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 On May 13, 2009 BMO Nesbitt Burns informed Brady Willett that a ‘liquidation’ (or reorganization) notice had been placed on Clarus Corp. and that this was the reason for the removal of CLRS shares from Mr. Willett’s account. We immediately informed members of this notice and began to investigate the matter further.
As would quickly become apparent (as CLRS shares continued to trade), there was no liquidation notice on the stock. And while the shares were eventually returned, an explanation for this error was a long time coming. Here is a copy of the letter with the questions posed to BMO added before each answer:
Dear Mr. Willet [sic],
Thank you for your inquiry. I also appreciate your patience throughout this process. As this was an infrequent type of concern it did take longer than usual to investigate. Please accept my apologies and my feedback to your questions is [sic] below. In general, the liquidation of Clarus Corp shares occurred due to a manual oversight. It should not have been processed and as you are aware has since been corrected. Specifically to answer your direct questions
Q: Who is responsible for declaring a company in “liquidation”
A: Declaring a liquidation is that particular company's responsibility.
Q: Who or what division is responsible for transferring funds and who is responsible for receiving funds.
A: We have internal areas in the BMO Financial Group that facilitate these transactions.
Q: What corrective measures are in place to stop the clearly erroneous transfer of shares (i.e. what measures are in place by the party sending the shares and the party receiving the shares).
A: Controls and reconciliation are in place to ensure if or when any out of balance positions occut [sic], they are remidied [sic] immediately
Q: If BMO or someone else concluded that the company was in “liquidation” what was the price settled on for the transfer of shares. Moreover, if no price was settled on of what value, if any, did the shares have upon transfer?
A: The BMO Financial Group does not make this assertion, [sic] it is up to the specific company
Q: Why were no funds deposited to my account when the shares were liquidated?
A: The transaction should not have occurred and was processed in error
Q: How is it possible that such an obvious error can not be remedied in a matter of hours?
A: Simply speaking the reconciliation had not occurred at this point. There are set schedules which take place regularly.
Q: Has this issue ever arisen before?
A: Manual errors unfortunately can occur, with that being said we make every efforts [sic] to prevent and or limit these occurrences
Q: Would/is BMO liable for any losses incurred from this mistake?
A: BMO InvestorLine would not accept any liability as a result of this type of error. A position was removed and then reinstated. Cash balances were not affected. It goes without saying that we apologize for this inaccurate transaction and it is unacceptable that it even occurred. To the extent that other people may or may not have taken market action as a result is regrettably not a valid reason for requesting and [sic] compensation
Mr. Willet, once again I apologize for this manual oversight. Please be assured that your feedback has helped ensure that this type of manual transactional oversight does not inconveience [sic] our clients any further.
Regards,
Shane Gradini
BMO InvestorLine
How generous of Mr. Gradini to take the time to offer formulaic answers to some very serious questions. Unfortunately, his response is not at all what you would expect from supposedly one of Canada’s most respected financial institutions
To begin with, the ‘controls and reconciliation’ measures Mr. Gradini referred to apparently do not exist. Rather, Clarus shares were taken out of Mr. Willett’s account on May 8 and even after this error was discovered and reported to multiple parties on May 13 it took nearly a day for anyone to acknowledge the mistake and two trading days for the shares to be returned. Do these events at all embody the phrase ‘remedied immediately’?
Moreover, on the topic of reconciliation Mr Gradini states that “There are set schedules which take place regularly,” apparently oblivious to the fact that this statement destroys the very foundation that is ‘remedied immediately.’ These statements beg the question: are these ‘regular’ schedules the same as those that are in place for regular trade execution settlements?
For the record, and in case Mr. Gradini or someone else at BMO can find the time, the questions on this issue have evolved into the following:
- Who placed the liquidation notice on Clarus on May 8 and has this person (or persons) been fired or reprimanded?
- Where, specifically, did the removed shares land for the week that they disappeared?
Much like the chicken crossing the road query we can not be certain exactly when we will get to the other side of this story. And although Clarus (which barely trades) is not the type of stock that warrants the attention of many, we can not help but think of how profoundly unprofessional it would be if a similar ‘manual transactional oversight’ occurred in a more active listing. Would BMO take nearly a month to respond with the vague (and poorly worded) sentiment of sorry for the ‘inconvenience’?
“To the extent that other people may or may not have taken market action as a result is regrettably not a valid reason for requesting and [sic] compensation.”
FallStreet disseminated information to its members based upon BMO’s erroneous appropriation of our shares. No form of compensation has been requested on our part. However, we believe we deserve a complete explanation.
“BMO InvestorLine would not accept any liability as a result of this type of error.”
Notwithstanding Mr. Gradini’s interpretation of the law, we think that culpability would reside with BMO had a FallStreet member incurred losses as a consequence of the liquidation fabrication first generated by BMO. Hopefully we will never find out…
In short, honest mistakes can and do happen in the world of clearing, but for investors that do not regularly monitor their accounts the issue of shares being erroneously taken from their accounts is extremely serious. That Mr. Gradini’s letter is woefully unacceptable (both in grammar and content) goes without saying. It would seem that Questrade – one of the lower cost brokerages in Canada – will be earning more of our business in the future.
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