Investor misses investment opportunity due to firm’s miscommunication
Ms. X worked at a large technology company that had a close business relationship with Company A. As an employee benefit, she received shares of Company A and transferred them to a self-directed online account at a DIY investing firm. She later bought nearly 400 more shares of Company A using the firm’s online trading platform.
In May 2022, Company A announced that it planned to merge with Company B, and continue operating as Company B. In mid-August 2023, the investment firm sent Ms. X a time-sensitive message, requesting that she decide by early September whether she wanted to exchange her shares in Company A for new ones in Company B or take a cash payout. In late August, she called the firm’s customer service centre as instructed by the firm.
During the call, Ms. X asked about the tax implications of choosing the cash offer. The agent said they could not advise on tax issues. Ms. X told the agent that she wanted to receive the new shares in Company B because she worried that the cash offer would require her to pay immediate taxes. The agent said the request could not be processed because the merger between Company A and Company B had only been proposed and not finalized. The agent advised her to monitor the news for updates and wait for further communication from the firm.
For several months, Ms. X did not hear back from the firm about her options.
In January 2024, the firm sent Ms. X a letter stating that, although the deadline to choose between the shares and the cash offer had been extended to October 2023, she had missed the deadline, and she would automatically receive cash for her shares in Company A.
Ms. X noted that the value of Company B shares had increased, and if she had been able to acquire them in August 2023, when she tried to make the selection, the value of her shares would have been significantly higher than the amount she received in cash. She believed that the firm had misinformed her about her options. In February 2024, she filed a formal complaint with the firm, asking for compensation.
The firm investigated and concluded that Ms. X had enough time to act on her decision between the August customer service call and the October deadline. The firm said that, under the terms and conditions of using a self-directed account, she was responsible for managing her own investments. The firm also said that it was not required to notify investors about merger updates or similar events and denied her request for compensation.
Dissatisfied with the firm’s response, Ms. X asked OBSI for help.
Complaint upheld
The investigator interviewed Ms. X and the firm representatives and listened to Ms. X’s August 2023 call with the firm’s customer service centre. The call recording confirmed that the agent had told Ms. X that they could not process the request for new shares because the merger was still in the proposal stage and that she should wait to hear back from the firm.
During the investigation, we found that in mid-August 2023 Company A had started sending its shareholders the necessary paperwork to choose between the cash offer and the new shares, which would have allowed her to make the choice during the merger process.
The investigation further showed that, when Ms. X called the customer service centre in August 2023, she should have been able to choose the option of the new shares in Company B at that time. We compared the cash payment Ms. X received for her Company A shares to the value of the Company B shares she would have acquired had her request been fulfilled appropriately and found a difference of $18,800 USD.
Overall, we concluded that Ms. X experienced $18,800 USD in financial harm because the customer service agent gave her incorrect information. Based on these findings, we recommended that the firm fully compensate Ms. X.
The firm agreed with our recommendation and Ms. X accepted the offer.