Investor at fault over share sale flub, court finds

The Supreme Court of British Columbia rejected a DIY investor’s effort to sue his brokerage firm — and upheld the firm’s counterclaim against him — after he sold 10 times the number of shares that he owned, creating a shortfall in his account.

Hans Baan, a discount brokerage client with Scotia Capital Inc., attempted to sell more than 750,000 shares in a junior mining company despite the fact that a 10-for-1 share consolidation had reduced his holdings to 75,000 shares.

In December 2017, shareholders in the company New Carolin Gold Corp. approved a share consolidation at its annual general meeting, according to the court’s decision.

On the first trading day after the shareholder meeting, Baan submitted an order — which was good through the end of January 2018 — to sell all of his shares (752,270) in the company.

However, the share consolidation took place on Jan. 16 and, as a result, Scotia’s iTrade platform cancelled Baan’s sell order.

The consolidation meant he only held 75,227 shares of New Carolin, the court noted, but his accounts continued to show that he owned 752,270 shares.

“Scotia Capital has not provided any explanation for why the number of shares was not updated immediately in accordance with the share consolidation,” the court said.

Once again, Baan attempted to place an order to sell 752,270 shares in the company, but the platform rejected the trade on the basis that he didn’t own that many shares.

After several failed attempts to execute a sell order on the Canadian market, Baan placed his order on the iTrade platform through a U.S. over-the-counter exchange, which allowed him to sell 752,270 shares, despite only owning a fraction of that number.

“The sale put Mr. Baan’s account in a negative position, and Scotia Capital bought shares on the market to make up for the shares he had sold that he did not own. Scotia Capital also sold Mr. Baan’s other securities to make up for, in part, the resulting debt,” the court noted.

Baan brought a legal action alleging that Scotia Capital had wrongly converted his shares to cover the short position that the sale created, and alleging that it was negligent in allowing him to sell many more shares in New Carolin than he owned. He sought damages for conversion and negligence.

In its defence, the firm denied that it did anything wrong, and it filed a counterclaim seeking the $151,601 shortfall in his accounts resulting from the trade, along with its costs.

Following a summary trial, the court sided with the firm, dismissing the investor’s claims and granting judgment to Scotia Capital on its counterclaim.

“I find that Mr. Baan knew or ought to have known about the share consolidation, and that he knew or ought to have known the fact that he only owned 75,227 New Carolin shares at the time he eventually made the successful sell order,” the court said in its decision.

The court found that the firm was justified in selling his shares to cover the shortfall in his account, noting that the terms of the iTrade account agreement explicitly give the firm the right to sell shares to cover this kind of shortfall.

It also dismissed the allegation that the firm was negligent in preventing him from selling more shares than he owned. “Mr. Baan assumed the risks inherent in trading over the internet, including that the information and data would not be up-to-date or reliable,” it said. “Further, he accepted that Scotia Capital might not be liable should he suffer any loss or damage resulting from any technical problems that might arise.”

In turn, the court found that he’s liable for the shortfall in his accounts, plus interest and costs.