Investment-Loss Recovery Options

Where Should You Start After an Investment Loss?

Start by identifying the problem.

Ask yourself:

• What was I told before I invested?
• What did I understand about the risk?
• Did the investment match my financial needs?
• Did I approve the trades in my account?
• Is my money now gated, frozen or inaccessible?
• Did my advisor explain the fees, commissions or conflicts?
• Does my risk profile reflect what I actually told my advisor?
• Has the explanation changed since the loss occurred?
• Are other investors experiencing the same problem?

Then preserve the documents you already have.

Helpful records may include:

• account statements;
• trade confirmations;
• KYC and risk-profile forms;
• investment agreements;
• offering documents;
• emails and text messages;
• advisor notes;
• brochures or presentations;
• fee information;
• redemption notices;
• complaint letters; and
• responses from the financial firm.

You do not need a complete file before asking for legal advice.

Record when you first became concerned, whether you have already complained and what response you received. Note whether other investors may be affected.

Read more about Bad market or bad advice?.

Option 1: Make a Complaint to the Financial Firm

Should you complain to your advisor’s firm first?

Maybe, but there are risks.

A complaint to the investment dealer, bank or financial institution gives the firm an opportunity to investigate what happened and respond. These complaints are often treated as an opportunity to delay, confuse, cherry-pick and then deny. The internal processes are not fair; they are an opportunity for the financial firm to strengthen their defence, fix their records, get you to make admissions where you do not know the significance of the admission.

This is not a straightforward or balanced process. Be warned!

Your complaint should clearly explain:

• what concerns you;
• which investments or transactions are involved;
• what you were told;
• what you believe went wrong;
• the loss or harm you experienced; and
• what you want the firm to do.

The firm may:

• request additional records;
• interview the advisor;
• review the account;
• reject the complaint;
• offer compensation; or
• propose another resolution.

For some external complaint processes, complaining to the firm first is required.

Should you accept the firm’s settlement offer?

Not automatically.

Before accepting an offer, consider:

• how the firm calculated the loss;
• whether the offer includes all affected accounts;
• whether fees, interest or other losses were considered;
• whether accepting the offer requires you to release future claims;
• whether another responsible party may exist; and
• whether the amount fairly reflects the claim.

Make sure you see the settlement papers before you agree. Often after agreement the firm will add unfair requirements like overly broad Non-Disclosure Agreements or limiting your right to sue other parties who harmed you.

A settlement may provide a quicker resolution, but signing a release can affect your ability to pursue the matter further.

Option 2: Make an OBSI Complaint

What is OBSI?

The Ombudsman for Banking Services and Investments, or OBSI, is an independent dispute-resolution service for consumers and participating financial firms.

OBSI can only consider a small section of the financial advice process. OBSI can investigate complaints involving participating investment firms and banks after the consumer has first complained to the firm. That’s it. That’s all. They cannot investigate financial planning, estate planning, retirement planning, tax planning, insurance recommendations and negligence.

For investment firms, consumers can generally go to OBSI if they remain dissatisfied after receiving the firm’s final response or if the firm has not responded within the applicable complaint-handling period.

OBSI can recommend compensation of up to $350,000 for a single complaint, but that would be exceptional if not the first time. Its recommendations are not legally binding in the same way as a court judgment, although OBSI can publicly identify a firm that refuses to follow a recommendation. Often firms use an OBSI recommendation as a starting point to then bargain you down.

Do you need a lawyer to use OBSI?

No.

Consumers can use OBSI without a lawyer. With an OBSI complaint, expect the dealer to have lawyers or trained specialists at work – the playing field is not level, it’s slanted to the defence by design.

Often you have to describe an OBSI complaint using technical terminology or OBSI will not investigate the root cause, it will only investigate what they deem you to have complained about. You don’t know the root cause, chances are that you will not know how to frame your complaint in a way to fully engage OBSI’s investigation and protect your rights.

However, legal advice may still be useful where:

• the loss is significant;
• the facts are complicated;
• several parties may be responsible;
• the firm has made a settlement offer;
• there may be a court claim;
• important evidence is missing;
• you are unsure how to calculate the loss; or
• a legal limitation period may be running.

OBSI does not provide legal advice.

How long do you have to make an OBSI complaint?

