Unauthorized loans made on investor's account

A couple in their sixties first met an advisor at an investment seminar. He arranged a meeting and recommended that they borrow $450,000 to invest. Although uncertain, the clients signed the loan documents. A week later, the advisor found out that the clients only qualified for a lesser $300,000 loan. He authorized the amendment to the loan and the money was invested a few days later. After receiving a loan acknowledgement and investment confirmation in the mail, the clients immediately called the advisor to complain as they believed they had just signed an application.

The advisor agreed to cancel the loan, but two days later arranged a meeting and convinced the clients to wait until the loan could be cancelled at no cost. The clients followed up with the advisor who reassured them that they would get out at no cost. During this time, investment losses kept growing. By the time the complaint was escalated to OBSI, the loss was almost $100,000.

The advisor's firm originally concluded that the clients were responsible for most of the losses because they had failed to act sooner. Luckily, the clients had immediately followed up the initial meeting with an email confirming that they had not authorized the loan and should not be held responsible for any costs. The advisor responded by email saying “you will be able to walk away from this at no cost to you." We felt it was reasonable for the clients to rely on this reassurance.

In addition to documents from the advisor's firm, we requested documents from the financial institution that provided the loan. We discovered that the advisor had submitted a cancellation request when the clients first complained, but rescinded the request after he found out what it would cost him to cancel. His firm was not aware of the cancellation request because the advisor did not keep a copy of it on file. After we brought this and other evidence to the firm's attention, the firm quickly agreed to fully compensate the clients for their losses.

In this case, the clients complained immediately, confirmed the agreement in writing and actively followed up until the issue was resolved. Thanks to this and the firm's cooperation, OBSI was able to bring about a speedy resolution.

(2009)