Source: http://investoradvocates.ca/viewtopic.php?f=1&t=6
Timestamp: 2019-04-25 07:48:52+00:00

Document:
Markarian v. CIBC World Markets Inc. “fraud" mentioned 226 times in this judgement against CIBC.
Markarian v. CIBC World Markets Inc.
 Q.J. No. 5467 Unofficial translation.
Heard: January 10 to May 27, 2005 (25 days). Judgment: June 14, 2006.
Commercial — Banking — Accounts — Withdrawals — Financial institutions — Banks — Liability to customers — Fault — Action by account holders Markarian, Markarian and 125134 Canada inc. against CIBC granted; action in warranty against Migirdic in reimbursement of amounts taken from their brokerage account granted — Migirdic asked Markarian to sign guarantees in favour of other clients unknown to Markarian without telling him that he was signing guarantees — After Migirdic confessed his fraud to CIBC, CIBC executed the guarantees without telling Markarian about Migirdic's confession — CIBC failed to effectively supervise the activities of Migirdic even after having discovered that he had acted improperly.
influence and abuse of authority — Action by account holders Markarian, Markarian and 125134 Canada inc. against CIBC granted; action in warranty against Migirdic in reimbursement of amounts taken from their brokerage account granted — Migirdic asked Markarian to sign guarantees in favour of other clients unknown to Markarian without telling him that he was signing guarantees — After Migirdic confessed his fraud to CIBC, CIBC executed the guarantees without telling Markarian about Migirdic's confession — Markarian was not in error since he never knew that he was concluding the contract invoked.
Damages — Exemplary or punitive damages — Evidence — When available — Action by account holders Markarian, Markarian and 125134 Canada inc. against CIBC granted; action in warranty against Migirdic in reimbursement of amounts taken from their brokerage account granted — Migirdic asked Markarian to sign guarantees in favour of other clients unknown to Markarian without telling him that he was signing guarantees — After Migirdic confessed his fraud to CIBC, CIBC executed the guarantees without telling Markarian about Migirdic's confession — CIBC tried to benefit directly from Migirdic's fraud and Markarian, Markarian and 125 were entitled to punitive damages of $1,500,000.
Action by account holders Markarian, Markarian and 125134 Canada inc. (125) against CIBC World Markets inc. (CIBC) and action in warranty against Migirdic in reimbursement of amounts taken from their brokerage account — Markarian, Markarian and 125 opened non-speculative accounts with CIBC for which Migirdic was responsible — Migirdic asked Markarian to sign guarantees in favour of other clients unknown to Markarian without telling him that he was signing guarantees — CIBC inquired in response to the incongruities of Migirdic's records but did not delve further into Migirdic's false answers — After Migirdic confessed his fraud to CIBC, CIBC executed the guarantees without telling Markarian about Migirdic's confession — HELD: Action granted and action in warranty granted — Markarian was not in error since he never knew that he was concluding the contract invoked — CIBC gave misleading titles for Migirdic that were misrepresentation to Markarian — CIBC failed to effectively supervise the activities of Migirdic even after having discovered that he made improper actions — Markarian could not have ratified the contracts since he did not know of any cause of nullity — Markarian was justified in assuming that Migirdic and CIBC would act honestly toward him — CIBC tried to benefit directly from Migirdic's fraud and to conceal evidentiary elements — Markarian, Markarian and 125 were entitled to punitive damages of $1,500,000 and to 75 per cent of their extrajudicial costs.
Mtre. Serge Létourneau and Mtre. Suzanne Gagné (Létourneau & Gagné), counsels for the plaintiffs. Mtre. Bernard Amyot and Mtre. Sébastien Caron (Heenan Blaikie), counsel for the defendant.
¶ 1 The plaintiffs are claiming from CIBC WORLD MARKETS (hereinafter "CIBC", "CIBC Wood Gundy" or the "Bank") $1,451,327.39 as reimbursement of the amounts taken from their brokerage accounts by CIBC in execution of "guarantees" they allegedly granted in favour of the accounts of RitoLuthi and Sebuh Gazarosyan, who were perfect strangers. The claim is $353,026.12 for the plaintiffs HAROUTIOUN and ALICE MARKARIAN personally and $1,098,301.27 for their company (and that of their children), 125134 CANADA INC.
¶ 2 The plaintiffs contended that they never agreed to provide such guarantees, that they were defrauded by Harry Migirdic, their investment advisor at CIBC, and that CIBC was fully aware of the situation and stripped them of their assets.
¶ 3 The Bank did not deny the fraud or the fact that Migirdic was its employee. It argued that the plaintiffs were ultimately the architects of their own misfortune, they failed to fulfil their obligation to verify their statements of account, they ratified Migirdic's fraud and they failed to fulfil their duties toward the Bank.
¶ 4 Having long fought the idea that it could be liable for anything in regard to the plaintiffs, the Bank, at the start of the trial, argued before the Court that liability could possibly be shared, but it refused to indicate in what proportion and to make any remittal without a comprehensive settlement of the matter. It then indicated to the Court that it in fact remained fundamentally opposed to any sharing of liability because of [TRANSLATION] "the interruption by the plaintiffs of the causal link" between what its employee did and the situation in which the plaintiffs found themselves. However, during the trial, CIBC offered to reimburse the plaintiffs in full, without any admission of liability, provided explicitly that they renounced any other claim against it, particularly for punitive damages. The plaintiffs refused the offer.
¶ 5 They did so because they are also claiming from CIBC $200,000 in moral damages and for impairment of their fundamental rights, and $10,000,000 in punitive damages. The Bank indicated that it would never agree to pay a cent in that regard, if only as a matter of principle.
¶ 6 Originally the plaintiffs claimed an additional sum of $226,935.80 for losses sustained further to inappropriate and unauthorized transactions involving highly speculative securities, but the Bank has since reimbursed them, with interest. In addition, another sum of $11,008.86, taken from the Markarians' joint account under the guarantee related to Sebuh Gazarosyan, is no longer in dispute, as it was reimbursed in full, with interest, during the hearing.
Lynch and whose financial advisor was Harry Migirdic, became the defendant's clients.
¶ 8 The plaintiff HAROUTIOUN MARKARIAN has been retired since 1993 and is now 72 years old. The plaintiff ALICE MARKARIAN is his spouse and she is 68 years old.
¶ 9 Mrs. Markarian knows nothing about business. Her spouse has always administered all the family's assets and has always handled "finances" alone. As she said and as everyone acknowledged, she signed the documents he asked her to sign and she did not ask any questions. She has always had complete trust in Mr. Markarian.
¶ 10 The company 125134 CANADA INC., which is also a plaintiff, is the personal company of Mr. and Mrs. Markarian and their children. It is a family holding company constituted by Mr. Markarian to, among other things, hold and build on part of the proceeds of the sale of his business, ensure his retirement and that of his spouse, and allow the transfer of the assets to the children after the death of Mr. and Mrs. Markarian, while limiting the tax impact. In actuality, Mr. Markarian is the only director of the company and he makes all the decisions alone. The company 125134 acts only through him and he is its alter ego.
¶ 11 That means the plaintiffs in this case consist essentially of Mr. Markarian.
¶ 12 He is Armenian in origin. He was born in Egypt and lived there until he was 28 years old. After seven or eight years of elementary school and five years of trade school, he became a toolmaker and machinist, and worked for his uncle in a plant where nails were made and machines were repaired. He married in Egypt and his first two children were born there.
¶ 13 Mr. and Mrs. Markarian decided to immigrate to Canada in 1962, considering the political and economic situation in Egypt at the time. Because of the Egyptian laws in force, they had to leave everything they owned there when they left, and they arrived in Canada with their two children and $300 in their pocket.
