Echoes from the YOLO retail-trading boom
A Canadian stock trader named Christopher DeVocht, a carpenter from British Columbia, turned an initial investment of $88,000 into a staggering $415 million by trading Tesla (TSLA) stock, and Tesla stock options. However, he lost his entire fortune and is now suing the Royal Bank of Canada (RBC) and an accounting firm, claiming they provided poor financial advice, and mismanaged his investment account.
DeVocht now claims that his investment firm and its advisers, RBC Dominion Securities, failed to provide him with adequate financial advice, set him up with a leveraged margin account that offered substantial loans against his portfolio, and encouraged him to continue to carry out risky trades. DeVocht says that he was advised to “accumulate as many Tesla shares as possible” and hold them “as long as possible” to help lower his tax liability.
DeVocht, who lives on Vancouver Island, located off the southwestern coast of Canada and is part of the province of British Columbia, says he started out like a lot of retail day traders, and learned about trading on the internet. After work, he eagerly read about trading on internet forums, like Wall Street Bets. He says that one of his favorite things to trade was stock options on Tesla Inc. stock.
Then in 2019 Tesla (TSLA) stock began an astronomical rally. The stock went up in price dramatically, on what has to be one of the hottest bullish runs in the history of financial markets. And DeVocht, who was good at trading Tesla shares and options, made a humongous fortune. At the end of 2019, his investment account, with the brokerage division of Royal Bank of Canada, was worth C$88,000 ($65,000 USD). DeVocht, a carpenter by day, successfully traded Tesla stock and options during the YOLO retail-trading boom, and within two years, he’d turned that initial nest egg into a staggering fortune of C$415 million ($306 million USD), he says.
Tesla (TSLA) was added to the S&P 500 on December 21, 2020. In the year leading up to its inclusion in the S&P 500, Tesla’s stock price saw a remarkable increase in value. From the beginning of 2020 to its addition to the index, Tesla’s stock price rose by over 3,500% (stock split adjusted). This significant gain was driven by strong earnings reports, increased vehicle deliveries, and overall market enthusiasm for electric vehicles. Also, Tesla (TSLA) had a 5-for-1 stock split on August 31, 2020. This means that for every share an investor owned, they received four additional shares. This means an investor who made a $2,067 investment in Tesla (TSLA) shares in January 2019 would have made a profit of $723,450 by the end of 2020, which is an incredible return on investment!
Yet, all good things must come to an end. Tesla’s (TSLA) all-time high closing price was $409.97 on November 4, 2021 (stock split adjusted). Some people would have just cashed out at the top. DeVocht did not. And when Tesla stock fell precipitously in 2022, he lost it all, according to a lawsuit he filed this week against RBC Dominion Securities, RBC Wealth Management and accounting firm Grant Thornton LLP.
DeVocht’s Tesla investment strategy involved taking huge margin loans from RBC, to invest in Tesla with massive leverage in his margin account. Also, during that time DeVocht went to RBC in July 2020, because he wanted a loan so he could move out of his rental apartment and buy a home. Yes, instead of selling his millions of dollars’ worth of Tesla shares, he wanted to use it as collateral for a home loan. RBC then provided margin loans for DeVocht to borrow against his concentrated Tesla stock position for spending purposes, like buying a home, the lawsuit said. But when Tesla stock plunged in 2022, DeVocht was forced to sell his Tesla stock, at depressed prices, from his excessively leveraged portfolio to pay back those margin loans. DeVocht now claims that the advice he received, geared mainly toward minimizing taxes, was negligent and failed to take into account his lack of financial sophistication.
“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 lack of financial knowledge more generally, such as financial planning, and taxes, meant that his overall financial acumen was in fact limited.”
The rapid decline of Tesla’s (TSLA) share price from its 2021 peak likely played a significant role in DeVocht’s calamitous circumstances. After reaching its all-time high, Tesla’s stock experienced considerable volatile declines in price, which would have negatively impacted the value of DeVocht’s investments, especially given his use of margin loans. This volatility, combined with the alleged poor financial advice and mismanagement, contributed to the rapid loss of his fortune. As Tesla’s stock price declined, DeVocht’s brokerage, RBC, issued margin calls against his account. This forced him to sell shares to repay the loans he had taken out using his margin account. The rapid decline in Tesla’s stock price in 2022 significantly impacted his portfolio, contributing to the complete wipe-out of his investments.
DeVocht’s case against RBC and Grant Thornton hinges on several key allegations, including breach of contract, negligence, and breach of fiduciary duty. According to the lawsuit, DeVocht claims the advice he received from RBC and Grant Thornton LLP was negligent and "inadequate," contributing to his account's staggering decline. He also claims that the brokerage failed to properly assess his financial sophistication, or lack thereof.
RBC had no immediate comment Friday and hasn’t yet filed a defense in the case. DeVocht’s lawyer, Sean Hern, declined to comment beyond the complaint. Grant Thornton said it doesn’t comment on matters before the court. “The only statement we can provide at this time is that we’re committed to providing quality services to all our clients in accordance with professional standards,” Grant Thornton said in an emailed statement.
