Dismissed advisor must repay transition loan, court rules

According to the decision in Canaccord Genuity Corp. v. Sammy, Canaccord recruited Sammy to join the firm in 2011, providing him with a loan of over $600,000 to ease the transition from his former firm, Dundee Wealth Management. Canaccord also loaned $60,000 to Sammy’s assistant.

However, the decision indicates that, in 2012, Canaccord’s compliance department “came to have concerns” about investments that had been made by Sammy’s clients in a couple of small cap mining firms, Northcore Technologies (NTI) and Mahdia Gold (MGD) that had lost significant value by the time the clients’ accounts had been transferred to Canaccord.

It notes that “Canaccord learned that these investments comprised over 25% of the assets that Mr. Sammy was managing”; and that the firm “considered this to be a serious regulatory violation.” Additionally, it says that “clients were expressing concerns about these investments”, and that regulators also became concerned. In mid-2102, the Investment Industry Regulatory Organization of Canada (IIROC) informed the firm that it had initiated an investigation. However, IIROC has not made any disciplinary allegations.

The court says that, in August 2012, Canaccord decided to end its relationship with Sammy, and that it terminated their agency agreement without cause, with 90-days written notice. After that, Sammy, who has since left the industry and now lives in Guyana according to the decision, did not repay the loan, so the firm then sued for repayment.

The decision notes that Sammy has filed a counterclaim alleging that the firm breached their agreement. “He submits that Canaccord lured him into the agency relationship in order to acquire his book of business with the intent of then terminating the relationship and keeping the business,” it says, noting that he argues that the firm “is liable for misrepresentation and for unjust enrichment and that it breached its contractual duty to act in good faith.”Those allegations have not been proven.

The court says that Sammy argued that the alleged breach of good faith eliminates his obligation to repay the loans; or, if the court finds that the loans are still due, that his claim for damages against the firm offsets the loan obligation. So, he opposed the summary judgment motion, and he sought a trial of his counterclaim for damages.

On Canaccord’s motion for summary judgement the court sided with the firm. In its decision, it says that there are genuine issues requiring a trial about whether Canaccord had a duty of good faith; and, if it did, whether that duty was breached. But that there’s no question about Sammy’s obligation to repay the loan.

“In my opinion, the loan was repayable even if Canaccord breached a duty of good faith, if any. This is a matter of contract interpretation, and under the agency agreement, Canaccord can terminate with cause or without cause and then demand repayment of the loan,” Judge Paul Perell wrote in the decision.

As a result, the court granted Canaccord a partial summary judgment of $668,643.91; adjourned the question of whether Sammy is required to repay the assistant’s loan; and, ordered his counterclaim to trial.