¶ 14 Like many immigrants, Mr. Markarian worked very hard to start all over again, establish himself and prosper. He first worked for five years as an employee for various firms as a toolmaker and machinist. Then in 1967, with two partners, he founded his own business, Les Industries Acadiennes, a mechanical shop. He subsequently purchased the share of one of his partners and remained the other's partner without interruption until his retirement. The small business was very successful and he made his fortune. As he said: [TRANSLATION] "we took everything that came along, everything the others did not want". The hours were long and often extended late into the night. Mr. Markarian said he succeeded by listening to his customers, doing [TRANSLATION] "good work", treating his employees well [TRANSLATION] "in order to keep them" and [TRANSLATION] "acting honestly". That is easy to believe. Having started with nothing, he had accumulated assets worth $4.5 million by his retirement in January 1993.
¶ 15 The fraud to which he fell victim at CIBC stripped him of a third of all he possessed.
to put it mildly. He is a gentleman and an honest man. His wife is of the same quality.
[See Note 1 below] when Harry Migirdic was introduced to him around 1986 as a new representative of the brokerage firm. The person with whom he had dealt until then told him Migirdic was an honest man and "knowledgeable". Migirdic, also of Armenian origin, had been working since 1980 as a securities representative. A relationship of trust was gradually established between Migirdic and Mr. Markarian. Little by little Migirdic became the main investment adviser of the plaintiffs. Investments made elsewhere were even transferred to Merrill Lynch.
Note 1: These accounts are not involved in the proceedings now that the claims concerning the AMCC and Intergold shares have been settled.
¶ 18 An initial new account was opened on October 7, 1986; it was a joint account in Mr. and Mrs. Markarian's names.
¶ 19 Migirdic was appointed "Vice-President" of Merrill Lynch for the first time on October 21, 1986. The title greatly impressed the Markarians, who were certain they were doing business with someone "important" and "reputable". It bolstered their trust in Migirdic.
¶ 20 At first, the Markarians increased their investments with Merrill Lynch by small amounts, and the bulk of their investments remained with the Royal Bank, principally in the form of term deposits and government bonds. Then Migirdic convinced them to transfer most of their financial assets to Merrill, where they could have [TRANSLATION] "a little higher percentage".
¶ 21 In January 1990, Merrill Lynch was absorbed by CIBC Wood Gundy.
¶ 22 The Les Immeubles Almark account was opened in February 1991. Two thirds of the account was the property of Mr. Markarian and the remainder, of his partner in Les Industries Acadiennes. That account is not involved in the present proceedings.
¶ 23 Mr. Markarian sold his share of his company in December 1992 and retired. That gave him more money to invest in securities.
¶ 24 It was beginning in 1993 that things began to go sour for the Markarians, without their realizing it.
¶ 25 Over the years, Migirdic had made disastrous investments for some of his clients. A number of the investments were highly speculative, which the clients were not aware of, or did not realize. The losses were substantial. Some clients were informed of them while others were not. Some of the former ones had been promised by Migirdic that he would "pay" them. With the others, Migirdic tried to maintain the illusion that everything was going well. That was the case with Rita Luthi, the owner (with her husband) of an outfitter operation in Abitibi, who had entrusted Migirdic with $150,000. For all practical purposes, Migirdic's investments for her were discretionary (without the account authorizing them). They proved disastrous. In February 1993, there was only $18,000 remaining in the account. Mrs. Luthi was completely unaware of that; she was still under the impression that the value of her initial investment had not changed.
liquidated, the withdrawal would have been impossible since the shares in the account were by then worth only 30% of that amount. Migirdic had the idea of obtaining a guarantee from a very solvent third party in favour of Mrs. Luthi's account, so that he could "go in the red" without the Bank's intervening, given the guarantee; that would leave him time to "make up his losses" so that withdrawals could continue, regardless of the status of the account. To their great misfortune, Migirdic thought of the Markarians, who were not suspicious people.
¶ 27 So, on February 16, 1993, he obtained Mr. Markarian's signature on a document entitled "Guarantee Agreement" (P-6). The document indicated that a guarantee was given in favour of the account of Rita Luthi from the Markarians' joint account, their only account available, since the law prohibited RRSP accounts from being used as collateral. The guarantee remained in effect until it was exercised by the Bank, in 2001.
¶ 28 We will return subsequently to the circumstances underwhich the guarantee was signed. Note, however, at this point that the guarantee of February 16, 1993 was signed in favour of a person whom the Markarians did not know, whom they had never heard of and whose very existence they were completely unaware of. Furthermore, the Markarians had no reason to provide such a guarantee and derived no benefit from it. That is also true for their family and acquaintances.
¶ 29 The client profile of the Markarians was not updated to reflect the existence of the guarantee, as the regulations required (the profile is called the "Know Your Client Form" or the "KYC Form"). Migirdic was later sanctioned for that violation of the rules.
¶ 30 In addition, although the guarantee was signed on February 16, 1993, it was only on the monthly statement of account for July 1994, i.e. 17 months later, that a short, vague indication of the guarantee appeared for the first time in a document given to Mr. Markarian. It said the following: "Items for Your Attention - Your Account Guarantees Account 500-01193". Mrs. Luthi's account was then $14,360 in deficit. The same reminder next appeared of the top of each monthly statement sent for the joint account until February 1999. It was then replaced by the following: "Messages - Reminders - Your Account Guarantees Account 500-01193", this time at the very end of the statement, from March 1999 to March 2001.
¶ 31 On September 8, 1993, Mr. Markarian opened the account of the company 125134 Canada Inc., with a sizable portion of the proceeds of the sale of his share of Les industries Acadiennes. Signed the same day was a guarantee in favour of the company account by means of the Markarians' joint account (P-12A). Certain documents mentioned November 15, 1993 as the date the account was opened (for example, P-30 at 2) and the decision of the Investment Dealers Association of Canada (the IDA), which sanctioned Migirdic further to his fraud, indicated that date. But that was an error, since the first deposit in the account took place on September 16, and the guarantee was signed on the 8th. That error illustrates the lack of control and thoroughness in Migirdic's documents.
¶ 32 No message ever appeared on the monthly statements of account sent to Mr. and Mrs. Markarian for their joint account concerning the guarantee given by Mr. Markarian in favour of the company account.
really belong to Sebuh Gazarosyan. Unfortunately, Migirdic engaged in disastrous transactions and the account was deep in the red in 1994. That was not allowed by the brokerage firm. An account in deficit could not continue to be active if it was not guaranteed by a third party or by assets. Migirdic did what had to be done to "find" various guarantors for his account; they varied over time. By March 1994, he had no more of them.
¶ 34 It was in these circumstances that, on March 28, 1994, he had Mr. Markarian sign a new document entitled "Guarantee Agreement" (P-7). It said a guarantee was given in favour of the account of Sebuh Gazarosyan out of the account of the company 125134. The account of Sebuh Gazarosyan was by then over $250,000 in deficit. Unfortunately for them, the Markarians were the last ones to guarantee it. The guarantee remained in effect until it was exercised by the Bank, in 2001.
¶ 35 We will return subsequently to the circumstances under which the guarantee was signed. However, note at this point, that the guarantee of March 28, 1994 was also signed in favour of a person whom the Markarians did not know, whom they had never heard of and whose very existence they were completely unaware of. Furthermore, the Markarians had no reason to provide such a guarantee and derived no benefit from it. (On the contrary, they were suddenly $250,000 in debt for a stranger.) That was also true for their family and acquaintances. In addition, like everyone, the Markarians were unaware that Sebuh Gazarosyan's account was in fact the account of Migirdic.
¶ 36 No message ever appeared on the monthly statements of account sent to Mr. Markarian for his company concerning the guarantee given by it in favour of Sebuh Gazarosyan's account.
¶ 37 The client profile of the company was also not updated to reflect the existence of the guarantee, as the regulations required. Migirdic was later sanctioned for that violation of the rules.
¶ 38 Let me add that the Markarians were not the only clients that Migirdic used to provide guarantees for other clients and his own account over the years. In fact, the Court was informed that other proceedings are pending in that regard.
