An Alberta court has issued its reasons for allowing a class action brought against a former investment advisor to proceed, while he also stands accused of killing one of his former clients.
The Court of Queen’s Bench of Alberta last month issued its reasons for denying a motion from former advisor Brian Malley, and his wife, Christine Malley, who sought a stay of a class action suit brought against them by former clients, pending the outcome of his criminal trial.
He is accused of first-degree murder in the death of Victoria Shachtay of Innisfail, Alta., who was killed by a letter bomb in 2011. He was charged in 2012 and has yet to stand trial on that allegation, which has not been proven.
In the meantime, several former clients brought a class action against the Malleys and their former firm, alleging negligence and/or fraud in managing their funds. Brian was a registered representative and Christine was a branch manager with the Red Deer, Alta. branch of Assante Capital Management Ltd. The class action is seeking $80 million in damages — $50 million for losses allegedly suffered by the investors, $20 million in general damages, and $10 million in punitive damages.
According to the court’s decision, the Malleys argued that the civil and criminal proceedings are related because the criminal case is based on circumstantial evidence, and evidence of alleged mismanagement of client funds, might provide evidence of an alleged motive for the alleged murder.
“Indeed, it was suggested, at least indirectly, that the motive to be relied upon by the Crown in the criminal proceedings relating to the allegation of the letter bomb being sent to the deceased was that she was about to disclose Malley’s mismanagement and/or fraud,” the decision notes.
So, the Malleys argued that in defending the class action, they may disclose information that can be used by the Crown in the criminal case. The plaintiffs and Assante argued that a stay is not warranted.
The court dismissed the application for a stay, instead it granted an order imposing conditions on the class action proceedings that are designed to avoid prejudice to either side in the case.
The court’s order requires that Malley not be compelled to provide answers to any questions in the class proceeding that would have a direct relationship to the criminal case. It notes that it will be some time before Malley would be compelled to answer any questions in the class proceeding, which has yet to be certified as a class action. “There would likely be ample time for him to provide his defence in the class proceeding after the criminal proceedings have ended,” the decision says.
Additionally, the order provides that if a situation arises which might arguably prejudice Malley, he could renew his application for a stay based on the new circumstances.
The court says that there is no reason for Malley to volunteer any evidence in the class action that relates to Shachtay, whose estate is just one member of the proposed class. And, any questions relating to the criminal proceedings “would be irrelevant, objectionable to being answered and the answer prohibited in the criminal proceedings,” the decision says.
Even if Malley did volunteer evidence in the class action, “it is clear that the Crown cannot merely ‘gather up’ evidence that is incriminating from the civil proceeding, but rather can only rely on any non-incriminating evidence, if at all, to impeach the credibility of Malley,” the decision notes.
The court also gives another reason not to grant the stay, which is that the plaintiffs would be prejudiced in their action, and delayed from getting on with their lives.
Next: Several potential class members have lost much or all of their retirement savings
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Several potential class members have lost much or all of their retirement savings
The decisison notes that affidavits from former clients indicate that many of them “are retired or nearing retirement, and have lost most or all of the funds they have saved for retirement. Indeed, several potential class members have been forced to come out of retirement and return to work as a result of the losses in their investment accounts, which were managed by Mr. Malley and Assante. Several potential class members, who have lost much or all of their retirement savings, also carry a significant debt load as a result of Mr. Malley’s management of their accounts.”
“I find this a compelling argument for the class proceeding to continue without the full stay that is requested, provided that there is, in law and in fact, no resulting prejudice or injustice to Malley in the circumstances,” said Associate Chief Justice J.D. Rooke in the decision.
Earlier this year, a hearing panel of the Investment Industry Regulatory Organization of Canada (IIROC) also dismissed an application from the Malleys seeking a stay of IIROC proceedings against them. A stay in the regulatory case was also sought on the basis that the criminal proceedings should be concluded first. The IIROC panel did not immediately release its decision for denying the motion, saying they would be released in “due course”.
In that proceeding, Brian Malley is accused of failing to co-operate with an IIROC investigation, failing to know the essential facts of 12 clients, making unsuitable recommendations to 10 clients, and unapproved discretionary trades in the accounts of seven clients.
His wife is also accused of failing to co-operate with an investigation, and failing to exercise her supervisory responsibilities relating to the accounts of 12 clients. Those allegations have not been proven.
The disciplinary proceeding was scheduled to be held March 3–5, in Edmonton.