Thursday, June 15, 2006
The Gazette's Paul Delean was the only
Montreal reporter to cover the Markarian-CIBC court case in its entirety
last year. Here are his impressions
What was the braintrust at CIBC Wood Gundy thinking?
Banks and brokerages generally go to great
pains and expense to avoid the kind of negative publicity and
unflattering dissection Wood Gundy was given in Montreal Superior Court
when forced to defend its seizure of $1.4 million from a retired
Montreal man and his wife who'd been misled by their Wood Gundy broker.
The couple, Haroutioun and Alice Markarian, were clients of Harry
Migirdic, a former Wood Gundy vice-president who devised a scheme by
which trusting clients like the Markarians unknowingly signed guarantees
covering the trading deficits of other Migirdic clients (including his
uncle in Turkey).
As stock markets tumbled in the late 1990s, the deficits snowballed. By
the time Migirdic spilled the beans to his superiors in 2001, the two
accounts he had the Markarians guarantee for complete strangers were in
the red to the tune of $1.4 million.
With Migirdic admitting - just before getting the axe - that the
Markarians had no clue about the guarantees, you might expect CIBC
(which made a profit of $1.6 billion in 2001) to take its lumps, being
as it had kept Migirdic in its employ despite several rule breaches over
Instead, the financial institution took the heavy-handed stance that the
guarantees the Markarians signed still were valid and, over their
protests, liquidated their accounts to cover the debts.
That ill-considered decision ended up opening a huge can of worms for
If it thought the Markarians would accept the loss of their hard- earned
money without a fight, it figured wrong.
Not only did they have the firm intention to contest what to them
clearly was an abuse of power, they had the financial resources to hire
a first-class legal team to mount that challenge.
Quebec City lawyers Serge Letourneau and Suzanne Gagne deftly picked
hole after hole in the CIBC case, turning up emails that showed the
brokerage had concerns about Migirdic but didn't follow them up, showing
it had made no serious effort to communicate directly with the
Markarians or the money-losing clients whose accounts they were
guaranteeing, illustrating how Migirdic repeatedly was given the benefit
of the doubt by his superiors, even when transactions were questionable.
They even uncovered an out-of-court settlement with Rita Luthi, a
Migirdic client whose account the Markarians had unwittingly guaranteed
to the tune of $350,000. When Luthi sent a lawyer's letter to the
brokerage in 2001 complaining about her losses and demanding $220,000,
it agreed to give her $115,000, on condition it stay confidential. The
brokerage still kept the money it took from the Markarians to cover the
losses racked up in her name.
CIBC made no settlement offer to the Markarians until summer 2004, three
years after the original seizure, when it proposed $250,000. It upped
that to $1.5 million just before the Superior Court trial that began in
January of 2005, and $1.5 million plus interest and costs during the
25-day trial, but to no avail. The Markarians and their lawyers wanted
punitive damages at that point and felt they had a case strong enough to
The brokerage's defence - that Markarian was a sophisticated
businessperson and should have read the fine print and known better -
might have gone over better if its in-house team of professionals had
demonstrated any diligence of their own. As for the CIBC claim of being
a victim, too, it rang as hollow as many of its excuses and objections.
For example, it didn't want to turn over a "buy ticket" requested by
Letourneau for one trade because its lawyers couldn't see the relevance.
When it was eventually produced, the ticket linked a series of trades
that showed Migirdic flipping shares of a stock called Applied Micro
Circuits Corporation from one account to another. By the time the AMCC
shares ended up in the Markarians' accounts, 10 days after the original
purchase for someone else, they'd already lost 37 per cent of their
value - but the couple were still charged the original purchase price.
Throughout the trial, Superior Court Judge Jean-Pierre Senecal often
seemed taken aback by CIBC's actions, or lack thereof.
In one memorable intervention, after CIBC Wood Gundy head Tom Monahan
said Markarian was a knowledgeable, sophisticated businessman and,
therefore, not "vulnerable," Senecal noted CIBC also had knowledgeable,
sophisticated employees. "Why should he (Markarian) be responsible for
everything, because he's a sophisticated businessman, and not Wood
Gundy, with many more sophisticated employees?"
The trial was a public-relations nightmare for CIBC Wood Gundy. It came
across as greedy, arbitrary, defensive, lax in its compliance and
callous toward customers whose only real mistake appeared to be placing
their trust in one of its brokers.
And the judgment is not the end of its troubles, because there are
several other former Migirdic clients waiting for their turn in court.