pm

APPLICABLE LAW TO THE CUSTOMER/STOCKBROKER RELATIONSHIP:

(A) Fiduciary duty:

There is no presumption in law that a fiduciary relationship exists between a broker and his client. There may be a fiduciary relationship if the facts so dictate.

Fiduciary principles are founded in equitable law doctrines. There must be present the elements of trust, confidence and reliance on skill, knowledge and advice. The combination of these elements can cover the entire spectrum from complete vulnerability and reliance, where there is no ability to exercise independent thought and choice and therefore a clear fiduciary relationship, to the other extreme of total independence, where a fiduciary relationship does not exist. It should be noted that merely because a customer is elderly ,does not necessarily result in the existence of a fiduciary relationship.

Each relationship must be analyzed on its own facts to determine whether or not there are in fact the elements of a fiduciary relationship. The court will look to enforce a fiduciary duty where the party owing the duty is acting dishonestly, and the party receiving that duty is acting in good faith with clean hands. The court will not protect a customer who is participating in an attempt to deceive for personal advantage. Public policy does not warrant affording such claimants protection of the court.

Hodgkinson v. Simms, [1994] 3 S.C.R. 377

Stegor Consultants (1988) Ltd. v. Mader, [2001] O.J. No. 376

Hunt v.Toronto-Dominion Bank (August 26, 2003)Ontario C.A.

The characteristics of a fiduciary relationship are that the fiduciary must have the ability to exercise power over another, that the power can be exercised unilaterally, and that the receiving party is vulnerable to the party welding the power.

International Corona Resources Ltd. v. LAC Minerals Ltd. (1989) 69 O.R. (2d) 287

(B) Negligence:

The law of negligence has been well developed. For damages to flow in this instance, the court must find that the firm owed the customer a duty of care that was breached, and that it was this breach that was the proximate cause of the alleged loss. The court must assess this duty and at the same time examine the conduct of the customer in determining whether or not it was the customer’s negligence that contributed to the loss. In other words, the court would have to determine if the customer acted as a reasonable man in mitigating the damages. In my view the reasonable man test to be applied must take into account the investment acumen, experience and knowledge that particular customer.

Kamloops v. Nielsen ,[1984] 2 S.C.R. 2 (S.C.C.)

Edwards v. Law Society of Upper Canada (No. 2), [2000] 48 O.R. (3d) 329 (Ont.C.A.)

Asamera Oil Corp. Ltd. v. Sea Oil and General Corp. et al, [1978] 6 W.W.R. 301 (S.C.C.)

It is prudent public policy not to permit customer to claim for losses where there is a breach of the regulations by the firm, but the breach at issue was not the proximate cause of the losses claimed, especially where a customer pursued an aggressive trading strategy with full knowledge. The courts have not given customers carte blanche to lose money in the market and look to the brokers for recovery based on technical breaches of stock exchange rules and industry by-laws.

Varcoe v. Sterling (1992), 7 O.R. (3d) 204 (Ont.Gen. Div.)
Parks v. Midland Walwyn Capital Inc. (July 7, 1995) Doc. 92-CQ-30790CM
Saskatchewan Wheat Pool v. Canada (1983) 143 D.L.R. (3d) (S.C.C.), Farkas (Trustee of) v. CIBC Wood Gundy Securities Inc. (1999) Docket 96-CU-99444, Ontario Superior Court of Justice

(C) Duty to warn:

It has been argued that a firm has no duty to warn a customer of other customer complaints against a broker, especially when there is a TSE investigation pending of which the customer has knowledge. These other customer relationships are confidential.

It has been argued that a duty to warn does not arise merely because of the broker-customer relationship. Whether or not there may be a duty to warn is a question of fact dependent on the particulars of the relationship. Even if there is a duty to warn, it should apply only to those who may incur reasonable foreseeable losses.

Reed v. McDermid St. Lawrence Ltd. ,[1990] W.W.R. 617 (C.A.)

If a firm that terminates a broker for cause fails to disclose the particulars of that termination to customers, then the firm could be held liable should the broker continue to carry on business with the customer with another employer. In my view whether or not a duty truly exists must be fact driven. Further, the customer’s knowledge of the broker and of the circumstances surrounding the termination should be considered by the court in determining whether or not there was any reasonable reliance by the customer that warrants liability. This ground for liability is currently under appeal.

Blackburn v. Midland Walwyn Capital Inc. et al. (Ont.S.C.), January 22, 2003, J.Gordon

(D) Ratification:

The first principle of ratification in stockbrokerage transactions is that a customer who wishes to take advantage of his broker’s wrongful act must repudiate that act. If he does not he is deemed to have ratified it. He may not merely sit by and do nothing, but is bound at the risk of the loss of his claim affirmatively to indicate his repudiation.

