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| Stockbrokers’ liability –
Investors awarded approximately three million dollars in
compensatory and punitive damages from broker who wrongfully
enforced guarantees obtained fraudulently by one of its advisors; by
François Touchette |
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(21/2/2007)
Markarian v. CIBC World Markets Inc. (June 14, 2006),
500-05-069668-018 (Sup. Ct. of Q.)
The retired couple Haroutioun and Alice Markarian and their family’s
holding company had entrusted their assets to Mr. Migirdic, an
investment advisor with CIBC World Markets Inc. (“CIBC”). In 1993,
Mr. Migirdic had carried out a great number of highly speculative
trades for another of its clients, Ms. Rita Luthi, but had omitted
to inform her of the resulting losses. Ms. Luthi, unaware of the
fact that her investments had almost vanished, wanted to draw funds
from her account. Faced with this problem, Migirdic arranged for the
Markarians to guarantee, unbeknownst to them, the overdraft in Ms.
Luthi’s account. This allowed Migirdic to advance amounts to Ms.
Luthi, without having to give her the bad news that he had lost
almost all of her investments. In 1994, in order to hide the
important overdraft in his own trading account – which he had
illegally opened under the name of his uncle and unbeknownst to the
latter – Migirdic, through the same fraudulent stratagem, obtained
from the Markarians’ holding company a guarantee of the trading
losses in that account.
CIBC questioned on a few occasions the incongruous character of the
guarantee provided by the Markarians in favour of Ms. Luthi’s
account, but always relied on and never verified the false
explanations provided by Migirdic. These explanations were to the
effect that he had obtained a written confirmation from the
Markarians that they were fully aware of the fact that they had
guaranteed the investment losses in Ms. Luthi’s account.
In 2001, Migirdic finally admitted his fraudulent actions to CIBC
and admitted that the Markarians were unaware of the fact that they
had guaranteed the losses in Ms. Luthi’s and in his own account. A
few days later, CIBC terminated Migirdic and informed the Markarians
that it considered the guarantees to be valid. Then it proceeded to
withdraw approximately $1,500,000 from the Markarians’ accounts, in
execution of these guarantees. In reaction, the Markarians filed
suit against CIBC to recover these amounts and other damages. CIBC
took warranty proceedings against Migirdic.
The Court ordered CIBC to pay the Markarians and their holding
company compensatory damages amounting to almost $1,500,000. CIBC
was also condemned to pay the Markarians moral damages in the amount
of $50,000 each, punitive damages of $1,500,000 and to reimburse
them their legal fees for up to $94,500.
The Court found that Migirdic had obtained the Markarians’
signatures on the guarantee documents through lies and trickery,
which consequently triggered CIBC’s liability as Migirdic’s
employer.
The Court also ruled that CIBC failed in its duty to monitor and
control Migirdic’s activities, especially in the light of the fact
that Migirdic had committed a plethora of fraudulent and illegal
acts over the past years. The Court rejected CIBC’s arguments to the
effect that the Markarians were the authors of their own misfortune,
that they had ratified the guarantees and that in any event, they
should have uncovered the fraud well before and alerted CIBC to it.
The Court underlined that even CIBC, better equipped than the
Markarians, had not been able to detect Migirdic’s fraud.
The Court found that CIBC had treated the Markarians with contempt,
as if they were responsible for Migirdic’s fraud. The Court also
noted that CIBC contested all the proceedings, notwithstanding the
fact that it was aware that the guarantees were fraudulently
obtained. CIBC breached many of the Markarians’ fundamental rights,
namely the right to dignity, integrity and to the enjoyment and free
disposition of their property, thereby justifying moral damages.
CIBC’s reprehensible conduct also gave rise to punitive damages in
the amount of $1,500,000, the equivalent of the amount that CIBC
attempted to illegally appropriate. The Court determined that the
award of such damages were necessary in the circumstances, and
calculated the amount based on CIBC’s financial situation and the
deterrent purpose of such damages.
The Court ordered CIBC to reimburse the Markarians’ legal fees. The
Court found that CIBC had put the Markarians in a situation where
they had no other choice but to sue CIBC, whereas CIBC should have
sued the Markarians if it believed that the guarantees were valid
and enforceable.
Provisional execution of the judgment for an amount of $1,500,000
was ordered, notwithstanding appeal, for fear that CIBC would use
appeal proceedings to curb the Markarians’ determination. The Court
granted CIBC’s action in warranty against Migirdic, except with
regards to punitive and moral damages. While CIBC appealed the
decision, the case was subsequently settled out of Court.
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