Doing Your Diligence

An OM is long because it must answer the questions that matter. Read it in this order, not front to back:

• Use of proceeds. Where does your money actually go? Watch the share consumed by fees, commissions and “working capital” before any investing happens.
• Risk factors. Skip the boilerplate; hunt the specific — named lawsuits, related-party dependencies, a single customer, expiring permits. Issuers bury real disclosures here because disclosure is legally protective.
• Related-party transactions. Who on the inside gets paid, lends, borrows, or sells services to the issuer? Some is normal; a web of it is the deal's true org chart.
• Financial statements. Audited or not? Which auditor? Going-concern notes? Revenue that's real versus projected?
• Management. Names, histories, and how much of their own money is invested beside yours.
• Your securities' terms. Rights, ranking, redemption mechanics — the exit clauses deserve your most pessimistic reading (see Liquidity).

Expect two to four focused hours. Take notes of every claim you'd want verified and every question the document raises — that list becomes your meeting agenda.

Good questions are specific, answerable, and verifiable afterwards. A working set:

• “Which exemption covers my purchase, and what documents am I entitled to under it?”
• “What is your registration, in which provinces? What is your NRD number?”
• “What do all parties earn if I invest — commissions, fees, carried interest — in dollars on my cheque?”
• “How do I exit, how long does it take at best and worst, and when did redemptions last gate or suspend?”
• “Who audits, who values the assets, who holds custody — and may I contact them?”
• “How much of the principals' own money is invested on my terms?”
• “What went wrong in your last deal, and what did investors get back?”

Grade the answers on verifiability: numbers, names and documents can be checked; adjectives cannot. “About 7% commission, it's on page 41” is an answer. “Don't worry, we're aligned” is not.

And watch reaction as data. Professionals expect these questions and answer them routinely; irritation, deflection, or flattery-as-response tells you how this relationship behaves after your money arrives.

Deals are stories about the future; the people are facts from the past. An hour of verification, in order:

• Registration, firm and individual — the full walkthrough. Exact legal names, your province, the right categories.
• Enforcement history — the CSA's disciplined list and cease-trade databases; each provincial regulator's decisions; CIRO's reports for dealer reps. Search principals' names, not just the firm.
• Court records — many Canadian courts are searchable free (and Ontario, BC and federal decisions via CanLII). Past investor lawsuits, fraud claims and bankruptcies surface here first.
• Corporate registries — does the issuing entity exist, who are its directors, how recently was it created? A fund “established 2015” incorporated eight months ago is a finding.
• The claimed track record — past projects: do the buildings exist, did the funds return money, will any past investor speak to you unchaperoned?
• Plain search, patiently — names plus “complaint,” “lawsuit,” “regulator.” Page five is where the interesting results live.

You're not hunting a villain — usually there isn't one. You're testing whether the paper trail agrees with the story, because honest stories survive their own documentation.

Before money moves, you should hold: the OM or offering document; the subscription agreement; any risk acknowledgement forms (yours to sign, copies to keep); fee and commission disclosure; and written answers to your material questions — email beats memory, always.

Shortly after, expect: confirmation of your investment with the exact entity name; evidence of your position on the register (a statement or unit confirmation); and tax slips at the proper season. Chase anything missing immediately — recordkeeping sloppiness is operational information.

Ongoing, the documents promised you reports on a schedule. Note that schedule the day you invest. The quiet degradation — quarterly reports arriving late, then thin, then not at all — is how trouble usually announces itself, long before any headline.

Keep everything in one place your family could find, including a one-page summary in your own words: what you bought, from whom, the exit terms, and where the documents live. Private investments outlive memories and sometimes their investors.

Private investments don't need daily watching — they need scheduled watching. A twice-yearly hour per position covers it:

• Did every promised report arrive, on time, with real content?
• Do distributions match the documents — and are they earned income or your own capital returned (the return-of-capital question)?
• Any changes in auditor, custodian, management, or valuation method? Each is a material event with a story behind it.
• Is the firm still registered, still clean on the enforcement databases? (Two minutes in the directory and the regulator's search.)
• Has your own concentration drifted — through top-ups, reinvested distributions, or life changes that shrank everything else?

Escalate in writing when checks fail: specific questions, dated, keeping copies. Responsiveness to a polite written question is one of the most reliable health indicators a private investment offers.

Move early; every recourse path rewards speed. In rough order:

• The firm's complaint process. Registered firms must have one and respond substantively — typically within 90 days. Complain in writing, state the resolution you seek.
• OBSI — the Ombudsman for Banking Services and Investments — takes unresolved complaints against participating firms, free, and can recommend compensation up to $350,000. Deadlines apply: generally within 180 days of the firm's final answer.
• Your provincial regulator — complaints trigger no compensation directly but drive investigations, and some regulators (notably Québec's AMF) run their own assistance processes. Report suspected fraud here immediately, whatever else you do.
• CIRO — for complaints about investment and mutual fund dealer conduct.
• Civil action — securities law grants private rights of action, including for misrepresentation in an OM. Limitation periods run from months to a few years; a securities lawyer's one-hour assessment early is worth more than a heroic case later.
• Police / anti-fraud — for outright fraud, local police and the Canadian Anti-Fraud Centre, which also flags recovery-scam follow-ons.

Two warnings from long experience: silence is expensive — embarrassment keeps most victims quiet past their deadlines; and “recovery agents” who approach you after a publicized loss are, with rare exceptions, the second act of the same fraud.