Ontario civil | Agency
STOCKBROKERS
Brokers did not fall below standard of care
Plaintiff C authorized defendant V to open corporate account for W Inc., C’s personal holding company, with defendant brokers I Inc. C signed corporate resolution appointing V as officer of W Inc. and granted him sole trading authority over account. C transferred $2 million into corporate account. V invested those funds in commodity futures and lost over $1.8 million in three-month period. C and W Inc. brought action against V and I Inc. They subsequently discontinued action against V. Plaintiffs claimed against I Inc. in negligence. They alleged that I Inc. breached its “know your client” and “gatekeeper” obligations by failing to make necessary inquiries of C before opening W Inc. account under V’s trading authority. Plaintiffs sought to hold I Inc. responsible for investment losses they sustained as result of V’s mismanagement of their funds. Action dismissed. I Inc. did not fall below standard of care, as informed by know your client and gatekeeper obligations, when it failed to make further inquiries of C before opening W Inc. account under V’s trading authority. Once V instructed B, on behalf of I Inc., to open W Inc. corporate account, B obtained necessary corporate documentation and information about W Inc., its beneficial owner and authorized trading authority. B obtained corporate resolution setting out who had trading authority for W Inc. account, which was signed by C as sole director. Plaintiffs could not point to any Investment Industry Regulatory Organization of Canada rule or authority that required broker to contact beneficial owner of corporation and inquire about his relationship with person being granted trading authority or to inquire into that person’s compensation arrangements. I Inc. was not responsible for C’s decision to grant V trading authority over W Inc.’s account.
Wish Group Inc. v. De Vrij (Nov. 19, 2015, Ont. S.C.J. [Commercial List], Conway J., File No. CV-12-9555-00CL) 260 A.C.W.S. (3d) 434.
Brokers did not fall below standard of care
Plaintiff C authorized defendant V to open corporate account for W Inc., C’s personal holding company, with defendant brokers I Inc. C signed corporate resolution appointing V as officer of W Inc. and granted him sole trading authority over account. C transferred $2 million into corporate account. V invested those funds in commodity futures and lost over $1.8 million in three-month period. C and W Inc. brought action against V and I Inc. They subsequently discontinued action against V. Plaintiffs claimed against I Inc. in negligence. They alleged that I Inc. breached its “know your client” and “gatekeeper” obligations by failing to make necessary inquiries of C before opening W Inc. account under V’s trading authority. Plaintiffs sought to hold I Inc. responsible for investment losses they sustained as result of V’s mismanagement of their funds. Action dismissed. I Inc. did not fall below standard of care, as informed by know your client and gatekeeper obligations, when it failed to make further inquiries of C before opening W Inc. account under V’s trading authority. Once V instructed B, on behalf of I Inc., to open W Inc. corporate account, B obtained necessary corporate documentation and information about W Inc., its beneficial owner and authorized trading authority. B obtained corporate resolution setting out who had trading authority for W Inc. account, which was signed by C as sole director. Plaintiffs could not point to any Investment Industry Regulatory Organization of Canada rule or authority that required broker to contact beneficial owner of corporation and inquire about his relationship with person being granted trading authority or to inquire into that person’s compensation arrangements. I Inc. was not responsible for C’s decision to grant V trading authority over W Inc.’s account.
Wish Group Inc. v. De Vrij (Nov. 19, 2015, Ont. S.C.J. [Commercial List], Conway J., File No. CV-12-9555-00CL) 260 A.C.W.S. (3d) 434.
