Investor Files Claim Over $4.5 Million in Fraudulent TD Account Trades
A Calgary investor is suing TD Waterhouse Canada Inc., a subsidiary of Toronto-Dominion Bank, saying that the institution failed to stop fraudulent trades that caused him a loss of approximately $4.5-million.
Tim Tycholis, owner of Tykewest Ltd., a small oil and gas company in Alberta, said the alleged fraud wiped out most of his retirement funds. A statement of claim filed by his legal team alleged that someone gained access to two of his TD Direct Investing accounts in mid-February while he was vacationing in Hawaii. The fraudsters sold most of his investments and bought more than $5-million worth of a thinly-traded Hong Kong stock whose value collapsed shortly thereafter, leaving Mr. Tycholis with a multimillion-dollar loss, the lawsuit alleges.
In its statement of defence, TD denied any liability and said Mr. Tycholis executed or authorized the trades himself or else failed to keep access to his accounts secure. None of the allegations have been tested in court.
The lawsuit underscores the complexity of establishing when an investing fraud has occurred and, if it has, who should bear responsibility for it at a time investors, financial institutions and regulators are grappling with increasingly sophisticated scams and hacks, often perpetrated by cross-border criminals.
TD said it was unable to comment on the case, as the matter is before the courts.
In an e-mail statement, Mina Bines, a spokesperson for the bank, called phishing and fraud schemes a “persistent threat” for individuals and businesses. She added that TD uses, and continued to invest in, a variety of resources to safeguard customer accounts.
Mr. Tycholis, who is 66, said the financial loss has upended his retirement plans and left him profoundly shaken.
“This whole period was a series of anxiety attacks,” he said.
The alleged fraud occurred on Feb. 12, when Mr. Tycholis, who was in Hawaii to celebrate his wedding anniversary, said he discovered he could no longer log into his accounts and called TD to flag the issue and place some trades in his U.S.-dollar margin trading account over the phone.
It wasn’t until the following day that he found out someone had liquidated his investments in the U.S. account and bought 49,500, or US$3.9-million shares of a small Hong-Kong company called Rich Sparkle Holdings Ltd., he said. The company, which trades on the Nasdaq stock exchange under the ticker ANPA, describes itself as a financial printing and corporate services provider.
The stock experienced a steep price spike in early January, with the company’s share price increasing by more than 550 per cent between Jan. 8 and Jan. 15, from around US$24 to nearly US$158.
By Feb. 12, when the alleged fraud occurred, the stock had been declining. But the unauthorized trades still fetched prices between roughly $74 and $80 per share, according to the statement of claim.
The alleged unauthorized transactions resulted in 120 per cent of the account’s value being invested in “a single illiquid, speculative small-cap security,” including amounts bought using margin debt, according to the statement of claim.
The documents also allege Mr. Tycholis found out later that someone had also purchased a smaller amount of Rich Sparkle Holdings stocks in a different margin account held in Canadian dollars.
The statement of claim contends that TD failed to recognize that alleged fraudulent trades were “replete with red flags” and inconsistent with Mr. Tycholis’s trading record, among other things.
It also alleges that TD didn’t take adequate steps to mitigate Mr. Tycholis’s losses after he alerted the bank to the fraud.
TD didn’t sell the Rich Sparkle Holdings stocks in the U.S.-dollar account until Feb. 22, the court filings allege. By then, the stock price had collapsed and the trades fetched prices between US$9.50 and US$14 per share, according to the documents.
In the statement of defence, TD puts the responsibility for the loss entirely on Mr. Tycholis, alleging that he either authorized the trades or allowed fraudsters to gain access to his account.
Among other allegations, the documents say that Mr. Tycholis declined to change his password on the day of the alleged fraud, when a TD agent offered to reset it.
In a response filed on Aug. 14, Mr. Tycholis denied placing the allegedly unauthorized trades, sharing his credentials or failing to secure his devices. The document also alleges that he was not offered help to reset his password on Feb. 12.
TD’s court filings say the institution uses two-factor authentication, or 2FA, to help protect client accounts, sending customers a one-time passcode to their e-mail address or phone number to authenticate login attempts that may be unauthorized – for example, those coming from a new device or location.
Mr. Tycholis’s accounts were accessed from a variety of IP addresses on the day of the alleged fraud and in the days leading up to it through logins that were successfully authenticated through 2FA, the documents allege.
TD also denied it was responsible for monitoring Mr. Tycholis’s trades because he was using self-directed investing accounts.
With regard to the sale of the Rich Sparkle Holdings stocks in Mr. Tycholis’ U.S.-dollar account taking 10 days, TD cited the need to find willing buyers for the stock and ensure the trades did not distort the market. By Feb. 23, all the shares had been sold and the trades settled, it said.
Mr. Tycholis said he has also filed a complaint to Canadian Investment Regulatory Organization (CIRO), a self-regulatory organization that oversees investment and mutual fund dealers across the country, about the alleged fraud.
The regulator said in a statement to The Globe that it can’t confirm the receipt of any complaints, which is confidential.
The case highlights the fact that Canada does not have a regulatory framework for assessing who should shoulder losses when an investment account is compromised, said Jean-Paul Bureaud, executive director at FAIR Canada, a national organization that champions the interests of individual investors.
Britain is one example of a country that has set up a system where liability is shared between financial institutions and other payment service providers, on one side, and consumers, on the other, in certain cases of fraud.
While Ottawa has held consultations on creating a similar framework, it has yet to do so.
But any such federal rules would still leave out securities dealers, which are regulated provincially, Mr. Bureaud said.
“I think provincial governments should be starting to think about how do they address these questions through a legislative framework,” he added.
This article was first reported by The Globe and Mail
