Not just Webb, I like this Mudry guy.
These Stockwatch folks are the only people pounding away day after day on these chits that take advantage of the little shareholder. They have said sarcastic things about many of the stocks I hold too,...but maybe you should take that as a signal that all is not well in stockland,...considering the vast majority of stocks out there are pump and dump promotions. The insiders, managers and board make money whether or not they hit anything of merit,...something the average shareholder doesn't seem to get. The comments on most threads support this view,...they are sheep ready to be sheared,...and anyone who buys and holds is the dumbest %$##@%##% on the thread. Is Xcal any different?,...remains to be seen,...but they ain't trying to prove anything quickly are they,...and the big boys aren't lining up to poke some drillholes in either,...why?
Ontario Securities Commission - Street Wire
IDA's court win underlines Supreme Court landmark case
Ontario Securities Commission *OSC
Thursday September 26 2002 Street Wire
See Investment Dealers Association of Canada (*IDA) Street Wire
by Brent Mudry
In a significant court decision for Canada's investment community, an Ontario
supreme court judge has dismissed the heavily publicized bid by a disgruntled
client of Mark Valentine's Thomson Kernaghan to add the Investment Dealers
Association of Canada as a defendant in a $5.75-million lawsuit against the
now-defunct brokerage. In a speedy decision released Thursday afternoon, hours
after the IDA argued its case, Madam Justice Ruth Mesbur of the Ontario
Superior Court of Justice dismissed Chris Morgis's July 23 application to
amend his Kernaghan suit to include the regulator.
Despite heavy and uncritical publicity in the Toronto media, the quixotic
quest of Mr. Morgis against the IDA appeared doomed from the start, as it flew
in the face of the Supreme Court of Canada's November, 2001, Hobart decision
and as TK clients who lost money after Mr. Morgis's complaint were the real
losers of the regulator's alleged inaction.
In Hobart, the high court upheld the precedent-setting February, 2000,
decision of the Court of Appeal for British Columbia to dismiss a $180-million
class action suit launched by investors in Eron Mortgage against Robert
Hobart, B.C.'s Registrar of Mortgage Brokers, for failing to shut down the
fraudulent Ponzi scheme earlier. The Hobart case, Canada's landmark case for
regulators' liability, ruled that the regulator does not hold a legal duty of
care to the investing public.
Reaction to Thursday's decision was mixed. "We are pleased -- we are free to
regulate effectively in the public interest without concern that we are
subject to legal action from individual investors," Jeff Kehoe, IDA
enforcement litigation director, told Stockwatch.
Mr. Morgis, who lost about $2-million in his Kernaghan accounts, is
disappointed with the court ruling. "At the end of the day there is nobody
left to be accountable for this TK train wreck." Although Mr. Morgis disagrees
with all of the judge's substantive findings, he concedes that "we knew going
in we had an uphill battle."
The Toronto investor made a detailed complaint about Kernaghan to the IDA in
March, 2001, about 14 months before the brokerage was shut down, and similar
complaints to the Toronto police and the Ontario Securities Commission. His
lawyer, Erica Baron of McCarthy Tetrault, declined to comment on the court
loss.
On the bright side, Mr. Morgis did get a thumbs up from the judge to add four
former Thomson Kernaghan officials to his suit. The new defendants are former
brokerage president Lee Simpson, vice-president and retail manager David
Grand, past compliance head Ron Kelterborn and compliance officer Lance
Longmore. No one appeared in court for the Kernaghan quartet or raised any
objection to their being added to the suit.
(Mr. Kelterborn, now with BMO Nesbitt Burns, is one of 10 members of an IDA
compliance subcommittee dealing with advertising and sales literature. Derek
Hatfield, a round-the-world sailor and former senior RCMP officer, joined
Thomson Kernaghan as compliance head in July, 2001, three months after Mr.
Morgis complained to regulators, and is not named as a defendant.)
Mr. Morgis is also keen to add former Thomson Kernaghan head Mr. Valentine,
who regulators claim fostered a culture of non-compliance, as a defendant once
legal service is achieved. Mr. Valentine, the co-namesake of Operation Bermuda
Short, was held in jail after his arrest in Frankfurt on Aug. 14, shipped to
Miami late last week and released on $530,000 (U.S.) personal bail on Monday,
with strict house-arrest terms including a night-time curfew, an electronic
monitoring anklet and an order not to leave the United States.
Mr. Morgis's case has been well publicized in the Toronto media, starting with
the Financial Post in May, 2001, just after he launched his complaints and his
$5.75-million lawsuit. The media, however, made little effort at examining
Thomson Kernaghan until regulators abruptly suspended Mr. Valentine and shut
the brokerage down after internal complaints leaked out a year later.
