Firms have immunity to aid SRO investigations, court rules

Investment firms can’t be sued over their internal investigations into alleged rep misconduct, or for providing information they uncover to regulators, a British Columbia court confirmed.

In a preliminary decision as part of an ongoing wrongful dismissal action, the Supreme Court of B.C. struck down claims against Investors Group Financial Services Inc. brought by a former rep, Sergio Salina, in connection with its role in an investigation by the Mutual Fund Dealers Association of Canada (MFDA) into alleged misconduct by Salina.

Both IG and Salina settled disciplinary cases with the MFDA in connection with the investigation.

After admitting to supervisory violations involving both Salina and another rep, the firm agreed in 2019 to pay a penalty of $150,000 and costs of $15,000 to resolve the SRO’s allegations.

Last year, Salina agreed to pay a $30,000 fine and $5,000 in costs.

In the meantime, Salina sued IG for wrongful dismissal, alleging that the firm “negligently conducted its internal investigation” and provided inaccurate information to the MFDA as part of its investigation.

However, the court has rejected those claims.

“I find that, in law, there is no duty of care owed to an employee by an employer who conducts a negligent internal investigation of the employee,” the court said.

As a result, it struck down that claim, ruling that it is “bound to fail.”

The court also ruled that a firm can’t be sued for providing information to a regulator.

“A person giving or tendering evidence to a court or an adjudicative tribunal enjoys an absolute immunity for a suit in respect of the evidence, even if what is said is false or made with malicious intent,” it said.

This protection extends to “complaints and regulatory proceedings carried out by self-regulating bodies,” it said.

In this case, the court said the information provided by the firm to the MFDA was “protected by absolute privilege and, as such, cannot give rise to a civil liability.” So it struck down that claim too.

However, it ruled that certain other claims can go forward.

The court ruled that it’s not “plain and obvious” that Salina’s claims of “bad faith” and “unlawful interference with economic relations” are bound to fail, as they’re unrelated to the “impugned claims in negligence.”

“Accordingly, I decline to order these claims to be struck out,” it said.

The trial for the rep’s surviving claims against his former firm is scheduled to start on May 1.