¶ 39 The evidence is clear that the guarantees employed by Migirdic in regard to the accounts of Rita Luthi and Sebuh Gazarosyan were used to provide him with [TRANSLATION] "credit in order to reimburse the losses of some of his clients because of his bad transactions" and to [TRANSLATION] "have all the latitude he needed to make a multitude of transactions" in order to "cover his losses" and change them into surpluses. Migirdic's intention was not, in principle, to "steal" from the Markarians or grab their assets, but to give himself the resources to "play" the stock market in the hope that he could cover his losses and those of his clients. But it is indeed theft that the Markarians sustained, since Migirdic's manoeuvres obviously never enabled him to "cover his losses" as he hoped and therefore "release" the Markarians from their obligations. On the contrary, his manoeuvres merely made the losses worse and stripped his unfortunate victims of their assets.
¶ 40 Moreover, we cannot lose sight of the fact that the new transactions that the "guarantees" obtained from the Markarians permitted Migirdic to make (and there were an enormous number of them) also had another very great merit: they generated huge commissions for him (and equally for the Bank). From 1991 to 2000, Migirdic billed over $11,000,000 in commissions, i.e. an average of $1,132,500 a year (the amount was as much as $1,625,603 in 1997). Part of the commissions were from the very great number of transactions in his own account (in the name of Sebuh Gazarosyan) and in the account of Rita Luthi, as well as in the accounts of other clients he defrauded. The commissions paid for those transactions have never been recovered, either from Migirdic or the Bank.
¶ 41 Between 1995 and 2000, six letters auditing the guarantee given in regard to the Gazarosyan account were sent by the Bank to Mr. Markarian for his company, at the rate of one a year, every October, at the request of the Bank's external auditors. The purpose of the letters was to enable the external auditors to ensure that the guarantee in favour of the Gazarosyan account existed. At the same time, they were to remind the guarantor of the existence of the guarantee. But that was not the effect they actually had.
If you do guarantee payment, please sign in the space provided below. If you do not guarantee payment, please indicate at the bottom of this letter or on the reverse, the manner in which you act for these accounts.
In either case, would you please return this letter directly to our auditors, Arthur Andersen & Co., in the enclosed envelope at your earliest convenience.
The address of Mr. Markarian and his company was 12 345, boulevard Toupin, in Montréal.
That of Sebuh Gazarosyan (actually that of his brother in Montréal) was 12 250, boulevard Toupin. Migirdic told Mr. Markarian that and Mr. Markarian had no trouble believing the explanation.
A. I told him it's a mistake, it's going to be fixed.
A. I told him it's a mistake, it's going to be fixed. Because I was hoping that the account that was guaranteed was going to be not needing the guarantee and that was going to be lifted, going to cancel this.
Q. Did you ask Mr. Markarian to sign that letter?
Q. What reason did you give him to obtain his signature?
Q. So you told him he needed to sign in order to permit you to fix the error? A. To clear it, that's right. To clear it.
Mr. Markarian heard no more about it that year. Migirdic mailed the document to the external auditors. He was satisfied that the existence of the guarantee would be confirmed in their eyes for at least another year since, by signing, Mr. Markarian requested no correction regarding the guarantee, contrary to what Migirdic told him, but instead confirmed its existence. The signature in fact appeared under the words: "We guarantee payment against delivery and/or delivery against payment on the above numbered account(s) at October 31, 1995". Gazarosyan's account was then $465,000 in the red.
Mr. Markarian signed where Migirdic asked him to sign and Migirdic left with the document.
Gazarosyan (at least until the present proceedings were instituted). It was Migirdic who explained to him the meaning of the letter, without reading the full text to him. It was also Migirdic who told him that the letter was an error and that he had to sign it at the bottom for the error to be corrected.
¶ 48 The second audit letter was dated October 17, 1996. When he received it, Mr. Markarian again contacted Migirdic, who was [TRANSLATION] "angry", in Mr. Markarian's own words, which Migirdic confirmed. Mr. Markarian told Migirdic that he did not understand how the error of the previous year had not yet been corrected. He was angry because he thought Migirdic had been negligent in resolving the problem. Mr. Markarian said he thought that, by speaking loudly to him, Migirdic would make more of an effort to resolve the problem.
Nothing different. I had nothing else to say. I'm not going to make up new things, that's what it is. It's a big company, it's taking too long, it's bureaucracy, it's paper work. It takes a long time to get things fixed.
¶50 Migirdic added: "We didn't go too much into detail... No specifics, no details".
I signed because Harry told me: "Sign it here; I'm going to do what's necessary to make sure it's corrected", and he left with the letter.
¶52 Migirdic testified out of court that he and Mr. Markarian read the letter together [See Note 2 below]. Mr. Markarian completely denied that. He said he just looked at the letterhead again and, as for the rest, it was Migirdic who explained the meaning.
Note 2: Examination P-106C of July 18, 2002, question 67.
he took it for granted that that's what had to be done" [See Note 3 below]. Lastly, it is incompatible with the way Migirdic generally went to the Markarians' house to have things signed (see para. 195 below). Mr. Markarian's version is therefore more in keeping with the way that Migirdic generally had the Markarians sign a document, according to Migirdic himself.
Note 3: Examination P-106-B of July 17 2002 at 75, question 359.
¶ 54 For all these reasons, the Court has no hesitation in believing the testimony of Mr. Markarian and it accepts that Mr. Markarian and Migirdic did not read the audit letter of October 17, 1996 together before it was signed.
¶ 55 What did Migirdic tell Mr. Markarian about the meaning of the letter and its implications?
Q. I'm showing you the letter dated October nineteen ninety-six (1996), which is part of D-1. I will ask you to read it. Do you remember that letter?
Q. Could you explain when you saw that letter for the first time?
have the guarantee released? A. Yes.
Q. That was a condition to obtain the release? Did you tell him that?
A. Yes. Listen, you confirm your guarantee and I'll make sure it goes away.
him was in effect but that he would have it eliminated.
CIBC thus, concluded that Migirdic clearly indicated to Mr. Markarian that a guarantee binding ¶ 58 In fact, that is not what the evidence shows.
¶ 59 First, Mr. Markarian denied he was ever told he was guaranteeing any third party whatsoever, even erroneously, and that such a guarantee had to be "revoked". He testified convincingly that Migirdic always told him that the letter was sent because of an error in the address and the name, caused by the fact that he lived on the same street as Sebuh Gazarosyan. Migirdic did not deny that was what he actually did tell Mr. Markarian after receipt of the first audit letter of October 1995. In fact, how could Mr. Markarian have known Gazarosyan's address if Migirdic did not tell him? Migirdic acknowledged that, further to receipt of the second letter the following year, he told Mr. Markarian the same thing he had told him the previous year (see para. 49 above). He acknowledged that he said the error of the previous year had not been corrected. But the error was in the address and name. Mr.
Markarian was angry because Migirdic had not done what was required to correct "the error of the previous year". All that has nothing to do with a guarantee that should have been revoked. In fact, that reason was allegedly completely new, compared with what Migirdic had said the previous year. How could he have explained the different version to Mr. Markarian? What is more, Migirdic testified that he did not give any details. It is noteworthy that the "new" version was in fact made up of the words that the Markarians' attorney put in Migirdic's mouth. The words did not originate with Migirdic, who merely repeated what he heard.
¶ 60 But there is more. The words he repeated were incomprehensible and made no sense. How could Migirdic have said in the same sentence: "You confirm your guarantee" and "I'll make sure it goes away"? CIBC's attorney himself had to acknowledge that that made no sense. Such an affirmation and the reasoning underlying it are incomprehensible. It would mean that Migirdic asked Mr. Markarian to sign so as to indicate that he wanted the guarantee revoked. But it made no sense to ask him to sign to confirm the guarantee so that it could be revoked.
