Civil or Criminal Actions against companies or regulators

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Re: Legal Actions against companies or regulators

Postby admin » Sun Nov 07, 2010 9:34 am

http://www.mondaq.com/canada/article.as ... _access=on
This is precisely why the investor advocacy community are demanding a return to the earlier 6 year Limitation period. For seniors especially, the 2 year period is oppressive.

kk

Canada: Brokers' Report October 2010 Edition - Limitation Periods

29 October 2010
Article by John Blair

Editors: David Di Paolo and Kara Beitel

Released on Tuesday, October 26, 2010

An issue that often arises in litigation against financial advisors is whether the client has brought their action in time. Every Canadian province has limitation laws to bar late actions, but in broker cases it can be difficult to ascertain exactly when the broker went offside and, more importantly, when the client discovered that they might have a cause of action. An April 20, 2010 decision of the Alberta Court of Appeal indicates that how the action is framed against the broker can be an important factor. In that case, the client's claim for negligence was summarily dismissed, but her claim for recklessness has been allowed to proceed.

In Stack v. Hildebrand, 2010 ABCA 108, Stack sued her financial advisor, Hildebrand, and his company, PRG Financial Inc. (PRG), alleging that they misrepresented investments in certain viatical contracts that Stack purchased in 1998. She did not sue until 2006. A viatical contract is created when an insured person sells his or her entitlement to receive a life insurance policy's death benefit to a financial company, who later sells a fractionalized portion of the entitlement to investors. The financial company typically pays the premiums on the insurance policy, although this was not the case in Hildebrand where Stack was expected to pay part of the premiums. The primary risk is that the insured person (the viator) will exceed his or her life expectancy and thereby delay the insurance payout while payment of premiums continue.

On Hildebrand's recommendation, Stack purchased an interest in the life insurance policies of two people from an insurer, Mutual Benefits Corporation (MBC). She alleged that Hildebrand provided incorrect information on the investment, some of which was misinformation provided to brokers by MBC, but some of which she alleged was recklessly exaggerated by Hildebrand. Stack framed her claim two ways, alleging both negligence and fraudulent misrepresentations by Hildebrand. She claimed she was told that: the investments were guaranteed; the principal was 100% safe; the viators would be terminally ill and die within one to three years, i.e. by 2000 or 2001; only two viators had ever lived past their expected life expectancy; and, the investments were safe and secure. Happily for the viators, but less so for Stack, the viators did not expire within the expected period and Stack sued for her losses. Hildebrand successfully applied to summarily dismiss the action on the basis that the action was time-barred under the Alberta Limitations Act, R.S.A. 2000, c. L-12 (the Act). That decision was appealed.

At issue was s. 3(1)(a) of the Act which establishes a two year knowledge-based limitation period, stating that a person cannot sue unless they do so within two years after the date on which they first knew or ought to have known: (i) that the injury (damages) for which they sue had occurred; (ii) that the injury was attributable to conduct of the defendant, and; (iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding. In dismissing Stack's action, the lower court had found that the three criteria in s. 3(1)(a) of the Act were met. In 2003, five years after her investment, Stack had received information from MBC that the medical conditions of the viators were not imminently terminal and that in fact their actual complaints were matters such as menopause, sinusitis and insomnia! Stack knew at that time that her investment would lose money. Also, Stack knew or ought to have known that her loss resulted from the conduct of Hildebrand in convincing her to invest in the viatical contracts since he was the only person with whom she had dealings. Finally, in 2003 the viators were both still alive and written information on the medical condition of one had been provided, so Stack knew or ought to have known that the injury warranted bringing a proceeding. As a result, summary judgment was granted to Hildebrand and PRG on the basis that the action was brought too late.

The Court of Appeal allowed the appeal in part. Stack's cause of action, remember, was based on both negligent and reckless misrepresentation. The Court of Appeal considered the two causes of action individually.

It found that the lower court did not err in concluding that Stack's suit for negligent misrepresentation was barred by the Limitations Act since the limitation for that cause of action started in 2003, three years before she sued. By then she knew that the investment had not performed as promised and that she had not received the return of her capital by the anticipated dates. The Court of Appeal found that by 2003, at the latest, Stack ought to have realized that the viators were not terminally ill and her investment was not what she had allegedly been promised.

However, the Court of Appeal did allow Stack's action to proceed on the reckless misrepresentation claim. It found that Stack did not learn until 2005 that in fact only 70-80% of viators actually die within the predicted period and that Hildebrand had allegedly exaggerated the information that MBC had provided to him by saying only one or two ever survived beyond their expectancy. The court said that this statement could be reckless, could therefore result in a fraudulent misrepresentation finding and that Stack should be allowed to proceed on that element only.

This case serves as a cautionary tale for both investors and brokers. Investors should beware of the risks associated with viaticals, most notably that predicting life expectancy is far more art than science despite the extensive actuarial data that is available today. In a broker context, investment firms and investors alike should be aware that when it comes to the application of a limitation period, the two year "drop dead" date (pun not intended) can apply or not apply depending on how the cause of action is framed and how effectively the investor can argue that he/she did not know all the facts pertinent to their claim until a certain point.

Alberta Court of Queen's Bench

On May 21, 2010 Borden Ladner Gervais LLP (BLG) was successful in two motions before Justice Ronald Stevens of the Alberta Court of Queen's Bench in Shopplex v. Brown. A corporation applied to adjourn its own Annual General Meeting (AGM)scheduled for May 27. Some concerned shareholders vehemently opposed the notion of an adjournment in the middle of a heated proxy battle. The court refused to adjourn the AGM and, as well, granted our clients' side motion to appoint an Independent Chairman to preside over the AGM rather than a company representative as provided in the by-laws.

About BLG
http://www.blg.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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Re: Legal Actions against companies or regulators

Postby admin » Sat Oct 09, 2010 8:58 pm

GRET-articleInline.jpg
GRET-articleInline.jpg (17.25 KiB) Viewed 8975 times
October 9, 2010
It’s Not Nice to Mess With J.R.
By GRETCHEN MORGENSON
NEW YORK TIMES
WHEN he played the oil tycoon J. R. Ewing Jr., in “Dallas,” the long-running, ’80s-era nighttime soap opera, Larry Hagman didn’t get mad at his adversaries. He got even.

Last week, Mr. Hagman, 79, got even once again. This time it was against his broker.

A securities arbitration panel awarded Mr. Hagman and his wife Maj, 82, a big victory against Citigroup, which had overseen some of the couple’s investment accounts. The three arbitrators who heard the case ordered Citigroup to pay the Hagmans $1.1 million in compensatory damages — slightly less than the $1.345 million they had requested — as well as $439,000 in legal fees.

But the kicker was the punitive damages award in the case, which accused Citigroup’s brokerage unit, Smith Barney, of fraud, breach of fiduciary duty and failure to supervise the broker overseeing the Hagmans’ funds. The panel ordered Citigroup to pay $10 million to charities chosen by Mr. Hagman.

The award was the largest given to an individual this year, according to the Financial Industry Regulatory Authority, which oversaw the arbitration. The Hagman award was also the only one in which a panel ordered that punitive damages go to charity, Finra said.

Finra has been recording arbitration awards for 21 years, and Mr. Hagman snared the ninth-largest amount ever awarded. A spokesman for Citigroup said that “we are disappointed and disagree with the panel’s finding and we are reviewing our options.”

That suggests that Citigroup — which said in its own defense that it wasn’t responsible for the losses — might seek to overturn the award. But arbitrations are rarely reversed. Moreover, it’s hard to imagine an award destined for charitable organizations being overturned.

