QUEBEC CASE A PAINFUL WIN FOR INVESTORS

Canada.com, Canada
Financial Post
Nov 2 2007

Judge criticizes CIBC for failing to protect clients

Jonathan Chevreau, Financial Post
Published: Friday, November 02, 2007

Documents for a landmark legal case hailed a year ago as a "great
victory" for investors but publicized mostly in the Quebec media are
now available in English. Securities industry watchdog Robert Kyle
has just added court-approved translations of French court rulings
to his Web site at

Go to "Cases" and "Investor Cases in provincial courts," then
"Markarian vs. CIBC World Markets Inc."

The Markarians were a retired Canadian couple of Armenian descent
defrauded of $1-million in the 1990s by fellow Armenian financial
advisor Harry Migirdic.

In June, 2006, Montreal Superior Court Judge Jean-Pierre Senecal
awarded more than $3-million, including $1.5-million in punitive
damages, to Haroutioun and Alice Markarian. As Kyle explains, the
couple unwittingly guaranteed the trading losses of people they didn’t
know at the behest of Migirdic, then a broker with CIBC Wood Gundy.

The brokerage invoked the guarantees to seize $1.4-million from
the Markarians in 2001, leaving almost nothing in their accounts —
even though Migirdic admitted to CIBC prior to his 2001 termination
that the Markarians were the subject of his fraud and that they were
totally unaware.

Judge Senecal called CIBC’s conduct "reprehensible," saying it
"cruelly failed" in its duty to protect its clients and supervise
its employee. In August, 2006, the bank settled out of court with at
least six other former clients of Migirdic. Terms were not disclosed
and CIBC spokesman Rob McLeod declared "the matter is closed."

Closed and forgotten, if indeed investors in English Canada even knew
of the case in the first place. Few outside Quebec are, because until
now the court decision and related documents were available only in
French. The only prominent English-language coverage of the case was
by Montreal Gazette reporter Paul Delean.

In reading judge Senecal’s decision, I was struck by how Migirdic was
able to exploit the trust his clients had in him for more than five
years. Some of this stemmed from the impressive "vice-president and
director" title conferred on him soon after the Markarians became
clients.

Year after year, when Haroutioun questioned the annual disclosure
of the mysterious "guarantee," Migirdic dismissed the query with a
simple statement it was "a mistake" he’d soon fix.

One thinks of the Peanuts cartoon strip, where the hapless Charlie
Brown forever takes another run at the football Lucy always yanks away.

The case raises broader questions about compliance procedures at the
big brokerages and their oversight by self-regulated organizations.

Reviewing Migirdic’s "numerous faults over the years," judge Senecal
says many were repeated. "It is incredible that, despite their size,
none of the faults were discovered by the Compliance Department or
anyone else at CIBC."

The other troublesome aspect is why the IDA or Quebec Securities
Commission took no action against CIBC or those behind the fraud.

Judge Senecal notes that in February, 2001, Migirdic admitted his
fraud to CIBC Wood Gundy president Tom Monahan.

Kyle says Monahan was also on the IDA’s board of directors from June,
2003, to June, 2005, and chair of the IDA’s Retail Sales Committee.

Two years later, in April, 2004, the IDA found Migirdic guilty of 24
counts, including forgery, 11 of them related to the Markarian case,
and prohibitied him from membership. It also fined him $305,000. (He
never paid).

However, judge Senecal added, "no criminal charges were ever laid
against him. Moreover, there was never any complaint or sanction
against CIBC." Judge Senecal said CIBC persisted in refusing the
acceptance of fraud contrary to the facts and all common sense, seizing
the Markarian’s assets and forcing a five-year court proceeding.

At one point a CIBC compliance officer suggested it should absorb
the Markarians’ losses but this was never implemented. Judge Senecal
concluded "CIBC thus became the accomplice in Migirdic’s fraud and
did everything in its power to benefit from it directly."

Kyle’s site poses the question whether the IDA and QSC felt their
supervisory roles were exercised properly. When he raised this at
last week’s Investor Forum in Toronto he says he was told in private
the IDA is now investigating the case.