- Investor's Obligations to Mitigate with Notice of Regulatory Proceedings (and their Relevance)
- February 12, 2016 | Authors: Suzanne Kittell; Laura Paglia
- Law Firm: Borden Ladner Gervais LLP - Toronto Office
- The plaintiffs were amongst several investors who lost money in corporations promoted by individuals who had been the subject of proceedings by the Alberta Securities Commission (ASC). The defendants were their chartered accountant, as was the company he incorporated for consulting work. Through this company, the accountant worked as strategist and consultant to Institute for Financial Learning, Group of Companies Inc. ("IFFL"), which was also the subject of ASC proceedings. A large portion of the accountant's income over the period in question due to the fees and commissions he earned through IFFL, which fees and commissions were not disclosed to the plaintiffs. Part of the Court's determination was whether the defendants were providing "information" or "advice". It was held that a chartered accountant should have questioned the legitimacy of the investments. The fact that he chose to invest his family members as well did not address his obligations to the plaintiffs. Based on the facts, the plaintiffs were found to have placed trust, confidence and reliance on their accountant and granted him a power that entitled them to expect that he would exercise his skills in their best interest. "The non-disclosure of his commissions was held to have prevented them from knowing theirs was a commercial relationship."
The plaintiffs were found to have limited financial investment knowledge and experience. The Court found that even experienced investors would be alarmed to learn that the companies that they had invested in had assets frozen, could not trade in securities and had an upcoming securities hearing. Despite the fact that the defendants expressed repeated confidence in the investments despite the ASC proceedings, it was held that the plaintiffs, upon notice of the regulatory proceedings, should have doubted or disregarded any assurances expressed by the defendants and liquidated what they could. At a minimum, they should have sought independent advice. Instead, they continued to invest more money that constituted a failure to take obvious steps to alleviate or reduce their losses.
Three ASC proceedings were filed during the trial by the plaintiffs without objection from the defendants. The Court held ASC determinations subsequent to the plaintiffs' investments were not determinative as to what these parties knew or did not do at the time of the plaintiffs' investments. These regulatory determinations were relevant to the extent that they were known or should have been known to the parties as to what the plaintiffs did or did not do thereafter with their investments.