So here’s what happened to the Hagmans: In 2005, they moved their account from a registered investment adviser to Lisa Ann Detanna, a broker at what is now Morgan Stanley Smith Barney. (When the couple first invested with Smith Barney, Citigroup still owned it; Citigroup sold a controlling stake in the brokerage to Morgan Stanley in 2009.)

According to documents produced in the Hagmans’ case, Ms. Detanna quickly began upending the couple’s portfolio, taking it from a conservative blend of 25 percent stocks and 75 percent fixed income and cash to the opposite: 75 percent stocks and the rest cash and bonds.

Never mind that when the Hagmans first sat down with Ms. Detanna, they told her they needed income-producing investments that would preserve their principal, according to the documents.

Ms. Detanna also sold Mr. Hagman a $4 million life insurance policy that required onerous annual premium payments of $168,000.

PHILIP M. AIDIKOFF, a lawyer at Aidikoff, Uhl & Bakhtian in Los Angeles, represented the Hagmans in the case.

“Like most retail customers, Mr. Hagman trusted Morgan Stanley Smith Barney to do what they said they would do,” he said. “He told the broker that he and his wife were conservative and did not need to take any significant risk with the assets they were transferring. This knowledge of the conservative risk tolerance was confirmed over and over to my clients.”

When the market fell, Mr. Hagman’s lawyer argued, the account’s losses were far larger than they would have been had Ms. Detanna maintained the conservative portfolio. And the life insurance policy, which Mr. Hagman did not need and was therefore unsuitable according to his lawyer, generated losses of almost $437,000 when sold. The losses included an exit fee of $168,610, which Citigroup extracted when Mr. Hagman sold the policy.

Mr. Hagman, who recently returned from Europe, where he made personal appearances for “Dallas” fans, said he was surprised by the award but felt it was justified. “I hire people to take care of these things for me,” he said in an interview. “I felt a little bit taken advantage of.”

Documents produced in the case by Morgan Stanley Smith Barney confirmed that the firm had been advised repeatedly of the conservative nature of the Hagmans’ investment preferences. The firm also produced materials indicating that a portfolio mix dominated by equities, as the Hagmans’ portfolio was, does not qualify as conservative.

Nevertheless, Ms. Detanna piled the couple into stocks.

Much back and forth in the case focused on whether Don T. Davis, her manager in a Beverly Hills office, failed to supervise her properly. A broker who generates significant commissions for her firm, Ms. Detanna was named in June by Barron’s as one of the top 100 Women Financial Advisers in America.

A spokeswoman for the firm said that neither Mr. Davis nor Ms. Detanna would comment for this article and noted that the problems occurred when Citigroup controlled Smith Barney.

“The investment activity that was the subject of this arbitration occurred before Morgan Stanley Smith Barney came into existence,” she said.

A look at Ms. Detanna’s full regulatory record, however, shows nine customer complaints in addition to Mr. Hagman’s between 2000 and 2010. Of these 10 complaints, four resulted in awards or settlements, four were dismissed, one was withdrawn and one is pending. Regardless of their disposition, the sheer number of complaints should have raised flags for Ms. Detanna’s manager if he had followed his firm’s compliance rules, Mr. Aidikoff told the arbitrators.

Mr. Davis’s branch office manager compliance handbook, dated June 2006, states that a broker may require special supervision “if he/she has received three or more complaints and/or arbitrations in a rolling 12-month period or two complaints/arbitrations in a rolling six-month period.”

But in testimony during the arbitration, Mr. Davis conceded that he had never placed Ms. Detanna under increased supervision, even though her record indicated four complaints within a 12-month period in 2002 and 2003.

Notices to member firms published by Finra over the years also warned that managers should increase their oversight of brokers who are subjects of numerous complaints. And the number of complaints on Ms. Detanna’s record makes her a rarity in an industry where a tiny fraction of brokers receive even five. Mr. Aidikoff said he had never seen a compliance history as riddled with complaints as that of Ms. Detanna.

Such complaints are recorded in a C.R.D., or central registration depository. The arbitration panel overseeing the Hagman matter rejected Citigroup’s request that the decision in the actor’s case be removed from Ms. Detanna’s regulatory record.

Of course, there’s an obvious reason that some branch managers prefer not to admonish their big producers: They receive a portion of the hefty commissions that star brokers generate. Mr. Davis, the manager charged with overseeing Ms. Detanna, had such an arrangement, Mr. Aidikoff said.

Mr. Hagman said he was not sure which charities he’d designate as recipients of the $10 million award. Because his wife has Alzheimer’s, he said he would earmark some money to those working on a cure. “It’s an opportunity to do some good,” he said.

Mr. Aidikoff said he thought the unusual award reflected the panel’s view that the firm “refused to accept that broker supervision is really at the heart of the retail stock market.

“The message the panel is sending is, ‘You guys have to take your supervisory obligations seriously,’ ” he added. “And the only way to remind them of how important this is, is to hit them over with a punitive damage award.”

Or, as Mr. Hagman used to say in character on “Dallas”: “The world is littered with the bodies of people that tried to stick it to ole J. R. Ewing!”
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Re: Legal Actions against companies or regulators

Postby admin » Mon Aug 02, 2010 5:12 pm

 A proposed Class action against one or more of the Provincial Securities Commissions in Canada for failing to protect the public interest.  

For knowingly and willingly serving first the interests of those who pay their salaries, the investment industry, and for allowing billions of dollars of damage to the public interest while generating millions of dollars in fees and salaries to themselves, and billions of dollars in revenues to the investment industry.  A failure to act in the best interests of the public.  For negligence and breach of trust toward the public interest.

Specific examples include, but are not limited to:

The granting  (to investment dealers) of permissions to violate Securities laws in order to help facilitate the sale of known defective investment products, and the simultaneous failure to ensure that the public were notified of this “exemptive relief” process before they invested in the products.

Failure to disclose to the public, market risks that were thus known to the regulators.

Self-Preservation of regulatory agencies positions through moral disengagement and motivated forgetting towards a securities industry that funds the salaries of securities commission employees and officers.  

Dishonest deed by agents of the crown.  

Failure to provide the duty of care promised to the public by a crown agent.

Regulatory and self regulatory board governance failure. Specifically the use of boards composed of industry members and little to none who represent the public interest. 

Securities Commissions knew or ought to have known that things like the granting of legal exemptions were and are detrimental to the protections intended by laws, and that by skirting them, the public is being placed at risk. 

Granting of legal exemptions to the financial industry without notice or due process with the public is indicative of an “abuse of discretion” by an agent of the crown.  Hiding the process from the public provides further evidence of an abusive act. Finally, refusing to answer public questions of the process further adds weight to it being an abusive act against the public interest.

-Failure to provide the public with honest protective services as promised and as required by an agent of the Crown.

-Breach of duty to protect the public

-Provincial Securities Regulators knew or should have known enough about their stated protective role in matters that affect the public interest to avoid allowing thousands of exemptions to be granted to those who sell investment products and advice.

-Breach of the public trust.

-Abuse of Public Office


-Negligence.

-Breaching securities laws and practices that were intended to protect the investing public. 

Professional complicities with the investment industry that constitute a conflict of interest.

Accepting money from industry participants in exchange for permission to violate securities laws without notice, warning, nor explanation to the public of the risks that these legal violations posed.  An egregious unresolved conflict of interest by a regulatory agency.

