An Ontario court has ruled that the outcome of a regulatory disciplinary hearing can be added to a claim in a lawsuit over which fund dealer is ultimately liable for the misconduct of a former advisor.
Investia Financial Services Inc. and Money Concepts (Canada) Inc., along with parent company, Industrial Alliance Insurance and Financial Services Inc. (IA), can amend their claim against Aegon Canada Inc., to include the recent results of a disciplinary hearing held by the Mutual Fund Dealers Association of Canada (MFDA), the Ontario Superior Court of Justice ruled in a decision published on April 15.
Investia, Money Concepts and IA sought to amend their statement of claim against Aegon to add four new paragraphs that reference the findings of an MFDA disciplinary panel against former rep David Karas, which was released in June 2015. In its decision, the MFDA panel found that between 2002 and 2008 Karas “failed to ensure the suitability of his leveraged investment recommendations to at least 18 clients.”
Karas started as a rep for Money Concepts, which was acquired by Aegon Dealer Services Canada Inc. (ADSCI) in 2001. Investia acquired both ADSCI and Money Concepts in 2008. Investia (along with the other firms) is suing ADSCI’s former owner, Aegon Canada, in connection with the alleged misconduct.
The issue for the court was whether the recent outcome of the MFDA’s disciplinary hearing could be added to the statement of claim against Aegon, which was launched more than four years ago. The court sided with Investia, allowing it to amend the claim to include the results of the MFDA hearing.
Aegon may challenge the admissibility of evidence from the MFDA hearing at trial, the court noted, but the evidence should not be excluded from the outset of the case. Concerns about the MFDA proceeding “are fertile grounds for discovery and for challenging the evidence at trial, but it should not be stopped at the front door by denying the right to plead the hearing and its findings,” the court decision says.
The court ruled that the amendments should be allowed, saying “this does not in any manner determine the admissibility of the evidence at trial, the use that can be made of the evidence and the weight to which the trier of fact may afford to the evidence.”
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