QUOTABLE QUOTES

The scale of the investment industry in Canada is so large that is difficult for most individuals to really understand what is going on. There is such a proliferation of investment products that are being sold by many different agencies that it is difficult for the average investor to know what to do.

The industry and the media talk about investor education and the necessity for investors to become informed. While that is a good thing, the reality is that most investors do not have the time to become sufficiently informed to be able to look after their investments properly. Most will need the services of a good financial advisor.

However, every investor needs to know sufficient about investing to avoid the pitfalls that many unwary investors have encountered. Every investor needs to know how to avoid the fraud artists, con artists and scam perpetrators. Every investor needs to know how to minimize the risk of avoiding a bad broker.

SIPA presents some quotes which they believe have significance for the small investor. Each of these quotes contain some wisdom or pertinent comment relative to the small investor or the investment industry.

Abuse of Trust - From the New York Times - June 15, 2002

"I think people who abuse our trust, we ought to hang them from the very highest branch," Treasury Secretary Paul H. O'Neill said in a speech on Thursday.

Citing "unethical behavior of a few notorious company executives," he added: "These cases are infrequent, but even a few bad cases can poison confidence in our system, which depends on entrusting public company managers with investors' capital. We will never be able to write rules that anticipate every possible subterfuge. Nonetheless, we must take action to restore investor confidence in the accuracy of public company information."

Brokers Dealing with Complaints

March 12, 2002 - An article by Derek DeCloet in the Financial Post March 12, 2002, entitled "Judge slams TD Evergreen compliance" quotes Justice Peter Hambly of the Ontario Superior Court of Justice. Justice Hambly found Mr. Hunt's story more credible than Mr. Schram's (their broker) and awarded a judgment of $59,319, their estimated loss. DeCloet writes that the judge saved his harshest words for more senior officials at TD Evergreen and quotes Justice Hambly as writing:

"Their investigation of the complaints of Melville Hunt and Marion Hunt that Mark Schram sold their BCE stock without authority was a sham," ...

"The letters of Robert Strickland and Jacqueline Hatherly are patronizing, demeaning and insulting," wrote Justice Hambly. "In a word, the conduct of compliance is disgusting. In dealing with the complaints, Toronto-Dominion Evergreen did not comply with their fiduciary duty to the Hunts."

Note: Justice Hambly found in favour of the Plaintiff.

Class Action Lawsuits

Thomas Kierans, Chairman of the Canadian Institute for Advanced Research says "Class action suits are coming to Canada. You can smell it. When you're living in the world I'm living in, you know it's coming like a freight train. I certainly acknowledge the impatience that people have with the scandals that we have had [saying] 'Where were the directors, where were the regulators?' "
Read the complete article in the Financial Post Saturday, April 29, 2000 edition by Rod McQueen entitled "A Bay Street Man in Full".

In Court - Brokers Blaming the Investor

May 3, 2000 - Judgment on the Laflamme v. Prudential-Bache case by the Supreme Court of Canada. Present:  L’Heureux-Dubé, Gonthier, McLachlin, Iacobucci, Bastarache, Binnie and Arbour JJ. On appeal from the Court of Appeal for Quebec.

The Supreme Court judgment reads in part: 
"The trial judge noted the state of mind and the knowledge of the Laflamme family, who held onto securities in reliance on assurances given by the respondent Roy, whom they trusted. The losses caused by the bad advice and grossly negligent management by Roy cannot be laid at their doorstep. It is reasonable to assume that an average investor faced with similar circumstances would have been indecisive and hesitant when faced with the various options: selling the securities and taking the loss, holding onto them and hoping that they would go back up in value, or transferring the account to another manager. Nor was any evidence tendered to suggest that, on the information available to them at the time, any of these options would have been beneficial. For all these reasons, the Laflamme family cannot be faulted for failing to take further measures in the hope of minimizing the losses. Those losses were sustained as a result of mismanagement by the respondents, which, as the trial judge found, continued until the account was closed."

Note: The Supreme Court found in favour of the Plaintiff.

In Court - Brokers  Counterclaims

June 17, 1999 - Judgment on the Zraik v. Levesque Securities case by the Ontario Superior Court of Justice. Justice Archibald J.
Justice Archibald's judgment reads in part

"The defendants have urged this court to apportion some of the liability for the financial losses upon the shoulders of Mr. Zraik on the basis that he was the author of his own misfortune and on the basis of his fateful decision not to liquidate his accounts on March 6, 1995. ... This court is not prepared to find that Mr. Zraik was contributorily negligent in his handling of his or his daughter's accounts. The cornerstone of this determination is the reality that the damages suffered by the plaintiffs flow directly from the breaches of duty of the defendants. ... The failure to adhere to the position and maximum risk limits led directly to the losses suffered. If Levesque and Mr. Drose had abided by the regulatory standards, Mr. Zraik would not have been allowed to trade in excess of his risk capital. His losses would therefore not have occurred."
"The defendants have asserted a counterclaim against the plaintiffs for the respective deficits which existed in the plaintiffs' accounts after liquidation in late March, 1995. There are a number of broker cases which have dissected the validity of such counterclaims. In cases where the courts have concluded that the deficit is a direct result of the negligence of the broker and/or brokerage, the courts have found that the counterclaim is unenforceable. Because of the defendants numerous breaches of duty to the plaintiffs, this court concludes that the plaintiffs can successfully deny any liability to the defendants. As a consequence, the counterclaims are unenforceable and are dismissed on the basis that the deficits would not have occurred if the defendants had complied with the regulatory regime and had complied with their own manual concerning commodity trading."

Note: Justice Archibald found in favour of the Plaintiff.

In Court - Brokers  Evasion of Justice Attempts

November 11, 1999 - Judgment on the Lizotte v. RBC Dominion Securities case by the Quebec Superior Court of Justice. Justice Morneau JSC.
Justice Morneau's judgment reads in part

"Although certain commitments were made in 1994, ..., some of the documents had still not been sent at the time of the trial. The defendant claimed at the time that they did not exist. Their sudden appearance during the hearing and the fact that they were available to witnesses for the defence in the meantime point not only to the defendant’s reluctance to submit to the judicial process, but to its resistance to doing so. ... This behaviour is shocking and inexcusable.
The Court sees here a deliberate effort on the part of RBC to wear down, not to say exhaust, the plaintiff in order to evade its responsibilities. ... The defendant’s attitude throughout the case, including its tardy tender, justify the plaintiff’s fears. Despite its initial reticence to consider the possibility of complying with this request, the Court believes that the circumstances justify ordering provisional execution of part of this judgment, notwithstanding appeal. The Court is convinced, in fact, that otherwise the plaintiff will sustain serious and irreparable injury through the repetition by his powerful adversary of the manoeuvres proven in the first instance."

Note: Justice Morneau found in favour of the Plaintiff.