A culture of secrecy toward the public maintained by the securities commission.  By way of example, not being willing to inform the public about commission activities which may be detrimental to the public interest.  By further example, the practice of refusing to deal directly with members of the public with investment complaint, but rather refer them instead into a more deeply incestuous and possibly unfair resolution process by forcing them to take investment industry complaints directly to associations formed and managed by the investment industry itself. This is improper to delegate securities law regulation to industry trade organizations and at times, lobby groups who may owe no duty of care to the public. It has allowed one- sided referee’s to evaluate investor wrongs.  (MFDA, IIROC, IDA, IFIC, etc., etc)

In another specific example, allowing investment product sellers to violate securities laws, in order to facilitate the sales of proprietary or house brand funds, which are found to be up to 26 times more profitable to the seller of the product, and consequently damaging to the investing public.

A further specific example of allowing investment sellers to dump unpopular or poorly selling new investment issues into to their own bank owned mutual funds, without regard for the interests of the bank mutual fund investors, in order to save the banks from being caught or burdened with unsold units.

Several thousand further examples where securities commissions accepted money from financial sellers, to grant permission to exempt the law, without disclosing the risks to the public, nor the exchange of monies to the regulator.  The public damage from these examples is to date undocumented but will be expanded upon trial.

Levying fines of less than one half of one cent on each dollar in the case of the toxic asset backed commercial paper, leaving the investment industry with ill gotten gains thousands of percent higher than the penalties. These friendly “tap on the wrist” fines came after these securities commissions granted permission for these sellers to violate regulations in order to sell these toxic products.

Further example of securities commissions making changes to the license names of investment salespersons without concern for greater transparency to the public, but greater obfuscation and confusion instead. On September 29, 2009 all 130,000 licensed “salespersons” in Canada had their names changed to “dealing representatives” in an example of “repapering” the rules to suit the misrepresentation, rather than any attempt to inform and educate the public.

Further example found by observing industry rules forbidding these “salespersons” or “dealing representatives” from referring to themselves as anything other than how they are registered, and the regulator practice of looking the other way at the fact that nearly all 130,000 persons do not follow this rule, but offer themselves up to the public as something other than what their registration allows. This just one example of “motivated forgetting” or see no evil in action by those charged with protecting the public interest.

Following a self serving practice of keeping fines and penalties for the financial benefit of the securities commissions themselves, rather than following the practice of other developed countries and ensuring that the public are first compensated before the securities commission keeps the money.

Failing to inform the public of the various conflicts of interest which are of detriment to the public interest.

These matters have caused billions of dollars to be siphoned out of our economy, out of investors pockets and into the hands of investment sellers.

This proposed class action seeks compensation from the Alberta Securities Commission and the Alberta Government in the amount of  $___ billion dollars, payable to Canadian registered charities, social and human rights protection organizations in an effort to compensate Canadians for the financial damage done by improper and unprofessional investment regulatory behaviors.
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Re: Legal Actions against companies or regulators

Postby admin » Mon Jul 05, 2010 11:16 am

Financial planner sued for losses on borrowing to buy mutual funds
Published On Fri Jun 25 2010

By Ellen Roseman
Personal Finance Columnist
NOTE: This article has been edited from a previous version and a correction has been issued.
David Karas, a certified financial planner, has been sued by a client who lost $1.5 million after being advised to borrow to buy mutual funds.

His firm, Toronto-based Investia Financial Services Inc., has also been sued.

George French, 58, a retired dairy farmer in Phelpston (outside Barrie), says he “fell victim to investment strategies designed to generate compensation for the adviser at the expense of the adviser’s clients.”

Karas, a well-known media personality in Barrie, was rewarded for being the top sales producer from 1989 to 2009 for his firm, formerly called Money Concepts Canada.

He’s no longer registered to sell mutual funds, but remains registered as an insurance salesperson. His new firm, Investors Source Wealth Management Inc., http://www.investorsource.ca, also offers financial planning and tax services. He was not available for comment Friday.
French’s lawyers, Harold Geller and John Hollander of Doucet McBride in Ottawa, specialize in helping clients recover financial losses from investment advisers.

“About 20 clients of David Karas have approached us,” Geller said. “We’re working on a second claim right now and the lawsuits will continue to flow out during the summer.

“We’re informed that there are 150 people in this situation.”

French has never married and has no dependants. Before seeking advice from Karas’ firm in 2000, he had saved $380,000 for retirement, which he had invested in guaranteed bank deposits.

Under the allegations, which have not been proven in court, Karas encouraged clients to borrow to buy mutual funds. He used the assets he managed as collateral to have clients borrow more money from lenders.

The more they borrowed for investment, the more compensation was paid to Karas and his firm.

In late 2006, he created a new firm, Financial Victory Associates, to provide alerts that would tell clients the appropriate time to buy or sell mutual funds.

He told clients they could eliminate exposure to losses by subscribing to this service. But he didn’t tell them the extra annual fee of 0.75 per cent would make it harder for them to earn a profit from leveraging.

He also sold insurance to clients, whether suitable or not. French took his advice and bought life, critical illness and long-term care insurance policies with premiums of $22,000 a year.

After borrowing more than $1 million to buy mutual funds, French found his portfolio – consisting of 92 per cent stocks, 8 per cent fixed-income securities and no cash – was hit hard by the stock market crash of 2008.

(advocate comment: OF COURSE bad salesmen should be sued. They are misrepresenting themselves as "financial planners" or some other such misleading title and preying upon customers who rely on this misrepresentation. Only in Canada are customers so polite that we will almost put up with any financial molestation rather than make a fuss. This is something that banks and investment sellers are capitalizing on by billions overall)
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Re: Legal Actions against companies or regulators

Postby admin » Sun May 16, 2010 9:41 am

CASE SUMMARY

This proposed class action was commenced on August 2, 2006 and amended on March 6, 2007. It is brought on behalf of a proposed class of individuals with registered accounts administered by BMO Nesbitt Burns Inc., BMO Trust Company, BMO Bank of Montreal and BMO Investorline Inc. in respect of foreign exchange transactions in RRSP, RRIF and RESP accounts.

The proposed class includes all present and former clients of the defendants who held or hold RRSP(s), RRIF(s) or RESP(s) and who, since June 14, 2001, have incurred foreign currency conversion charges in these accounts.

The claim alleges that the defendants have systematically converted foreign currency in these accounts to Canadian currency without instructions from the customers, and without there being any need to do so, based upon revisions to the Income Tax Act which came into effect on June 14, 2001. Also, in effecting all currency conversions, the defendants levy an undisclosed conversion fee in addition to the amount that they actually pay to buy or sell currency. The claim alleges that the defendants failed to change their operational practices after the June 14, 2001 change to the Income Tax Act which allows RRSPs, RRIFs and RESPs to hold foreign currency as an investment, and further alleges that the reason for the defendants’ failure to effect a change was so that they could continue to earn profits from the foreign exchange fees, at the expense of the class members.

The claim seeks damages for all the fees charged in association with the unauthorized conversion of foreign currency to Canadian funds during the claim period. It also seeks repayment of all the hidden foreign exchange fees levied by the defendants on transactions where the customer did authorize a conversion of funds from Canadian to a foreign currency; but had no notice and did not agree to payment of the hidden fee. Each time a foreign exchange fee is charged by the defendants it depletes the funds in the customer’s retirement or education fund.



