Investors Scrutinizing the Regulators

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Securities Regulation In CanadA

Fox Guarding the Hen House




Christopher Morgis et al., vs. Thomson Kernaghan and Co. Ltd


Motion to obtain a court order naming the

Investment Dealers Association of Canada as defendants in this action.

Court File No. 01-CV-203394


G.F.Kym Anthony

Incoming IDA Chairman (Chair in 2003)

(National Bank Financial)

Joseph J. Oliver

President and CEO, IDA (ex-2007)

President, MFDA

Chairman, Financial Services Council of Canada

Terry Salman

Outgoing IDA Chair, 2003


Further sanctions sought against former Thomson Kernaghan chief

28 January 2005



All of us understand that deliberately causing injury to others is a criminal offence ordinarily resulting in punishment of the perpetrator.


All of us understand that some injuries are accidental, i.e. the circumstances giving rise to them are wholly unforeseeable.  No one is responsible.  No compensation is payable.


In between those two ends of the spectrum are `negligent acts’ i.e., they are not deliberate, but the injury is foreseeable.  The negligent person will not be punished, however the injured party may seek financial compensation as a result.  The compensation is paid by the individual who has caused the loss.


Duty of care requires everything ‘reasonably practicable’ to be done to protect the public welfare.


Could the Investment Dealer's Association be liable to individual investment firm clients?

by Angela Yadav and Kenneth A. Dekker

In 2003, the Ontario Court of Appeal decided in Morgis v. Thomson Kernaghan & Co.[9] that the Investment Dealers’ Association of Canada (“IDA”) cannot be held liable to individual investment dealer clients for failing to supervise one of its members. In refusing to allow disgruntled Thomson Kernaghan (“TK”) clients to sue the IDA for its failure to ensure TK complied with IDA regulations, the court found that the IDA does not owe a duty of care to individual clients. Instead, the IDA owes a duty to protect the public in general and has protections against liability similar to those enjoyed by statutory regulators such as law societies. Leave to appeal to the Supreme Court of Canada was denied.

However, the extent of the IDA’s protection against liability is called into question by recent decisions of both Canada’s Supreme Court and B.C.’s Court of Appeal. Last June, the Supreme Court found in Finney v. Barreau du Québec[10] that the body regulating Quebec lawyers was liable to the plaintiff for failing to properly handle complaints against her former lawyer. The court found that the Barreau’s statutory immunity for actions done in good faith did not protect it from liability for recklessness, extreme carelessness or intentional misconduct.

The B.C. Court of Appeal subsequently indicated in V.M. v. Stewart[11] that it could not see why Finney would not allow individuals to sue regulators in the rest of Canada. In V.M. v. Stewart, a patient’s action against the B.C. College of Physicians & Surgeons was allowed to proceed. There is no reason why the principles in Finney could not also allow claims against regulatory bodies such as the IDA or the OSC, where intentional misconduct , recklessness or extreme carelessness is proven. At a minimum, the IDA and OSC should feel a little less secure in their supposed immunity from liability to the investing public!

[9] (2003), 65 O.R. (3d) 321 ( C.A. ).

[10] 2004 SCC 36.

[11] [2004] B.C.J. No. 1852 (BCCA).



Paul Bourque

IDA finally took action on Rampart Securities

September 2001

"There is a positive duty to inquire on any warning signals and take immediate steps to remedy the problems".

-Paul Bourque, S.V.P. Member Regulation, IDA


Mark Valentine

Where were CANADIAN regulators?

Where was TK's Compliance Officer?

Chris Morgis


Bay St. Brokerage at the Center of Perfect Legal Storm

05 May 2001

Statement of Allegations  re: Mark Valentine

24 June 2002

Investor sues IDA over its handling of Thomson

26 July 2002

Market cures: Take a vacation and bring in the lawyers

27 July 2002

"Staff submit that they have presented sufficient evidence to call into serious question Valentine's integrity. By creating a culture of conflict and non-compliance and acting in his own interests at the expense of his clients, Valentine failed to deal fairly, honestly and in good faith with his clients." -OSC


30 July 2002

Valentine indicted in fraud ring

16 August 2002

FBI arrests star Canadian trader

16 August 2002

OSC to continue Valentine probe

17 August 2002

"When I dialed 911 to the IDA, nobody came."

