OBSI shames W.H. Stuart

The naming of firms that refuse to comply with its recommendations to compensate a client is OBSI’s only real enforcement power. Yet, until now, it has only been used once before. On November 9, OBSI announced the first ever refusal from an investment dealer.

According to OBSI, the WHS case involves a retired, elderly couple (Mr. & Mrs. I), who were sold an unsuitable investment — a private placement in a risky venture, Saga Marine, a small, sailboat manufacturer.

OBSI says that the couple were low to medium-risk investors with limited investment knowledge, limited income and net worth, and no investment experience in individual stocks or private shares.

They purchased shares in the small firm on the advice of their rep in 1998 and 1999. OBSI says they became concerned about it in 2001 when it stopped paying dividends (ultimately, in 2006, the company went bankrupt).

As a result, OBSI has ruled that the couple should be compensated $41,066 by the firm for their losses.

The investigation report released by OBSI indicates that WHS was not aware of the couple’s investment until they complained about it to the firm in 2007. The report also notes that the rep had the couple purchase the shares off the dealer’s books, and that she “concocted account statements” to make it appear to the clients that they held the shares at WHS.

The report also indicates that the unnamed rep, who was dismissed for cause in 2001, and is no longer registered, “put some clients in unsuitable investments and swindled others in a pyramid scheme.”

It says that she was criminally charged in 2002 and was convicted for “theft over $5,000” in 2005 for a pyramid scheme that resulted in large losses to clients.

Ultimately, OBSI concludes that, “WHS could have prevented this whole mess if it had simply fulfilled its supervisory responsibilities and asked [the rep] questions about and reviewed the suitability of the Saga Marine shares when they were first deposited to Mr. I’s RRSP account. WHS should now accept its responsibility and compensate Mr. and Mrs. I for their losses.”

OBSI’s compensation recommendation is based on calculating the difference between the amount the investors’ accounts should have been worth had they been suitably invested and the actual value when they removed their investments from the firm, plus interest.

As with the other recently announced refusal, OBSI says that the WHS was offered the opportunity to submit the case to independent review by former commissioners of the Ontario Securities Commission (OSC) to see whether OBSI has unfairly considered the facts of the case, or if its investigation findings were objectively flawed.

OBSI says that WHS did not take up this offer, which has been extended to a number of “stuck complaints” that OBSI has been trying to resolve before resorting to public disclosure.