FOR MORE DETAILS:

Click here to view the Amended Statement of Claim
Click here to view the Press Release issued August 9, 2006
Frequently Asked Questions

For further information on this class action, or if you have experienced a similar problem with other financial institutions and would like to speak to a lawyer, please contact us:
Paliare Roland Rosenberg Rothstein LLP
Attention: RRSP Class Action
250 University Avenue, Suite 501
Toronto ON, M5H 3E5

Toll Free: 1-888-569-4526
e-mail: info@rrspclassaction.com
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Re: Legal Actions against companies or regulators

Postby admin » Tue Feb 09, 2010 2:45 pm

common law claims of negligent misrepresentation, "reckless" misrepresentation

overall negligence in addition to the above misrepresentation could be applied to 13 securities commissions in Canada for misleading the public into the belief that they were acting for the public benefit when the preponderance of evidence suggests that the securities commissions are acting to protect the investment industry

where are the class action firms who are willing and able to take on the many deceptions/wrongs of our regulatory system?
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Re: Legal Actions against companies or regulators

Postby admin » Sun Feb 07, 2010 7:42 pm

Below are specific and random thoughts put together by a non lawyer to form a starting point to hopefully hold provincial securities commission to account for failure to reguate, failure to provide honest regulatory services.

It is hoped to find the right lawyer in any province who will look at this, understand the damages, and perhaps help abused and victimized investors to gain some redress from the damage they have suffered due to regualtory failure.

Class action against the Alberta Securities Commission, Alberta Finance and Enterprise and Iris Evans as Alberta Finance Minister for negligently and intentionally failing to protect the public interest through securities regulation in Alberta.

Specifically, but not limited to:

Breaching securities practices that were intended to protect the investing public. Professional complicities with the investment industry that constitute a conflict of interest.

Engaged in repeated and persistent deceptive and non public interest business practices.

Failed to warn the public when it knew in advance of investments being marketed without meeting Alberta Securities Act requirements.

Specific examples include negligence in allowing repeated and multiple exemptions to securities laws without due process, public input, or public notice of investment products that were being sold without being fully compliant with our laws. This is but one example (more than one thousand examples) of an industry biased stance that favors the investment industry and damages the public interest.

Failure to be accountable or answerable to the public of Alberta.
Failure to protect the public of Alberta. Eg, delegate regulatory duties to self regulatory agencies without proper authority, leading the public into a further, deeper conflicted environment without due process.

Breach of duty to protect the public.
Knew or should have known enough about its stated protective role in matters that affect the public interest in Alberta's capital market to avoid allowing thousands of exemptions to be granted to those who sell investment products and advice, without providing fair notice or warning to those who buy investment products or advice, namely the public.

“Our role at the Alberta Securities
Commission (ASC) is to oversee
Canada’s second largest public capital
market — millions of investors and billions in capital — so
in Alberta, people can invest with confidence.
Helping to build confidence comes down to two things:
protecting investors and creating a fair and efficient
environment where Alberta companies can thrive.”

With legal exemptions that allow tainted investment products and advice to be used against the interests of the public, the Alberta Securities Commission has failed in it’s promises to the citizens of alberta and failed to meet a standard of professional practices.

Conflicted relationship of favoritism toward the investment industry who paid them, and a track record of anti public behaviors.

Failure to provide honest services to the public of Alberta.

Failure to disclose market risks that were intentionally veiled by the industry

Dishonest Deed
 
Self-Preservation through Moral Disengagement and Motivated Forgetting

Board governance failure, for example using boards composed of exchange members and very little to none who were not in the securities business. Lacking independence, balance and respect for public protection.

Regulators knew or ought to have known that legal exemptions were detrimental to the protections intended by laws, and that by skirting them, the public was and is being placed at risk daily.

Granting of legal exemptions to the financial industry without notice or due process with the public is indicitave of an “abuse of discretion” by an agent of the crown.

Misc legal mumbo jumbo that may or may not apply to failures of provincial securities commissions.


administrative law involves the supervision by the superior court over inferior tribunals such as provincial courts, boards, commissions and public oficers...........the alberta rules of court provide that an application for judicial review the court of queens bench may grant any relief the applicant would be entitled to in proceedings for any one or more of the following remedies:
1.  an order in the nature of mandamus, prohibition, certiorari, quo warranto or habeas corpus or
2.  declaratory orders and injunction

each of these remedies is designed to overcome the failure of a public servant or an inferior tribunal to properly carry out its function as set out by legislation


What the ASC says on their web site:
Overview
The ASC, a provincial corporation, is the regulatory agency responsible for administering the province’s securities laws. It is
entrusted with fostering a fair and efficient capital market in Alberta and protecting investors. As a provincial corporation, the
ASC is exempt from income taxes. The ASC is funded from fees paid by securities market participants.

From 2009 asc annula report management discussion page 25
http://www.albertasecurities.com/news/A ... rt_MDA.pdf



Every citizen of alberta may have standing due to some of the comments in Borowski Vs Canada 1989

The use of discretion to grant legal exemptions can be challenged using logic of roncarelli vs duplessis 1959

The specific exemption (s) argued can be (all of them) or two case studies , or ABCP investments as needed.

“disregard for the spirit if not the letter of securities law has hurt the pocketbooks” of ordinary Canadian investors as well as taxpayers”
Knowingly allowing in the misrepresentation of financial consumers by allowing persons legally licensed, paid and trained as “salesperson” or their new name since sept 2009 of “dealing representative” to represent to the public that they held the status of investment advisor, professional advisor, or any name other than that which accurately represents the license they hold, the training they posess or the manner in which they are compensated.

Allowing persons licensed as salesperson to misrepresent this title to the public appoximately 100% of the time by calling themselves “advisor”

Allowing salespersons to violate the interests of the consumer more than 60% of the time with sale of highest cost/penalty mutual funds (dsc)

Allowing salespersons to violate the interests of the consumer with sale of house brand mutual funds.

Allowing investment firms to violate the laws of the province using legal exemption, without public notice, public input, or public benefit.

Allowing securities regulation to be “captured” financially, so that loyalties and duties became bent towards the benefit of the financial industry, with little to no regard for the interests of the public.

------------------------------------------------------------------------------ 
http://www.calgaryherald.com/news/Alber ... story.html
 
 
From our Files: Back in October 2005 the Alberta Securities Commission came under fire for some of its practices. The Auditor General prepared a report. Some quotes from the report: 

"not following investigative process" 
"not following conflict of interest guidelines" 
""no action plan as required by policy" 
"lack of info in files to support key decisions" 
"files closed without supporting reason" 
"files open for over a year without work performed on them" 
"system needs more discipline" 
"did not comply with the Commissions conflict of interest policies" 
"great deal of power in the hands of this one individual" 
"information in the files supporting decisions tended to diminish at higher levels" 
"the most sensitive or potentially high-profile cases appear to be the most poorly documented" http://www.oag.ab.ca/files/oag/ASC_Enforcement_2005.pdf  Alberta is one of the provinces opposing a national regulator.
 
There is an extreme cultural difference in our approach (vs. The U.S.) to criminal law enforcement. We certainly don't send people away for 25 years for these kinds of things (white collar criminals). I happen to think our public would be horrified by it." – Bill Rice, Alberta Securities Commission Chairman http://www.canada.com/calgaryherald/fea ... 1a50aeee6f  Business scandals dog Canadian markets
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Re: Legal Actions against companies or regulators

Postby admin » Mon Feb 01, 2010 11:33 am

Roseman: Can you sue your adviser for negligence?

January 31, 2010

Ellen Roseman

So, you moved heavily into stocks and mutual funds before the market crashed in 2008.

Now your savings have been shred and you're looking for someone to blame.

What about that financial adviser, who pushed you into a higher equity exposure because the higher-risk products paid more in commissions?

Can you sue your adviser for negligence?

