An Alberta court has found investment dealer Union Securities Ltd. liable in a case where a client invested in a company that was subject to a cease trade order CTO.

The court held Union responsible, despite the fact that the firm ordered the transaction to be reversed as soon as it learned of it.

The case, which was heard by the Court of Queen’s Bench of Alberta, involved holding company S. Maclise Enterprises Inc., which holds the assets of its sole shareholder and director Sharon Maclise.

Maclise agreed to invest $200,000 in a company, Cenpro Technologies Inc., that was under a CTO.

According to the decision, when Union learned of the prohibited transaction, it ordered its employees to reverse the deal and return the money. Union was told that the transaction was unwound, but the money was not returned to the investor. As a result, Maclise sued Union, along with its employees, and Cenpro.

Cenpro did not defend the action and default judgment has been taken against it in the amount of $200,000, the judgment noted.

In ruling against Union, the judge said in the decision, “I conclude that where a licensed brokerage house becomes aware of wrongdoing on the part of their employees to such extent that they have engaged in a fundamental breach of the rules of the Investment Dealers Association, a trade in contravention of the cease trade order and a breach of their internal arrangement with their employees, they acquire at that point an obligation to notify the customer.”

“To those who would say this is an unreasonable standard to ask of an investment house I point out that investment brokers are given much power,” the ruling continued. “They are licensed and authorized to obtain from working Canadians their hard-earned money. While most working Canadians intuitively recognize that they could lose that money through ill-advised investment, they should not lose that money to dishonesty, lack of candour, and negligence of brokerage staff. Those whom society cloaks with great power are also cloaked with great responsibility.”

While the court ruled in favour of Maclise, it also found that insufficient due diligence by Maclise also contributed to the decision to make an investment in a company that was cease traded. The court ruled that Maclise must bear a third of the loss.

As a result, it ruled that Unions and various individuals involved with the case are liable for $133,200.

The case was heard between Nov. 26-30, 2007. The court’s decision was released April 3, 2008.