TRIALS

For the best investor education attend court as an observer to hear what the brokers say in front of a judge. When you hear a compliance officer under questioning on the witness stand say the "The rules are only guidelines", after he has admitted that both the broker and the brokerage firm have breached the "written rules". 

This web page provides information on some court cases involving brokers, the dates scheduled for the start of trial, and the results when they are known. Any investor who has a complaint should attend a trial to help prepare themselves for the dispute resolution process. 

2002 January 15 - IDA Hearing Toronto - First Marathon/Nesbitt Burns
                            Rescheduled for April 8, 2002

The following is from an IDA press release:

The Investment Dealers Association of Canada announced today that a hearing date has been set before a panel of the Ontario District Council of the Association in respect of matters for which Joseph John Genovese may be disciplined by the Association.

The hearing relates to allegations that while a Registered Representative at First Marathon Securities Limited, Mr. Genovese recommended and carried out transactions for the account of a client that were unsuitable given the client's personal circumstances and stated investment objectives, and that while a Registered Representative at Nesbitt Burns Inc. he failed to ensure that account documentation in respect of two of his clients accurately reflected their personal circumstances and investment objectives, and recommended and carried out transactions for their accounts that were unsuitable given the clients' personal circumstances and stated investment objectives.

The hearing is scheduled to commence at 9:30 AM on January 18th, 2002, at the offices of the Investment Dealers Association of Canada, Suite 1600, 121 King Street West, Toronto. The hearing is open to the public except as may be required for the protection of confidential matters. Copies of the Decision of the District Council will be made available.

January 15, 2002 UPDATE - On the scheduled date the IDA advised that the hearing was postponed until April 8th, 2002, due to witnesses being unavailable. 

2001 May 7 - MSC Hearing Winnipeg - BMO Nesbitt Burns
                    Nesbitt off the hook with settlement agreement

The following is from the MSC Notice of Hearing:
The Manitoba Securities Commission (MSC) will hold a public hearing at its offices at 405 Broadway, Winnipeg, Manitoba starting on Wednesday, May 9th to consider whether or not it is in the public interest to order that the registration of BMO Nesbitt Burns Inc. ("Nesbitt Burns") as a broker and investment dealer under the Act be suspended or cancelled.

SIPA Comment - This looks like a first in Canada! The fact that a provincial securities commission is even considering whether a major bank owned brokerage firm should have its registration suspended or cancelled is astounding.
Some say that it is pressure from the SEC in the United States that is causing Canadian regulators to try to clean up the industry to protect our capital markets.
If that is so, small investors may benefit from the fallout. It is time that investors take action to encourage the leaders of the financial services industry to act responsibly and to look after their clients.

May 10, 2001 - Not surprisingly, Nesbitt is off the hook. They have reached an agreement with the MSC to pay a fine and have their staff reprimanded. By a behind the doors settlement the details are hidden from the public. Do the regulators believe that by covering up the details they are preserving the integrity of the capital markets? Are they acting fairly to all investors?

2001 April 01 - Civil Trial Toronto - BMO Nesbitt Burns

A trade-union benefits plan is suing Bank of Montreal and BMO Nesbitt Burns for allegedly misrepresenting a recommended investment in Tee-Comm Electronics. Trial date is set for June 11, 2001, to hear the claim - as well as at least three other similar ones - in connection with investments in Tee-Comm stock or debentures. 

SIPA Comment - This is an opportunity for consumer/investors to hear what brokers say in court about their attitude of responsibility to investors. A day in court to observe is recommended not only for those who have a dispute, but also for those investors who trust their broker. 

2000 October 2 - Trial Toronto - Michael Holoday
                          Holoday sentenced to jail term

Michael Holoday, formerly with Midland Walwyn (now Merrill Lynch Canada) and First Marathon Securities (now National Bank Financial), was charged by the police in June 1977. Among other things he is accused of discretionary trading without permission and providing customized false reports. 

