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Complaints

In Ontario, the Limitations Act, proclaimed January 1, 2004, reduced the general limitation period from six years to two years. The Limitation Periods have now also been reduced in most other provinces.

The reduced limitation periods will probably apply to most civil actions regarding investment disputes. There are certain exemptions to the Limitations Act, most notably the Securities Acts, but these exemptions do not cover all investment issues nor civil litigation. Aggrieved investors should contact a securities lawyer to seek clarification on this issue as soon as a problem is suspected and prior to taking any action towards resolving a dispute.

Complaint Process

The complaint process mechanism currently available for the investor will depend upon the type of company used by the investor. The regulation of the investment industry is generally a provincial responsibility, but banks and insurance companies federally incorporated are federally regulated.

Responsibility for regulation and investor protection has been delegated to self-regulatory organizations (SROs) such as the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA). The industry is regulating itself and has an inherent conflict of interest with regard to investor protection.

The lack of one federal regulatory authority makes it difficult for the individual investor to find their way through the maze of regulations. However, in the province of Québec, the Autorité des marchés financiers (AMF) is responsible for regulating all financial services so aggrieved investors have one source to file a complaint. Most regulators do not have the authority to order restitution, although the AMF does with limitations.

If you believe something is wrong, it is most important that you obtain expert help prior to proceeding with your complaint. It is highly unlikely that an individual will be able to get a serious complaint resolved without some expert assistance, and many victims tend to believe they in some way are responsible and may make a faux pas in their communication with the regulators. Therefore you should speak with a competent securities lawyer prior to taking any action.

Historically limitation periods were six years for matters not of a fiduciary nature and without limit for fiduciary matters. The Limitations Acts have reduced limitation periods from six years to two for non-fiduciary issues and from unlimited to fifteen years for certain fiduciary issues. Provinces have unfairly reduced the limitation periods which erodes the rights of victims of financial crime to seek redress.

Although we believe that financial advisors and their firms should have a fiduciary duty to investors, the industry regularly denies fiduciary duty, and it becomes a matter for the courts to decide. There are many cases where judges have decided there is fiduciary duty when the industry denied there was any.

Preparation for Making a Complaint

In order to get the maximum benefit from any expert consultation, you should ensure that all of your documentation is in order. An expert will need to see your contract, or new account opening form (Know Your Client (KYC) form); statements provided for your account; and any other correspondence or records. You should also prepare a written outline of your perception of the problem indicating the timing of events. A summary of the value of your account at each year-end, the cash contributions, cash withdrawals, and commissions paid is helpful.

Assembling basic information regarding your account will also help you to be in a better position to discuss your complaint with an expert. You should discuss your situation with legal counsel before proceeding. If your lawyer does not have securities litigation experience he should refer you to one who does.

You should also spend some time researching information regarding how the industry is regulated. Major reference libraries, provincial securities commissions and Investor Learning Centers are good sources for information. Much information can be obtained via the internet. Use the links provided on this website.

You should read the SRO Rules and Regulations regarding requirements for supervision of their members. You should also read some of the court judgments that are available as they reveal what judges see when they try cases.

No one else will be as concerned as you about your loss. Therefore, it is imperative that you learn as much as you can to improve your chances of gaining satisfactory restitution.

Check with the provincial securities administrator in your province regarding the registration of the firm and the individual with whom you are dealing. Ask if there have been disciplines or restrictions on registration. The SROs will also provide information regarding your representative if he is a member of those organizations. The Canadian Securities Administrators (CSA) have initiated an alphabetical list of persons disciplined but the list may not include persons disciplined by the SROs, and the records go back only a few years, therefore you must check with the provincial regulators as well as the CSA. The AMF in Québec is taking a more pro-active role in helping aggrieved investors.

In the United States, the Financial Industry Regulatory Authority (FINRA) is responsible for protecting investors and regulating the securities industry. (for more information, visit: FINRA)

How to Get Your Complaint Resolved

There are a number of securities litigation cases that have established precedent, but most cases do not reach the courtroom. Generally cases are settled out of court which helps to limit the cost of litigation. A Supreme Court Judgment in the Laflamme v. Prudential-Bache case should provide encouragement for investors now in litigation with their brokers. the Supreme Court acknowledged that Prudential-Bache had a fiduciary duty and awarded Laflamme complete restitution.

A more recent case in Québec, Markarian v. CIBC World Markets, provided not only restitution of losses, returns and expense but also awarded moral damages of $50,000 each and punitive damages of $1,000,000. this is a landmark case. We believe that most victims of financial crime should be requesting moral and punitive damages as most victims suffer extreme stress and are unfairly treated during the complaint handling process. 

There are a number of avenues that may be available to seek restitution such as  alternate dispute resolution, arbitration, mediation, negotiation, ombudsmen and civil litigation, but industry sponsored dispute resolution seldom seems fair. They claim to offer quicker and less costly solutions, but most litigation cases are settled out of court and this can be done within reasonable time periods. The cases that are pursued to the Supreme Court can be long and costly. In situations where a number of investors are involved there may be benefit in working together to make a stronger case.

Some lawyers will provide legal services on a contingency fee basis. This means they will only charge you if they are successful in getting restitution. The fees may seem high and in the range of 30%; but if you are unable to proceed with civil litigation otherwise, it is an option worth considering.

The IIROC Arbitration Program is available in all provinces. Although this route is being touted by the industry, one should obtain legal counsel before proceeding with any approach for dispute resolution.

The feedback SIPA has received suggests that the arbitration program is quite similar to civil litigation with regard to rules of evidence and procedures. It is improbable that the average individual would have any success without proper legal representation. Unlike civil litigation there is no recourse once the arbitrator's decision is made. Therefore you must get it right the first time. 

You can access the Canadian Legal Directory for a list of legal firms. A number of firms are listed under a section entitled Securities Litigation. Members should contact SIPA for Complaint Guidelines and a list of lawyers suggested by other members.

James Daw wrote an article which appeared in the Toronto Star on April 19, 2001, entitled "Complaint Guide Can Avert Investing Woe". Every investor should read this article and heed Jim's advice.