Ratification may be proved, not only by an express assent, but also by implication from the principal’s acquiescence or failure to dissent within a reasonable time after being informed by the agent of what he has done.

The courts have held that this doctrine is not unfair. The customer, who has knowledge of the wrongdoing and is aware of his right to repudiate, should not have the privilege of withholding approval or disapproval of the transaction until the market has taken a turn for the better or for the worse, and then assume the position which turns out the more profitable. To accord the customer that privilege would enable him to speculate at the broker’s expense. Moreover, the broker should not be placed in a position where he does not know whether his act will be affirmed or disaffirmed, and therefore cannot act intelligently to minimize his own loss before the market has undergone too great a change. The obligation to repudiate, however, does not depend on whether or not the broker in fact relies on the customer’s silence.

The general principle is that any wrongful act on a broker’s part may at the election of the customer be either ratified or repudiated. He has the “privilege” of election, upon discovery of the facts, whether to adopt or to disavow the unauthorized act of the broker. This is in accordance with the simple doctrine of the law of agency, that an act performed by an agent on behalf of his principal which was in fact beyond the scope of the agent’s powers may nevertheless after performance be ratified by the principal, and if so ratified will bind the principal to the same extent as if authorized in the first instance. Any wrong committed by a broker, no matter how serious and no matter what its nature, is susceptible of ratification. This applies to the improper execution or non-execution of an order, to the wrongful sale of the customer’s securities or the wrongful covering of short commitments, and to all kinds of miscellaneous breaches of duty of which the broker may become guilty during the course of his relations with his customer. A customer who ratifies claims the benefit of the wrongful act and demands its avails, but he may not have more. A customer who repudiates has his claim for damages, but may not subsequently ratify and demand the benefits of the transaction, which he has previously disaffirmed.

In Connolly v. Walwyn Stodgell Murray Ltd., [1993] N.S.J. No. 191 (N.S.C.A.), the plaintiff sued his stockbroker in contract and for negligence for losses he incurred in trading activities undertaken by the stockbroker’s employee. The trading was unauthorized. The plaintiff was aware that the employee was engaged in unauthorized trading on his account but never asked him to stop. He stated that the arrangement was that the employee would be personally responsible for any loss. He also stated that he did not want to report the employee because the employee might lose his job. The plaintiff succeeded at trial.

On appeal the court held that the employee was acting as the agent of the plaintiff in all transactions and accordingly the plaintiff was liable for the total losses. The claim in contract and negligence was not established.

There was extensive evidence led at trial with regards to the supervisory obligations of the brokerage firm. Witnesses testified that the only reliable means of detecting unauthorized trading was from client complaints. The court noted that the claim by the plaintiff was for unauthorized trading, not unsuitable trading. The court also noted that the firm’s principle mechanism to detect an unauthorized trade is for head office to send out trade confirmation slips to the customer. The duty (common law, not regulatory), then falls to the customer to not accept the trade as documented and communicate that fact to management. Assuming the trade was suitable, failing such a response by the client, the firm has no reason to suspect that the trade is anything but authorized.

The court held that the acquiescence by the customer, with full reasonable knowledge, to the transactions clearly amounted to ratification and therefore vitiated any fiduciary duty that the broker may have owed to the customer. It was clear that the customer knew of the unauthorized trade and participated in deceiving the firm with the intention of gaining an advantage. It ill behooves the customer to complain about supervision, when the option was always available to the customer to communicate his knowledge of the unauthorized trading to management. Lack of supervision was not the proximate cause of the customer’s losses. Acquiescence and ratification by the customer, and therefore a failure to reasonably mitigate, resulting in the private arrangement between the broker and the client was the proximate cause of the loss.

The court also held that the personal guarantee of the broker did not bind the brokerage house, as the customer knew full well that the firm had not authorized such an arrangement. As a result, the court held that there was no basis to disavow the brokerage firm of the commissions earned on the transactions.

In Martin v. Donaldson Securities Ltd. (1975) 61 D.L.R. (3d) 518, the court held that although a plaintiff’s right to complain of a breach of trust is not lost by delay alone, acquiescence in the breach combined with delay that prejudices the defendant may amount to laches that will defeat the plaintiff. Thus, where a stockbroker disposes of certain of its customer’s shares in breach of trust but the customer delays for nine months after knowing of the breach, enforcement of the claim against the brokerage house is inequitable and the defence of laches succeeds.

