Unhappy former clients of the now defunct Matrix
Financial company in Saskatoon will have to pursue their claims against the
company and its former employees in civil court without the aid of a
disciplinary ruling from the Investment Dealers Association of Canada (IDA).
The Saskatchewan Court of Appeal ruled last month that the IDA would not
be able to proceed with any disciplinary hearings against former Matrix
financial adviser Wade MacBain and his compliance supervisor, Karl Neufeld,
because they no longer work in the financial services industry. The court made
that decision based on a change that was made to the IDA’s bylaws in relation to
timing of prosecuting former IDA members.
Former clients allege MacBain put their savings at risk in the mid- to
late-1990s by heavily loading their individual retirement portfolios with shares
in Saskatchewan Wheat Pool.
Those shares went on a rollercoaster ride in the late 1990s, soaring into
the high $20 range after the Pool’s initial public offering, which converted the
Pool from a co-op to a publicly traded corporation. However, within a few years,
the downturn in the agricultural sector had helped turn the Saskatchewan Wheat
Pool into a penny stock.
Even before IDA disciplinary proceedings began, many of MacBain’s former
clients had filed statements of claim against him and Matrix, with many of those
clients being represented by Saskatoon lawyer Grant Scharfstein.
“We’ll be pushing ahead full steam now with the civil action, which there
are no bars or limitations to pursue our claims,” Scharfstein said.
Warren Funt, the IDA’s vice-president for Western Canada, says the IDA’s
attempts to bring disciplinary action against the former Matrix officials are
“That is the end of the line in terms of the MacBain case,” he said. “The
court has ruled and we can’t do much more than what we’ve done.”
The case also involved the Saskatchewan Financial Services Commission,
which gives the IDA self-regulatory authority within the province. The Matrix
case will likely result in amended legislation being introduced in Saskatchewan
to clarify how long self-regulating associations approved by the commission have
to initiate action against former members.
Barbara Shourounis, the commission’s securities division director, says
Saskatchewan legislation passed this spring, but not proclaimed, states a
disciplinary action must be initiated against former association members within
two years. However, both the IDA and the Mutual Fund Dealers Association of
Canada, the two self-regulating groups in the financial services sector
recognized by the commission, say that isn’t enough time to assemble a case.
Shourounis says the appeal court panel appears to have found the IDA’s
bylaws vague about whether an action against a former member had to be commenced
within five years or finished within five years. She said the court appears to
have taken the view that the proceedings should be finished within five years of
a person leaving the financial services industry.
“They (the judges) construed the (IDA) bylaw against them because it was
vague,” Shourounis said.
She says the new legislation will try to provide a time frame that is
reasonable, but will still provide “some rigour so they will get on with
Scharfstein admits an IDA ruling on the matter would have been helpful to
his clients’ lawsuits.
“We were waiting to see where the IDA went and what its decisions were,
because that would assist us, we thought, had they come out with a ruling that
was adverse to MacBain,” he said.
Even without an IDA ruling, Scharfstein says there is a hope the civil
suits, through 12 test cases, can soon finish up with the examination for
discovery process and move to pre-trial conferences in the coming months.
Greg Thompson, lawyer for MacBain, Neufeld and former Matrix official
Fred Smith, says his clients are pleased with the Court of Appeal decision that
the IDA did not have jurisdiction in the case of MacBain and Neufeld and had
waited too long to take action against Smith, who is still in the financial
services industry. “It’s been a long time coming,” he said. As for the civil
action, Thompson agrees the test cases are getting close to the pre-trial
conference stage and “we are defending them quite vigorously.”
While Matrix has not existed for more than seven years, about $1 million
in assets of the former Saskatoon firm are sitting in an escrow account
supervised by the financial services commission. That money will be used to
settle any successful claims of former clients, Shouronis has explained in the