CALGARY -- Former clients are suing Richardson GMP and two of its advisers, alleging code-of-conduct violations and negligence resulted in heavy investment losses, in the second lawsuit targeting the dealer's Calgary office after a $50-million action.
Kathleen Beever and Dwayne Erickson, a retired couple, have launched a court action against Calgary-based adviser John Reyes as well as Richardson GMP, claiming they were persuaded to make risky investments that resulted in a 92-per-cent loss.
Also named as a defendant is Adam Woodward, a former star adviser at Richardson GMP and an oil-patch deal maker whose financial and personal downfall was chronicled recently by The Globe and Mail. His story raised questions about whether Canada's largest independent brokerage was sufficiently attentive to the practices of some of its brokers.
Mr. Woodward, leader of a team within the dealer that included Mr. Reyes, also is a defendant in the initial lawsuit, launched in 2016 by Amanda and Kevin Fisher and Bruce and Christina Johnson. His conduct is not directly referenced in the case brought by Ms. Beever and Mr. Erickson. Mr. Reyes had been their adviser since they first invested.
The new action, filed this month, seeks the return of all funds since the couple became clients, as well as $250,000 in punitive damages. It alleges that Mr. Reyes failed to properly obtain and use the necessary information to arrive at a suitable investment profile, and led Ms. Beever and Mr. Erickson to believe they could only achieve acceptable returns through the riskiest investments.
The allegations, which have not been proven in court, are similar to those in the initial suit - that clients were listed in documents as being comfortable with high-risk securities accounting for large percentages of their portfolios, regardless of their circumstances and stated objectives.
The suit alleges that Mr. Reyes advised the couple, who say they were not sophisticated investors, to put money into private energy-related securities when he knew the companies were in dire financial straits as the oil-patch downturn dragged on in 2016.
In addition, the action claims that Richardson GMP failed to adequately supervise staff at its Eau Claire office in Calgary and keep tabs on the accounts held by the couple.
"The Woodward/Reyes Advisors advised the plaintiffs and implemented their investment strategy in contravention of the policies, procedures, and practices of RGMP, and in violation of applicable regulatory standards," the statement of claim says. "Additionally, the Woodward/Reyes Advisors systematically failed to obtain the informed consent of the plaintiffs with respect to the transactions and risks undertaken on behalf of the plaintiffs."
The couple and their lawyer declined to comment. It is not known why they launched their own lawsuit rather than join the other one, which is seeking classaction status. Mr. Woodward's lawyer was not available for comment.
The legal actions raise concerns about the checks and balances Richardson GMP brings to bear for clients relying on the firm's advisers to act in their best financial interests.
For its part, Richardson GMP said it disputes the allegations and plans to defend itself. A spokeswoman would not speculate on why the new court action uses similar language to the other lawsuit. The firm has reached settlements with numerous other former clients of Mr. Woodward and his team, according to sources.
"We note that each client's experience with their adviser, as well as their investment objectives and account holdings, are different. We take our responsibilities to our clients and our regulatory obligations very seriously," Richardson GMP vice-president of marketing Susan Fry said in an e-mail. "We continue to have full confidence in our roster of advisers, including John Reyes, and their ability to deliver the best wealth-management solutions to their clients."
Mr. Reyes did not respond to an e-mail seeking comment.
In the recent Globe story, Mr. Woodward detailed how his strategy of investing clients' money in a small number of largely private energy companies generated hefty returns, at least on paper, when oil prices hovered around $100 (U.S.) a barrel. After crude prices collapsed in late 2014, clients suffered major losses as such securities became almost impossible to sell.
He took leave to enter a substance-abuse program in late 2015. Richardson GMP fired him this summer. His colleague, Mr. Reyes, assumed management of the accounts upon Mr. Woodward's exit.
Andrew Marsh, Richardson GMP's chief executive officer, said in an interview published in the August edition of Investment Executive that the firm does not have a high-risk culture, and described the Woodward case as a "one-off" and not indicative of its compliance procedures.
However, if allegations in the new suit are borne out in court, it would show that at least some of the practices and investment strategies employed by Mr. Woodward continued in the months after he took leave.
The plaintiffs allege that beginning in March, 2016, Mr. Reyes aggressively sought their approval to invest in some of the energy companies that had been core holdings in accounts that Mr. Woodward had previously managed, notably Shelter Modular, a privately held temporary housing provider. The value of the securities lost 61 per cent of their value in the month after the couple invested, according to the claim.
Around the same time, other companies in the portfolio, including Millennium Stimulation Services and Artisan Energy, declared bankruptcy, raising the couple's fears about their investment portfolio.
Later that year, the plaintiffs decided to stop taking Mr. Reyes's investment advice and wanted to start selling their holdings. They say Mr. Reyes neglected to respond to those instructions. Ms. Beever complained to the firm's chief compliance officer in October, prompting Mr. Reyes to write to the couple to say he would no longer advise them.
© The Globe and Mail
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.