Grenkow v. Merrill Lynch Royal Securities Ltd. (1983) Manitoba Court of Queen’s Bench

Connolly v. Walwyn Stodgell Murray Ltd., [1993] N.S.J. No. 191 (N.S.C.A.)

Martin v. Donaldson Securities Ltd. (1975) 61 D.L.R. (3d) 518 Hill v. Chevron Standard Ltd. ,[1991] M.J. No. 411 (Q.B.)

Hunt v.Toronto-Dominion Bank (August 26, 2003)Ontario C.A.

(E) Calculating damages:

The decision of the Ontario Court of Appeal in Zraik v. Levesque Securities [1997] O.J. No.2263 (SCJ) (Q/L), varied [2001] O.J. No.5083 (C.A.) addresses the method of calculating damages in stock brokerage cases. The key question for the court to ask and answer is “what is the date of breach?” This is significant since it will be from that date that one must calculate the damages. This principle applies whether or not the calculation is for an unauthorized trade or for an unsuitable trade. Where the calculation is for an unauthorized trade, then the calculation is relatively straightforward, since the transaction is being assessed in total isolation of other surrounding trades. However, where the calculation is for an unsuitable trade or series of unsuitable trades then the calculation is not so straightforward. In my view there is a difference in the damage calculation where the customer is alleging that a particular trade is unsuitable, and where an entire investment strategy is unsuitable. In my view where an entire investment strategy is unsuitable, but during the relevant time the customer earned a positive rate of return, and that rate of return outperformed a suitable investment strategy, then the customer would have to account for those gains and have no damages. The important question is to determine the date of breach.

In the Zraik case the Court of Appeal held that, on the facts, each trade at issue was in and of itself unsuitable and an independent breach. On each occasion the firm allowed certain procedures to be breached which permitted each trade, even though the investment strategy as a whole could not be said to be unsuitable for the particular customer. Therefore, each transaction was looked at separately. As a result, if a particular trade yielded a profit, then the customer had no damage claim. However, if another trade, which required its own individual suitability assessment by the firm which the firm did not complete, created a loss the customer would have a damage claim. At the end of the day the court refused to allow the firm to off-set the profits of the customer against the losses in calculating damages.

In my view this case turned on very specific facts. This does not mean that a customer is permitted to keep the profits from the transactions that yielded a profit, and at the same time sue for damages for transactions which incurred a loss where the claim by the customer is that the investment strategy as a whole was unsuitable. If the allegation is that the particular trade was unauthorized, then, upon proper proof, it appears that a customer can in fact sue for that loss without accounting for profits earned in the same stock in an earlier transaction that was authorized.

Zraik v. Levesque Securities [1997] O.J. No.2263 (SCJ) (Q/L), varied [2001] O.J. No.5083 (C.A.)
Blackburn v. Midland Walwyn Capital Inc. et al. (Ont.S.C.), January 22, 2003, J.Gordon

(F) Vicarious liability of the employer:

It should be remembered that an employee’s wrongful conduct falls within the scope of his employment when the acts are authorized by the employer, or when unauthorized acts are so connected to the acts of the employer that they can not be considered a separate act.

Where a customer is aware of the wrongful acts committed by his broker, seeks recovery from the broker personally, and conceals the arrangement from the employer to gain an advantage, then there is case law which supports the conclusion that an employer is not vicariously liable for any resulting loss. However, it can be argued that where the client was under the influence of such a broker, the court may conclude that the customer acted reasonably in the situation and firms may attract liability.

Bazley v. Curry, [1999] 2 S.C.R. 534 (S.C.C.)

Bourgeault v. McDermid, Miller & McDermid Ltd. (1982), 140 D.L.R. (3d) 174 (B.C.S.C.)

Druiven v. Warrington, [1998] 38 B.L.R. (2d) 12

Blackburn v. Midland Walwyn Capital Inc. et al. (Ont.S.C.), January 22, 2003, J.Gordon



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Postby admin » Mon Dec 12, 2005 9:30 am

Getting redress: the ombudsman option

MONEY 301 | It's becoming more popular than arbitration, says Ellen Roseman
Dec. 11, 2005. 01:00 AM
ELLEN ROSEMAN

TORONTO STAR

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You've lost money on your investments. You think the losses are a result of bad advice. But your adviser's firm ignores your complaints.

How can you get restitution without going through the time and expense of a court challenge? You have two options.

The Investment Dealers Association of Canada has a process for resolving disputes. Both parties hire an independent arbitrator to listen to their facts and arguments.

But there are drawbacks to arbitration — such as costs, jurisdiction and the binding nature of rulings.

Costs range between $3,000 to $4,000 for a typical dispute, the IDA says. They include filing fees, the arbitrator's hourly rate and room rentals.