OBSI generally requires the consumer to have raised the complaint with the firm within six years after the consumer knew or should have known about the problem. This is a theoretical six years. If you are more than two years from the discovery of your claim, then most dealers will frustrate OBSI’s recommendation and force you into the courts – where the 2 years limitation period applies. The six years limitation is a notion, not a practical time frame.

After receiving the firm’s final response, the consumer generally has 180 days to bring the complaint to OBSI.

Those are OBSI’s own time limits. They are not necessarily the same as the legal limitation period for a lawsuit.

Option 3: Negotiate a Settlement

Can an investment-loss claim be settled without going to court?

Yes.

Many financial disputes are resolved through negotiation. Usually not before many hoop jumping steps. In most cases, the investment firm will make you start a lawsuit, disclose all documents, and attend oral discovery before making low end offers. Attrition and high costs are common tools to divert legitimate claims.

A lawyer may communicate with the advisor, dealer, bank, insurer or its lawyers and attempt to reach a resolution without starting or completing a court proceeding.

Negotiation may involve questions such as:

• what happened;
• whether the advice was suitable;
• whether the advisor or firm breached applicable duties;
• how the loss should be calculated;
• whether several parties share responsibility; and
• what amount would fairly resolve the dispute.

A negotiated resolution can sometimes save time and cost. A fair negotiated settlement almost always follows complicated hoop jumping.

It also gives the parties more control over the outcome than a decision imposed by a court or arbitrator.

However, a settlement usually requires the investor to sign a release ending some or all of the claims.

The terms should be understood before anything is signed.

Option 4: Mediation

What is mediation?

Mediation is a structured settlement process.

A neutral mediator helps the parties discuss the dispute and explore whether an agreement can be reached.

The mediator does not decide who wins.

Instead, the mediator helps the parties:

• identify the main issues;
• understand the strengths and risks of their positions;
• evaluate possible outcomes; and
• negotiate a settlement.

Mediation can be useful where the parties disagree strongly but still want to avoid the cost and uncertainty of a full hearing or trial.

A successful mediation ends with a negotiated settlement.

If no agreement is reached, the parties may continue with another recovery process.

Option 5: Arbitration

What is arbitration?

Arbitration in investment loss cases is rare. Arbitration is a private dispute-resolution process.

Instead of having a judge decide the case in court, the parties present their evidence and arguments to an arbitrator.

The arbitrator then makes a decision.

Depending on the circumstances, arbitration may offer:

• greater privacy;
• a more flexible procedure;
• a decision-maker with relevant experience; and
• a potentially more streamlined process than traditional litigation.

However, arbitration also has disadvantages.

There may be:

• limited disclosure resulting in an inequitable and unequal process;
• significant legal costs;
• limits on appeals;
• procedural rules;
• hearing fees; and
• restrictions created by the arbitration agreement.

CIRO maintains an arbitration program for eligible investment disputes, although it is used relatively infrequently. A proposal to reform it for greater fairness is before CIRO. CIRO is a member organization. The investment firms are the members. CIRO members oppose the reforms.

Whether arbitration makes sense depends on the agreement, size of the claim and available alternatives.

Option 6: Civil Litigation

When might a lawsuit be appropriate?

Civil litigation may be appropriate when:

• the financial loss is significant;
• the parties strongly disagree about what happened;
• the firm denies responsibility;
• several defendants may be involved;
• important evidence needs to be obtained;
• a settlement cannot be reached; or
• another dispute-resolution process is not suitable.

A court claim may involve allegations such as:

• negligent investment advice;
• unsuitable recommendations;
• breach of contract;
• misrepresentation;
• unauthorized trading;
• failure to supervise;
• breach of fiduciary duty where applicable;
• conflicts of interest;
• fraud; or
• other wrongful conduct.

Litigation may allow the parties to obtain documents, question witnesses and ask a court to decide the dispute.

It can also take time and involve significant cost and uncertainty.

For that reason, starting a lawsuit does not necessarily mean the matter will ultimately proceed to trial.

Many court cases are resolved through negotiation or mediation before a trial takes place.

Option 7: A Coordinated Group Claim

What if several investors have the same problem?

Sometimes several investors have losses involving:

• the same financial advisor;
• the same investment dealer;
• the same financial product;
• the same private fund;
• the same sales practice; or
• the same alleged misconduct.

