Firm Refusals

12/01/2020

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Becksley Capital Inc. (Becksley) to compensate an investor $33,055 for losses caused by the firm’s sale of unsuitable investments.

Becksley is an exempt market dealer based in Richmond Hill, Ontario.

At the time of the investment, Mr. J was a 37-year old skilled tradesman with a high school education. Mr. J had an income of $69,000 and a net worth of less than $100,000.

On the advice of an agent of Becksley Capital, Mr. J borrowed $60,000 on a line of credit to invest in an exempt market product. Exempt market products are private investments that can only legally be sold to investors who meet certain income and net worth requirements.

The Becksley agent was a financial planner and a family friend of Mr. J’s who was not licensed to sell this kind of investment. He wasn’t an employee of Becksley but worked as a referral agent. He helped Mr. J complete false documentation about Mr. J’s assets so he would appear to be a high net worth “accredited” investor.  

Becksley Capital received Mr. J’s forms from the referral agent, opened his account and sold him the exempt market investment without taking any steps to verify that the information about him was accurate or know anything else about him. Exempt market dealers are required to take steps to “know their client” before selling investments to them and are not allowed to delegate that obligation to any unlicensed individuals.

The income and wealth requirements for investors in exempt market or “private” investments are in place to ensure that investors are:

• sophisticated enough to understand the investment and its risks, and
• financially able to withstand the potential loss of all the money they invest.

Through our investigation, OBSI found that Mr. J did not qualify as an accredited investor and that exempt market products were unsuitable for him. We determined that Becksley Capital had improperly delegated its know-your-client and suitability obligations to an unlicensed referral agent and failed to verify that Mr. J was an accredited investor.

We also found that Mr. J had some responsibility for his losses because he had the capacity to understand the risks of the investment which were disclosed to him and signed documents that he knew or should have known contained false information.

As a result, we recommended that Becksley Capital and Mr. J both shared responsibility for Mr. J’s financial losses, which is reflected in the recommendation amount.

A copy of OBSI's investigation report for Mr. J's complaint is available here. Some names and personal information have been edited to protect the identity of certain individuals involved, including the complainant.

All investment firms in Canada are required to make OBSI services available to their clients. Following the investigation of a complaint, OBSI may make a recommendation for compensation where it would be fair to do so, considering all the facts and circumstances of the case. If a firm refuses to follow a recommendation, OBSI is required to publicize that refusal and the details of the complaint.

08/27/2020

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of WealthTerra Capital Management (WealthTerra) to compensate an investor $50,810 for losses caused by WealthTerra’s sale of unsuitable investments in high-risk exempt market securities.

WealthTerra is an exempt market dealer based in Alberta.

In 2011, Ms. X was recently divorced and living full-time with her two young children. She was self-employed and offered services such as house cleaning and pet sitting for clients. She earned an annual income of approximately $20,000 and was living with her mother as she could not afford to live on her own.

Ms. X had a Locked-In Retirement Account (LIRA) worth approximately $46,000 that held pension money she received in the early 2000s from a former employer. Her only other asset was $12,000 in emergency savings, making her total net worth $58,000.

A mother at the school Ms. X’s children attended was an insurance agent who introduced Ms. X to her boss and a WealthTerra representative to discuss insurance and investment options. The WealthTerra representative recommended Ms. X transfer her LIRA to WealthTerra and invest in exempt market securities.

In 2017, Ms. X became aware of problems with one of these investments, which led her to ask another firm to review her investments. She subsequently complained to WealthTerra that her investments were not suitable for her.

WealthTerra refused to compensate Ms. X because it said the investments were suitable for her and because she had not questioned the suitability earlier.

Following OBSI’s investigation, we found that Ms. X had limited investment knowledge and experience and that her account was unsuitably invested in high-risk exempt market securities that exceeded her low to medium risk tolerance. We also found that prior to 2017, Ms. X’s account statements did not reflect any investment losses or other red flags that would reasonably have led her to question the suitability of her investments.

As a result of being unsuitably invested, Ms. X incurred financial harm. We recommended that WealthTerra compensate her $50,810. To ensure no possibility of double recovery, we also recommended that Ms. X transfer all rights and interests in certain exempt market securities to WealthTerra.

WealthTerra chose not to fulfill its responsibilities to its client by fairly compensating her based on our recommendation in this case. The firm has recently applied for the voluntary surrender of its registration and is no longer in business.

A copy of OBSI's investigation report for Ms. X's complaint is available here. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainant.

All investment firms in Canada are required to make OBSI services available to their clients. Following the investigation of a complaint, OBSI may make a recommendation for compensation where it would be fair to do so, considering all the facts and circumstances of the case. If a firm refuses to follow a recommendation, OBSI is required to publicize that refusal and the details of the complaint.

08/09/2016

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Sentinel Financial Management Corp. (Sentinel Financial) to compensate an investor $128,799 for losses caused by an advisor working for Sentinel recommending unsuitable investments.

Sentinel Financial is a mutual fund dealer based in Saskatoon.

"Sentinel Financial is responsible for the financial harm caused by one of its advisors," said Ombudsman Sarah Bradley. "It's rare for any firm to refuse our recommendation to compensate an investor when warranted. But this marks the fourth time Sentinel has refused an OBSI recommendation in the past two years. To date, Sentinel has refused to pay almost $450,000 in compensation to investors."

Mr. E is an investor with limited investment experience and minimal investment knowledge. He had difficulty understanding common investment products, such as stocks and bonds. He relied on his Sentinel Financial advisor for advice and almost always followed the advisor's recommendations.

