(February 20 – 18:10 ET) – A B.C. judge has refused to certify a class action suit by retail investors against several brokerage firms.

Investor Guy Collette was seeking to certify a class action suit for negligent misrepresentation against Great Pacific Management, now part of BRM Capital Corp., Sector Financial Services Ltd. and Sector Securities Inc.

The case came out of Collette’s purchase of two investments in mortgages from a Great Pacific rep. The plaintiff says the mortgage investments were so bad that they should not have been offered for sale to anyone. According to the plaintiff, the conduct of the defendants amounted to a type of systemic negligent misrepresentation appropriate for certification as a class proceeding. Approximately 1,000 to 1,500 other investors also purchased one or both mortgage investments from either Great Pacific or Sector.

The mortgages were arranged by Multimetro Mortgage Corp., a mortgage broker, which arranged mortgage financing for borrowers and then sold units in the mortgages to investors through the brokerage firms. Multimetro earned brokerage fees of about 10%. The two mortgage investments in this case were proposed commercial developments in the Nanaimo and Parksville areas.

Multimetro raised a total of $15 million for the Nanaimo project through the sale of units. Of that total, Great Pacific sold units totalling $5.508 million, and Sector sold units totalling $2.431 million. Other than payments made from the interest reserve held back by Multimetro, the borrower never made any payments of principal or interest on the mortgage, and it recovered less than $400,000 for the investors. The Parksville project raised $12 million and again only about $400,000 was recovered for investors.

One of the plaintiff’s arguments for certification is that individual investors with relatively small claims will not likely pursue individual actions as the complexity and cost of doing so will be too high.

The court concluded that the case doesn’t meet the test for class action in part because of the heterogeneity of the investors who were involved in the scheme. It noted that investors will have learned of the investment in different ways and at different times; that they have differing risk tolerances; and they will have given the investment material different scrutiny.

“Questions relating to the duty owed to any individual investor and whether the investment was prudent from the perspective of that investor necessarily requires an inquiry into that individual’s circumstances … and are not appropriate for certification as common issues.”
-IE Staff