Supreme Court dismisses case against IDA

(April 8, 2004) Canada’s highest court has rejected an application by an investor seeking to sue the IDA. Christopher Morgis wanted to include the IDA as a defendant in his lawsuit against bankrupt brokerage firm Thomson Kernaghan, arguing that the industry association should have acted more quickly to investigate the firm’s operations.

The Supreme Court of Canada today dismissed with costs Morgis’s leave to appeal. No reasons were given.

In a statement, the IDA welcomed the decision. “Today’s court ruling affirms the IDA’s position in this matter. Regulators must be free to regulate fairly and effectively in the public interest without fear or concern that they will be subjected to legal action,” said Paul Bourque, senior vice-president of member regulation.

It’s the third time a court has rejected the case — Morgis has already lost two court battles in Ontario.

Last year, the Ontario Court of Appeal ruled that while the IDA has an obligation to protect the general public, that duty of care does not extend to individual investors.

“The IDA is organized for the purposes of regulating the standards of practice and business conduct of its member firms and their representatives to promote the protection of investors and the public interest,” the Ontario court said in its ruling. “Those purposes are not directed to individual investors but rather to the investing public as a whole.”

In the lawsuit, Morgis and his wife are claiming damages of $5.75 million, alleging that they lost money in 2000 due to an investment strategy advocated by Thomson Kernaghan that emphasized high-tech securities and aggressive trading. The firm was suspended by the IDA in 2002 and petitioned into bankruptcy.

Morgis says he’s disappointed with the Supreme Court’s ruling. “Where is the investor protection part of this whole equation when it comes to the IDA? Clearly, it doesn’t exist,” he says. “I let the IDA know about this 16 months before the firm went bankrupt and they did nothing.

“That’s why we felt compelled to take this to the Supreme Court so that we could have [the IDA] stand up and say what they did and how they do things, getting out how the investigation process works. But that’s been denied. This should be a transparent process, but it’s not.”

Still, Morgis — whose legal costs already amount to around $200,000 — says his lawsuit will continue, just without the IDA as a defendant.

“The cost is irrelevant — this is a matter of principle,” he says. “Let’s face it, there’s no money to be made suing a bankrupt brokerage firm. I wanted to make a point about how the system failed.”

And Morgis says he’s still waiting to find out from the IDA what happened with Thomson Kernaghan and why it went bankrupt. “It’s been two years, I’m disturbed that it’s taking so long.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com