When Mr. E left his job at a private company to work on his family farm full time, his advisor helped transfer his pension from his former employer to a locked-in retirement account. The advisor recommended purchasing several high-risk, sector-focused exempt market securities. In a memorandum to Mr. E, his advisor described the risk level of the alternative investments as "generally low" and stated that one investment was "projected to pay out a quarterly cash flow of 18-25% per year." Mr. E experienced significant losses on these investments: one exempt market product went into receivership, while another suspended redemption indefinitely.

OBSI found these high-risk exempt market securities unsuitable given Mr. E's low to medium-risk tolerance. Furthermore, the Sentinel Financial advisor characterized the products as "low-risk" and failed to adequately disclose the actual risks and product features. Had Mr. E understood the true risks associated with these investments, we have concluded that he would not have purchased them.

A copy of OBSI's investigation report for Mr. E's complaint is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainant.

All investment firms in Canada are required to make OBSI services available to their clients. Following the investigation of a complaint, OBSI may make a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. If a firm refuses to follow a recommendation, OBSI is required to publicize that refusal and the details of the complaint.

05/28/2015

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Sentinel Financial Management Corp. (Sentinel) to compensate a retired investor in the amount of $55,000.

Sentinel is a mutual fund dealer based in Saskatoon. The investor, Ms. G, was 63 years old when she started investing at Sentinel. Now retired, her income consisted of Canada Pension Plan payments, Old Age Security, Guaranteed Income Supplement and occasional withdrawals from her modest Locked-In Retirement Account.

Our investigation determined that Ms. G relied heavily on her Sentinel advisor for investment advice, including how to manage her modest retirement savings. OBSI found that Ms. G was unaware she was sold "off-book" investments (meaning the Sentinel advisor sold the security outside of the firm). The advisor deposited Ms. G's money in the advisor's personal account. None of the funds were actually invested and Ms. G never recovered any of the funds.

We find Sentinel is responsible for the financial harm incurred by Ms. G as a result of the off-book investment they were placed in by their Sentinel advisor. Sentinel has chosen not to fulfill its responsibilities to its clients by providing the compensation they are owed based on the facts of the case.

An investigation summary for Ms. G's complaint is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainant.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

***

As previously announced, OBSI is experimenting with several changes to our process in order to speed up the average time it takes to resolve complaints. One of those experimental changes involves situations where a firm informs us it will not compensate its customer in the context of the specific complaint no matter what OBSI's final conclusions are. In most such instances, OBSI will complete its investigation but announce the recommendation through a short summary that outlines the facts of the case, our conclusions, and a range of compensation that we determined was fair and reasonable (if an exact determination is not possible). We will not expend further time and resources to draft an exhaustive investigation report if a refusal to compensate is certain.

OBSI followed this process for this complaint about Sentinel.

04/30/2015

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of yourCFO Advisory Group Inc. (yourCFO) to compensate an investor in the amount of $139,000.

Ms. K's advisor at yourCFO recommended she invest in a single purpose private company set up to lend money to an unrelated company that invested in second mortgages and was owned by the advisor's husband. The investment was also made off the books ("off-book") of yourCFO (meaning the advisor sold the security outside of the firm).

Several years after making the investment, Ms. K stopped receiving monthly income payments. The mortgage company later went bankrupt and it is unlikely Ms. K will recover any of the money she invested.

Based on our investigation, we accept that Ms. K reasonably believed that the investment was made through and approved by yourCFO. yourCFO is responsible, as a member of OBSI, and vicariously, as the employer of Ms. L, for the losses Ms. K incurred due to Ms. L's recommendation. We recommended that yourCFO compensate Ms. K $139,000, representing her initial investment less income she received. yourCFO has refused to compensate any amount.

An investigation summary for Ms. K's complaint is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainants.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

***

As previously announced, OBSI is experimenting with several changes to our process in order to speed up the average time it takes to resolve complaints. One of those experimental changes involves situations where a firm informs us it will not compensate its customer in the context of the specific complaint no matter what OBSI's final conclusions are. In most such instances, OBSI will complete its investigation but announce the recommendation through a short summary that outlines the facts of the case, our conclusions, and a range of compensation that we determined was fair and reasonable (if an exact determination is not possible). We will not expend further time and resources to draft an exhaustive investigation report if a refusal to compensate is certain.

OBSI followed this process for this complaint about yourCFO.

04/30/2015

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Sentinel Financial Management Corp. (Sentinel) to compensate several investors in the amounts of $245,462 and $20,249

Sentinel is a mutual fund dealer based in Saskatoon. OBSI investigated two separate cases involving retired investors, Ms. L and Mr. and Mrs. B, and the same Sentinel advisor.

In both cases, OBSI found that the Sentinel advisor sold "off-book" investments (meaning she sold the security outside of the firm) to clients. The advisor then deposited the investors' money in her personal account. None of their funds were actually invested.

Based on our investigation, we accept that Ms. L and Mr. and Mrs. B had reasonably believed the investments were made and approved by Sentinel. We also find Sentinel is responsible for the financial harm incurred by the investors as a result of the off-book investment they were placed in by their Sentinel advisor. Sentinel has chosen not to fulfill its responsibilities to its clients by providing the compensation they are owed based on the facts of the case.

Copies of our investigation reports for Mr. and Mrs. B's complaint and Ms. L's complaint are available on our website.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

04/30/2015

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of GP Wealth Management Corporation (GP Wealth Management) to compensate a married couple in the amount of $25,455.