Well, it depends on the kind of relationship you had with the financial adviser.

You have a greater chance of success if you gave directions to your adviser to make all the buying and selling decisions in your account without consulting you. This is called a discretionary relationship.

In such a case, the court may decide that the adviser had a duty of care to you because of your dependency and vulnerability. (It's known in legal terms as a fiduciary duty.)

But most clients don't hand over authority to advisers. They are involved to some degree, even if it's just to say yes every time they're called with a trading request.

If you're sharing the control of your investments, you'll have a harder time making a case in court for compensation.

Take the case of William and Helen Newman, who argued that TD was to blame when they lost money on their Nortel stock after the tech boom collapsed.

Justice Robert Smith, of the Ontario Superior Court, decided that the Newmans (a retired electrical engineer and a medical doctor) were sophisticated clients and not dependent on their TD adviser.

While the adviser "was more than an order taker, the relationship was closer to that of an order taker than that of a fiduciary," Smith said in Newman v. TD Securities in 2007.

Newman was adequately warned about the risk of holding large numbers of Nortel shares, the judge noted. (He had realized an 80 per cent gain on holdings that reached $1.2 million at one point.)

The judge did fault TD for failing to ensure that 20 per cent of the portfolio was in income-generating investments, such as bonds and preferred shares, according to the clients' stated objectives.

Joseph Groia is a securities lawyer in Toronto, who acts for investors who sue brokers. He's a former director of enforcement at the Ontario Securities Commission.

"Increasingly, I'm seeing courts shying away from imposing fiduciary duties," he says.

Product sellers licensed by securities commissions have a different standard. They're required to know their clients and to recommend investments suitable for a client's age and stage of life, objectives, knowledge and experience.

Groia says existing rules offer ammunition on which to rest a case.

"The most common lawsuit we bring against brokers is for unsuitability," he says. He represented an elderly woman, who invested all her $2 million savings in tax shelters on a broker's advice. She had no income after the first year – an undesirable outcome for someone who needed money to live on.

A fiduciary duty to clients does exist, however, among the 17,500 Canadians who have a certified financial planner (CFP) licence.

"Beyond passing the examinations, they agree to a code of ethics and practice standards that put clients' interests first," says Stephen Rotstein, vice-president of policy and enforcement for the Financial Planning Standards Council. The council took enforcement action against 14 people in the past four years, Rotstein says – and, for some, the remedy was permanently revoking their CFP licence.

(Disclosure: I was elected to the FPSC board as a public director in 2008.)

eroseman@thestar.ca
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Re: Legal Actions against companies or regulators

Postby admin » Tue Dec 29, 2009 2:30 pm

Morgan Stanly sued over failed securities

Reuters
December 29, 2009

Morgan Stanley has been sued by a Virgin Islands pension fund that accused the Wall Street bank of defrauding investors by marketing $1.2 billion US of risky mortgage-related notes that it expected to fail.
The lawsuit filed Dec. 24 in Manhattan federal court said Morgan Stanley collaborated with credit rating agencies Moody's Investors Service and Standard & Poor's to obtain "triple-A" ratings for notes marketed in 2007 as part of a collateralized debt obligation (CDO) known as Libertas.
According to the complaint, the CDO was backed by low-quality assets, including securities issued by subprime lenders New Century Financial Corp., which quickly went bankrupt, and Option One Mortgage Corp., then owned by H&R Block Inc.
The complaint alleged Morgan Stanley knew the CDO's assets were far riskier than the ratings suggested, but was "highly motivated to defraud investors" with pristine ratings because it was simultaneously "shorting" almost all the assets. This was a bet that their value would fall, which they did in 2008.
"Morgan Stanley was betting the entire investment it was promoting would fail," according to the complaint, which was made available Tuesday. "The firm achieved its objective."
Alyson Barnes, a Morgan Stanley spokeswoman, declined to comment. S&P spokesman Frank Briamonte had no immediate comment. Moody's did not immediately return a call seeking comment. Moody's, a unit of Moody's Corp., and S&P, a unit of McGraw-Hill Cos., were not named as defendants.
Many banks face lawsuits from investors who say they were misled into investing in securities they believed were safe but which were in fact tied to risky subprime mortgages.
Morgan Stanley is also a defendant in a closely watched case in the same Manhattan court that concerns whether rating agencies deserve free speech protection for their opinions.
The Dec. 24 complaint said Morgan Stanley knew securities in the Libertas CDO were suffering a dramatic rise in delinquencies, but provided a misleading "risk factor" in a prospectus that rising delinquencies "may" hurt values in the $1 trillion residential mortgage-backed securities market.
It called this representation "analogous to Captain Smith's telling passengers of the Titanic that some ships have 'recently sunk' in the Atlantic and therefore 'our ship may sink,' without mentioning the facts that his ship struck an iceberg, had a hole in it, and was filling with water."
The lawsuit seeks class-action status, and also seeks compensatory and punitive damages, among other remedies. It was filed by Coughlin Stoia Geller Rudman & Robbins LLP, a law firm specializing in securities class-action lawsuits.
Morgan Stanley shares were up 22 cents at $29.51 in afternoon trading on the New York Stock Exchange.
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Re: Legal Actions against companies or regulators

Postby admin » Sat Dec 19, 2009 5:33 pm

December 20, 2009
FAIR GAME
Mercer’s Little Alaska Problem

By GRETCHEN MORGENSON
ALTHOUGH it has received little coverage lately, a bombshell of a lawsuit inching its way through the superior court of Alaska has revealed the financial strain visited on state workers there and promises to have ramifications for public pensions across the country.
The Alaska Retirement Management Board, a state agency, filed the suit in 2007 against Mercer, the human resources consulting firm. The lawsuit says that Mercer’s mistakes hindered the ability of Alaska’s retirement system to meet its obligations to former public employees.

Mercer, the agency contends, made multiple errors as the state’s actuarial consultant when it estimated the amounts that two of the state’s retirement plans needed to set aside for health care and pension benefits. The agency seeks damages of $2.8 billion.

Earlier this year, Mercer, a unit of Marsh & McLennan, had asked Patricia A. Collins, the superior court judge overseeing the matter, to dismiss the case. Mercer’s lawyers argued that it did no “compensable harm” or damage to Alaska’s retirement systems.

On Dec. 4, Judge Collins denied the motion and ordered a trial to be held in Juneau next July to determine whether Mercer had harmed the system.
That Mercer erred in its calculations is bad enough — getting such details right, after all, is what the firm advertises as its stock in trade.

But an even bigger grenade dropped earlier this year when the Alaska board, citing depositions of Mercer employees, contended that company executives had known about the actuaries’ errors and covered them up.

If Alaska prevails in court, it could entitle the retirement system to punitive as well as treble damages.

Mercer, with 4,000 employees in 150 offices around the world, concedes that the Alaska case is a threat. In its usual corporate filings, a brief discussion of the case heads a list of risks facing Marsh. It also notes that it has “limited” insurance to cover the costs of an adverse outcome.

And according to Marsh’s most recent quarterly filing, the company has not recorded a liability related to the Alaska case because it cannot determine “that a loss is both probable and reasonably estimable.”

In a statement, Mercer conceded that its error and its failure to disclose it was “a mistake in judgment that Mercer regrets and it is not consistent with the company’s corporate culture.”

MERCER had worked for Alaska since the 1970s. From June 1999 to April 2006, it got $2.5 million for its work on behalf of the Alaska funds. The suit said it billed the plans as much as $430 an hour.

