David Berry: The Trader Who Was Too Successful

In 1996 David Berry was just another trading associate on Scotia Capital’s Preferred Share Desk. The trajectory of his rise at Scotiabank was meteoric and within two years, he had grown the preferred share business to about 60% of the market.

Berry brought in so much money in 2002 and 2003 for Scotia Capital that – in terms of his profit-sharing contract – he was taking home almost double what CEO Rick Waugh earned. Berry had a direct-drive deal which meant that he received a 20% share of profits he earned for the bank, minus his $125,000 annual salary plus expenses (subject to a cap of $15 million).

Trouble arose in early 2005 when Berry was presented with a new employment contract. His earnings would be capped at $10 million, he would have to cover his trading losses and he would no longer have a direct-drive deal. He was not prepared to accept his and three months later he had still not signed this contract.

When Scotia fired him in June 2005 it hit the front page of the newspapers. Scotia alleged that he had violated trading practices. The matter was referred to the Investment Industry Regulatory Organization of Canada (IIROC). IIROC brought allegations against Berry claiming that he violated regulations in the distribution of new securities.

In 2006, Berry filed a $100 million wrongful and constructive dismissal lawsuit against Scotia Capital. Scotia countered that Berry owed them $4 million to compensate for costs incurred due to his misconduct.

By 2013 the IIROC had spent more than seven years on the matter. They had already reached a $638,000 settlement with Scotia Capital in early 2007. At the time they said that supervision was not an issue but that it was not right for the bank to retain profits generated by the wrongdoing of its employees.

This time the disciplinary panel determined that there was, in fact, no wrongdoing. All Berry’s trades had been subjected to intense scrutiny. The panel concluded that he did not cause Scotia Capital to contravene any regulations. All charges were dismissed. They also contradicted their earlier statement that supervision was not an issue. Evidence had suggested his immediate superiors knew about his activities.

The panel also indicated that towards the end of Berry’s employment serious issues, mostly relating to his compensation had arisen. The Financial Post released documents suggesting that six months prior to him being fired, the bank had been looking for legal opinions on renegotiating his contract so he didn’t have to be paid so much.

These findings by the IIROC have vindicated Berry after a long and costly struggle. Scotia treated him as a rogue employee and said that he had kept his activities hidden. He was not only fired but when the bank went to the IIROC for confirmation of his misconduct it essentially destroyed his career. His reputation took a hard knock and it took him years to prove that he was blameless.

Berry believed that the bank had in fact tipped regulators to a potential breach of regulations and then fired him over a pay dispute, stemming from his refusal to accept changes that would have cut his compensation. The findings backed up his allegations and strongly suggested that senior management was looking for a reason to remove him and to prevent him from becoming a competitor.

Nine years after Berry’s termination, Scotiabank had to settle with him. One can only imagine what Scotiabank’s executives feel now about their decision to fire him. Going for one of their top performers because he was earning too much proved costlier than they could have imagined.

It is interesting to note that in 2012 Scotiabank announced that Scotia Capital, the name by which its securities business was known for more than 10 years, would no longer be used. It would now be known as Scotiabank Global Banking and Markets.

Scotiabank has suffered financially from what happened as a result of the self-promoting behavior of its top executives. The clients were robbed of liquidity as the entire preferred market lost liquidity virtually overnight and never recovered. The trader who was supposed to trade David Berry’s book lost 15 million in the first year. He was fired and the following trader lost 10 million. David Berry never lost money over his entire career, except for during a period of approximately two weeks.

The fact that high ranking officers like Jim Mountain and James Barltrop were prepared to commit perjury to achieve their aims left a permanent stain on the bank’s reputation. They had decided to get rid of David Berry because of his high earnings and they didn’t care how they did it.

In financial terms, the bank’s legal bills probably amounted to about 10 million dollars and the settlement figure was probably close to 100 million. It lost a business valued at 500 million if not a billion dollars. They had literally fired the ‘goose who laid the golden eggs’ for them and possibly lost one of the biggest stars to ever trade in Canada.