GP Wealth Management is a mutual fund dealer based in Toronto with offices across Ontario. Mr. and Mrs. F. redeemed mutual funds understanding that they would incur approximately $20,000 in fees (Deferred Sales Charges, or DSCs), based on assurances from their advisor. Upon selling their investments, they were actually charged DSCs of $45,455. Both GP Wealth Management and Mr. and Mrs. F's advisor had an obligation to inform Mr. F of the correct DSCs prior to processing the redemption but they did not.

Since Mr. and Ms. F understood and were willing to pay $20,000 in DSCs, OBSI recommended that GP Wealth Management compensate the couple for the additional $25,455 they incurred in DSCs.

GP Wealth Management has chosen not to fulfill its responsibilities to Mr. and Mrs. F by providing the compensation they are owed based on the facts of the case.

A copy of OBSI's investigation summary for Mr. and Mrs. F's complaint is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainants.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

***

As previously announced, OBSI is experimenting with several changes to our process in order to speed up the average time it takes to resolve complaints. One of those experimental changes involves situations where a firm informs us it will not compensate its customer in the context of the specific complaint no matter what OBSI's final conclusions are. In most such instances, OBSI will complete our investigation but announce our recommendation through a short summary that outlines the facts of the case, our conclusions, and a range of compensation that we determined was fair and reasonable (if an exact determination is not possible). We will not expend further time and resources to draft an exhaustive investigation report if a refusal to compensate is certain.

OBSI has followed this process for Mr. and Mrs. F's complaint about GP Wealth.

11/27/2014

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of FundEX Investments Inc. (FundEX) to compensate investors in the amount of $106,123.

FundEX is a national mutual fund dealer that manages approximately $95 billion in assets. The complainants, Mr. and Mrs. S, had recently sold their home in Alberta and moved to Saskatchewan, investing extra proceeds from the sale of their house. They had limited investment knowledge and experience, and relied heavily, if not entirely, on their FundEX advisor, Mr. H.

Mr. H placed the complainants in an exempt market product called Certified Medallion Executive Business Centre Project (Medallion Mortgage). The Medallion Mortgage investment was a second mortgage on the above-named property that offered 10% annual returns. The investments were made off the books ("off-book") of FundEX, though Mr. and Mrs. S had reason to believe they were properly dealing with a FundEX representative selling a FundEX-approved product. When a court-appointed receiver took over the building on which the second mortgage was placed, the complainants lost all of their investment in Medallion Mortgage.

In May 2013 the Mutual Fund Dealers Association (MFDA) announced it had commenced disciplinary proceedings in respect of Mr. H. In its Reasons and Decision dated August 12, 2014, an MFDA Hearing Panel determined that Mr. H sold exempt market products without FundEX's knowledge and approval, and knowingly concealed the activities. The Panel said that "[t]he seriousness of the conduct is at the very high end of the scale". It issued a permanent prohibition on Mr. H to conduct securities related business with any MFDA Member, a global fine of $225,000 and an award of costs of $7,500.

OBSI's investigation report for Mr. and Mrs. S's complaint is available on OBSI's website. Having considered all the evidence, we find that the complainants reasonably believed that they were properly dealing with a FundEX representative selling a FundEX-approved product that was offered through the firm (further details on the evidence considered is contained in the report). We also find FundEX is responsible for the financial harm incurred by the complainants as a result of the off-book investment they were placed in by their FundEX advisor. It has chosen not to fulfill its responsibilities to them by providing the compensation they are owed based on the facts of the case.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

06/11/2014

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Byron Capital Markets Ltd. ('Byron Capital') to compensate a small business owner in the amount of $41,149.

Byron Capital is an investment dealer based in Toronto that recently ceased most operations and whose application to resign from the Investment Industry Regulatory Organization of Canada (IIROC) is pending approval. The complainant, Mr. B, was a low- to medium-risk investor who owned a general business consulting firm and who was approaching retirement. His primary concern was the stability and continuity of income from his investments.

Mr. B's advisor at Byron Capital, Mr. W, recommended that he purchase high-risk, complex leveraged structured products in his small business account that were unsuitable given his risk tolerance and investment objectives. Although he had good investment knowledge, Mr. B reasonably relied on his advisor's characterization that these were medium-risk investments and was not aware that they were in fact higher-risk. Byron Capital is responsible for the financial harm incurred by Mr. B as a result of the unsuitable investments. It has chosen not to fulfill its responsibilities to Mr. B by providing the compensation he is owed based on the facts of the case.

OBSI's recommended compensation amount was arrived at by first calculating the difference between the amount Mr. B's investments would have been worth had he been suitably invested and the actual value as of the date he closed his corporate account with Byron Capital. Interest was then added to compensate Mr. B for the loss of use of his money, calculated from the date he first complained to the firm.

A copy of OBSI's investigation report for Mr. B's complaint is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainant.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

05/02/2014

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Monarch Wealth Corporation ('Monarch') to compensate a young couple new to Canada in the amount of $30,628.

Monarch is a mutual fund dealer based in Toronto. The complainants, Mr. H and Ms. W, came to Canada from China in 2001 and had no family or friends here at the time. They met their advisor, who is of the same cultural background, through the church they all attended.

