A British Columbia court has found Refco Futures (Canada) liable for about $332,000 in losses suffered by one of its clients, SYB Holdings Corp.

Refco claimed that SYB owed it US$215,179.90 due to a deficiency in a brokerage trading account maintained by SYB. Refco also claimed the same amount against Sergei Bushmin, the officer and director of SYB authorized to control the account, who has personally guaranteed it.

SYB and Bushmin counter-claimed for losses caused by the alleged breach of contract and negligence of Refco in the operation of the account. The court found Refco negligent for a failing to meet the appropriate standard of care. “The regulatory framework deals not only with the duty of care owed relating tothe initial dealings that a broker has with a client but also the ongoing duty of care which is owed.”

It found that SYB’s broker did not do enough to live up to the KYC requirements, in pursuit of commissions. “I am satisfied that commissions clouded common sense and due diligence. It cannot be said that the broker used due diligence as is required and recommended in the CSI Course, the IDA Regulations, The Commodity Futures Act and the Refco manual. I find that he did not have the necessary personal and financial information before him to judge suitability.”

By the end of October, 1997, Bushmin and SYB had deposited a total of US$520,000 with Refco and had lost virtually all of that money. “To suggest that there was any on-going assessment of suitability is ludicrous,” ruled the court. “I find that the increases of risk capital came, not as a result of an appropriate assessment of risk capital and suitability, but from a desire to allow Mr. Bushmin to continue to trade despite his substantial losses and obvious impairment of his net worth let alone his liquid net worth.”

“I am satisfied that Refco ignored all of the warning signs and continued to allow Mr. Bushmin to trade merely because he wanted to and merely because they were prepared to take his trades and the commissions flowing from them.”

The court also found Refco negligent for allowing Bushmin direct access to futures traders in Chicago. “If the industry’s practices are different, then those practices are wrong. The statutory and regulatory provisions dealing with an unregistered trader are there to protect the public. If they are to have any meaning they must be enforced and obeyed.”