Q. Did Mr. Markarian give you any reason to show that he was completely understanding the meaning and the consequences of such guarantee?
text but does not grasp the consequences and implications. It is the same as saying a person "understands" but "does not understand". That is all the more contradictory here in that, according to the evidence, Mr. Markarian knew exactly what a guarantee was. He had granted a number of them in his life, either in favour of his business or his children, and he understood perfectly the risks and consequences of a guarantee. In fact, he testified that he did. In the circumstances, he could not both understand that he was guaranteeing Gazarosyan and not understand the implications and consequences of the guarantee.
¶ 63 That passage is nonetheless interesting in that it makes it possible to return to what is essential here. Migirdic was very clear that Mr. Markarian never realized the implications or consequences of the October 1996 audit letter. In fact, he repeated that before the Court. That is in keeping with what Migirdic always affirmed, both in Court and to CIBC and the IDA investigators, namely, that Mr. Markarian never realized that he had signed a guarantee in favour of Gazarosyan. All that is irreconcilable with the fact that Mr. Markarian is said to have understood the meaning of the 1996 audit letter and that Migirdic allegedly told him he had signed a guarantee in favour of Sebuh Gazarosyan, even erroneously.
¶ 64 The Court believes Mr. Markarian. In fact, the evidence shows that Migirdic never told him that the "error" was that he was guaranteeing the debts of Sebuh Gazarosyan. He was unaware of the existence of a guarantee granted at his expense and did not realize that he was guaranteeing anything at all. He did not realize "the implications and the consequences" of the October 1996 audit letter and Migirdic in no way told him its meaning and consequences. In that regard, there is no difference between what Migirdic and Mr. Markarian said.
¶ 65 Once the "explanations" were given by Migirdic, Mr. Markarian signed the document as requested by him. Migirdic himself once again sent the letter to the external auditors, without doing anything to keep the promises made to Mr. Markarian. At the time, the Gazarosyan account was $350,000 in the red (an improvement over the previous year).
¶ 66 The third audit letter was dated October 3, 1997. Upon receiving it, Mr. Markarian was even more angry and he contacted Migirdic. He said the discussion was [TRANSLATION] "animated". Migirdic came to his house again and told him the same thing as in the previous years. Migirdic confirmed that.
¶ 67 Migirdic once again had Mr. Markarian sign "in order to get, again, released", he said. He noted that Mr. Markarian "was skeptical, but he still trusted me and he gave me the letter, he signed the letter", Migirdic added that, after the third (or perhaps the fourth) letter, he felt Mr. Markarian's skepticism because, when he went to see him from time to time, Mr. Markarian asked him such questions as "What's going on?" regarding "the error", "Who is this person Sebuh Gazarosyan?", and so on.
¶ 68 Migirdic again sent the letter to the auditors, without doing anything to "correct" the record. The status of the Gazarosyan account had seriously deteriorated by then; it was $831,000 in deficit, more than double the previous year.
¶ 69 The fourth audit letter was dated October 19, 1998. Upon receiving it, Mr. Markarian said he was [TRANSLATION] "enraged", not because he believed it was serious for him that the situation was continuing (he was unaware of that), but because the "error" had still not been corrected.
¶ 70 We know what happened next. Migirdic went to Mr. Markarian's house for his signature, and told Mr. Markarian that he would have the error corrected and his signature was required for that purpose. Then he sent the signed letter to the external auditors without doing anything else. The Gazarosyan account was $780,000 in the red at that point.
¶ 71 The same game was played after the fifth audit letter was sent, on October 20, 1999. The Gazarosyan account was then $770,000 in the red.
¶ 72 The sixth letter was sent on October 4, 2000. That time, Mr. Markarian raised his voice even more. He shouted during the discussion with Migirdic that he was tired of the situation. He added that he did not want any problems. He was also a little discouraged by the whole matter.
¶ 73 Migirdic again asked him to sign and promised it would be the last time. That was true, not because the situation was corrected but because the fraud came to light in early 2001 and no other audit letter was sent. In October 2000, the Gazarosyan account was $968,000 in the red.
¶ 74 As for the guarantee linked to Rita Luthi's account, there were never any audit letters. The Bank's external auditors never contacted the Markarians and never sent them any document.
¶ 75 Rather, it was Tom Noonan, Migirdic's immediate superior and the branch manager, who wrote to the Markarians on April 25, 2000 and sent them a request for confirmation of their guarantee in order to "ensure" that they were aware they were guaranteeing Rita Luthi's account. No other letter was sent from 1993 until the fraud became apparent.
¶ 76 Noonan was pressured to act by CIBC's Compliance Department, which was concerned by the incongruous nature of the guarantee given in favour of the Luthi account and the fact that nothing established that the Markarians were indeed aware of the guarantee. The Compliance Department therefore wrote to Noonan to ask him to "communicate" with the Markarians to ensure that they understood the extent of the guarantee and that that information was duly reflected in the records. That intervention came in the wake of a whole series of unsuccessful requests by the Compliance Department that the monthly statements for Rita Luthi's account be sent to the Markarians and a whole series of questions about the guarantee and the relationship between Mrs. Luthi and the Markarians.
In our ongoing monitoring of service quality, we conduct regular reviews of client accounts. In your case, we note that your account guarantees that of Mrs. Rita Luthi. We wish to assure ourselves that you are aware that your significant assets are being used to cover the liability of the account that you guarantee.
In this regard, we would appreciate it if you could sign the enclosed letter of acknowledgement to this effect, and return it for our files.
Please call me or your Financial consultant, Harry Migirdic, if you have any questions in this regard.
I acknowledge that I am fully aware that my account 500-01327 guarantees the liability in the account of Rita Luthi 500-01193.
The letter was given to... Migirdic, who brought it himself to the Markarians for their signature!
the Markarians' home, as he had always done each time he had something they had to sign. Mr. Markarian had no recollection of the confirmation letter, but he recalled the audit letters he received by mail. Moreover, everyone confirmed that Mr. Markarian did not contact Migirdic after receipt of the letter, to find out what it meant. If the letter had arrived by mail, that is what he would have done, as he did for the audit letters. Migirdic also testified concerning the reasons he probably gave the Markarians for obtaining their signatures. How could he have given them reasons if he was not present when the confirmation letter Was signed? It should be added that, before the Court, Migirdic clearly acknowledged that he himself brought Noonan's confirmation letter to the Markarians and he was present when they signed it. He acknowledged that his statements on the subject during the out-of-court examination were not accurate and that he now remembered very clearly the way things occurred.
Note 4: Examination P-106B of July 17, 2002, question 471, and examination P-106C of July 18, 2002, questions 2 and 3.
Note 5: Ibid., question 470.
¶ 81 For all these reasons, the Court finds that evidence was clearly adduced that it was indeed Migirdic himself who brought the Markarians the letter from Noonan, who "explained" it to them and who had them sign it. He was also the one who brought it back to Noonan.
¶ 82 The Markarians had no recollection of having signed that letter, although they acknowledged that their signatures do indeed appear on it. They have no recollection of having ever seen it.
¶ 83 Migirdic is also not certain about the way the letter was signed. Furthermore, there are certain differences in that regard between what he said before the Court at the hearing, what he said in his out-of-court examination and what he told IDA investigator Rondeau, according to what was reported in the IDA's decision.
¶ 84 Migirdic testified before the court that, to obtain the Markarians' signature on the letter prepared by Noonan, he probably told them that a guarantee had been provided in error and that the misunderstanding would soon be corrected (perhaps the reason for the confusion over the explanations given about the audit letters). That is consistent with what he told IDA investigator Rondeau, according to the IDA's decision [See Note 6 below]. So he told the Markarians that he needed their signatures in order to correct the error. Migirdic testified that, although he provided certain explanations, they were actually [TRANSLATION] "not really needed since they trusted [him]". He added that, in fact, they believed what he said. At most, Mr. Markarian asked him: [TRANSLATION] "When will all this be over?".
Note 6: P-96 at 17, para 54.
