Oh boy, what a mess

Oh boy, what a mess

Oh boy, what a mess The National Post ran an amazing story involving a financial advisor yesterday. The piece has been making the rounds among those in the industry. No wonder.

As reported by NP, a Vancouver man, Mohammed Shakil Khan, won $4 million in the Lotto 6/49 lottery on March 17, 2007. Wisely, Khan put his winnings in high-yield short-term GICs earning about 4.5 per cent per year. Doing so would have provided an impressive $180,000 in income. Who needs more than that? Apparently Khan did.

Khan met with an advisor from Leede Financial Markets Inc., someone named Catherine Jones. She promised she could invest those funds and provide $50,000 a month in income. Which would, of course, make Jones the worlds’s single best financial advisor. Sadly, it seems, this is not the case.

Khan, an unsophisticated investor, said Jones promised to invest in “blue chip, dividend-paying stocks and high-performing bonds of established corporations and money market trading.” How Jones would pull $50,000 a month out of such a portfolio is anyone’s guess. Advisors based in reality will see where this is going.

According to the FP story, “Between May 2007 and April 2008, Jones engaged in a number of transactions without Khan’s consent, selling a number of blue chip equity-paying stocks and investing the funds in speculative ventures.” According to the lawsuit, these investments “had the effect of increasing the transaction fees and improving the commissions paid to Jones.” The plaintiff, with “no experience reviewing financial statements” relied on the defendant Catherine Jones to provide him with periodic updates as to the value of his portfolio. But “throughout the course of her interaction with the plaintiffs the defendant Jones repeatedly overstated the value of the portfolio and told the plaintiff that his portfolio was worth a great deal more than what was contained in the financial statements.”

Oh boy.

Jones was doing well by this time. Also according to the lawsuit, by April 2008, the investment of $3.5 million had dropped to $3.1 million. This was not enough, however. Between April 2008 and October 2010 Jones allegedly engaged “in a pattern of repeat buying and selling the same individual stock indiscriminately, often several times per day, having the effect of increasing the transaction fees and commission.” Jones also, apparently, put the money in something called “Dollars and Dreams Investments Ltd.” Which just sounds dodgy.

This is, of course, the kind of portfolio churning and investment maliciousness that makes the blood boil when it occurs to widows and orphans. This is the stuff that makes the industry look bad. But don’t despair, this story takes another turn into a whole other level of absurd trashiness. The key revelation by the FP reporter is that Khan was, “arrested on April 28, 2009 after he was spotted by Transit Police having sex with a woman against the hood of a luxury BMW M5 sedan between the Nanaimo and 29th Avenue SkyTrain stations. “ At the time, police said that Khan, subject to a lifetime ban from possessing firearms, had a loaded revolver with him.

So there’s that.

The whole scenario continues to circle the drain. “While he was in custody, Jones was unable to obtain obstructions from him, but continued the pattern of buying and selling shares, including day trading, short selling and purchasing shares on margin, says the writ,” according to the FP Story. Khan, eventually released on the gun charge, found he had lost $1.6 million between May 2007 and September 2010 as a direct result of Jones’s “reckless and/or unsound” investment strategies. Between October 2010 and August 2012 he lost another $700,000. His lawsuit seeks to have the $2.3 million in lost funds returned to him, which is brash.

That there is the kind of nastiness here that never washes off again, ever, is kind of amazing. Not to let the advisor off the hook—if the allegations are true, that is radically malicious investing. But let’s be honest…as a client you really need to question your advisor when they tell you they are going to generate $50,000 a month in income for you. It’s not hard to find a calculator these days. It doesn’t even need to be mentioned that running around with illegal firearms. That saps all sympathy. But there is a heart-warming take-away on all this—there is a sort of poetic justice when “like meets like.” 
4 Comments
  • Harley Lockhart CFP CLU CHFC 2014-10-08 1:53:10 PM
    Like meets like is comforting but irrelevant. What other clients has Jones abused? Where was the compliance department at Leede Financial Markets Inc.?
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  • Jeff Sanford 2014-10-08 1:57:01 PM
    Good point Harley. Apparently someone with the same name had been cited by securities regulators in BC. The question about compliance at Leede is a good one. How did they not pick up on that kind of trading?
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  • Ken MacCoy, CHS 2014-10-08 10:27:57 PM
    What do you call it when a possibly malicious advisor rips off a greedy, gun-toting, too-lazy-to learn investor? A dolt that got duped! How about a hood that got hoodwinked?!

    All kidding aside, the sad reality is both are bad news. As per a May 6, 2014 Investment Executive article, a 'Catherine Jones' with Leede Financial Markets Inc. was taken to task by IIROC & fined $48,000 for problems dating back to 2009 & 2010. In addition, IIROC ordered a 3 month suspension, 1 year of strict supervision & was to pay costs of $15,000. According to the article, Jones is currently a registered rep with Global Securities Corp in Vancouver. Assuming this is the same individual, it's looks like pattern and perhaps, this time she will get more than a slap on the wrist. However, I wouldn't hold my breath!
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