Presented by Eric Dolden and Tom Newnham Dolden Wallace Folick LLP Cross-examination of the financial advisor – an insider’s perspective from the legal world                    IFB Fall Summit (Vancouver) – October 12, 2017 Presented by Eric Dolden and Tom Newnham Dolden Wallace Folick LLP

Scope of Presentation Overview of examination for discovery process (cross-examination) Live demonstration using actual case and real advisor Commentary and discussion of outcome of case

Overview of the Examination for Discovery process Mandatory pre-trial procedure (under oath) Broad scope of permissible questions (low bar for ‘relevance’) Some questions prohibited – legal conclusions, expert opinion, speculation, privilege

Not a venue to “tell your story” Evidence can (and likely will) be used against you Purpose is to obtain read-ins for trial and to assess credibility Many lawsuits are won and lost at discovery

Described as a “bruising procedure” Described as a “bruising procedure”. Examining lawyer entitled to be “insistent, persistent, emphatic, and skeptical” Limited ability of your lawyer to “protect” you during the discovery

Sadly, it does not work this way….

MacRury v. Keybase Financial (2016-2017, Nova Scotia) Facts: clients sued advisor for $650,000 in losses from leveraged investments (“Smith maneuver”) Borrowed a total of $1.75 million in 2007 to invest in return on capital (ROC) mutual funds

2009 - value of funds dropped and clients unable to make interest payments on loans with distributions from funds Problem for advisor: damaging ‘admissions’ made during MFDA settlement MFDA settlement = public document

The Cross-Examination…

…Starring: Tom Newnham as the Lawyer Monica Woldring as the Advisor in the “hot seat”

Exhibit 1 MFDA settlement agreement: leveraged strategy was ‘unsuitable’ did not adequately explain the risks misrepresented KYC information on loan applications to lenders

Exhibit 2 Know Your Client (KYC) forms: Risk tolerance: medium high Investment knowledge: good Time horizon: 11-20 years

Exhibit 3 Loan application (April 5, 2007) Investment income - $75,036 Jewelry and Art - $80,000 Vehicles - $40,000

Exhibit 4 Spreadsheet and charts

Debrief What was sought to be accomplished by the lawyer? Why?

Lawyer sought admissions designed to: Underscore importance of KYC rule Confirm advisor understood clients’ reliance Highlight inconsistencies between KYC forms, loan applications and the clients’ actual situation

Leading questions to force concessions or make advisor seem unreasonable or dishonest Sarcasm, skepticism and hostility designed to test evidence and assess strength as a witness

Result at trial Client applied for early judgment without a full trial Issue: did advisor’s prior admissions to MFDA result in adverse civil finding?

MFDA settlement was public record Some admissions related to all 25 clients, some admissions limited to ‘most’ clients – unclear if admissions applied to these clients Advisor argued he was not bound by admissions in MFDA proceeding

Decision: admissions do not result in automatic finding of negligence BUT still relevant to civil lawsuit MFDA settlement also did not address contributory negligence – needed trial to determine if client was partially responsible for losses

Court left issue of the MFDA admissions to the trial judge Court of Appeal agreed Result: client forced to continue to full trial ($8,000 in costs awarded to advisor)

Questions?

DOLDEN WALLACE FOLICK LLP Insurance Lawyers Vancouver Kelowna Calgary Toronto