Canada's banking ombudsman has outed a Toronto-area mutual fund company for refusing to compensate a couple of elderly customers for losses incurred because one of the company's advisers put them into a bad investment that went bankrupt.

The Ombudsman for Banking Services and Investments revealed Tuesday that Markham, Ont.-based W.H. Stuart & Associates has refused to provide $41,066 in compensation to one of its customers. The watchdog had recommended the company pay that amount to make up for the actions of a former employee.

Founded in 1996, the Ombudsman for Banking Services and Investments, or OBSI, is Canada’s national independent dispute resolution service for consumers and small businesses for complaints they can't resolve with their banking services or investment firms.

Although OBSI's decisions aren't legally binding, the group says 99.8 per cent of the thousands of complaints brought forward since the organization’s inception have been resolved successfully. This is only the third time that OBSI has publicly outed a company for refusing to adhere to one of its recommendations.

The move stems from the case of a pair of investors, Shirley and Ken Irons, who are currently 82 years old but were in their late 60s during the events in question.

"[They] were low- to medium-risk investors with limited investment knowledge, limited income and net worth, and no investment experience in individual stocks or private shares," OBSI says.

"On the recommendation of their W.H. Stuart adviser, the complainants purchased shares in an extremely small private company that later went bankrupt. The investment was portrayed as a guaranteed, risk-free investment that was in fact a high-risk, speculative investment unsuitable for them given their personal and financial circumstances."

The company in question was a small, privately owned business that was pitched to the Irons as paying an annual dividend of 20 per cent.

"While [they] thought the 20 per cent interest rate… was high, they did not equate the rate of return to risk," an OBSI report on the case reads.

The report also notes that their investment adviser was a trusted friend.

"The person that did this was a personal friend and had been for probably 30 years," Shirley Irons told CBC News in an interview. "She was like someone in the family."

Lost most of investment

The company ended up going bankrupt in 2006 and the Irons lost the vast majority of their investment.

OBSI came up with the $41,066 figure by calculating what the Irons' investments would have been worth had they been invested in something more suitable to their risk profile at the time.

"Interest was then added to compensate the investors for the loss of use of their money, calculated from the date they first complained to the firm," OBSI says.

In its report, the watchdog notes that the Irons' investment adviser, referred to only as "Ms. W," was dismissed by W. H. Stuart with cause in 2001.

In 2005, the unnamed adviser was convicted for theft over $5,000 "for a pyramid scheme that resulted in large losses to clients" of W.H. Stuart, the OBSI report reads.

W.H. Stuart did not immediately reply to a request for comment from CBC News.

"She was running a scam and we had invested in it," Shirley Irons said. "It was just a glorified pyramid club."

The couple, who live in Hamilton, say their life savings were effectively wiped out as they had to the sell their home and currently rent a condo for $800 a month.

"It's a really strange feeling to know that your kids, who you took care of, now have to be burdened with you," Shirley Irons said. "I would not wish it on anyone."