(Bloomberg) — Christopher DeVocht, a carpenter from Vancouver Island, Canada, says he started out like many day traders. After work he had read about trading on forums. His favorite trading activities were options on Tesla Inc. stock.
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He then moved on to what must be one of the hottest developments in the history of the financial markets, according to a legal filing. At the end of 2019, his account with Royal Bank of Canada’s brokerage department was worth C$88,000. Within two years he had turned that into US$415 million ($306 million), he says.
Some people would have paid out money. De Vocht did not do that. And when Tesla’s shares fell in 2022, he lost everything, according to a lawsuit he filed this week against RBC Dominion Securities, RBC Wealth Management and accounting firm Grant Thornton LLP. The filing, an initial notice of claim for which no evidence is required at this stage, contained no brokerage statements or other evidence of its profits or losses.
DeVocht now claims that the advice he received, primarily aimed at minimizing taxes, was negligent and did not take into account his level of financial sophistication. His Tesla investment strategy involved borrowing from a Royal Bank margin account.
“RBC considered Mr. DeVocht to be an experienced investor,” the complaint said. “While this was true with respect to his put and call option strategies in Tesla stock trading, RBC failed to realize that Mr. DeVocht’s knowledge of investing in general, of financial planning and of taxes was in fact was limited.”
Royal Bank had no immediate comment Friday and has not yet filed a defense in the case. DeVocht’s attorney, Sean Hern, declined to comment beyond the complaint. Grant Thornton said it does not comment on cases pending in court.
“The only statement we can make at this time is that we are committed to providing quality services to all our clients in accordance with professional standards,” Grant Thornton said in an emailed statement.
DeVocht was good at trading Tesla stock and options, he said in the lawsuit, but he was in his 20s, struggled with “significant respiratory and other health problems” and had limited insight into financial issues. When he first went to Royal Bank in July 2020, he wanted a loan so he could move out of his rental apartment and buy a house. At the time, his portfolio was worth about C$26 million “and rising rapidly,” according to the notice of civil claim filed in the Supreme Court of British Columbia in Vancouver.
He was quickly referred to a “coach and coordinator” within the bank, who then connected him to an accountant at Grant Thornton, the complaint states.
The assembled team of professionals advised him to form a company, put all his securities into it and make trades within the company “with a strategy to collect as many Tesla shares as possible and hold them for as long as possible ,” DeVocht claims in the lawsuit.
The idea was to convince Canadian tax authorities to consider the company an investment holding company and not an active trading company, because that way it would pay lower taxes, the complaint said.
This led to an ‘extreme concentration in Tesla’ that entailed associated risks, DeVocht claims. When the stock soared in 2021, it paid off (according to the lawsuit, his portfolios rose to $415 million from $415 million in a span of about eight months that year, according to the lawsuit) before collapsing.
‘worth nothing’
Tesla shares saw a series of declines and periodic rallies in 2022, and DeVocht tried to recoup some of the losses by borrowing C$20 million from the company and using it to make shorter-term trades in his personal account. That strategy backfired and the money was lost, he said in the complaint. When Tesla shares fell even more sharply in October 2022, DeVocht’s company had to sell its Tesla holdings to repay loans from a margin account it maintained at Royal Bank, the lawsuit said.
DeVocht and his company tried to limit these losses, but over time their “securities holdings were worth nothing,” he said in the complaint. Without the “inadequate advice” DeVocht received, he and his company “would have retained a substantial portion of their assets and implemented financial planning that would not have resulted in the loss of their entire assets.”
DeVocht and his company are seeking general damages for breach of contract and negligence. His claim also alleges that Royal Bank’s recommendations to make C$25.5 million in charitable donations have further eroded a significant portion of his wealth.
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