Most accept Money Concepts settlement

The plaintiffs allege on behalf of the class that they were part of an “investing scheme” in which Karas and Stephenson counselled them to borrow money to invest in mutual funds without regard to the suitability of the plan.

Specifically, the plaintiffs allege that the plan was a “one size fits all” investing strategy used “without regard to suitability of the strategy,” according to the ruling by Justice Bryan Shaughnessy that certified the class action.

In November 2012, all parties involved in the lawsuit reached a settlement agreement for an undisclosed amount.

To qualify for the settlement, former clients of Karas or Stephenson had to file a claim by Feb. 28, 2013, with the class-action administrator.

While the final number of claimants was still in flux as Investment Executive went to press, John Hollander, a lawyer with Doucet McBride LLP in Ottawa, which represents one of the representative plaintiffs, expects the final number to be approximately 800 people.

Before claimants can receive any money, a judge must approve the settlement. The court date for approval of the settlement is set for June 7, 2013.

If the judge approves the settlement, claimants can expect to receive compensation within roughly three months. To receive approval, the judge must deem the settlement to be fair to all class members, says David Di Paolo, a partner with Borden Ladner Gervais LLP in Toronto, which represents Investia.

While there is a chance the settlement will not be approved, a lot of effort has gone into making sure that it will. “All parties, the plaintiffs and defendants,” says Di Paolo, “worked hard and took a great deal of time to come up with a settlement that was fair.”

@page_break@As part of the settlement agreement, the defendants do not admit any wrongdoing by Investia and the claimants (both those who submitted a claim and those who did not) give up any right to further action against Investia once the settlement is approved by the court.

On the other hand, if the settlement is not approved, the proceedings will revert to where they were before the agreement was reached in November. At that time, the defendants were seeking leave to appeal the certification of the class action. The defence argues that the class action should not have been certified because the individual client scenarios are too different to be decided together in one action. “This is not a fraud case,” says Di Paolo, “it’s a case of suitability.” As such, the investment plan may have been appropriate for some clients in some cases, he says.

If the certification is appealed and overturned, the claimants may launch individual lawsuits, says Harold Geller, another lawyer with Doucet McBride, which could be costly and slow.

That’s not something he wants to see: “It would just be clogging the courts with hundreds and hundreds of individual claims, and [lead to] massive infrastructure costs, particularly to the defence, but to everyone.”

In any event, adds Geller, there is likely to be more class actions of this nature launched in the future.

If the settlement is approved, Hollander says, the certification decision of Justice Shaughnessy will stand and is likely to provide guidance in future cases.

However, Geller says, it is unclear whether this case will result in significant changes to regulation and policy on the subject of suitability.

Without such changes, Geller adds, conflicts arising from lack of compliance by advisors when it comes to suitability and “know your client” rules are likely to increase.

“Until there is that robust suitability compliance, both at the individual advisor level and [the dealer level],” Geller says, “these [cases] will continue because big problems continue unabated at that level.”

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