The article is a little short on specifics, but a remarkable story nonetheless. In 2019, when he was just 29, a BC carpenter with $88K in savings invested it in Tesla stock. The article isn’t entirely clear on how he managed to grow that to $415 million by November, 2021, but by doing nothing more than just holding the stock his $88K investment would by that point have been worth more than $2.4 million at its peak.
However, he obviously did much more than that, and the article implies that he was heavily invested in puts and calls on Tesla (highly leveraged risky bets on short-term stock performance) and was also buying up vast amounts of TSLA shares on margin.
Apparently it all started to unravel when TSLA took a nosedive throughout 2022. It seems he was getting lots of margin calls, forcing him to sell at any price in order to meet the margin requirements of his account. If TSLA was not moving the way he expected and he was heavily invested in call options, they could easily have become worthless, wiping out everything he had put into them.
He’s claiming that he’s now essentially broke, and is suing RBC, Canada largest bank, for making him lose his fortune by giving him bad financial advice.
The article doesn’t give enough detail to reach a clear conclusion about the bank’s potential liability, but I’m of two minds. On one hand, the investment advice one gets from a bank’s “financial advisors” tends to be self-serving (for the bank) and often notoriously bad. OTOH, it sounds like this guy was taking huge risks with enormous amounts of money, perhaps out of pure greed and overconfidence, to an extent that no reasonable person would ever have done.
The outcome of the lawsuit should be interesting but I strongly suspect that RBC will consider it strategically vital to protect themselves against this kind of liability claim, and will amass an army of carnivorous lawyers against which this guy will have no chance!
I have always had at the back of my mind to immediately retire as soon as I make my first “financially secure pile of money” whatever that means and however that manifests. No need for anyone to ever possess more than that, in my opinion.
That sure sounds like what happened, but I’m pretty sure it was his own doing. I’m certain that no major bank or their brokerage arm would ever advise anyone to manage the totality of their net worth in such a hugely irresponsible fashion.
Ultimately, however, beyond offering gentle advice, a financial institution has no responsibility to protect a determined fool from the consequences of his own stupidity if said fool is legally competent to conduct his own financial affairs. Some of the wording quoted from the lawsuit – “negligent in their duties” and “gave inadequate advice” – suggests that he may be trying to blame them for not trying hard enough to dissuade him from his crazy strategies. Good luck with that!
He contacted a representative at RBC Private Banking about obtaining a loan against the equity in his RBC trading account and was introduced to an RBC financial management adviser. He then entered an agreement with RBC for financial planning advice.
At this point, his portfolio was valued at almost $50 million.
The claim says RBC advisers failed to understand and support DeVocht’s evolving wishes to “essentially retire” by liquidating his Tesla options and moving the wealth into secure investments that would generate passive income.
So he went in to get a loan and his advisor failed to understand that meant he wanted to liquidate his position? I guess his “evolving wishes” were a bit confusing.
It’s just plain greed fueld by a gambler’s passion for just one more throw of the dice. in his mind he probably thought as long as he hung onto a million or two he would have enjoyed the ride and came out a winner. He miscalculated the end game and lost due to complicated deals he didn’t fully understand, end of story.
That an individual can “make” $415 million without actually providing a service or producing anything of value is one of the strongest indictments of capitalism that I’ve ever heard.
RBC considered Mr. DeVocht to be a sophisticated investor,” according to the complaint. “While this was true in respect of his strategies for put and call options in the trading of Tesla shares, RBC failed to appreciate that Mr. DeVocht’s knowledge of investing more generally, of financial planning, and of tax was in fact limited.”
In other words, you didn’t protect me from being a dumbass.
Sorta. I assume you have a retirement account? Then you’re hopefully making money for nothing more than providing capital to the markets… If I had to fund my retirement by providing something of value I’d have to do a lot more volunteering or polish my turds really well… Speculation of that sort? Easy come, easy go.
Yes, the statement in the complaint is ridiculous. If an individual of ordinary means has realized enormous gains from a risky investment, the idea of putting a big chunk of those gains into safe and conservative investments is not “financial planning”, it’s what most of us would call “common sense”. All the more so if the investment represents all or most of your net worth, and still more so if there’s enough to make you independently wealthy.
“Financial planning” consists of the boring details of making diversified investments with the right mix of returns and safety. Clearly this dumbass didn’t even try to do any of that; this is clear because otherwise he wouldn’t now be broke.
The guy was dealing with the Private Banking division of the largest bank in the country. It’s inconceivable to me that he would not have been strongly advised to put a few tens of millions in well-rated bonds and few more in blue-chip stocks. It is, however, quite believable that he was on a gambling high and ignored them. As I said earlier, a financial institution has no responsibility to protect a determined fool from the consequences of his own stupidity if said fool is legally competent to conduct his own financial affairs and chooses to ignore their advice.
The guy is SOL. I’m certain that RBC will use every legal resource at their disposal to fight and win this. For a major bank to be found guilty of financial impropriety is very bad for business, especially if it involves their elite private banking division.
An interesting fact to ponder here, aside from this guy’s incredible stupidity driven by greed, is that if he had been just a little bit smarter, this would never have been a news story at all. He’d still be worth hundreds of millions even if he lost a couple of hundred million when Tesla tanked in 2022.
The value of Tesla stock multiplied about 27-fold between 2019 and the end of 2021. In the process, it created hundreds if not thousands of newly minted millionaires who did nothing more than sit on ordinary common stock with no leveraging whatsoever. All of them got rich, none of them made the news.
I can only imagine the frustration this guy must be feeling, made worse by his sheer stupidity being the focus of media attention. But I have zero sympathy. He totally brought it on himself. And I predict he’s not going to get a cent out of RBC over this.
Article is pretty vague and nothing proven in court. Long story short, this guy bet it all repeatedly on derivative call options (and probably shorted puts at the same time for more leverage) on Tesla. To say it a different way, he bet it all on red 20, repeatedly, and won. I still find it difficult to imagine it could have been worth $415 million, even 10% of that.
Then the roulette ball landed on a different number, and he lost pretty much everything. He had to have shorted options big time to lose so much.
For those of you that are not familiar, being long an option means you have a multiplier on the upside if the underlying stock goes up, while only being able to lose the maximum of what you paid for the option. If one shorts an option, then that multiplier loss can be huge. If it’s a short call option, then you lose the multiplied effect all the way down to the stock going to zero. If it’s a short put, then theoretically multiplier losses are unlimited as the share price goes up.
So, my guess is he was long calls and short puts. The leveraged value of both was completely dependent on the share price going up. When the share price dropped, he was so leveraged on the downside that he lost it all.
Just a wag, but being long calls and short puts (depending on the strike price) could have given him 100x on the upside, and just as much on the downside. In other words, a $1 price increase in the stock, gave him $100 (if he took profit). By the same token, $1 drop in Tesla’s stock price, could have cost him $100 per share/option. So, bet one million dollars that the share price would go up, also gives the risk of losing $100 million dollars if the share price goes down.
I worked for UBS in the 1990’s in equity derivatives (that ended in tears with the 1997 Asian crisis).
