RBC Dominion Secur-ities Inc. has launched a lawsuit against two of its former investment advisors over what the firm says were extensive offshore dealings through other financial institutions.
DS is seeking more than $525,000 from Konstantine (Kosta) Dariotis and Alphonso Fiumidinisi, whom DS says were dismissed with cause from the investment dealer’s Montreal office in September 2006. Almost immediately after their firing, the pair, who work as a team, were hired by CIBC Wood Gundy; they continue to work at that brokerage.
DS alleges in a statement of claim filed in Ontario Superior Court that the advisors had trading authority over the offshore accounts of more than 30 individuals, some but not all of whom were DS clients.
“Until being advised of these facts in early 2006, DS was not aware, nor could it have been aware, that the defendants had, and used, trading authority over accounts of third parties held at other financial institutions,” the suit states. “DS pleads that in doing so, the defendants were in contravention of their employment contract, Investment Dealers Association of Canada bylaws and regulations, and provincial securities laws.”
The action says DS received complaints about losses on offshore investments recommended by Dariotis and Fiumidinisi, who, according to their lawyer, had combined assets under administration at DS of about $500 million.
In May 2006, DS disciplined the brokers. They each agreed to make a $25,000 donation to a charity, reimburse legal fees and other costs relating to DS’s investigation and be subject to close supervision for 90 days, the claim states.
The claim also states the advisors agreed to co-operate in a continuing review of their affairs, including providing documentation about offshore accounts over which they had trading authority.
DS alleges the brokers later failed to co-operate with the investigation into their offshore dealings by, among other things, failing to provide documentation. They were fired on Sept. 27, 2006.
Jean-Stéphane Rousseau, the lawyer for Dariotis and Fiumidinisi, says his clients have done nothing wrong and calls the lawsuit “unreasonable and abusive.” Rousseau adds that his clients will be defending the suit and launching a counterclaim against DS.
The names of Dariotis and Fiumidinis have also come up in the litigation between Montreal-based animation firm Cinar Corp. and DS over transfers of Cinar money made in the late 1990s to a group of Bahamas-based companies closely linked to collapsed hedge fund operator Norshield Financial Group.
Rousseau confirms that some of the offshore dealings referred to in the DS suit involved Norshield entities. But, he says, DS encouraged offshore business with its own entities as well as the use of Norshield products. Rousseau also rejects suggestions that his clients did not co-operate with DS’s investigation.
According to the lawsuit, the disciplinary action against Dariotis and Fiumidinis stemmed from events in late 2005 and early 2006, when two clients complained to DS about being unable to redeem investments held in offshore accounts. Upon review, the firm couldn’t find the investments in the clients’ DS accounts.
The first client left DS and did not pursue the complaint. In the second complaint, DS contacted Dariotis, who told the firm that the investments were not placed through DS but rather through Switzerland-based investment bank Pictet & Co.
In early 2006, the brokers advised DS that they had trading authority over the Pictet account and that they “had similar arrangements with respect to approximately 32 other individuals, some but not all of whom were DS clients.”
The brokers advised DS they had given investment advice to most if not all the individuals and given trading instructions for the execution of orders in the accounts, the lawsuit alleges, which adds the two advisors also advised DS that they had not received any commissions or any other benefit from the referrals they made to the offshore accounts, other than for a small number of “directed trades.”
DS’s suit also alleges the firm’s investigation discovered the brokers made large cash payments of up to $50,000 to individuals over whose accounts they had trading authority: “The payments were made without the knowledge of DS; and the source of the payments is unknown to DS. The defendants acted dishonestly throughout the DS investigation into the issues raised in the client complaints.”
In the latter part of 2006, presumably after the brokers were fired, DS received complaints from a woman and a couple. These people weren’t clients of the firm, but complained they had been induced to place their savings in offshore investments and that they had signed documents providing Dariotis and Fiumidinisi with trading authority over their offshore accounts, the suit alleges.
@page_break@The clients knew little about the investments and were unaware that the two brokers had received substantial commissions in connection with them, the suit adds.
DS settled with those complainants, paying $32,232.50 to the woman and $36,877.61 to the couple.
DS is claiming the amounts of those settlements from Dariotis and Fiumidinisi, as well as money it says they owe from the May 2006 disciplinary agreement and $250,000 for loss of reputation and goodwill.
Rousseau calls the action “totally unfair” and says the allegations in it are untrue. He says his clients intend to file a counterclaim for wrongful dismissal and damage to their reputations: “Neither of my clients have committed any of the faults that are alleged in these proceedings. The written defence or plea and cross-demand will show clearly that this claim of DS is totally unreasonable and abusive.”
Cinar has filed notice in Ontario Superior Court asking for permission to amend its lawsuit against DS to include, among other things, references to Dariotis and Fiumidinisi and their connection to Norshield.
Wesley Voorheis, head of Cinar’s litigation committee, says that he wants to amend the lawsuit to refer to the brokers so that he can ask the court to order DS to produce documents about them.
An affidavit Cinar filed this past year says documents indicate the two brokers participated personally in the Norshield group. Dariotis and Fiumidinisi were shareholders — through their firms VIR Dragon Holdings Ltd. and CAP Dragon Holdings Ltd. — in one of the Globe-X Man-agement Ltd. companies, a Bahamas-based group with close ties to Norshield, the affidavit states.
Among the proposed amendments to the Cinar suit against DS is: “DS employed, as brokers, Al Fiumindisi and Kosta Dariotis, who participated as principals, as commissioned salespeople, as agents and as shareholders of one or more Norshield companies, including as shareholders of Globe-X International Inc., a Bahamian company affiliated with GXM, and who sold Norshield, GXM and other investment products to DS and affiliated companies including Royal Bank of Canada (Suisse) for the purpose, inter alia, of gathering business for DS and affiliated companies.”
In September 2007, Ontario Superior Court Justice James Spence denied Cinar access to DS documents relating to the brokers, stating that Cinar’s arguments in its lawsuit were “not sufficiently specific to raise an issue relating to the named individuals.”
That’s why Cinar wants to revise its lawsuit to refer specifically to Dariotis and Fiumidinisi.
In the late 1990s, more than US$120 million of Cinar money was sent to the Bahamian firms without board authorization. Cinar is suing Royal Bank of Canada, the banker to Cinar and provider of financial services to Norshield and the Bahamian companies. RBC has denied, in a statement of defence, that it acted improperly or negligently in handling Cinar’s money. IE
DS sues two brokers over offshore dealings
But the former Montreal advisors intend to file a counterclaim for wrongful dismissal and damage to their reputations
- By: Don Macdonald
- March 31, 2008 March 31, 2008
- 09:44