IDA Invokes Power to Suspend Member

Investment Dealers Association of Canada (IDA) invoked on August 24, 2001, for the first time, its power to suspend a member of the IDA on an ex parte interim basis because of an alleged failure to maintain risk adjusted capital. The suspended member was Rampart Securities Inc. As a result of the IDA’s ex parte interim suspension order, the Ontario Securities Commission (OSC) and other securities commissions also suspended Rampart’s registration on an interim basis and issued cease trading directions. As a result of these suspensions, Rampart, a company with equity of approximately $400 million, was put into a position where it had to undergo an orderly liquidation of its business and ensure that client accounts were transferred to new registered dealers.

Within three days a monitor agreement, agreed to by Rampart and the proposed monitor PricewaterhouseCoopers LLP, was accepted by IDA and the OSC to facilitate the orderly transfer of client accounts. The OSC suspension order was amended to allow for the supervised transfer of accounts and liquidation of securities.

However, as a result of IDA and OSC suspensions, Rampart’s banker, Canadian Imperial Bank of Commerce, terminated its banking arrangements with Rampart. Eventually an injunction motion was required to ensure that limited banking arrangements were provided by CIBC to Rampart. On August 21, 2001 Mr. Justice James Farley granted Rampart the relief sought and ordered, inter alia, that CIBC was enjoined and prohibited until September 13, 2001 from terminating its banking relationship with Rampart and that the terms of the relationship were to continue on a “cash in, cash out” basis, with no credit to be extended by CIBC. In his endorsement, Mr. Justice Farley noted that up to this point there did not appear to be much, if any, case law with respect to “premature” termination by a financial institution of a cash account/no credit banking relationship.

On August 31, 2001, the Canadian Investor Protection Fund (CIPF) filed a petition for bankruptcy against Rampart pursuant to Part XII of the Bankruptcy and Insolvency Act (BIA), based upon the OSC ex parte temporary suspension order and sought an order for the appointment of an interim receiver pursuant to s. 46 of the BIA. On September 24, 2001, Mr. Justice James Spence granted CIPF’s request for an interim receiver. On October 24, 2001, a final receiving order was granted by Mr. Justice John Ground pursuant to Part XII of the BIA.

McCarthy Tétrault LLP acted for Rampart with a team comprised of Rene Sorell (business), R. Paul Steep, Malcolm Mercer and Thomas Sutton (litigation) and Kevin Zych (bankruptcy & restructuring).
CIPF was represented by Robert Hutchison, Craig Hill and Jeff Dermer of Borden Ladner Gervais LLP. Geoffrey Morowetz and Jessica Kimmel of Goodmans LLP acted for PwC, and Richard Jones of Jones, Rogers acted for Atlas Securities Inc.