With Friends Like This...Who Needs Enemies?

In 2005 Charlotte Umutoni sent $188,000 to her cousin Richard Safari, to invest in the U.S. stock market. At the time, Richard was living with his wife in New York City. Charlotte was living with her husband and three children in Rwanda.

Over the years, Charlotte heard nothing from Richard about her investment until the year 2008 when she discovered, much to her horror that Richard had managed to lose $132,000 of her money in the U.S. stock market.

At the court hearing in August 2013, Charlotte claimed that her cousin had told her he was a financial adviser and that he could invest her savings in the United States and obtain a better return on investment than in other places in the world. Charlotte also claimed that Richard assured her that her money would be completely protected.

For his part, Richard admitted that he had invested Charlotte's money as a close family friend but denied holding himself out as a financial adviser.  He argued quite the contrary, stating that he was not qualified or competent to invest Charlotte's funds in the stock market.  At the hearing, Richard admitted he had taken unacceptable risks and had lost not only Charlotte's $132,000 but another $117,005 of his own money, by making bad investments.

So, here is the interesting part of this case.

Because of the nature of the hearing (a Motion for Summary Judgment) the judge was not allowed to make findings of credibility.  In other words, the Judge could not determine whether Richard had in fact held himself out as a financial adviser, as Charlotte had claimed.

That meant the judge was left with some pretty simple facts.

1) Charlotte had sent Richard $188,000.

2) Richard had lost $132,000 of Charlotte's money.

3) Richard admitted that he had made inappropriate and excessively risky investments and in fact had lost over $117,000 of his own money.

4) Charlotte had complete confidence in Richard when she sent him the money and had relied totally on him.

So, here's the thing...if the judge couldn't decide whether Richard had held himself out as an expert in investing, could he still find that Richard, expert or not, was liable to his cousin?  When you think about it, what duty of care does the ordinary person have to others, unless you can prove they held themselves out as an expert?

You have to admit, the stock market is a pretty risky place to be investing your money anyhow!

How did the judge decide?

The judge found that even if you are not an expert, if someone puts their money and their trust in you, you have a duty to take reasonable care with that money.  It is no defence to say that you didn't know what you were doing.  The fact is, if you don't know what you're doing then you shouldn't be accepting the money.

In the end the judge found that even if Richard Safari was not an expert, he had a duty to use reasonable care with his cousin's money.  In this case he was negligent in the manner in which he had invested Charlotte's funds.  The judge ordered Richard Safari and his wife to pay $132,000 back to Charlotte, plus court costs.

Lessons to be learned:

1) Doing business with your family can be risky. It makes good sense to get advice from someone outside the family, such as a lawyer, before entering into any type of business arrangement with a relative, or even a friend.

2) If someone asks you to take on a responsibility that is outside your normal field of activity or expertise, it would be wise to check with a professional such as a lawyer or an accountant to make sure that you are on a safe footing.  Doing a 'favour' for a relative or friend can be tricky business.  Often, getting advice from a third-party expert can protect the relationship you have with your relative or friend even if you have to say no to their request.

If you have had a similar experience, or just want to comment on this case, or the law, we'd like to hear from you.

You can reach us at: wewanttohearfromyou@rossfirm.com

At The Ross Firm, we have lawyers whose practice focuses are Torts, written Agreements, Civil Practice & Procedure, and other Contractual matters.

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