Class Proceedings

Foreign Exchange

Undisclosed Commissions and Fees

Plaintiff’s Claim v. Merill Lynch Canada Inc. and BMO Nesbitt Burns

Harvin Pitch and Colin Stevenson act together with Harvey Strosberg and Joseph Groia for the plaintiffs in two class actions: one brought against Merrill Lynch Canada Inc.; and, the other against BMO Nesbitt Burns Inc. These claims are advanced as national class actions covering all of Canada other than Québéc and British Columbia. The claims are being advanced in conjunction with Bruce Lemer, a lawyer in Vancouver who has commenced a similar action on behalf of his client in British Columbia, against Merrill Lynch Canada.

The claims relate to currency conversion on transactions. Brokerage houses purchasing or selling U.S. shares for Canadian accounts, especially RRSP accounts, must purchase or sell the stock on the appropriate U.S. stock exchange in U.S. currency. The Canadian brokerage houses often incur minimal or no currency exchange costs because they setoff customers’ “buy” and “sell” orders against each other or use other mechanisms to ensure that they incur minimal currency conversion costs.

In essence, the class actions contend that in addition to charging the normal commission on stock trades, these brokerage houses are buying and selling U.S. stock for Canadian accounts and charging an undisclosed “spread” to the customers on the conversion of the Canadian currency. This “spread” amounts to an undisclosed fee to the currency traders. In effect, it is alleged the brokerage houses earn double fees: disclosed (the commission) and the other undisclosed (the spread).

The Investment Dealers Association of Canada (IDA) has by-laws that not only require brokers to observe a high standard of ethics but prohibit a broker from imposing on a customer any service fee or charge relating to the administration of the customer’s account unless prior written notice has been given to the customer.

Additionally, the Ontario Securities Commission rules require that the total cost of a share purchase or sale, including the commissions and fees, and whether the broker acts as principal or agent, must be disclosed to the investor.

This lawsuit is based on the fact that no such disclosure has been made. The matter was settled before the B.C. Court of Appeal heard the appeal which had been scheduled for 2003. Similar proceedings CIBC World Markets Inc. and CIBC Investor Services Inc. were settled in February 2008.