You are being sued for Fraud. You are the defendants.
2. (b) in making the representation, the person or company specifies the person or company’s category of registration under this Act and the regulations.
Reading the Alberta Act, it would appear that for a person to hold themselves out to be an "advisor", which has "no specific meaning in Alberta securities law", and is a generic term…….
For a person to do this would be to knowingly violate the letter or the spirit of the Act. Further that to do so, if they were actually registered as a "dealing representative", (which is the category which was called "salesperson" prior to 2009) would also be a violation of the letter or the spirit of the Act.
Finally, it would appear to be a marketing attempt to portray oneself as having the professional license qualifications of an "adviser" (otherwise known under the Act as "advising representative), whilst having no such license nor registration, nor qualifications.
It strikes me that it may just be violating either the letter, or the spirit of ALL THREE provisions of section 100 of this Act.
Would you agree with any of this in general terms?
Thank you for contacting the Alberta Securities Commission (ASC)..
Any person who acts as an adviser and is not registered as an adviser under the Securities Act (Alberta) has violated Alberta securities laws (see. section 75 of the Securities Act (Alberta)). The word "adviser" is a defined term in the Securities Act (Alberta) meaning "a person or company engaging or holding itself out as engaging in the business of advising in securities or derivatives."
Regardless of what title a person attaches to himself or herself, we strongly encourage all investors to check if the person or firm from whom they are obtaining investment advice is registered with a securities regulator, a simple step which can be completed via the following website: http://www.securities-administrators.ca ... px?id=1128.
I write to seek clarification on a question of “spelling style” or legality, whichever may apply, to the use of the words “advisor” and “adviser” by persons under the jurisdiction of the ASC.
Both these words are found commonly in use as a business title, or an implied license and registration category by persons registered under the Alberta Securities Act.
Am I to understand, as some have suggested, that “advisor” is a “non-regulated title”, as it is not found in the statutes of the Alberta Securities Act?
Or is it merely a spelling variation of the word which is found in the act, namely “adviser”?
It is ultimately confusing for consumers, and may make quite a difference based on the actual registration held by the person using the word or title, and also to the legal duty of care either implied or required, depending upon which meaning or spelling is used.
Can I ask a member of your legal department at the ASC to provide clarity on these 2 questions?
Thank you in advance for any help or clarification that you may be able to provide.
Thank you for contacting the Alberta Securities Commission (ASC).
I can tell you that “adviser” is a defined term in the Alberta Securities Act (ASA) meaning “a person or company engaging or holding itself out as engaging in the business of advising in securities or exchange contracts.” Pursuant to section 7.2 (1) of NI-103, there are two categories of registration for a firm that is required to be registered as an adviser: (1) portfolio manager; (2) restricted portfolio manager.
Individuals who conduct registerable activities for a firm registered as a “portfolio manager” or “restricted portfolio manager” must be registered as an “advising representative” or an “associate advising representative” pursuant to section 2.1(1) of NI 31-103.
An “advisor” is a generic term with no specific meaning in Alberta securities law.
As always we encourage the public to check with the CSA to determine the registration status of their adviser.
Thank you for your inquiry to the Ontario Securities Commission (OSC) concerning the use of the term "advisor" or "adviser".
I believe you asked this question in March 2014. I have reproduced below my response to your correspondence last year, and would add that, since the first website link given in the response is no longer available, you may wish instead to review the information on the OSC's "check registration" page at this link: http://www.osc.gov.on.ca/en/Investors_cbyi_index.htm . Please also note that OSC staff may not provide legal advice or interpret the law on your behalf.
"Thank you for your inquiry to the Ontario Securities Commission (OSC) concerning checking registration for your adviser.
When you refer to "check your adviser" day on March 19, 2014, I believe you are referring to "Check Registration Day". Here is the link to information about this day on the OSC's website: http://www.osc.gov.on.ca/en/NewsEvents_nr_20140318_csa-announce-march19-is-check-reg-day.htm .
"Adviser" is a legal term under securities law that describes a company or individual who is registered to give advice about securities. "Advisor" is not a legal term under securities law.
Investors often refer to the person or firm who provides an investing service to them as their "adviser" or "broker", and this is a common term used in a generic, not legal way. Business titles, designations for courses completed, and professional memberships may be informative, but the important facts for any investor are to know what the person's registration is, what products they are permitted to trade or advise about, and the services they are allowed to provide. It is important to check with the relevant provincial securities regulator to ensure that the individual and company you are dealing with is registered to trade or advise in securities, if that is part of what they are doing.
This link: https://www.securities-administrators.ca/investortools.aspx?id=1128#tools on the Canadian Securities Administrator's (CSA) website provides information about checking registration. You may also find this link to Understanding Registration useful, as it describes the different categories of registration and what they mean: https://www.securities-administrators.c ... ion_EN.pdf .
Since securities law is regulated provincially, if you have specific questions about a company or individual through which you are considering investing, you may wish to check with the securities regulator in your jurisdiction for more information."
Under the BC Securities Act, if a person is engaging in, or is holding themselves out as engaging in, the business of advising another person with respect to the purchase or sale of securities then that person must be appropriately registered or exempt from registration. This is the case regardless of how that person spells ‘adviser/advisor’ in their title. For more detail, please see section 34 of the BC Securities Act (“Persons who must be registered”), the definition of “adviser” at subsection 1(1) of the Act, as well as section 1.3 of Companion Policy 31-103CP (https://www.bcsc.bc.ca/Securities_Law/P ... y_5__2015/).
COMING SOON TO A COURTROOM NEAR YOU!!
When this non-regulated title (advisor) is thrown about by financial professionals, with the strong implication that there is a professional license and duty of care behind the term, and also combined with the common industry-ruse of changing the spelling of the professional "adviser" license by ONE VOWEL (to "advisor) in order to feel justified in skirting the provisions of the laws they strongly imply to follow.
An interesting short read of snippets from a case where the victims stand up to this deception and demand to get their money back. I have seen a few such cases in the past year or two, and I have not yet seen one fail when they apply some of the principles found herein.
I enclose this selection of quotes from a statement of claim filed recently, as partial substitute until I get the actual filed and court stamped case in my hands. It is or paramount importance to all North Americans, as I do not know of more than a few people (I have been in and around the industry for decades) for whom this same statement of claim (of industry deception) would not apply. The deceptions, illusions, misrepresentations are not something that the major newspapers of my country can even risk talking about…..it would be so "un-Canadian" to speak ill of our most trusted financial institutions. It might also threaten tens or hundreds of millions of advertising dollars, and we cannot have that….
This is one client (I know of others) who has lost everything at the hands of the professionals who deceive to derive triple profits. The others I am aware of have already gotten their money back in quiet (gagged) settlements with the bank or financial services institution involved. You will never read of those in any newspaper. Thus, I feel that the selections found herein are quite rare reading, and I hope they will cause Canadians as well as my American friends and neighbours to take positive steps to make themselves aware of "professional abuse BY financial professionals". You are already a victim.
Enclosed some snippets of civil claims either won, filed or contemplated, against banks and investment dealers who use word-magic, illusion and deception to dupe the public, and then take advantage of what the public does not know about the relationship.
It was expressed and implied in three (3) NAME REMOVED identified documents that the Plaintiff met with NAME REMOVED Inc. who signed himself off as a “financial advisor”.
It was later revealed the Plaintiff had met with NAME REMOVED who concealed from the Plaintiff that he was registered in the capacity of “Sales Person” of mutual funds with NAME REMOVED INC and not in the category he claimed to represent. Documentary evidence shows that NAME REMOVED represented himself on a NAME REMOVED Internal Transfer Form confirmed and sworn by him in discoveries and at trial as a “Financial Adviser”.
In the result of NAME REMOVED falsified representations and qualifications…..
