An Ontario court has ruled that an advisor must pay back the transition loan he received when switching firms, after the arrangement at the new firm broke down.
A decision issued last month by the Ontario Superior Court of Justice ruled in favour of Canaccord Genuity Corp. against a former broker, Gary Lorne Beck, who it sued over an $80,000 loan he received from the firm when he joined from rival Raymond James.
According to the decision, the Investment Industry Regulatory Organization of Canada (IIROC) refused to automatically reinstate Beck’s registration when he switched firms in late 2009, while it carried out a review of his suitability for registration. Ultimately, IIROC refused his application to serve as a branch manager, but approved his application as a registered rep, subject to various conditions of strict supervision.
In June 2010, it says, Canaccord terminated its agreement with Beck, as it “was unable to provide the requisite level of supervision and thus, it was impossible for Beck to be registered.”
The firm then sued for repayment of the transition loan, arguing that, “The fact that the defendant was unregistered and ineligible for registration gave the plaintiff the right to terminate the agreement and constituted a default… A default having occurred, the defendant now had the obligation to repay to entire loan.”
Among other things, the decision says that the defence questioned whether the firm had cause to terminate the agreement, and whether it did enough to enable Beck’s registration. “According to Beck, the plaintiff ‘lured’ him to Canaccord and terminated the agreement on grounds of an invalid license, denying him proper notice and causing him ‘severe damage’,” the decision notes.
However, the court ruled, “I find that Canaccord made all reasonable efforts to assist Beck in order to comply with the restrictions imposed upon him by IIROC.”
It also found that the firm did not act in bad faith in the case. “Specifically Canaccord did not fail to use its best efforts to accommodate the restrictions imposed on Beck by IIROC and did not act in bad faith in terminating the agreement,” it ruled in dismissing a counterclaim against the firm.
“I can find no arguable defence in the main action and absolutely no merit in the counterclaim,” it said, ordering a judgment in favour of the firm of $89,459, comprised of $56,634 for the loan outstanding and $32,825 in costs.