20 August 2002

Regulators probing Thompson Kernaghan executives

"Our own regulators and enforcement people were sleeping at the wheel."

20 August 2002

Why didn't regulators listen to Thomson Kernaghan warnings?

31 August 2002

"I suspect (TK) won't pay all of its debts"

06 September 2002

Canadian Investor Protection Fund required to ante up $18.1 million

06 September 2002

Valentine sells assets to cover defaulted loan

23 October 2002


Hey American dealers, where are all those stock certificates (street form) that T.K. sold to you  in the "death spiral financing" deals?  It must have left a gaping whole in your accounting records. Who is going to deliver them to you or who are you going to sue?  (eh?)

Are you covered by the Canadian Investor Protection Fund?

Will you sue The IDA?    After all, you were a CLIENT (just ask Ernst & Young) on the books of TK and regulated by NASD Regulation.  $18.1 Million paid out by CIPF must look like chicken feed in comparison. CIPF can't be too pleased with the IDA either.

"This is bigger than Hicks and Valentine.  This has been allowed to occur through a lack of supervision by our NASD (the U.S. National Association of Securities Dealers) and other regulatory organizations - and equally your organizations in Canada".

15 October 2002

Brokerage Collapse Hits Canadian Fund Hard

"There is nothing I can think of that would prevent us from covering a short sale," says Love of the Investor Protection Fund. At the same time, she says, "I have not been made aware that there is a huge short position in any account at the date of insolvency."

Barbara Love, V.P. and Secretary, Canadian Investor Protection Fund

18 October 2002

Predator or Prey? - Death Spiral Financing

28 October 2002


28 October 2002

Ernst & Young slaps 47 former T.K. staff with $76M Lawsuit

 11 December 2002


Derek DeCloet of the National Post speaks with CBC's Jeannie Lee about stock fraud and Mark Valentine   

CBC's Ron Charles reports on Mark Valentine

CBC report following postponement of Sept. 06, 2002 hearing.       


IDA requests Statutory Immunity

30 May 2002



IDA claims NO DUTY of CARE owed to INVESTORS

Cooper v Hobart






10 September 2002


Superior Court Decision


Ontario Judge excludes IDA from TK suit

26 September 2002

IDA welcomes court decision    

26 September 2002

Can Regulators be Sued?       EXCELLENT READ

26 September 2002

Brokerage regulator can't be sued by investor

27 September 2002

Investor can't sue regulator


27 September 2002

TK client loses bid to sue IDA


27 September 2002

Shameful Politicians Neglect Regulators


27 September 2002

Ottawa Pledges to Improve Securities Regulation

30 September 2002



Superior Court decision APPEALED

Investor Appeals Ontario Superior Court decision

03 October 2002

Brokerage Client to Appeal

03 October 2002

Court will consider whether IDA should be held accountable to individual investors

03 October 2002

Investor seeks precedent in IDA lawsuit

15 October 2002

Two years  after Chris Morgis filed complaints with the IDA 

against Pat Teggart & TK.

IDA issues Allegations against Pat Teggart

25 March 2003

Discipline Penalties Imposed on Patrick Teggart (IDA can't collect)

11 April 2003


Court of Appeal Affirms - IDA has NO private law DUTY OF CARE to INVESTORS

Court of Appeal for Ontario





IDA welcomes decision

25 June 2003


U.S. Judge dismisses suit against TK, Valentine

11 July 2003

Investor seeks Leave to Appeal to Supreme Court of Canada

Supreme Court Appeal sought in law suit to include IDA

18 July 2003

Application for leave to appeal

16 October 2003




Leave to Appeal Denied

Judge denies motion to sue IDA

09 April 2004

Supreme Court dismisses case against IDA

08 April 2004

IDA welcomes Morgis decision

08 April 2004



Exposing advisors to legal action

September 2003

"In June, when the Ontario Court of Appeal ruled against that motion, it was a prime example of "judge-made law".  The Ontario Court of Appeals extended immunity to the Investment Dealers Association even though there is no statutory basis for doing so."