Mr. Morgis's July 23 application to name the IDA as a defendant was reported
widely, with headline coverage by the Post on July 26, the Toronto Star on
Aug. 3 and Aug. 20, and even CBC-TV's The National newscast on Aug. 23,
introduced by Wendy Mesley. None of the stories, however, asked whether a
regulator can be sued, or made any mention of the precedent-setting Hobart
case.
The Hobart case, predictably, was the No. 1 precedent cited by both the IDA's
counsel Gary Luftspring of Goodman and Carr, and the judge in her decision.
"In three very recent cases, the Supreme Court of Canada and the Ontario Court
of Appeal have refused to recognize any duty of care owed by a supervising
regulatory body to individual members of the public harmed by members of the
regulated association or profession," states Mr. Luftspring in his factum,
dated Sept. 4. The three cases cited are Hobart, Edwards v. Law Society of
Upper Canada and Rogers v. Faught. A fourth citation was later added: the
Ontario appeal court's Sept. 11 Hughes v. Sunbeam Corp. decision.
"The plaintiffs base a duty of care on the allegation that the 'IDA is
responsible for regulating investment dealers ... to protect the investing
public.' This is the very proposition rejected by the Supreme Court of Canada
and the Ontario Court of Appeal," states Mr. Luftspring in his written
arguments.
The lawyer argued that the IDA defendants (the IDA and senior executives Terry
Salman, Kym Anthony and Joe Oliver) do not owe a private duty of care to
individual members of the investing public for alleged negligence in failing
to properly oversee the conduct of IDA members for two reasons. First, he
argued there is no relationship of "sufficient proximity" between Mr. Morgis
and the IDA defendants to create a prima facie duty of care in tort law.
Second, he argued that even if a prima facie duty were established, this duty
is negated by overriding policy consideration.
In her decision, Judge Mesbur echoed and accepted these key arguments. "In my
view, this case falls squarely within the line of cases relied upon by the IDA
defendants," stated the judge.
Judge Mesbur strongly rejected the proximity argument of Ms. Baron, Mr.
Morgis's lawyer.
"The plaintiff suggests that since he complained to the IDA, this creates the
necessary 'proximity' -- i.e. the IDA should have known that he would suffer
harm if they fulfilled their role diligently. I disagree. In my view the IDA's
obligation is to protect investors generally (underlined) and the public in
general. It does not extend to any particular investor notwithstanding a
complaint about a member," stated Judge Mesbur.
Plaintiff counsel Ms. Baron argued unsuccessfully that the Hobart case should
not apply, as it only covers statutory regulators, which are recognized by
legislation, and she described the IDA as a kind of "club," an unincorporated
voluntary association of Canadian securities dealers.
Judge Mesbur cided with the response arguments of Mr. Luftspring, who
documented the recognition of the IDA by the Ontario Securities Commission,
which is a statutory regulator. The judge notes that in 1994, the OSC
recognized the IDA's role as a self-regulatory organization, representing its
members and regulating the operations and standards of practice of its members
with a view to promoting the protection of investors and the public interest.
Judge Mesbur also noted that even if Mr. Morgis succeeded on the proximity
issue, she would have found that residual policy considerations would defeat
his claim.
"The IDA regulates the investment industry for the benefit of the entire
public. It does not undertake to protect individual investors from economic
loss resulting from the acts of one of its members. Imposing that duty of care
on the IDA would create an insurance scheme for dissatisfied investors who
have paid the IDA nothing," stated the judge.
Mr. Morgis was quite critical of the IDA's arguments and the judge's decision.
"I am disappointed that the fourth leg of the chair cannot recognize there is
a need for accountability," he told Stockwatch, saying his Thomson Kernaghan
complaints to the police, the OSC, the IDA and now the courts have all failed.
"The first three (the police, the OSC and the IDA) failed investors miserably
... so I am embarrassed for all Canadians. I suggest caveat emptor for
investors."
"It is like having a pedophile or a rapist on the loose and you are the police
and you do nothing to protect the public," says Mr. Morgis.
Mr. Morgis says he has been in touch with dozens of disgruntled Thomson
Kernaghan investors, including many who lost heavily after he made his
complaints to the regulators. "A 65-year-old widow lost $600,000 after my
complaint." Mr. Morgis also says that levels of sophistication are not
important, as he knows of one lawyer, at the Bay Street firm Gardiner Roberts,
who lost $300,000 in Thomson Kernaghan hedge funds after his complaints.
While it is not known if any of these Thomson Kernaghan clients had seen or
paid heed to spring, 2001, initial media coverage of the complaints of Mr.
Morgis, he now offers a pretty candid appraisal of the failed brokerage. "This
place was a Wild West place to begin with."
bmudry@stockwatch.com
(c) Copyright 2002 Canjex Publishing Ltd. stockwatch.com |