The Defendants named in this action were the registrants and responsible for registering NAME REMOVED in the (footnote 2) Canadian Securities Administrators, National Registration. In the result, the defendant’s knew or ought to have known that NAME REMOVED representations of his employment were substantially wrong but took no steps to inform the Plaintiff or the Court and hid this important fact in a fraudulent way.
That instead, he was registered as being employed by the separate corporate entity of NAME REMOVED INC. Recorded in the Alberta Securities Commission (ASC) as a company registered as a mutual fund dealer only, during the relevant period of DATE REMOVED. In which the mutual fund license code # REMOVEDwas allocated to NAME REMOVED and admitted to be true by him.
And, that NAME REMOVED was never a registered “Financial Adviser” at any time, but was registered at the Canadian Securities Administrators, (CSA), the National Registration body, as a “Sales Person” from 2003 until 2005 with NAME REMOVED INC. (Footnote 3)Mutual Fund Sales Representative are only licensed to advise on and sell mutual fund investment products.
It is an established fact in Supreme Court of Canada binding case law [Parna v. G. & S. Properties Ltd.,  SCR 306, 1970 CanLII 25 (SCC) p.316] that; “Fraud is a false representation of fact, made with a knowledge of its falsehood, or recklessly, without belief in its truth, with the intention that it should be acted upon by the complaining party, and actually inducing him to act upon it”.
The Plaintiff was induced to act upon it and placed complete trust and reliance on the promised and implied service of a NAME REMOVED of a “Financial Adviser” in the opening of a NAME REMOVED. And, at NO TIME was it ever disclosed to the Plaintiff that the agent he dealt with NAME REMOVED was registered as a “Sales Person” of mutual funds only and as a consequence, did not have the necessary skills.
To repeat, NAME REMOVED was NOT a duly registered “financial advisor” for NAME REMOVED or NAME REMOVED as represented and sworn by him. Instead was duly employed with the “separate corporate entity” of NAME REMOVED INC. Specifically registered as a seller of mutual funds only and is a member of the Mutual Fund Dealers Association of Canada [MFDA].
This fraudulent misrepresentation was the original, root cause to the losses & damages and a fact of evidence that only the Defendant could know was hidden from the Plaintiff. The Plaintiff was advised by way of the NAME REMOVED Registered Plans Internal Transfer Form that he was dealing with a NAME REMOVED “Financial Adviser”, trusting that NAME REMOVED had the required expertise to what he claimed.
As a result, the acts of misrepresentations, the falsification of NAME REMOVED status of employment as to which NAME REMOVED corporate entity was his registered employer. Was the cause and effect to the wrongful “governance” of the Plaintiff’s Alberta legislated Locked in Retirement Account (LIRA), thereby incurring irreparable damages to the Plaintiff’s retirement plans?
All subsequent harmful consequences to befall the financial affairs and undue stress of the plaintiff were thus, the result of the plaintiff following the implied professional advice of an employee who at no time carried the proper registration or professional skills purported and claimed in writing by the defendants.
Effectively the plaintiff relied on those fraudulent misrepresentations and all actions of dishonesty and bad faith. The original fraudulent misrepresentations exponentially corrupted, disrupted and dislodged all actions and wrongful advice that followed.
Due to NAME REMOVED not having the expected and represented expertise of a NAME REMOVED Financial Adviser and his personal incompetence….
But for the Plaintiff not knowing and could not know that he was dealing with a mutual fund Sales Person and not a NAME REMOVED “financial adviser” who proved to be incompetent….
It is a fact that the Plaintiff was a victim of the Defendants acts of; non-compliance to the Canadian Securities Administrators Registration, Alberta Securities Commission [ASC], Alberta Pension legislation, Pension Benefit Standards Act [PBSA], IIROC (formerly IDA) Self-Regulatory Organization Rules, Income Tax Act and TD Code of Conduct and Ethics. All of which proved the defendants unprincipled indifference for legislation, financial industry SRO rules and guidelines.
But for the Defendants named in this action breaking the law by their false representation that the Plaintiff was dealing with a properly qualified NAME REMOVED Adviser, the Plaintiff would not have entrusted his life savings held in his account to them. Nor would he have moved forward with NAME REMOVED advised retirement plans and all other decisions that caused him irreversible losses and damages that severely changed his position and ruined 10 years of the Plaintiff’s life.
The Plaintiff states that the acts of fraudulent misrepresentations were contrary to the (footnote 5) Defendant’s own published ethical standards!
All essential elements of a crime!
Investment Advisor Bait and Switch, GET YOUR MONEY BACK! Video related to the concepts behind this case.
Toronto- Dominion won this case based on "fraudulent misrepresentation"
Here was the case law that cinched the decision in TD's favour: Are you ready for this?
that he was a student by wearing a student’s gown despite not being a student.
Anyone can go to a courthouse and ask a Justice of the Peace (JP) to lay criminal charges – this is also known as commencing a 'public prosecution'. Section 504 of the Criminal Code of Canada states that "Any one who, on reasonable grounds, believes that a person has committed an indictable offence may lay an information in writing and under oath before a justice".
This means that you can allege that a named person ("the accused") has committed an indictable offence within the territorial jurisdiction of the court and the JP is required to receive the information and then refer it to a court hearing where a judge or another JP will then decide whether to issue a summons to the accused.
This process is not an easy one. You need to have detailed information about the alleged offence and be able to convince the court that you will be able to produce evidence (including the names of witnesses) if the prosecution goes ahead. You will also likely be asked to prove that you have already asked the police to investigate the incident and what the results of that investigation were. Most importantly, even if the prosecution does go forward, the Crown Attorney/prosecutor can 'intervene' in the case and either take it on or withdraw the charges.
Generally, allegations of criminal activity are reported to the police. After the police investigate, they may lay criminal charges. However, anyone who has reasonable grounds to believe that a person has committed an offence may lay an information in writing and under oath before a Justice of the Peace.
When the information is presented to the court by a private citizen, it is then referred to either a provincial court judge or a designated justice of the peace, who holds a special hearing. The purpose of the hearing is to determine whether a summons or warrant should be issued to compel the person to attend court and answer to the charge.
This hearing, held under s. 507.1 of the Criminal Code, takes place in private, without notice to the accused person. At the hearing, the judge or justice of the peace must hear and consider all of the allegations and available evidence.
The Crown must also receive a copy of the information, get notice of the hearing, and have an opportunity to attend. The Crown may attend at the hearing without being deemed to intervene in the proceedings.
If the judge or justice of the peace decides not to issue a summons or a warrant, then the information is deemed never to have been laid.
If the judge or justice of the peace issues a summons, the person will be served with a copy of the summons, which notifies them of the charge and compels them to attend court. If the judge or justice of the peace issues a warrant, the person will be arrested and brought before a justice.
To avoid any abuse of the private prosecution process, the Criminal Code and the Crown Attorneys Act authorize Crown Counsel to supervise privately laid charges to ensure that such prosecutions are in the best interest of the administration of justice. If a summons or warrant is issued and the case involves an indictable offence, the Crown is required to take over the prosecution. So, a private citizen's right to swear an information is always subject to the Crown's right to intervene and take over the prosecution.
If the Crown intervenes, the Crown will review the matter, as it does in every other criminal case, to determine whether there is a reasonable prospect of conviction and whether a prosecution is in the public interest. If so, the Crown will proceed with the prosecution. If not, the Crown is duty-bound to withdraw the charge.
TD does not come out looking good when this elderly investment victim files court application alleging fraudulent misrepresentation. The posing of persons licensed as "salesperson", posing these persons to vulnerable investors as Financial "advisor" or "adviser" is not exactly keeping with the "fair, honest and good faith" requirements of the industry.
Honesty isn’t just the best policy — it’s the law, the Supreme Court of Canada has ruled.
In a case released Thursday called Bhasin v. Hrynew, the court said Canadian contract law comes with a duty of good faith that requires parties to perform their contractual obligations honestly.