Unlike most public pensions that promise to pay future benefits out of money they hope to earn, the Alaska systems funded health care costs in advance.

As actuary for retirement plans that serve both teachers and other public employees, Mercer had the duty to calculate the plans’ liabilities and determine the employer contribution rates to fund those promises.

But, according to the lawsuit, when Mercer prepared the plans’ 2002 report, it understated their liabilities by as much as $1 billion.

Then, rather than own up to the mistake, Mercer executives covered it up, the documents say. “Following standard Mercer policies designed to prevent clients from discovering Mercer’s errors,” Alaska’s lawyers contend, “Mercer’s actuaries carefully avoided creating a written record of their discussions and calculations, in order, one of them testified, to avoid creating a ‘trace.’ ”

The error that Mercer covered up, according to the lawsuit, occurred in 2002 and involved a “per capita claims cost,” which represented the estimated expenses of providing health care to a retiree. Mercer used one assumption for retirees under age 65 and another, lower estimate for those over 65 because they could tap into Medicare benefits.

But the amount entered into Mercer’s computers for employees of pre-retirement age was $213 less than it should have been. The error understated the amount of liabilities owed by one of the Alaska funds by 10 percent.

A Mercer actuary found the error before the 2002 valuations were to be presented to the Alaska plans and reported it, along with a colleague, to a supervisor. But after several discussions, the lawsuit says, the Mercer executives decided not to tell their client about the error.

One of the Mercer actuaries on the account testified he was “concerned about the ethics of what Mercer was doing by not telling the State of Alaska,” the lawsuit shows. He said that Mercer did not disclose the error because the firm was fearful of being fired. (This happened anyway, in 2006.)

The error was compounded in 2003 because Mercer continued to use an artificially low number for pre-retirement-aged beneficiaries. If the firm had corrected the earlier mistake, an actuary said in a deposition, “It would have been difficult to explain.”

Because of the errors and cover-up, the lawsuit said, Mercer underreported by more than $2.8 billion the contributions required to fund the plans.
Of course, estimating future health care costs is not easy. But the lawsuit details what look like obvious failures by Mercer. For example, Mercer consulted “real-world data” on health care expenses only every five years, a problematic practice given the volatility of these costs.

Mercer also made significant “coding errors” when entering information about the plans into its computer models, the complaint says. It ignored some salary increases for employees as well as survivor benefits, thereby underestimating plans’ liabilities.

The errors emerged in October 2002, when an outside auditor hired by the Alaska funds to examine Mercer’s work delivered a highly critical report on its findings. The lawsuit states that Mercer actuaries attended the meeting where the report was presented and accepted the outside firm’s criticisms.

But a company spokesman said last week that Mercer believed that its error wouldn’t have an impact on contributions to be made by the plans because an Alaska regulation imposed a 5 percent cap on annual contribution rate increases, and Mercer’s recommended rate was already much higher. “Accordingly, Mercer believes that the error had no impact on the plans and that the plans have not, in fact, been damaged,” the spokesman said.

Mercer has had similar problems with other pension clients. Last May, the company paid $45 million to settle a negligence lawsuit filed by Milwaukee’s pension board. Mercer did not acknowledge it was at fault in the matter.

Nevertheless, all eyes are on the Alaska case, because of its size. Indeed, while the suit is pending, actuarial firms are finding it impossible to buy liability insurance against such claims.

“This is the largest case out there in the industry and it could have enormous ramifications if the plaintiff were to succeed,” said Gene Kalwarski, founder of Cheiron Inc., an actuarial consulting firm serving large pension and health insurance funds. “It’s unfortunate that one firm’s behavior, if they are found to be liable, is going to result in other firms being unable to obtain insurance coverage.”

Lewis R. Clayton, a partner at Paul, Weiss, Rifkind, Wharton & Garrison, who represents the Alaska board, saidthe case illustrates the role an actuarial firm plays in workers’ lives, “and how important it is that actuaries do honest and high-quality work.”

Indeed, about 80,000 workers rely on payments from the retirement systems that have sued Mercer. And the errors made by the firm were a big reason why the Alaska system changed its pension structure, according to people briefed on the discussions.

For all employees hired after 2006, the funds no longer offer a classic pension fund, where retirees receive a specified amount each year. Now those workers receive a defined-contribution plan, similar to a 401(k) account.

Mercer, meanwhile, is learning that age-old lesson: To err is human. To cover up, plain dumb.
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Re: Legal Actions against companies or regulators

Postby admin » Sat Nov 14, 2009 1:13 pm

Firm sued over fees: A $19-million lawsuit has been filed against Richardson Partners Financial
and Clarke A. Steele, one of the firm's investment advisors, by a group of clients, many of whom
are elderly. The 40-page statement of claim alleges "Steele and Richardsons acted in a high-
handed, arrogant, dismissive, insulting, cavalier purposefully difficult, irresponsible and
indifferent manner towards the plaintiffs," a collection of 23 people, one estate and nine personal
holding companies. The statement lists seven securities owned where Richardsons and/ or Steele
were earning service and or trailer commissions in addition to the radius fee The statement also
details $6.04-million of plaintiff holdings on which the defendants acted either as an
"undisclosed agent or underwriter." The average age of the people is more than 70. (One is 94.)
None of the allegations has been proven in court and Richardsons and/or Steele has yet to file a
statement of defence. http://www.financialpost.com/opinion/st ... d7ff-4f7a-
bc80-7b006a8cb2a1
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Re: Legal Actions against companies or regulators

Postby admin » Tue Nov 10, 2009 3:38 pm

SEC Sued by Madoff Investors for Missing Ponzi Scheme (Update3)
By Erik Larson

Oct. 14 (Bloomberg) -- Two of Bernard Madoff’s victims sued the U.S. Securities Exchange Commission for failing to uncover the con man’s $65 billion Ponzi scheme, in a case that could trigger a wave of lawsuits if it isn’t dismissed.

The government’s “sovereign immunity” from lawsuits should be waived under a law that permits cases against the U.S. if its workers were negligent, according to a complaint filed in Manhattan federal court seeking the return of $2.4 million.

Through a “pattern of incompetence,” the SEC missed at least six opportunities to uncover Madoff’s fraud even after receiving detailed tips from an expert explaining how Madoff’s high returns and mysterious investment strategy were proof of the world’s biggest Ponzi scheme, according to the complaint.

“Had the SEC carried out its functions with even a minimum of reasonable due care, many, if not most, of Madoff’s victims would have been spared the financial ruin they face today,” the two New York investors said in their 63-page complaint.

The lawsuit was filed by Phyllis Molchatsky, a disabled retiree and single mother who lost $1.7 million, and Steven Schneider, a doctor who lost almost $753,000. The SEC earlier denied the investors’ administrative claims, clearing the way for them to file today’s suit under the Federal Tort Claims Act.

“Based on our initial understanding of the matter, we believe there is no merit to the complaint,” SEC spokesman John Heine said today in a statement.

Acted ‘Unreasonably’

The investors are represented by Howard Elisofon, a lawyer with Herrick, Feinstein LLP in New York. The firm filed seven additional administrative claims with the SEC, which could lead to a new round of lawsuits if they’re denied.

“I don’t think the suit is likely to win,” Professor Peter Henning of Wayne State University Law School said in a phone interview. “They have to show the SEC was negligent, that it acted unreasonably.” As a law enforcement agency, it’s up to the SEC to decide where to commit its resources, he said.

Henning said the lawsuit, if it succeeded, would expose the government to thousands of lawsuits and “massive liabilities” in the Madoff case and any other fraud that the SEC failed to stop.

