The Supreme Court of British Columbia (SCBC) has ruled that an advisor is not responsible for an investor’s losses that were suffered largely due to the financial crisis, and her rash decision to sell, which crystallized those losses.
In Graham v. Wells, the SCBC found that Robert Wells, an advisor with CIBC World Markets Inc., was not responsible for losses former client Cathleen Graham suffered in 2009.
According to the decision, Graham had unexpectedly inherited about $4 million by age 30 after her mother, father and brother all died within a two year period, leaving her as the only surviving family member. Given the circumstances of her wealth, “It is no surprise that Ms. Graham had a complex and distinctive attitude towards the money that came to her with these terrible losses,” the decision notes.
The decision indicates that Graham ultimately invested this money with Wells, and did well for a number of years, until the financial crisis hit in 2008. She sustained significant losses when she sold her portfolio in March 2009, and left the Wells Group. According to the decision, she argued that Wells breached a fiduciary duty toward her, as well as the duties he owed as her investment advisor, and that she was unsuitably invested.
Wells and CIBC World Markets Inc., the respondents, denied that a fiduciary duty was owed, the decision says, and maintained that Wells more than met his duty of care toward Graham.They also argued that she caused the loss in her portfolio, “by unilaterally and unreasonably liquidating her portfolio at a low point after the market crash, instead of allowing the portfolio to rebound with the market as Mr. Wells advised.”
According to the decision, Graham ordered the liquidation of her portfolio after learning of rumours from an administrative assistant at the firm that Wells may look after the clients of another advisor who had recently been charged with offences related to child pornography, and fired from his firm, while he was facing trial. That advisor is referred to only as J.C. in the decision.
The court found that these circumstances led to her decision to sell, and that this was not reasonable.
The decision notes that “Ms. Graham reached her own view about the legal status and implications of Mr. Wells’s conduct in relation to Mr. C. without checking the facts … and without seeking legal or other experienced advice. Some of the key facts were erroneously reported.Ms. Graham’s conclusions about the legal effects of Mr. Wells’s conduct were for the most part simply wrong,” the decision says.
It also notes that she could have moved her portfolio to another investment advisor without liquidating it. “Had Ms. Graham not liquidated her portfolio when she did, she would not have suffered the losses she now claims from Mr. Wells,” it concludes.
The SCBC concluded that even if Wells breached his duties owed to Graham, the breaches did not cause her losses. It also found that those duties were not breached in the first place, ruling that Wells’ obligations to her did not extend as far as she argued they did.
The SCBC also found no basis for concluding that the asset allocation in 2008 was unsuitable for Graham, which, it concluded left “no basis for a finding that Mr. Wells breached a duty he owed Ms. Graham, whether as her investment advisor or, as she submits, as a fiduciary.”