“Finding that there is a duty to perform contracts honestly will make the law more certain, more just and more in tune with reasonable commercial expectations,” wrote Mr. Justice Thomas Cromwell wrote in the unanimous seven-judge decision.
Commercial lawyers have been following the case closely. Some specific areas of law, such as employment and insurance, come with implied terms of good faith. The question was whether the court might apply the doctrine of good faith to all deals made in Canada.
Mr. Bhasin, the plaintiff, had a business that sold RESPs. He struck a deal to sell his customers RESP products provided by the defendant. The contract automatically renewed every three years. Either party had a non-renewal right on six months’ notice. The written agreement did not require the company to provide a reason for ending the deal.
Mr. Bhasin argued that the contract was terminated in bad faith. He won a judgment in an Alberta trial court, but that decision was overturned by the Alberta Court of Appeal. The provincial appellate court found that the trial court had erred by implying a term of good faith in a deal that contained a clear, unambiguous termination clause.
The Alberta appellate ruling was appealed to the Supreme Court of Canada, which heard the case last February.
Justice Cromwell said the respondent RESP company, which was formerly known as Canadian American Financial Corp. (Canada) Ltd., misled Mr. Bhasin about the circumstances involving the termination of the agreement in May 2001. The judge awarded him damages of $87,000 plus interest.
Eli Lederman of Lenczner Slaght Royce Smith Griffin LLP, counsel for the defendants, said the case fills a gap in Canadian law by creating a general organized principle that parties are to act honestly in the performance of all contractual obligations. Yet that does raise questions, he said.
Strathy C.J.O., Feldman and Lauwers JJ.A.
Armando Cassin and E3M Investments Inc.
On appeal from the judgment of Justice Sarah Pepall of the Superior Court of Justice, dated April 17, 2013, with reasons reported at 2013 ONSC 2279.
 The trial judge awarded damages to the respondents for their losses arising out of unauthorized investment trading by the appellants. The appellants argue that the action was barred by the limitation period under s. 5(1) of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. They abandoned their argument that the trial judge erred in her determination of causation. The respondents cross-appeal and seek to recover their payment of taxes on capital gains they incurred through the unauthorized investments. For the reasons that follow, we dismiss the appeal and allow the cross-appeal.
 The appellants concede that in the course of the trial judge’s extensive reasons she analyzed the subjective element of discoverability under s. 5(1) (a) of the Limitations Act, 2002. Counsel argues, however, that she did not advert to the objective element of the test under s. 5(1) (b).
262 I have found that the Plaintiffs were not familiar with the significant components of their NCAFs when their accounts were opened. Furthermore, they were far from sophisticated. While it is the case that the Plaintiffs received trading slips and monthly account statements from e3m, they had no idea that Mr. Cassin was not entitled to do much of what he did including trading without instructions, completing the NCAFs without meaningful input from the Plaintiffs, investing in unsuitable securities for them, adopting ridiculous risk factors relative to their individual profiles and engaging in other negligent conduct. The Plaintiffs did not know, nor could they have known, that the Defendants had failed to comply with securities regulations and standards. The Plaintiffs thought their losses had arisen solely because of a fallen market, not because they had a wayward RR and an investment dealer that had abdicated its responsibilities. Mr. Ridel knew that losses had occurred but did not know that the Defendants had caused or contributed to them. This is consistent with the absence of any complaints from the Plaintiffs.
263 The Plaintiffs did not have the requisite knowledge contemplated by section 5(1) (a) until Mr. Sandler informed them of the improper handling of their accounts.
264 Furthermore, in my view, a reasonable person with the abilities and in the circumstances of the Plaintiffs ought not to have known of the matters described in s. 5(1) (a) of the Limitations Act, 2002, in the years 1999 and 2000 and following. Their claims are not barred by any limitation period.
 In our view, by using the very language of s. 5(1)(b) in the final quoted paragraph, the trial judge shows that she applied the correct test, which has been described as a “modified objective test”: Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851, 113 O.R. (3d) 401, at para. 70. Her determination is entitled to deference.
 The appellant argued that Mr. Ridel’s conversation with Mr. Cassin in July 2004 showed that he had an understanding of his investments; since he had the ability in July 2004 to make that inquiry with due diligence there is no basis for the argument that discoverability principles could justify a delay of two years before he asked a new adviser to look into his losses.
 We reject that submission. The trial judge was clearly aware of that conversation, in which no wrongdoing was disclosed or discussed, and took it into account in reaching her conclusion that a reasonable person with Mr. Ridel’s knowledge and abilities would not with due diligence have discovered the appellant’s wrongdoing any sooner.
This claim was not asserted until the Statement of Claim was amended on August 18, 2009, well after the Plaintiffs had obtained professional advice on the handling of their accounts and their financial losses. The claim for taxes is barred by the two year limitation period.
 The evidence amply bears out the accuracy of this statement, as set out in the trial judge’s reasons. In our view, this was not the assertion of a new cause of action, which would have been barred by the Limitations Act, 2002, but was simply a claim for additional damages arising from an existing cause of action: Bazkur v. Coore, 2012 ONSC 3468; Ivany v. Financiere Telco Inc., 2011 ONSC 2785, at paras. 26-33. The tax liability arose out of the wrongful and unauthorized trading activity of the appellants: Hunt v. TD Securities (2003), 66 O.R. (3d) 481, at para. 193. It was a dead loss to the respondents that is simply to be added to the loss of their investment money.
 The respondents are entitled to the amount claimed on the cross-appeal together with pre-judgment interest from February 9, 2010, which is the date on which the taxes were paid.
 Costs are fixed in the agreed amount of $25,000, payable to the respondents.
If you have reasonable grounds to believe an offence has been committed contrary to a provincial or federal statute [e.g.. Criminal Code of Canada], a regulation made under that statute, or a municipal bylaw, you may prosecute the offender yourself. Before launching a private prosecution, you may want to make a complaint to the police. If the police refuse to lay charges and you believe there is enough evidence of an offence to support a conviction, you may lay your own charges.
This is the story of the First Leaside Group, a residential real estate investment firm located in Uxbridge, Ont. It is not a happy story – a lot of people lost a lot of money, and the Ontario Securities Commission alleges (and the Investment Industry Regulatory Organization of Canada has already found) that this happened because First Leaside’s founder David Charles Phillips and one of its salesmen, John Russell Wilson, were unscrupulous in their business practices.
But it’s also a story about some weird legal wrangling that puts an amusing spin on an otherwise unfortunate situation, and maybe teaches us a little bit about Ontario’s unique securities regulation regime.
The easiest place to begin is in the fall of 2011 when First Leaside raised $18.6-million from investors over a two-month period. Trouble was, when raising this capital, the OSC alleges that First Leaside failed to inform investors of the contents of an OSC-requested viability study of First Leaside by the accounting firm Grant Thornton Ltd.
The study did not suggest that First Leaside was particularly viable. It suggested that First Leaside would be in some trouble if it were unable to raise new capital. Mr. Phillips and Mr. Wilson went about raising such capital. Unfortunately, according to the OSC, they failed to inform investors of the contents of the report.
After soliciting investors for about two months, a First Leaside subsidiary was placed on an IIROC early warning list, and First Leaside agreed to a voluntary cease trade order with the OSC. Unable to raise further capital due to the cease trade order, First Leaside was forced to stop distributions to investors. First Leaside then filed for creditor protection and was subject to a wind-up proceeding that left investors with a small fraction of the $300-million or so they were owed by First Leaside. This led to an OSC fraud proceeding that has yet to be decided and, more interestingly, a lawsuit by First Leaside investors against the OSC.
In some sense, the investor lawsuit was inevitable. Investors were left in the lurch when a court turned over First Leaside’s shells and found many fewer peas than investors initially put in. To be made whole, they needed to find someone culpable who could actually satisfy their debts. So, in January of this year, the investors that bought First Leaside securities during the fall of 2011 forwarded an interesting theory, alleging in a civil lawsuit that because the OSC knew about the Grant Thornton report the OSC is responsible for their losses.