“That’s why courts are generally reluctant to let these cases go very far,” Henning said.

Difficult to Succeed

Professor Paul Figley of American University’s Washington College of Law also said the lawsuit isn’t likely to succeed.

“There have been a lot of tort suits that have been filed against the government over the years that have succeeded, but none that had to do with the government failing to catch and prosecute a criminal,” Figley said.

Many lawsuits filed under the statute fail because of a provision that protects the U.S. when the disputed acts are so- called discretionary functions, the professors said. The investors say that won’t protect the SEC in this case.

“The conduct was clearly not discretionary,” Elisofon said in a phone interview. “This isn’t about the SEC failing to undertake an inquiry or failing to implement a policy. This is about the SEC investigating and examining Madoff and failing to follow its own policies and procedures.”

Discretion Involved

Elisofon compared the SEC’s actions to those of a driver for the U.S. Postal Service who would be sued if he injured a citizen through reckless driving.

“There’s discretion involved in how he drives the vehicle,” Elisofon said. “But if he drives it negligently, and he injures citizens, they have a right to sue under this act.”

The complaint against the SEC follows earlier suits by victims against banks and other third parties that did business with Madoff, accusing them of failing to conduct due diligence when placing investor money with Madoff, or with firms that directed money to the con man.

“Plaintiffs relied on the SEC to protect them and, instead, time after time, the SEC’s agents looked the other way, allowing an obvious danger to grow exponentially, until massive injuries to the plaintiffs and other Madoff investors became inevitable,” according to the complaint.

The SEC, already faulted by Congress for missing the scheme, has been busy trying to restore faith in its abilities after an internal report released last month outlined its failures in the Madoff matter.

SEC Plan

According to a draft five-year strategic plan released Oct. 8, the agency will seek to improve training and tackle “structural issues” that hurt communication in its Office of Compliance Inspections and Examinations.

The plan followed SEC Inspector General H. David Kotz’s Sept. 29 report that said the agency missed at least six opportunities to spot Madoff’s fraud because it assigned inexperienced employees to inquiries and failed to pursue leads.

The SEC’s own investigators said the agency was unwise when choosing cases and that it rewards its workers based on “quantity” rather than “quality.”

Madoff, 71, is serving a 150-year sentence for running the fraud. His family members and his biggest investors have been sued for as much as $15 billion by the bankruptcy liquidator for New York-based Bernard L. Madoff Investment Securities LLC.

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net.

Last Updated: October 14, 2009 15:46 EDT
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Re: Legal Actions against companies or regulators

Postby admin » Fri Oct 30, 2009 2:18 am

SEC sued for gross negligence: Two of Bernard Madoff's victims have sued the U.S. Securities
Exchange Commission for failing to uncover the con man's $65 billion Ponzi scheme, in a case
that could trigger a wave of lawsuits if it isn't dismissed. The government's "sovereign
immunity" from lawsuits should be waived under a law that permits cases against the U.S. if its
workers were negligent, according to a complaint filed in Manhattan federal court seeking the
return of $2.4 million. Through a "pattern of incompetence," the SEC missed at least six
opportunities to uncover Madoff's fraud even after receiving detailed tips from an expert
explaining how Madoff's high returns and mysterious investment strategy were proof of the
world's biggest Ponzi scheme, according to the complaint. Can anyone think of a case where a
CSA regulator failed to do its job –let us know.

from www.canadianfundwatch.com
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Re: Legal Actions against companies or regulators

Postby admin » Thu Oct 15, 2009 3:04 pm

Are our Canadian securities regulators immune from being charged for breach of trust?
i.e. Breach of trust by public officer – Section 122. Criminal Code

SEC Sued by Madoff Investors for Missing Ponzi Scheme (Update3)
By Erik Larson

Oct. 14 (Bloomberg) -- Two of Bernard Madoff’s victims sued the U.S. Securities Exchange Commission for failing to uncover the con man’s $65 billion Ponzi scheme, in a case that could trigger a wave of lawsuits if it isn’t dismissed.

The government’s “sovereign immunity” from lawsuits should be waived under a law that permits cases against the U.S. if its workers were negligent, according to a complaint filed in Manhattan federal court seeking the return of $2.4 million.

Through a “pattern of incompetence,” the SEC missed at least six opportunities to uncover Madoff’s fraud even after receiving detailed tips from an expert explaining how Madoff’s high returns and mysterious investment strategy were proof of the world’s biggest Ponzi scheme, according to the complaint.

“Had the SEC carried out its functions with even a minimum of reasonable due care, many, if not most, of Madoff’s victims would have been spared the financial ruin they face today,” the two New York investors said in their 63-page complaint.

The lawsuit was filed by Phyllis Molchatsky, a disabled retiree and single mother who lost $1.7 million, and Steven Schneider, a doctor who lost almost $753,000. The SEC earlier denied the investors’ administrative claims, clearing the way for them to file today’s suit under the Federal Tort Claims Act.

“Based on our initial understanding of the matter, we believe there is no merit to the complaint,” SEC spokesman John Heine said today in a statement.

Acted ‘Unreasonably’

The investors are represented by Howard Elisofon, a lawyer with Herrick, Feinstein LLP in New York. The firm filed seven additional administrative claims with the SEC, which could lead to a new round of lawsuits if they’re denied.

“I don’t think the suit is likely to win,” Professor Peter Henning of Wayne State University Law School said in a phone interview. “They have to show the SEC was negligent, that it acted unreasonably.” As a law enforcement agency, it’s up to the SEC to decide where to commit its resources, he said.

Henning said the lawsuit, if it succeeded, would expose the government to thousands of lawsuits and “massive liabilities” in the Madoff case and any other fraud that the SEC failed to stop.

“That’s why courts are generally reluctant to let these cases go very far,” Henning said.

Difficult to Succeed

Professor Paul Figley of American University’s Washington College of Law also said the lawsuit isn’t likely to succeed.

“There have been a lot of tort suits that have been filed against the government over the years that have succeeded, but none that had to do with the government failing to catch and prosecute a criminal,” Figley said.

Many lawsuits filed under the statute fail because of a provision that protects the U.S. when the disputed acts are so- called discretionary functions, the professors said. The investors say that won’t protect the SEC in this case.

“The conduct was clearly not discretionary,” Elisofon said in a phone interview. “This isn’t about the SEC failing to undertake an inquiry or failing to implement a policy. This is about the SEC investigating and examining Madoff and failing to follow its own policies and procedures.”

Discretion Involved

Elisofon compared the SEC’s actions to those of a driver for the U.S. Postal Service who would be sued if he injured a citizen through reckless driving.

“There’s discretion involved in how he drives the vehicle,” Elisofon said. “But if he drives it negligently, and he injures citizens, they have a right to sue under this act.”

The complaint against the SEC follows earlier suits by victims against banks and other third parties that did business with Madoff, accusing them of failing to conduct due diligence when placing investor money with Madoff, or with firms that directed money to the con man.

“Plaintiffs relied on the SEC to protect them and, instead, time after time, the SEC’s agents looked the other way, allowing an obvious danger to grow exponentially, until massive injuries to the plaintiffs and other Madoff investors became inevitable,” according to the complaint.

The SEC, already faulted by Congress for missing the scheme, has been busy trying to restore faith in its abilities after an internal report released last month outlined its failures in the Madoff matter.

SEC Plan

According to a draft five-year strategic plan released Oct. 8, the agency will seek to improve training and tackle “structural issues” that hurt communication in its Office of Compliance Inspections and Examinations.

