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Fox Guarding the Hen House

   

Disabled clients' money went to booze, cocaine

 

By David Baines

 

Saturday, July 16, 2005
 

There is no other way to describe Paul Maudsley, a former mutual fund salesman at Investors Group in White Rock, but depraved.

He defrauded a paraplegic client out of the proceeds of his insurance settlement; he defrauded a married couple who had set up a trust account for their quadriplegic son; and he defrauded another client who had set up a trust account for his schizophrenic son.

In all he defrauded 23 clients -- half of whom were over 70 years old and one of whom was 86 -- out of $1.6 million, not to mention the money they might have earned had he invested their funds properly.

And what did he do with the money? He bought cocaine and stuffed it up his nose, he sucked back booze and gambled away the rest.

The B.C. Securities Commission held a hearing into his conduct, but he didn't show up. The hearing panel forged on without him, rendering its decision -- replete with sordid details -- on Friday.

The only redeeming aspect of his case -- and this is a significant one -- is that Investors Group reimbursed these clients the entire $1.6 million they lost, plus $700,000 for the returns they might have otherwise realized.

The panel will consider an appropriate penalty for Maudsley at a later date. In my view, jail time is the only appropriate disposition, but only the criminal justice system can mete out that form of punishment.

Maudsley joined Investors Group as a mutual fund salesman in 1995. Starting in mid- 1997, he began to rip off his clients.

One of those clients was a 31-year-old man who had been rendered a paraplegic in a car accident and had invested the proceeds of his insurance settlement in mutual funds.

In July 1997, Maudsley began redeeming those investments without telling the client, and transferred the proceeds to his personal account. By September 2000, Maudsley had embezzled a total of $482,850. To avoid raising suspicion, he paid $2,500 a month to the client, who assumed this was the return he was earning on his mutual funds.

In August 2000, he advised a 77-year-old client, whose wife had just died, to redeem $16,400 worth of mutual funds from a trust account which had been set up for the client's son, who is a schizophrenic. He also induced the client to give him $65,000 from the sale of a condominium, ostensibly to invest in GICs and other securities, but he once again absconded with the funds.

Between April 2001 and November 2002, Maudsley persuaded two other clients, a married couple in their 50s, to redeem $87,000 worth of mutual funds and transfer the proceeds to a company called Shaylor Management Ltd., which would supposedly use the money to buy shares of a Toronto Stock Exchange company called SAMsys Technologies.

Unbeknown to the couple, Maudsley controlled Shaylor and, by using nominee signatories on Shaylor's bank account or by forging their signatures, he was able to siphon the money for his own use.

But it gets worse. This same couple had also set up a trust account for their 25-year-old son, who is a quadriplegic. Between May and December 2002, Maudsley redeemed $239,700 worth of mutual funds in this account and and transferred $206,500 to Shaylor Management ostensibly to invest in bonds. But once again, it went into Maudsley's pocket.

As time went on, Maudsley's deceptions compounded. In October 2002, two other clients, a married couple in their 70s, asked Maudsley to give them $20,000 from their account so they could buy a car.

Little did they know, but there was nothing in their account. Maudsley had sucked out every cent, a total of $227,000. To mask his theft, he gave them a cheque for $20,000 from Shaylor's account.

In total, he embezzled $1.6 million, but according to the hearing panel, he has little to show for it.

In an earlier interview with commission investigators, he admitted that he used the money for personal expenses "including his cocaine and gambling habit and alcohol addiction."

The panel said there was nothing sophisticated about Maudsley's methods: "He simply took their money, or caused Shaylor to do so -- about as stark an instance of deceit as there can be."

This case appears to have some parallels to the case of Ian Thow, the former senior vice-president of Berkshire Investment Group in Victoria who allegedly persuaded clients to transfer money to him so he could purportedly buy shares of the National Commercial Bank of Jamaica for them.

Four groups of clients have filed lawsuits claiming they gave Thow millions of dollars for that purpose, but he failed to deliver their shares or return their money. Meanwhile, he was living a hugely extravagant lifestyle.

The main difference, at least so far, is that Investors Group returned the funds in question to Maudsley's clients and compensated them for their losses, while Berkshire is disavowing any responsibility for losses suffered by Thow's clients.

dbaines@png.canwest.com

see:    B.C. Securities Commission fines mutual fund salesperson $250,000