Their advisor, Mr. Z, recommended a strategy of borrowing money to invest (also known as leveraging) that was unsuitable given the complainants' personal financial situation and risk tolerance. The complainants had very limited investment knowledge and minimal investment experience, and did not understand the risks of leveraged investing. The leveraging strategy was not even reviewed by Mr. Z after significant changes in the complainants financial circumstances (they purchased a house and Ms. W went on maternity leave). The couple was assured by Mr. Z that they would not incur any losses.

OBSI found evidence of irregularities with the signatures of Mr. H and Ms. W on several documents. Although Monarch received complaints from other clients of Mr. Z about unauthorized transactions, including leveraged investment transactions, falsified signatures, and inaccurate documents, Monarch did not contact Mr. H and Ms. W about their accounts.

Mr. H and Ms. W suffered losses of over $61,000 as a result of the unsuitable leverage strategy. Because the leverage strategy was first implemented when the complainants were clients of Mr. Z at a different firm (Firm A), we apportioned only 50% of the losses to Monarch. The complainants and Firm A agreed on a settlement in this matter, while Monarch refused to compensate the couple.

A copy of OBSI's investigation report for Mr. H's and Ms. W's complaintis available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainants.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

04/25/2014

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Armstrong & Quaile to compensate a retired couple in excess of $34,000.

Armstrong & Quaile is a mutual fund dealer based in Manotick and Waterloo, Ontario, with over 200 licensed sales associates in branch offices across Canada. The complainants, Mr. and Mrs. H, were retired and living on Canada Pension Plan (CPP) and Old Age Security (OAS) payments. Their advisor at Armstrong & Quaile, Mr. O, recommended a strategy of borrowing money to invest (also known as leveraging) that was unsuitable given the complainants' personal financial situation and risk tolerance. Mr. and Mrs. H suffered compensable losses in excess of $34,000 as a result of the unsuitable leverage strategy when the value of their investments fell and they sold them to cover as much of their investment loan as was possible.

Armstrong & Quaile is responsible for the financial harm incurred by the complainants as a result of the unsuitable leverage strategy recommended by the advisor. It has chosen not to fulfill its responsibilities to them by providing the compensation they are owed based on the facts of the case.

A copy of OBSI's investigation summary for Mr. and Mrs. H's complaint is available on OBSI's website. Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

***

As previously announced, OBSI is experimenting with several changes to our process in order to speed up the average time it takes to resolve complaints. One of those experimental changes involves situations where a firm informs us it will not compensate its customer in the context of the specific complaint no matter what OBSI's final conclusions are. In most such instances, OBSI will complete our investigation but announce our recommendation through a short summary that outlines the facts of the case, our conclusions, and a range of compensation that we determined was fair and reasonable (if an exact determination is not possible). We will not expend further time and resources to draft an exhaustive investigation report if a refusal to compensate is certain.

OBSI followed this process for this complaint about Armstrong & Quaile.

04/16/2014

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Richardson GMP to compensate several investors in the amounts of $232,500 and $66,366.

Richardson GMP is a Toronto-based investment dealer with offices across much of the country. In two separate cases investigated by OBSI, the complainants (who are all related) were approaching retirement and had accumulated significant assets that they had invested with Richardson GMP. Their advisor, Mr. S, placed part of their portfolios in investments that were unsuitable given the complainants' investment objectives and risk tolerance.

Richardson GMP is responsible for the financial harm incurred by the complainants as a result of the unsuitable investments recommended by the advisor. It has chosen not to fulfill its responsibilities to them by providing the compensation they are owed based on the facts of the case.

Copies of our investigation summaries in these two cases are available on our website (Complaint #1, Complaint #2). Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

***

As previously announced, OBSI is experimenting with several changes to our process in order to speed up the average time it takes to resolve complaints. One of those experimental changes involves situations where a firm informs us it will not compensate its customer in the context of the specific complaint no matter what OBSI's final conclusions are. In most such instances, OBSI will complete our investigation but announce our recommendation through a short summary that outlines the facts of the case, our conclusions, and a range of compensation that we determined was fair and reasonable (if an exact determination is not possible). We will not expend further time and resources to draft an exhaustive investigation report if a refusal to compensate is certain.

OBSI has followed this process for these two complaints about Richardson GMP.

02/11/2014

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Equity Associates Inc. ('Equity Associates') to compensate a retired couple in the amount of $83,386.

Equity Associates is a mutual fund dealer based in Markham, Ontario. The complainants, Mr. and Mrs. H, are a retired couple with limited investment knowledge. They had sold their home and wanted their advisor to place the proceeds into low-risk investments while their new home was under construction, which was to be ready within a year.

While the clients were willing to take some risk with their long-term RRSP investments, they were risk adverse regarding the proceeds from the sale of their home. They trusted their advisor at Equity Associates to make appropriate investment decisions after explaining to him that they could not afford to lose the principal amount, which they need to complete the purchase of their new home. The advisor assured them not to worry and guaranteed no losses would occur.

Over the course of several months the advisor invested the couple's house proceeds in various long-term medium and high-risk mutual funds which were unsuitable given their investment objectives and risk tolerance. As their new home neared completion, Mr. and Mrs. H repeatedly sought assurances that their money was safe and would be available for withdrawal. The advisor was evasive and attempted to persuade the couple to withdraw a lesser amount instead. Eventually, the advisor explained that their investments had significantly declined in value. Without sufficient funds to pay for their new home, Mr. and Mrs. H had little choice but to use their line of credit to make up for the shortfall.