This theory has the advantage of potentially allowing the investors to recover from a solvent entity as opposed to a hollow corporate shell. Deep pockets are important in litigation, and few have deeper pockets than the OSC. As I’m sure you’ve guessed by this point, it also has the disadvantage of being a long shot. The Securities Act gives broad protection to the good-faith actions or inactions of the OSC – it avoids punishing the regulator unless its actions were more than incompetent.
This brings us to a few weeks ago, where Mr. Phillips’ and Mr. Wilson’s lawyers appealed to the OSC for a stay in the commission proceedings until the civil lawsuit with investors is resolved. Their theory is that there is an incentive for the OSC, during the commission proceedings, to rule against First Leaside in order to cover its own hindquarters. Mr. Phillips and Mr. Wilson claim that this creates the appearance of a conflict of interest on the part of the OSC.
This is a creative idea. The courts will decide whether the responsibility for the transmogrification of nearly $300-million of investor funds into a revenue wasteland in desperate need of a new capital injection lies with management or the OSC. Regardless, it takes quite the set of legal cojones to use a long-shot investor lawsuit against the OSC as an argument that a decision in your related OSC fraud proceeding be stayed due to a conflict of interest.
Of course, the mere possibility of this motion is caused by the unique structure of the OSC. What we call the Ontario Securities Commission is really a lot of things – it is policy development, it is a regulatory compliance team, it is a litigation law firm and it is a quasi-judicial tribunal, each one located on a different floor, or different half-floor, of the office building located at 20 Queen St. West in Toronto.
By virtue of this, almost everything the OSC does looks, on some level, like it could be a conflict of interest. Every OSC proceeding features OSC staff prosecuting a claim against a defendant to a tribunal of OSC employees. Even if the civil lawsuit against the OSC resulted in a verdict that the OSC was at fault in not shutting down First Leaside earlier, it’s hard to understand how that verdict affects the optics of the tribunal’s judgment, since the tribunal is always put in the position of having to render a verdict on the work of another branch of the OSC.
This is the upshot of our securities regulatory system – one body is tasked with multiple roles. If the system is working properly, each branch of the OSC executes its functions independently and without influence from the other branches. The fact that the branches are all located in one building is irrelevant to the independence of the regulator.
Maybe First Leaside thought it could apply this same logic to the OSC. But this logic arguably misunderstands what the OSC is.
Advocate comment: visit http://www.albertainvestorsprotection.com and http://www.albertafraud.com/albertafrau ... lcome.html for info of victims of financial abuse BY financial professionals, with many victims (thousands) concluding that the securities commissions are willfully blind to abuse by professionals and may in fact act more like handmaidens to same due to regulatory capture. Draft statement of claim found on the AlbertaFraud website outlines only a portion of examples of these acts.
The test for fraud under the various securities acts was set out in the British Columbia Court of Appeal’s decision in Anderson v. British Columbia (Securities Commission)4.
That case determined that fraud in the regulatory context requires proof of both the actus reus (the wrongful act or omission) as well as mens rea (mental element). In its reasons, the Court held that fraud under securities acts must meet the legal test for fraud set out under the Criminal Code and considered by the Supreme Court in R. v. Théroux5.
2. deprivation caused by the prohibited act, which may consist in actual loss or the placing of the victim’s pecuniary interests at risk.
The Court stated in Anderson that fraud in the regulatory context requires “evidence that is clear and convincing proof of the elements of fraud, including the mental element”.
361.1 (1) A false pretense is a representation of a matter of fact either present or past, made by words or otherwise, that is known by the person who makes it to be false and that it is made with fraudulent intent to induce the person to whom it is made to act on it.
(2) Exaggerated commendation or depreciation of the quality of anything is not a false pretence unless it is carried to such an extent that it amounts to a fraudulent misrepresentation of fact.
(c) knowingly makes or causes to be made, directly or indirectly, a false statement in writing with intent that it should be relied on, with respect to the financial condition or means or ability to pay of himself or herself or any person or organization that he or she is interested in or that he or she acts for, for the purpose of procuring, in any form whatever, whether for his or her benefit or the benefit of that person or organization.
Obtaining credit by fraud or false pretense [subsec. (1)(b)] … Furthermore, there is a presumption that where money was obtained by a false pretense, prima facie , there is an intent to defraud.
is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years. R.S., C-34, s. 321.
FORGERY / Making false document / When forgery complete / Forgery complete though document incomplete.
(4) Forgery is complete notwithstanding that the false document is incomplete or does not purport to be a document that is binding in law, if it is such as to indicate that it was intended to be acted on as genuine. R.S., c. C-34, s. 324.
374. Drawing document without authority.
375. Obtaining by forged document.
This section describes the offense of forgery. Every person who makes a false document, knowing it to be false, with the intent that it should be used as genuine to the prejudice of another person, or that another person should be induced, believing the document to be genuine, to do or refrain from doing anything, commits the offence of forgery.
(b) is guilty of an offence punishable on summary conviction. R.S.C., c. C-34, 325; 1994. C. 44, s. 24; 1997, c. 18, s. 24.
This section describes the offence of uttering a forged document. Any person who, with knowledge that a document is forged, uses or acts upon it as though it were genuine is guilty of the offence of uttering. … that an intention to defraud is not an element of the offence under this section. Rather, the intent required is the intent to deceive, such an interpretation is consistent with the forgery offense defined by s. 366(1)(b) which as well does not require proof of an intent to defraud.
Drawing Document Without Authority Etc.
is guilty of an indictable offence and liable to imprisonment for a term not exceeding fourteen years. R.S., c. C-34, s. 332.
This section describes the offence of drawing or using a document without authority. Anyone who makes, executes, draws, signs, accepts or endorses a document in the name of or on behalf of another person without lawful authority and with an intention to defraud, or who knowingly makes use of, or utters such a document, commits an indictable offence. The maximum term of punishment is 14 years’ imprisonment.
375. Everyone who demands, receives or obtains anything, or causes or procures anything to be delivered or paid to any person under, on, or by virtue of any instrument issued under the authority of law, knowing that it is based on a forged document, is guilty of an indictable offence and liable to imprisonment for a term not exceeding fourteen years. R.S., c. C-34, s. 333.
Sections 487.012 to 487.017 provide procedures for the making of production orders that would require persons to produce documents, data or information to police officers or public officers designated in the order.
(1.1) The endorsement may be made on the original of the warrant or on a copy of the warrant that is transmitted by any means of telecommunication and, once endorsed, the warrant has the same force in the other province as though it had originally been issued there.
1993, c. 40, s. 15; 1995, c. 27, s. 1; 2000, c. 10, s. 13; 2007, c. 22, s. 7; 2008, c. 18, s. 12.
Meaning of “Other Fraudulent Means” Generally: … Other fraudulent means includes mere omission where, through silence, an individual hides from the other person a fundamental and essential information. The silence or omission must be such that it would mislead a reasonable person. R.v. Emond (1997), 117 C.C.C. (3d) 275 (Que. C.A.) leave to appeal to S.C.C. refused 117 C.C.C. (3d) vi.
… The dishonesty lies in the wrongful use of something in which another person has an interest, in such a manner that this other’s interest is extinguished or put at risk. The use is wrongful in this sense if it constitutes conduct which reasonable decent persons would consider dishonest and unscrupulous. R. v. Zlatic  2 S.C.R. 29, 79 C.C.C. (3d) 466.
Mens rea – The mens rea of fraud is established by proof of subjective knowledge of the prohibited act, and subjective knowledge of the act could have as a consequence deprivation, in the sense of causing another to lose their pecuniary interest in certain property or in placing that interest at risk. There is no requirement that the accused subjectively appreciate the dishonesty of his acts: R. v. Théroux,  2 S.C. R. 5, 79 C.C.C. (3d) 449; R. v Zlatic, supra.

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