Those investors may have common legal and factual issues.

In some circumstances, it may make sense to coordinate the claims rather than have each investor proceed entirely alone.

A coordinated approach may allow investors to:

• share certain investigation costs;
• avoid duplicating work;
• develop common evidence;
• pursue the same defendants efficiently; and
• strengthen their ability to investigate complex conduct.

A group claim is not necessarily the same as a class action.

The appropriate structure depends on how similar the investors’ claims are and whether individual issues remain important.

View Current Investor Protection Investigations

Option 8: A Class Action

When can an investment-loss case become a class action?

A class action may be appropriate when a large group of people has been harmed by the same or similar conduct and important issues can be decided together.

Examples could involve:

• common misrepresentations;
• systemic practices;
• widespread product failures;
• common fees or charges;
• institutional misconduct; or
• conduct affecting a large group of investors.

A proposed class action must satisfy the legal requirements for certification before it can proceed as a class proceeding.

Not every investment loss is suitable for a class action.

Individual questions about what an advisor told each investor, the investor’s financial circumstances or whether a particular recommendation was suitable may sometimes make individual claims more appropriate.

The Sotos Investor Protection Group can assess whether the issue appears better suited to:

• an individual claim;
• a coordinated group claim; or
• a class action.

For questions about institutional participation, see our services for institutional investors and family offices.

What Is the Difference Between OBSI and Going to Court?

They are different processes.

OBSI

OBSI is generally:

• for smaller losses;
• informal compared with court;
• free to consumers;
• confidential;
• available without a lawyer; and
• limited to compensation recommendations of up to $350,000 for a single complaint.

Its recommendations are not legally binding in the same way as a court judgment.

Civil Litigation

A lawsuit:

• follows formal court procedures;
• may involve document production and examinations;
• can result in an enforceable judgment;
• may allow claims above OBSI’s compensation limit; and
• usually involves greater legal cost, procedural complexity and risk.

Using OBSI does not automatically mean that you give up the right to take legal action afterward if you do not accept the outcome. OBSI specifically states that consumers retain some of their legal rights, subject to applicable limitation periods and other legal considerations.

The right choice depends on the claim.

Learn more

Do Legal Deadlines Continue While You Make a Complaint?

This is one of the most important questions to ask.

Legal claims are subject to limitation periods.

Those deadlines vary by province and by the circumstances of the claim.

Starting an internal complaint with a financial firm does not necessarily stop the legal limitation period from running. It does not stop the time running for the financial advisor, almost always the key person to name in a lawsuit.

OBSI has a specific process that may suspend on a limited basis a legal limitation period through a tolling agreement once the OBSI investigation formally begins and the required consent is received. OBSI states that the limitation clock generally begins running again 30 days after its final letter or the end of the investigation.

That does not mean every complaint automatically stops every legal deadline.

If a significant amount of money is involved, consider obtaining legal advice early rather than waiting until the complaint process is finished.

How Do You Choose the Right Recovery Option?

There is no universal answer.

A lawyer may consider:

The Size of the Loss

A smaller claim may not justify an expensive court process.

A larger or more complex claim may require litigation or another formal process.

The Strength of the Evidence

Account documents, emails, recorded instructions, advisor notes and regulatory records may affect which process makes sense.

The Parties Involved

A claim against one advisor may require a different approach from a claim involving a dealer, bank, fund manager and several other parties.

Whether Other Investors Were Affected

A repeated problem may justify a coordinated claim or class action.

The Need for Documents or Testimony

Some cases cannot be properly investigated without obtaining records from the other side or questioning witnesses.

Legal Deadlines

The amount of time remaining before a limitation period expires can affect the available choices.

Cost and Risk

A recovery strategy should make economic sense.

The cost, time and risk involved should be considered against the amount that may realistically be recovered.

Frequently Asked Questions

What Happens After You Contact Us?

1. We Review What Happened

A lawyer from the Sotos Investor Protection Group will review the information you provide and identify the main legal and financial issues.

2. We Consider the Recovery Options

We assess which processes may be available and whether there are important deadlines or strategic considerations.

3. We Explain the Options

We will explain the potential advantages, disadvantages and next steps so that you can make an informed decision.

If further legal work is recommended, we will explain the proposed scope and fees before you decide whether to proceed.