OBSI finds that Equity Associates is responsible for the losses incurred by Mr. and Mrs. H as a result of the unsuitable medium and high-risk investments. Equity Associates allowed the advisor to open new accounts for the couple without collecting Know Your Client (KYC) information, as required by securities rules. As a result, Equity Associates could not assess the suitability of the investments as it was required to do. OBSI also found evidence that strongly suggests Mr. and Mrs. H did not sign the mutual fund purchase documents. It appeared that these documents were altered by photocopying signatures from other sources.

OBSI's recommended compensation amount was arrived at by first calculating the difference between the amount Mr. and Mrs. H's investments would have been worth had they been suitably invested and the actual value as of the date they withdrew the funds at Equity Associates. Interest was then added to compensate the couple for the loss of use of their money, calculated from the date they first complained to the firm. The recommended compensation amount also includes the interest that Mr. and Mrs. H incurred by borrowing from their line of credit.

A copy of OBSI's investigation report for Mr. and Mrs. H's complaint is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainants.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

11/20/2013

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Northern Securities to compensate retail investor clients in the amount of $16,022.

Mr. and Mrs. B are a retired couple from Toronto. Northern Securities is a Toronto-based investment firm whose membership in the Investment Industry Regulatory Organization of Canada (IIROC) was suspended after the firm failed to maintain adequate capital levels. OBSI did not uphold most of Mr. and Mrs. B's complaint about Northern Securities, though on one aspect of their complaint we found in their favour: the couple's advisor at Northern Securities, Mr. T, recommended an investment in a Stelco bond that was unsuitable given their low-risk, income-producing investment objectives. As a result of the Stelco investment, Mr. and Mrs. B suffered compensable losses of $16,022, which Northern Securities refused to pay.

Northern Securities is responsible for the financial harm incurred by Mr. and Mrs. B as a result of the unsuitable investment. It has chosen not to fulfill its responsibilities to them by providing the compensation they are owed based on the facts of the case.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

11/07/2013

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Keybase Financial Group Inc. ('Keybase') to compensate a retail investor in the amount of $73,884 as recommended by OBSI.

Keybase is a mutual fund and exempt market dealer based in Markham, Ontario, with offices across the country. The complainant, Mrs. O, is an unsophisticated investor from Alberta who trusted and relied heavily on her Keybase advisor.

Mrs. O's Keybase advisor placed her in two mortgage investments that were subsequently lost, the second of which was made without Mrs. O's authorization. Both investments were made without Keybase's knowledge ("off-book"). Despite this, our investigation found that the firm missed important red flags and had several opportunities to prevent both mortgage investments from ever happening. Keybase is therefore responsible for the actions of its representative in this case.

While OBSI finds that Keybase is mostly responsible for the losses incurred by Mrs. O as a result of the two mortgage investments, OBSI also finds that Mrs. O bears some responsibility for her losses, as does a firm not party to this complaint. The recommended compensation amount has been reduced accordingly. Despite this, Keybase has chosen not to fulfill its responsibilities to Mrs. O by providing the compensation she is owed based on the facts of the case.

OBSI's recommended compensation amount was arrived at by first calculating Mrs. O's direct losses from the two mortgage investments. OBSI also calculated the gains Mrs. O's account would have realized had the second mortgage investment not been made, up to the date Mrs. O complained to Keybase. These compensable losses were reduced by certain percentages to account for the responsibility of Mrs. O and the other firm. Finally, interest was then added to compensate Mrs. O for the loss of use of her money, calculated from the date she first complained to the firm.

A copy of OBSI's investigation report for Mrs. O's complaint is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainant.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

10/31/2013

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Union Securities Limited ('Union Securities') to compensate a senior investor in the amount of $325,122 as recommended by OBSI after investigating the merits of his complaint.

Union Securities is a British Columbia-based investment firm. It has applied for resignation from the Investment Industry Regulatory Organization of Canada (IIROC) but the application has not yet been approved.

Mr. S is an unsophisticated investor who relied entirely on the advice and recommendations of his Union Securities advisor. He is retired, has no private pension plan, and had been counting on income from his investments to fund his retirement.

Mr. S's advisor at Union Securities first recommended that he invest all of his money in a single stock that was the subject of an uncertain takeover bid. That takeover bid later failed, resulting in a significant decline in the stock's value. The advisor also recommended a margin account that was entirely unsuitable for Mr. S and made unauthorized trades in the account. The advisor never informed Mr. S of the risks of the recommendations or that he could potentially lose substantial amounts of money. By the time Mr. S closed his account with Union Securities he had lost almost all of the money he had invested.

OBSI finds that Union Securities is responsible for the losses incurred by Mr. S as a result of the unsuitable investment portfolio he held at the firm. It has chosen not to fulfill its responsibilities to him by providing the compensation he is owed based on the facts of the case.

IIROC staff took enforcement action in this matter. Following the hearing, the panel found that the Union Securities advisor failed in his suitability obligations to Mr. S and engaged in unauthorized trading in his account.

OBSI's recommended compensation amount was arrived at by first calculating the difference between the amount Mr. S's account would have been worth had he been suitably invested and the actual value as of the date he closed his accounts at Union Securities. Interest was then added to compensate Mr. S for the loss of use of his money, calculated from the date he first complained to the firm.

A copy of OBSI's investigation report for Mr. S's complaint is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainant.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. A refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint under Section 27 of our Terms of Reference.

10/29/2013

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of De Thomas Financial Corp. ('De Thomas Financial') to compensate a retired retail investor in the amount of $254,323 as recommended by OBSI after investigating the merits of her complaint.

