Cloud Li, seen here in Toronto on Sept. 14, 2020, is one of the plaintiffs who began to manage his father’s account in 2017 and spearheaded the group lawsuit.Christopher Katsarov/(Christopher Katsarov/The Globe
A group of Bank of Montreal clients are suing their financial adviser, along with the bank’s brokerage division, claiming they have lost tens of millions in savings after being placed in high-risk trading accounts without their consent.
In two separate court cases, 27 individuals from approximately 12 families have filed a multiplaintiff action against Yujie (Jared) Liu, a financial adviser and portfolio manager who has been at BMO Nesbitt Burns since 2004. Combined, the two groups are asking for $50-million in damages for losses they allege they’ve suffered as a result of Mr. Liu’s negligence in managing their investment accounts.
In some cases, clients saw the value of their investments decline between 50 per cent and 80 per cent, with losses ranging from $600,000 to $16-million.
The two cases were filed last month and also name BMO Nesbitt Burns, alleging a lack of compliance oversight by the firm, and Mr. Liu’s daughter Cherry Liu, an investment adviser who took over her father’s accounts in May, 2019, when he took a leave of absence from the bank.
“BMO had a duty to supervise Jared Liu and Cherry Liu in respect of their management of the plaintiffs' accounts to ensure that all investments made on their behalf were suitable for [clients] and consistent with their investment objectives,” the lawsuit alleges.
BMO spokesperson Paul Gammal says the investment recommendations made to the clients were “appropriate for their investment objectives – which includes risk tolerance – and investor profiles.”
“We stand by our recommendations,” Mr. Gammal said in an e-mail to The Globe and Mail. “There is risk of market volatility when investing. We are vigorously defending these actions. Out of respect for the judicial process it would not be appropriate to comment further.”
Cherry Liu referred all inquires from The Globe to BMO, while Jared Liu did not respond to requests for comment.
Both client groups allege that throughout 2017 and the first half of 2018, Mr. Liu recommended a new investment strategy that “assured safety" of their principal and provided “reasonable” investment returns.
Shortly after, clients allege they were instead placed in a high-risk strategy that involved short-selling bonds – particularly Canadian government bonds – to purchase long positions in preferred shares, many of which had variable rates or rates that reset based on interest rate movement.
According to court documents, Mr. Liu further advised the clients to begin trading on margin – investing using borrowed money – in order to purchase a larger amount of preferred shares. In some instances, clients allege Mr. Liu engaged in this strategy without informing them or seeking their permission.
None of the clients were told it was “a high-risk, speculative strategy” that was inconsistent with their low-risk investment objectives, the suit alleges.
Cloud Li, one of the plaintiffs who began to manage his father’s account in 2017 and spearheaded the group lawsuit, told The Globe both he and his father have been conservative investors since hiring Mr. Liu in 2015. Mr. Li’s father, Jinglin Li, held his money in a high-interest savings account until late 2017. By mid-2019, under the new investment strategy, Mr. Li’s account had suffered a $1-million loss.
“My father trusted Jared Liu and relied on his advice,” Cloud Li said in an interview. “He signed an agreement based on the length of his relationship and trust he had in Jared. But he never understood the contents of that form, as it was in English, and he cannot read English.”
The clients, who are represented by Peter Jervis of Rochon Genova LLP, allege in the lawsuit they were told the strategy provided “risk-free income" from the positive spread between the interest they would have to pay on the short bonds they sold and the preferred shares purchased. (Dividends paid by the preferred shares were higher than the interest rate payable on the short bond positions.)
“There are significant allegations of professional negligence of the management of these accounts, and this litigation is being pursued very aggressively on behalf of this client group,” Mr. Jervis said in an interview.
Many of the clients chose Mr. Liu because he could speak Mandarin and they were not proficient in English, and allege they were given investment documents in English to sign that he did not review with them.
In order to permit trading, clients also allege Mr. Liu changed their investment risk documents – known as know-your-client, or KYC, forms – without their consent, or made amendments to the documents after they had signed them.
“Clients acquired these high-risk, speculative securities positions without any advice or information from the [advisers] about the substantial risks inherent in the strategy or of the potential loss of their savings,” the lawsuit alleges.
BMO is set to file a statement of defence by Oct. 31, with court proceedings expected to take place in 2021.
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Clare O’Hara