Dealer refuses to cover advisor breach

A 63-year-old client on fixed income was allegedly sold a non-existent private placement but the advisor’s dealer is refusing to foot the tab despite an Ombudsman’s recommendation.

Dealer refuses to cover advisor breach
A mutual fund dealer appears to have rejected an ombudsman’s call that it should cover client losses stemming from an alleged advisor fraud.

Yet to be proven in court, a 63-year-old client with modest means says she was sold non-existent private placement by an advisor. Now, the dealer refuses to pay her the $55K in compensation recommended by the Ombudsman for Banking Services and Investments.

On Thursday, the ombudsman announced that Sentinel Financial Management Corp. has refused to compensate a retired Saskatoon investor for the $55,000 she claims to have invested with a Sentinel advisor between December 2010 and March 2012 in the Enviro-Can private placement.

Relying on an anonymous tip, the Financial Consumer Affairs Authority of Saskatchewan (FCAA) in February 2013 found that the advisor in question was depositing the cash from several clients in a personal bank account rather than investing the funds in the private placement.
In fact, according to the FCAA and RCMP, there is no evidence that Enviro-Can private placement ever existed. When the mutual fund dealer found out about the advisor’s actions, which were contrary to the rules and procedures of the firm, it terminated her employment in March 2013.

Sentinel has defended its refusal to compensate the client suggesting it did everything it could to supervise the advisor and that the inappropriate activities of the advisor were carried on outside Sentinel’s facilities without its permission or approval.

However, the OBSI concluded that the client believed that the Enviro-Can investment was made through and approved by Sentinel.

Furthermore, it concluded the following in its recommendation that Sentinel compensate the client for the $55,000 lost as well as an appropriate amount of interest.

“Case law is clear that mutual fund dealers and investment dealers are vicariously liable for the actions of their investment advisors in regard to securities-related business. Sentinel acknowledges that Ms. K was engaged in securities-related business when she recommended Enviro-Can to Ms. G. Sentinel is responsible, as a member of OBSI, and vicariously as Ms. K’s mutual fund dealer for the losses Ms. G incurred on Enviro-Can. We recommended that Sentinel compensate Ms. G $55,000 for the losses she incurred but it has refused to compensate any amount.”

The RCMP is currently undertaking criminal proceedings against the advisor in question.