De Thomas Financial is a mutual fund dealer based in the Greater Toronto Area, with branch offices in British Columbia, Quebec and other parts of Ontario. The investor, Mrs. R, had no previous investment experience and almost completely relied on her advisor at De Thomas Financial.

Mrs. R's advisor recommended an unsuitable strategy of borrowing money to invest (also known as leveraging) in her non-registered account. He also recommended unsuitable investments for Mrs. R's Registered Retirement Income Fund (RRIF). Mrs. R was forced to use her RRIF withdrawals to cover the investment loan, even though they were needed to meet day-to-day expenses. It was not until after Mrs. R's children found unpaid bills in her home that the unsuitable strategy and investments were discovered and unwound.

OBSI finds that De Thomas Financial is responsible for the significant losses incurred by Mrs. R as a result of the unsuitable investments and leverage strategy. It has chosen not to fulfill its responsibilities to Mrs. R by providing the compensation she is owed based on the facts of the case.

OBSI's recommended compensation amount was arrived at by first calculating Mrs. R's capital losses associated with the leverage strategy and then adding the interest she paid on her unsuitable investment loan. OBSI then calculated the difference between the amount Mrs. R's RRIF account would have been worth had she been suitably invested and the actual value as of the date her investments were moved away from De Thomas Financial. OBSI's recommended compensation is the sum of these two amounts.

A copy of OBSI's investigation report for Mrs. R's complaint is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainant.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. Under Section 27 of OBSI's Terms of Reference, a refusal by a participating firm to follow a recommendation means that OBSI must publicize that refusal and the details of the complaint.

04/03/2013

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Connor Financial Corporation ('Connor Financial') to compensate multiple retail investors in the amounts of $93,030, $54,109, $189,878 and $250 as recommended by OBSI after investigating the merits of their complaints.

Connor Financial is a mutual fund dealer based in Victoria. The clients' investment advisor, Mr. C, is the founder, president, and sole director, compliance officer, shareholder, and investment advisor of Connor Financial.

The first complainants, Mr. and Mrs. H, were a retired elderly couple who relied on their investments for income. Another complainant, Ms. B, was a 67-year-old semi-retired hairdresser. The third complainant, Ms. H (no relation to Mr. and Mrs. H), had Canada Pension Plan (CPP) disability payments as her only source of income. Connor Financial placed some or all of their portfolios in high-risk investments that were unsuitable given their personal and financial circumstances, investment objectives and/or risk tolerance.

Connor Financial is responsible for the unsuitable recommendations that led to the complainants' unsuitable investment portfolios at the firm. It has chosen not to fulfill its responsibilities to them by providing the compensation they are owed based on the facts of the case.

OBSI's recommended compensation amounts in these three complaints were arrived at by first calculating the difference between the amount the investors' accounts should have been worth had they been suitably invested and the actual value as of the date they removed their investments from the investment dealer. Interest was then added to compensate the investors for the loss of use of their money, calculated from the date they first complained to the firm.

After discussion with securities regulators, OBSI established a one-time method of independent review of certain cases that were headed towards refusals to compensate. These three Connor Financial complaints were among them. Firms were offered the opportunity to have former commissioners of the Ontario Securities Commission (OSC) provide an independent assessment of the files in question based on standards consistent with OBSI's Terms of Reference. If OBSI had unfairly considered the facts of the case or our investigation findings were objectively flawed, the reviewer would say so in their report on the matter. Connor Financial chose not to take up this offer.

In a fourth case the complainant, Ms. T, incurred tax penalties when Connor Financial inappropriately redeemed securities held in her RRSP to cover an investment loan. A settlement proposal of $250 was rejected by Connor Financial.

Copies of OBSI's investigation reports for Mr. and Mrs. H's complaint, Ms. B's complaint, and Ms. H's complaint are available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainants. A full investigation report for Ms. T's complaint was not prepared given the low compensation amount and the lack of any probability of payment.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. Refusals by firms to follow an OBSI recommendation mean that OBSI must publicize that refusal and the details of the complaint under Section 27 of OBSI's Terms of Reference. OBSI has taken several significant and extraordinary steps to resolve these and other complaints that could not be resolved before resorting to announcing a refusal to compensate.

11/30/2012

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Macquarie Private Wealth to compensate several retail investors in the amounts of $74,791 and $157,274 as recommended by OBSI after investigating the merits of their complaints.

Macquarie Private Wealth is a Canadian investment dealer. At the time of their complaint, Mr. and Ms. S were a married couple from Ottawa with three teenage children getting ready to attend university in the coming years (Mr. S has since passed away.) The other complainant, Ms. M, was in her seventies, retired and living outside of Halifax. Their advisors placed some or all of their portfolios in investments that were unsuitable given their personal and financial circumstances, investment objectives and/or risk tolerance.

The investment dealer that is the subject of the two complaints at issue here has changed names and ownership over the years. During the time period when the investors suffered their losses due to unsuitable investments, the investment dealer was known as Blackmont Capital Corporation and was owned by another financial company. In 2009, the Macquarie Group bought Blackmont and subsequently renamed it Macquarie Private Wealth. Throughout the relevant time period, the investment dealer remained the same and the responsibility to compensate the customers rests with the investment dealer; merely the name changed. When Macquarie Group acquired the dealer, the existing obligations of the dealer remained unchanged.