You have a better chance of success if you hire a lawyer to represent you — which many people do — and line up a few investment experts.

Obviously, this will cost you more money. And you may not get all your costs back, even if you win the case.

As for jurisdiction, you're eligible for arbitration only if the amount you claim is less than $100,000. That's pretty small as investment losses go.

Finally, the arbitrator's decision is binding. This means you give up your right to pursue the matter further in court if you're not satisfied.

Only a few investors opt for arbitration. The number of Canadian cases peaked at 70 in 2002, dropping to just over 30 last year and nine up to Sept. 30 this year.

Another alternative is to go to the Ombudsman for Banking Services and Investments (OBSI). This is an informal mediation process.

You don't have to hire lawyers or investment experts, testify at hearings or cover any of the costs.

You can claim for amounts in dispute up to $350,000 — a limit far more generous than the IDA's $100,000.

And you don't give up your right to pursue legal action if you're unhappy.

The OBSI accepts complaints for clients of any firm that belongs to one of four industry groups: Investment Dealers Association, Mutual Fund Dealers Association, Investment Funds Institute of Canada or Canadian Bankers Association.

You first have to try to get your complaint resolved by the investment firm. Once you know that won't happen, you can submit your claim to the OBSI.

While the final recommendation is not binding, member firms have accepted the OBSI's decisions in the past.

David Agnew took over as ombudsman and chief executive this summer, replacing Michael Lauber. He made sure to give me the latest statistics (for the year ended Nov. 1).

The OBSI made a recommendation for compensation to clients in 49 per cent of cases, he said. This is considerably higher than in the past.

Only 15 per cent of completed investigations resulted in money being paid back to clients in 2004. The rate was only 13 per cent in 2003.

The change arises from the ombudsman's expanded mandate.

Set up in 1996 to handle complaints by banks' small business customers, the ombudsman moved to include individual bank customers in 1997.

Only in 2002 did it start hearing complaints about independent investment and mutual fund dealers and mutual fund managers.

Today, the OBSI is dealing with more and more stories about investments going sour. And it's still catching up with a backlog of complaints from the "tech wreck" in 2001 to 2002.

Investment dealers and fund dealers don't have their own internal ombudsman, as banks do. Their compliance departments often try to fend off unhappy investors, rather than placate them.

This means investment complaints escalated to the OBSI are more likely to favour the customer than are banking complaints, Agnew explains.

Of course, the compensation may be less than what investors think they deserve.

"I've heard of many cases being settled after the OBSI has turned them thumbs down," says critic Ken Kivenko, a member of the Small Investor Protection Association.

"Unofficially, I've heard the balance get 15 to 40 cents on the dollar. OBSI refuses to publish the full statistics or do surveys of client satisfaction."

Agnew says the highest recommendation was for about $300,000 in compensation.

The OBSI's proceedings are confidential. Clients have to agree not to disclose results to the media. Even in its annual reports, the OBSI gives only a few case studies — without any names to identify who's involved.

Agnew gave us details of three complaints, none of which have been published before.

In the first case, an investor estimated his losses at $85,706. The OBSI recommended compensation of $52,353 (including $5,993 for interest owing).

In the second case, an investor claimed losses of $80,000 in a margin account and $12,000 in his wife's RRSP account.

"We have reviewed over 200 pages of handwritten notes that you have provided to us, detailing your savings and investment history dating back to September 1998," the OBSI said in its 13-page report.

It recommended the investor be paid $46,116 for the margin account and $13,649 for the RRSP account ($59,765 in total).

But in the third case, the OBSI couldn't substantiate an investor's claim to have lost $50,000.

"Our review and analysis has not revealed unsuitable investments, investment performance out of line with that of the broad market, nor evidence of discretionary trading," it said.

Since the investor was meeting his adviser on a regular basis, the OBSI concluded there was ample opportunity to make informed investment decisions.

For information about the OBSI, call 1-888-451-4519, or in Toronto, 416-287-2877.

Next week: How to avoid getting embroiled in a dispute with an investment adviser.


--------------------------------------------------------------------------------
Ellen Roseman's column appears Wednesday, Saturday and Sunday. You can reach her by writing Business c/o Toronto Star, 1 Yonge St., Toronto M5E 1E6; by phone at 416-945-8687; by fax at 416-865-3630; or at eroseman@thestar.ca by email.
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Getting your money back from a bad advisory experience

Postby admin » Mon Dec 12, 2005 9:29 am

this forum topic will document some of the methods (and the troubles) that investors in Canada have in getting fair and open due process to their investment complaints.

Feel free to add your experiences to it or take something away that might help you.

cheers
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