February 6, 2001 - Richard Blackwell's article "Disgraced Broker found guilty of fraud" in the Globe and Mail states that Madam Justice Patricia German in finding Holoday guilty of 14 counts of fraud said it was "inconceivable they (the brokerage firms) could have a broker systematically depleting client accounts and not make inquiries".

SIPA Comment - Madam Justice Patricia Germen summed up precisely the problem small investors can face when dealing with the investment industry. Investors may be at risk when they trust their brokers. In case after case investors have lost because the rules have been broken, and there was a "failure to supervise". Let us hope that it is indeed a failure to supervise, and not deliberate condoning of rule breaching for the sake of maximizing commissions and profits.   

2000 May 24 - Trial Toronto - Tetteh Kofi Hadjor, Financial Advisor
                      Hadjor sentenced to 2 years

In his decision Justice David McCombe said Hajor "betrayed trust of victims" and "when you defraud the public you pay the price". Additional details are in the article "Swindle lands accountant in jail"by Gay Abbate in the Globe and Mail, 27 May 2000.

March 9, 2000 - "FRAUD TRIAL DRAWING TO A CLOSE" headline by Desmond Brown, National Post, 9 Mar 2000. Brown reports that former accountant, Tetteh Kofi Hadjor, is accused of defrauding investors of $500,000. Mr. Hadjor, whose company Creative Arts Tax Services, catered to members of the film and entertainment industry, has pleaded not guilty to six counts of fraud over $5,000 in a trial at the superior court of justice.

SIPA Comment - Our society is based on trust. We trust our doctor and our dentist. We trust the school bus driver. We also trust our broker or financial advisor. Without trust it would be a sorry state. The leaders of the investment industry should honour that trust, and take appropriate action so they do not lose it.

2000 May 3 - Trial Ottawa - Prudential-Bache

The Supreme Court of Canada yesterday found the brokerage responsible for losses suffered by a small investor and ordered restitution. Details are provided in news articles "Losing investors wins cash back" by Valerie Laughton in the Toronto Star. An article "Brokers on hook for lost nest egg" by Janice Tibbetts in the Ottawa Citizen indicates the court ruling suggests brokers have a broad responsibility to clients. An article "Supreme Court Backs Small Investors" in CARP Money Magazine by Marilyn Smith indicates the Supreme Court upheld previous decisions that the broker breached fiduciary duties.

SIPA Comment - While the Supreme Court decision is good news for small investors, it hardly seems fair that a small investor must fight through three levels of court to get a decision providing restitution when it appears that there was no question that the rules had been broken. Ten years is too heavy a price for a victim to have to pay. It is like being victimized for the second time. 

2000 August 31 - Trial Toronto - David Blow, Financial Advisor

David Blow, a former insurance salesman has been charged with fraud. He sold unsuspecting victims financial products through his firm Mortgage Financial Corporation. Details are provided in the article "Financial Advisor Charged with Fraud" by James Daw in the Toronto Star.

Blow had previously been convicted for fraud in 1990 and was unlicensed to sell financial products since 1998. Canada Life admits that Blow placed some business with the insurer through a licensed intermediary.

SIPA Comment - It is disturbing that someone who has previously convicted for fraud, and who is not licensed to sell financial products can make arrangements to circumvent the rules and regulations that are in place  supposedly to protect consumer/investors.

2000 March 30 - Trial Ottawa - Nesbitt Burns

Diane Francis' article "Two investors first to push brokers into court over Bre-X losses" in the National Post on May 30, 2000, alerts us that finally a broker is facing trial over Bre-X. The Watson & Bougie v. Nesbitt Burns trial is scheduled to start in Ontario Superior Court of Justice in Ottawa on May 23, 2000. The trial should attract a great deal of interest based on the fact that Bre-X is billed as the greatest scam of the century, and many brokers were involved in selling Bre-X shares to their clients.

May 24, 2000 - The  trial which started Tuesday, 23 May 2000, at the Court on 161 Elgin Street, Ottawa, Justice Rastushny presiding, is reported in the Ottawa Press today in articles "Bre-X Broker Blues" and "Nesbitt Burns on trial over Bre-X".