Macquarie Private Wealth has stated that its vendor of the business agreed to indemnify it regarding the complaints but has declined to fund the settlements recommended by OBSI. In OBSI's view, Macquarie Private Wealth remains responsible for the advisors' unsuitable recommendations that led to the complainants' unsuitable investment portfolios while they were clients of the investment dealer. Macquarie Private Wealth has chosen not to pay to the complainants the amounts OBSI concludes they are owed based on the facts of each case.

OBSI's recommended compensation amounts in these two complaints were arrived at by first calculating the difference between the amount the investors' accounts should have been worth had they been suitably invested and the actual value as of the date they removed their investments from the investment dealer. Interest was then added to compensate the investors for the loss of use of their money, calculated from the date they first complained to the firm.

At the direction of securities regulators, OBSI established a one-time method of independent review of certain cases that were headed towards refusals to compensate. Both of these Macquarie Private Wealth complaints were among them. Firms were offered the opportunity to have credible and experienced former commissioners of the Ontario Securities Commission (OSC) provide an independent assessment of the files in question based on standards consistent with OBSI's Terms of Reference. If OBSI had unfairly considered the facts of the case or our investigation findings were objectively flawed, the reviewer would say so in their report on the matter. Macquarie Private Wealth chose not to take up this offer.

A copy of OBSI's investigation report for both Mr. and Ms. S's complaint and Ms. M's complaint is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including the complainants.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. Refusals by firms to follow an OBSI recommendation to compensate mean that OBSI must publicize that refusal and the details of the complaint under Section 27 of OBSI's Terms of Reference. OBSI has taken several significant and extraordinary steps to resolve this and certain other complaints that could not be resolved before resorting to announcing a refusal to compensate.

11/22/2012

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of W.H. Stuart & Associates ('W.H. Stuart') to compensate its customers in the amount of $41,066 as recommended by OBSI.

W.H. Stuart is a family-owned independent mutual fund dealer and insurance agency based in Markham, Ontario. A retired elderly couple, Mr. and Mrs. I, brought their complaint to OBSI after unsuccessfully trying to resolve their complaint with W.H. Stuart directly.

Mr. and Mrs. I were low to medium-risk investors with limited investment knowledge, limited income and net worth, and no investment experience in individual stocks or private shares. On the recommendation of their W.H. Stuart advisor the complainants purchased shares in an extremely small private company that later went bankrupt. The investment was portrayed as a guaranteed, risk-free investment that was in fact a high-risk, speculative investment unsuitable for them given their personal and financial circumstances.

W.H. Stuart is responsible for the advisor's unsuitable recommendations that led to Mr. and Mrs. I's unsuitable investment portfolio at the firm. If W.H. Stuart had assessed the suitability of the initial shares they purchased and warned them of the risks, the complainants could have sold the shares without a loss and avoided purchasing additional shares on which they also incurred losses. W.H. Stuart has chosen not to fulfill its responsibilities to the complainants and provide the compensation they are owed based on the facts of the case.

OBSI's recommended compensation amount of $41,066 is arrived at by first calculating the difference between the amount the investors' accounts should have been worth had they been suitably invested and the actual value as of the date they removed their investments from W.H. Stuart. Interest was then added to compensate the investors for the loss of use of their money, calculated from the date they first complained to the firm.

At the direction of securities regulators, OBSI established a one-time method of independent review of certain cases that were headed towards refusals to compensate. Mr. and Mrs. I's case was one of them. Firms were offered the opportunity to have credible and experienced former commissioners of the Ontario Securities Commission (OSC) provide an independent assessment of the files in question based on standards consistent with OBSI's Terms of Reference. If OBSI had unfairly considered the facts of the case or our investigation findings were objectively flawed, the reviewer would say so in their report on the matter. W. H. Stuart chose not to take up this offer.

A copy of OBSI's investigation report regarding this case is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including Mr. and Mrs. I.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. Refusals by firms to follow an OBSI recommendation to compensate mean that OBSI must publicize that refusal and the details of the complaint under Section 27 of OBSI's Terms of Reference. OBSI has taken several significant and extraordinary steps to resolve this and certain other complaints that could not be resolved before we've resorted to announcing a refusal to compensate.

11/09/2012

The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Octagon Capital Corporation ('Octagon') to compensate one if its customers in the amount of $181,339 as recommended by OBSI. This is only the second refusal to compensate ever received by OBSI from an investment firm.

Octagon is an independent Canadian investment dealer based in Toronto. A complaint was brought to OBSI concerning the investor, Mrs. B., who was an elderly and widowed client of Octagon. She was primarily a low-risk investor and needed income from her investments to last her lifetime. Mrs. B's advisor at Octagon traded frequently in her accounts, and often without her authorization. The securities he purchased were too risky for her, as were the margin and short selling strategies he used. Mrs. B's accounts were unsuitably invested overall. She was an unsophisticated investor who did not know her investments were unsuitable.

Octagon is responsible for the advisor's unsuitable recommendations and for its own compliance deficiencies that led to Mrs. B's unsuitable investment portfolio at the firm. It has chosen not to fulfill its responsibilities to her by providing the compensation she is owed based on the facts of the case. Octagon has not even interviewed Mrs. B to determine what occurred during her time as a client of the firm.

The Octagon advisor at the centre of Mrs. B's complaint was also the subject of an Investment Industry Regulatory Organization of Canada (IIROC) hearing concerning unsuitable investments and unauthorized trading in Mrs. B's account. The IIROC Panel concluded that Mrs. B had limited investment knowledge, was a low-risk income investor, was recommended unsuitable investments by her advisor, was not consulted about trades, and that her advisor, Mr. H, traded excessively in her accounts. The panel fined the advisor $125,000 and suspended his registration, among other things. Mrs. B received no compensation as a result of the IIROC Panel Decision because that is not the Panel's role.