The plan followed SEC Inspector General H. David Kotz’s Sept. 29 report that said the agency missed at least six opportunities to spot Madoff’s fraud because it assigned inexperienced employees to inquiries and failed to pursue leads.

The SEC’s own investigators said the agency was unwise when choosing cases and that it rewards its workers based on “quantity” rather than “quality.”

Madoff, 71, is serving a 150-year sentence for running the fraud. His family members and his biggest investors have been sued for as much as $15 billion by the bankruptcy liquidator for New York-based Bernard L. Madoff Investment Securities LLC.

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net.
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Re: Legal Actions against companies or regulators

Postby admin » Thu Aug 20, 2009 2:14 pm

from lawyerswekly.ca aug 21/09


As stocks fall lawsuits rise
By Christopher Guly
Ottawa
August 21 2009 issue

The recent market meltdown that has left holdings in many investment portfolios down or depleted has also led to “an unprecedented” number of investors wanting to sue their investment advisors, according to Toronto lawyer Hugh Lissaman, who has never witnessed such a litigious atmosphere during his 16 years practising in the area of stockbroker-investment dealer litigation.

On any given week, Lissaman receives at least six phone calls from potential clients who’ve lost money in the market.

Usually, they don’t want to commence legal action against their advisors — but some feel they have no choice, explains Lissaman, who, nine years ago, established a solo practice that now deals mainly with this type of plaintiff work.

After reviewing a would-be client’s brokerage statements, he decides whether any dips are the result of a decline in the market or caused by alleged broker negligence, where there may be a cause of action.

“If someone is looking to the brokerage firm for some resolutions or mediation down the road or to a pre-trial judge or judge, the question I put is: ‘I lost money on the market too. What makes your case a negligence case?’ ” offers Lissaman, who was counsel for the defendant in the precedent-setting Ontario case, Blackburn v. Midland Walwyn Capital Inc., [2003] O.J. No. 621 (S.C.J.), which addressed such legal issues as the duty of firms to warn clients about rogue stockbrokers who have recently had their employment terminated.

Yet sometimes the signs are quite obvious that something untoward has occurred.

For instance, a 78-year-old woman, who had lost money in 14 mutual funds, contacted Lissaman for help. He, in turn, passed her portfolio to veteran securities industry compliance expert Douglas Fox, the founder and principal of Toronto-based Risk Management Services Inc., for review.

Fox determined that of the 14 mutual funds she held, 12 were considered “high-risk” and the remainder “medium-risk,” according to industry analysts.

“That lady had no business being in those mutual funds,” says Lissaman. “She was relying on her portfolio to pay her monthly expenses and was given bad advice and inappropriate investing for her situation. She would have a case.”

He estimates that there are only a handful of independent Toronto lawyers who focus on representing plaintiffs in stockbroker negligence cases. (Lawyers attached to large firms might be in a conflict situation because they act for the institutions possibly targeted for a suit, he adds.)

Once Lissaman decides that a client has a case, he sends a complaint letter to the institution or individual who provided the investment advice, outlining problems with the portfolio. If the matter is not resolved in that fashion, he files a statement of claim and a court file is opened.

To properly prosecute the case, Lissaman hires forensic experts, such as Fox, to determine the suitability and risk level of a client’s investments and, if there was leveraging where money was borrowed to purchase bonds or stocks without the client’s knowledge, to explain to the court how that amplifies the risk attached to an investment.

To calculate damages in these cases, Lissaman turns to Peter Weinstein, a partner with Stern Cohen LLP and head of the Toronto-based accounting firm’s specialist practice, Stern Cohen Valuations Inc.

A chartered accountant who also holds certification as a chartered business valuator and specialist designation as an investigative and forensic accountant, Weinstein quantifies any damages that might have been incurred as a result of a bad investment.

He will look at the capital put into an account and what was taken out. If a stock had significant appreciation, the loss should be viewed in relation to the funds invested, “rather than only from its peak value,” says Weinstein.

As well, he will identify what the investment income or losses should have been if the capital was appropriately invested — according to the investor’s objectives — in equity, bonds or a combination of the two.

Weinstein compares the investment with the appropriate index.

For instance, for the three-year period that ended May 31, 2009, returns (assuming dividends and interest were reinvested):
- on bonds were 18 percent on the DEX Universe Bond Index;
- on Canadian equities were four percent on the S&P/TSX (Toronto Stock Exchange) composite index; and
- on U.S. equities were 23 percent on the S&P 500 index and 18 per cent as per the Dow Jones Industrial Average.

“There will be situations where a client would have incurred some losses, but they may be different than the ones they should have incurred,” explains Weinstein, who adds that management fees and expenses should be deducted from what would have been earned. If money was withdrawn from an investment account, that too has to be reflected in the calculation of any losses.

“My recommendation to lawyers is to consider all of this early on in the process because litigation is expensive and it’s helpful for lawyers to know the extent of the losses before they spend a lot of time and incur a lot of costs,” says Weinstein.

Beyond preparing damages reports for lawyers, he’s also appeared in court as an expert witness, as he did in the Ontario Superior Court of Justice case, Davidson v. Noram Capital Management Inc., [2005] O.J. No. 4964.

Based on his calculations, which included reasonably anticipated rates of return, the eight plaintiffs (most of them seniors) lost nearly $1.3 million. In his decision, Justice Peter Cumming awarded them almost $1.2 million for financial losses and prejudgment interest.

Weinstein expects that when the dust settles from last year’s market plunge, there will be more cases of investors suing their advisors.
Already, the Investment Industry Regulatory Organization of Canada (IIROC) reports that complaints filed this year with brokerage firms are up 35 percent — and have increased by 90 percent since 2007.

But resolving lawsuits could take time.

Weinstein says he’s still working on cases that date back to 2001 — as is Lissaman, who also expects the number of investor plaintiffs to grow.

“There are problem brokers out there, but I have to look at each client complaint that comes in and assess what’s gone on in the portfolio,” he explains.

“Sometimes it’s a case where the money just got parked and was never looked at again. It doesn’t necessarily mean the broker was bad, but perhaps just inattentive.

“Other times, the broker did some really proactive trading with a purpose to make him money at the expense of the client. Those cases come up as well, but not as often.”

However, he is concerned that with the investment industry having lost a lot of money when the markets took a nosedive, some advisors may “look to make up that lost ground by once again investing people in some things they shouldn’t be investing in.”

Lissaman recently represented a single mother of three children of modest means who had won a $2-million lottery and had a broker invest the money.

“He abused that trust and her ignorance, and totally mismanaged her portfolio,” says Lissaman. “It started about six years ago, but only recently has the extent of the mismanagement come to fruition.”

The woman lost a lot — but not all — of her winnings. In July, an IIROC hearing panel permanently banned Julius Caesar Phillip Vitug, the broker, from working as an investment dealer, fined him $350,000 and ordered him to pay $80,000 in costs. “He acted deceitfully” and showed “no remorse for his actions,” said the panel, which found that between about April 2003 and August 2005, Vitug “engaged in business conduct or practice, which is unbecoming or detrimental to the public interest in that he had an undisclosed financial interest.”

Lissaman says that while people are “very upset” about losing investments, they must be prepared to pay some of the costs involved in taking legal action against their advisors. Hiring outside experts to help assess the suitability of a case could cost as much as $1,000. And even if there’s a contingency arrangement with a lawyer, the client will have to cover other disbursements, such as court transcripts, “because the law firm cannot be their bank,” says Lissaman, who sometimes won’t send someone a bill if, after reviewing their investment documents, believes there isn’t a case for litigation.

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