SIPA Comment - It appears that the media believe that the Bre-X scam of the century is no longer of interest to the many investors who lost money, or that investors are not interested in knowing what is happening when two small investors take a major brokerage firm to court. It also appears that we were wrong when we said the trial would attract a great deal of attention.

UPDATE - This dispute was settled out of court so there is no public record. Diane Francis provides an on the money assessment in her article "Disclose Nesbitt's Bre-X settlement" in the Financial Post, September 8, 2001.

1999 October 15 - Trial Toronto - Levesque Securities 

Linda Leatherdale's article "Fight Bad Brokers in Court" in the Toronto Sun on Oct 15, 1999, reveals details about the Trial and Justice Archibald's judgment in favour of the Plaintiff. Justice Archibald said that Levesque securities and one of its former brokers had broken the rules. Justice Archibald awarded the Plaintiffs $260,000 plus costs.

SIPA Comment - Justice Archibald's judgment should send a message to the brokers that if they ignore the Know Your Client rule and continue to breach the rules and regulations they will lose out on disputes which reach the courtroom. The industry leaders should be aware that this is happening and should take steps to ensure that they do not look the other way, or fail to properly supervise the brokers or else they also will be held liable. Justice Archibald's decision is available to SIPA members upon request.

2000 January 10 - Trial Toronto - Patrick Kinlin, Financial Advisor

Patrick Kinlin was found guilty on 28 counts of fraud. Kinlin was sentenced to five years in prison and ordered to pay restitution of $12.5 million to his victims.

An article by Linda Leatherdale, Money Editor of the Toronto Sun, "I've been through a living Hell" on Jun 25, 1999, describes the reaction of victim's to Kinlin's arrest.

Jul 19, 2000 - The OSC issues a Notice of Hearing stating that it will hold a hearing into Kinlin's activities on August 27, 2000 some seven months after Kinlin was sentenced to five years in prison.

Mar 7, 2001 - Justice prevails as Patrick Kinlin dies in jail. Linda Leatherdale's article "Swindler Gone, Not Forgotten", in the Toronto Sun, describes victim's response to the passing of Kinlin.

SIPA Comment - It is unfortunate that fraudsters are able to operate in our society and that the victims are unable to receive adequate restitution. It is sad that our regulators can take seven months to decide that this fraudster convicted in criminal court needs a hearing to determine whether his license should be suspended. It is more unfortunate that Kinlin's previous behavior would not be revealed to those who made the effort to check his credentials before placing their savings with him. For additional information read Linda Leatherdale, Toronto Sun Business Editor's article "Open season on investors?" in the Toronto Sun - Sunday, July 4, 1999.

1999 March 12 - Ontario General Court - Levesque Beaubien

The Ontario General Court is open to the public. Levesgue Beaubien is on trial with a Plaintiff charging mishandling of their account resulting in a loss of about $500,000. One of our members is in litigation and attended this trial  to help prepare him for his upcoming litigation. His lawyer advised him about the trial and suggested he attend as an observer to help prepare him for his upcoming trial.

To hear the broker, the compliance officer, and expert witnesses on the stand under cross examination is interesting for all investors. It provides insight into the way the industry operates and their attitude towards the investor. It is recommended that members consider attending a trial of a broker as an observer as part of their investor education.

The case wraps up on Monday and Tuesday, March 15 and 16, 1999, when closing arguments will be heard. I suggest that anyone with a complaint consider attending:

The Ontario General Court
393 University Avenue - Courtroom No. 708
Zraik G. et al v. Levesque Beaubien
Justice Archibald
Defendant - Levesque Beaubien
Plaintiff - George Zraik
Counsel for Plaintiff - Peter R. Jervis

UPDATE - October 1999 - This case has been resolved in favor of the Plaintiff. Justice Archibald said that Levesque securities and one of its former brokers had broken the rules. Justice Archibald awarded the Plaintiffs $260,000 plus costs. For additional information read Linda Leatherdale, Toronto Sun Business Editor's article "Fight bad brokers in court" in the Toronto Sun - Friday, October 15, 1999.