OBSI's recommended compensation amount of $181,339 is arrived at by first calculating the difference between the amount Mrs. B's account should have been worth had it been suitably invested and the actual value as of the date she removed her investments from Octagon. Interest to compensate Mrs. B for the loss of use of her money, calculated from the date she first complained to Octagon, was then added.

At the direction of securities regulators, OBSI established a one-time method of independent review of certain cases that were headed towards refusals to compensate. Mrs. B's case was one of them. Firms were offered the opportunity to have credible and experienced former commissioners of the Ontario Securities Commission (OSC) provide an independent assessment of the files in question based on standards consistent with OBSI's Terms of Reference. If OBSI had unfairly considered the facts of the case or our investigation findings were objectively flawed, the reviewer would say so in their report on the matter. Octagon chose not to take up this offer.

A copy of OBSI's investigation report regarding this case is available on OBSI's website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including Mrs. B.

Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. Refusals by firms to follow an OBSI recommendation to compensate mean that OBSI must publicize that refusal and the details of the complaint under Section 27 of OBSI's Terms of Reference. OBSI has taken several significant and extraordinary steps to resolve this and certain other complaints that could not be resolved before resorting to announcing a refusal to compensate. Over 99.8% of complaints brought to OBSI since the organization's inception have been successfully resolved.

MUTUAL FUND FIRM REFUSES OBSI RECOMMENDATION

05/10/2007

TORONTO - The Ombudsman for Banking Services and Investments today announced that Financial Architects Inc., a Toronto mutual fund dealer, has refused to honour a recommendation for compensation made following an investigation into an unresolved dispute between Financial Architects Inc. and a former client.

"For the first time in more than 10 years, a firm in our alternative dispute resolution service will not follow a recommendation made by our office after our thorough investigation of a complaint," said Ombudsman David Agnew.

"We regret that Financial Architects Inc. has chosen this course. The hallmark of a healthy financial services system is consumer recourse to an independent and impartial dispute resolution process, with firms that respect the process by compensating clients who have suffered financial loss because of an error, misleading information or poor advice."

"This client was badly served by Financial Architects Inc. She deserves compensation for unsuitable investments and a risky strategy that failed to provide her with needed income in her retirement."

A 76-year-old widow living on a modest annual income made up of a $179-a-month pension, plus CPP and the Old Age Security, opened an investment account with the advisor in 1999 when he was at another firm. Her life savings consisted of her home and her RRIF. She required income from the RRIF to maintain her standard of living, plus needed to withdraw a required minimum from the RRIF each year.

In 1999, the RRIF was worth about $142,000 and was invested in a combination of medium-risk income and equity mutual funds. Shortly after, funds were sold to shift about 40 per cent of the account into a high-risk mutual fund.

In the summer of 2000, the account transferred to Financial Architects Inc. when the advisor moved firms. The shift to high-risk funds continued, and trades were made that raised the client's exposure to high-risk funds to 60 per cent in a few months.

By this time, all the funds in the account were equity-based, and none paid regular distributions. This meant units of potentially high volatility funds had to be redeemed to meet the client's income and RRIF requirements regardless of their declining net asset value.

Despite the client's age, the new funds were purchased with deferred sales charges, or DSCs. Only small redemptions were allowed for seven years or the client would face penalties.

"This unsophisticated investor was relying on her advisor," Agnew said. "There is no evidence to suggest that any strategy was explained to her, and we do not believe she was aware of the downsides she faced with this risky advice. Leading a widow in her late 70s living on a limited income into a portfolio containing 60-per-cent high risk mutual funds, with DSCs, is simply unacceptable."

With the post-October 2000 market decline, the account dropped to the point where mandatory withdrawals from the RRIF went from more than $10,000 in 2000 to less than $5,000 in 2003. In a bid to preserve the shrinking principal, the client withdrew only the minimum required.

"OBSI found the investments unsuitable, the strategy ill-conceived and the record-keeping unhelpful," Agnew said. "While we found that the client did not respond in a timely way to the firm's requests for information, Financial Architects Inc. could not produce any kind of Know-Your-Client form either on account opening, when the account was transferred or any other time. Nor could we find a written investment plan. The advisor's notes were spotty at best."

Financial Architects Inc. took the position that the transactions were authorized by the client and were suitable for her investment objectives. The firm offered reimbursement of $248.50 in tax penalties for excess foreign content and $180.86 for DSC fees.

OBSI found no evidence Financial Architects Inc. discussed its investment approach with the client or that the client knowingly agreed to accept it. OBSI was not persuaded that the client understood the possible negative consequences of being invested entirely in equities and for the most part in high-risk mutual funds. OBSI recommended that the client receive compensation of $79,797.

The Ombudsman for Banking Services and Investment is an independent dispute resolution service that investigates unresolved disputes for customers of more than 600 financial services firms in Canada, including banks, credit unions and investment firms. As an alternative to the legal system, OBSI will recommend compensation or other measures if it finds a firm has made an error, gave misleading information or offered poor advice leading to a loss or harm to a client.

OBSI's findings are not binding on either the client or the firm. However, if a firm does not accept the recommendation of OBSI, OBSI makes public the name of the firm, the recommendation and the circumstances of the case.