A Halifax investment adviser’s “reckless arrogance” cost clients more than $36 million in investments, says the lawyer who is representing 29 plaintiffs in a lawsuit against the investment company.
“We will have to see what defence the defendants will come up with but I don’t think anyone would deny that our clients lost their shirts here and we say that is the responsibility of the defendants,” said Ian Gray, a partner in the Halifax law firm Walker, Dunlop.
Gray filed a lawsuit Monday in the Nova Scotia Supreme Court seeking more than $40 million in overall damages against investment adviser Fredrick Saturley, the High Tide Wealth Management company that he founded in 2010, and investment dealer National Bank Independent Network, the investment brokerage arm of National Bank of Canada.
Gray said his clients, primarily elderly Nova Scotia couples who were preparing for retirement or had already retired, invested tens of millions of dollars with Saturley and High Tide. The money was predominantly the life savings, retirement funds and planned inheritance of generally middle class and upper middle class individuals, Gray’s summary stated.
He said the greatest single family loss incurred was somewhere in the order of $8 million.
‘Risky investment strategy’
“Mr. Saturley has consistently pursued a very risky investment strategy,” Gray said at a news conference at the Lord Nelson Hotel in downtown Halifax.
In good times, pursuing the “strangle strategy,” can make a reasonable amount of money, Gray said. “but if the market takes a certain downtown, you are going to lose just about everything, as indeed our clients did.”
Gray described it as a strategy that requires a certain sophistication on the part of the investor and a stomach for losses, “a certain ability to bounce back from a catastrophic loss, which is precisely what our clients didn’t have.
“I have clients in their 60s, their 70s and in a couple of cases, their 80s. These are not the sort of people that I think anyone would advise to undertake risky, capital-intensive strategies in an attempt to make a killing. These are people who needed to play things safe and steady for retirement.
“But here is the important thing. That is what they thought they were doing. Mr. Saturley, our clients allege, said he would take care of them with conservative investments.”
All the while, he was independently going out and executing a very risky strategy and one that ultimately catastrophically exploded in his and his clients’ faces, Gray said.
Gray said Saturley and High Tide opened margin accounts in the names of his clients, which allowed it to trade on margin. The investment company purchased uncovered options and leveraged exchange traded funds, depositing them in clients’ accounts while the majority of clients were unaware of the high risks.
When the economy took a significant COVID-driven downturn in March, High Tide clients’ portfolios were quickly decimated. Not only did Gray’s clients lose entire life savings but in many cases they were left owing money, which had been borrowed without their knowledge or consent.
“Our clients were over-extended in a way that it should have been obvious that it was far too risky, the bank in our view acted precipitously and they didn’t have to do that. Mr. Saturley sets our clients up for the fall and the bank knocks them down.”
Ian Gray, lawyer
Eventually, despite some clients trying to satisfy hundreds of thousands of margin debts by deregistering RRSPs and obtaining lines of credit over a March weekend, National Bank Independent Network (NBIN) liquidated their assets.
Gray said no one could have predicted the economic downturn in March.
“But if you put someone in a very risky position where something going wrong will lead to catastrophe, eventually something will go wrong,” he said. “Our clients were over-extended in a way that it should have been obvious that it was far too risky, the bank in our view acted precipitously and they didn’t have to do that.
“Mr. Saturley sets our clients up for the fall and the bank knocks them down.”
NBIN was previously involved in the Knowledge House scandal, Nova Scotia’s last major investment case, and was ordered in 2015 to pay $3 million in punitive damages for its treatment of claimants.
Gray is also seeking punitive damages, court costs and interest, pushing the $36 million in losses to over $40 million in damages sought.
‘A catastrophe’
This is not Saturley’s first trouble with investments and unauthorized trading. He was fined $10,000, plus $5,000 in court costs, in 2004 while working for BMO Nesbitt Burns after a disciplinary hearing for unauthorized trading on multiple clients’ accounts. In 2008, Saturley’s clients with CIBC Wood Gundy lost millions of dollars as a result of a margin error. The investigation showed Saturley had engaged in unauthorized discretionary trading a second time. Still, he unsuccessfully contested his termination from Wood Gundy in the Nova Scotia Supreme Court.
“This was Mr. Saturley’s third bite at the cherry and once again, it was a catastrophe,” Gray said. “It is a problem that this person keeps coming back and running the same play and it keeps blowing up in his face.”
Gray said the industry has to take a harder look at people coming in rather than cleaning up after the fact.
“Should you get your licence back for having lost it for doing this and if you do get your licence back, what level of oversight are we going to impose on you,” Gray said.
He said the chief compliance officer of High Tide is Adrian Saturley, Fredrick’s son, which is “manifestly inappropriate.”
How is a son supposed to provide oversight of his father, who employs him, Gray asked.
Gray said he had considered but decided against including the regulating body, Investment Industry Regulatory Organization of Canada, in the lawsuit.
The lawsuit claims civil fraud against Saturley and his company, negligence against both the bank and Saturley and claims regulatory discrepancies.
A complaint against Saturley has been filed with the Nova Scotia Securities Commission and a complaint against the bank has been launched with the IIROC, Gray said.
If the defendants choose to sit down and negotiate a resolution, things could move quickly but “the reality is it takes a very long time to get a complicated case through the civil justice system,” he said.
None of the allegations have been proven in court and if a trial is required, it probably would not be heard until 2023 or 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
