Money adviser facing lawsuit
News
Posted By RAYMOND BOWE
Posted 2 months ago
A former Phelpston farmer is suing well-known Barrie financial adviser David Karas and a handful of corporations for $1.5 million after allegedly losing approximately $880,000.
According to the statement of claim filed by George French's legal team at the Barrie courthouse, he incurred financial losses relating to unnecessary life insurance, as well as lost tax and investment opportunities. Stop-loss mechanisms and leveraging schemes also put French in financial peril.
The claim includes $250,000 for peace of mind, and $1 million for aggravated and punitive damages.
The defendants include Karas, Investia Financial Services Inc., Money Concepts (Barrie), Diamond Tree Capital Inc., and Financial Victory Associates Inc.
None of the allegations have been proven in court.
The Money Concepts franchise in Barrie was that company's top Canadian branch for sales performance between 1988 and 2009, and top international branch from 1993 to 2009, according to the claim.
Karas and the corporations have 20 days to file an initial response.
Lawyers Harold Geller and John Hollander, who specialize in financial loss recovery for the Ottawa law firm Doucet McBride LLP, are representing French.
"The argument that we're making is the client could not appreciate the degree to which the odds were stacked against him," Geller said, such as annual fees, lender interest and the cost of financial advice.
"That's the number that you have to have to break even. Imagine how much you lose if you have a down market."
When reached byThe Barrie Examiner,Karas said he has not seen the statement of claim, nor has he been served.
"I am completely in the dark on this," Karas said Monday afternoon. "The lawyers haven't had the decency to give us any information or service. I have absolutely no idea what's in that (statement of claim), and so as to whether we're being sued or not, you know more about it than I do right now."
Karas, who has provided financial advice in the local media, said he learned of the lawsuit through an article published in a Toronto newspaper.
"We are absolutely furious about this firm pulling the stunt they've pulled, which is apparently to give it (the statement of claim) to newspapers and not to us," he said.
However, Geller said his firm has been trying to serve Karas, who must have the paperwork delivered to him personally.
"We actually have to hunt him down," Geller said. "Mr. Karas is not making himself available. Eventually, he'll be found. We're not playing hide and seek."
The firm has six months to serve Karas.
Geller and Hollander say they have been contacted by about 20 potential clients from the Barrie area. They suspect there are more than 150 other people who have yet to come forward.
There are more statements of claim to be filed, Geller said, including one that is in the works.
"I suspect what you will see through the summer is a dribble of (statements of claim) as we get them out," he said. "By September, I think you'll start seeing blocks of plaintiffs."
French and his late father, Elmer, ran a farm north of Barrie. They invested their savings in guaranteed investment certificates (GICs), but when his father died in 1999, the son inherited the farm and their joint savings.
The claim states French, a 58-year-old former dairy farmer, hoped to protect $300,000 in savings for retirement by seeking financial advice.
"The farmer fell victim to investment strategies designed to generate compensation for the adviser at the expense of the adviser's clients," the claim states.
When the bottom fell out of the market more than a year ago, French's portfolio was "decimated," according to the claim.
Hollander says his client began with $350,000 and ended up owing $500,000.
"He lost far more than he had to invest," he said.
"Has retirement security is blown," Geller added.
The claim states Karas advised and arranged for French, who never married and has no dependents, to purchase life, critical care and long-term care insurance, even though he had no plans to leave behind an estate. The $22,000 in annual premiums were also more than French's disposable income.
French had been dealing with Karas since 2003. His portfolio contained high-risk investments, such as smaller companies or those in emerging markets, according to the claim.
The claim states Financial Victory was supposed to provide computer-generated market-timing alerts at specified percentage points that would signal the appropriate time to buy or sell mutual funds.
The claim also says there was a "stop-loss trigger," meaning a client would not have to call the adviser, "safe in the knowledge that the adviser would liquidate poorly performing holdings without further instruction."
The claim says French pay fees for that service, even when it was terminated after two years and French hadn't been informed.
Hollander says French thought he was protected from such severe losses.
"The two strategies (leveraging and the stop-loss system) increased revenue to the adviser and his firm without benefit, and at unsuitable risk, to the clients," the claim reads.
rbowe@thebarrieexaminer.com twitter.com/RaymondBowe
