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Fox Guarding the Hen House

   
Investing Scandal - Ian Thow
by David Baines
A high-living Victoria investment executive has angry investors crying foul
2005-09-26

It was vintage Ian Thow. The 42-year-old Victoria investment executive swept into the exclusive Prime Steakhouse at the Bellagio hotel in March 2004 with an arrogance that would make even Las Vegas blush. The dining room was full, but Thow, undaunted, directed the maître d' to clear a table overlooking the hotel's famous fountains. He then proceeded to order platters of Tasmanian lobster and $500 bottles of wine for his entourage of seven friends and clients. Thow sampled the wine, pronounced his approval and ordered 10 more bottles for his Citation X, a $12-million private jet with leather upholstery, gold-plated seat belt buckles and a cruising speed of Mach 0.92. The evening was an orgy of excess, but apparently not excessive enough for Thow, whose rapacious appetite for all things expensive had earned him the nickname "Got-to-have-it-now Thow." Before it was over, he ordered a 100-year-old bottle of McCallum's whiskey, retail value of more than $10,000. After the waiter poured a small glass for him--a measure that Thow loudly pronounced was worth $500--he took a sip, grimaced, declared the drink to be "shit" and threw the remaining liquid over his shoulder into an urn of shrubbery.

There was much laughter among his guests, but it was tinged with uneasiness. While it was clear to everyone how Thow spent his money, it wasn't nearly as clear how he earned it. His business card described him as senior vice-president and member of the advisory board of Berkshire Investment Group Inc., a mutual fund dealer based in Burlington, Ont., but he was really no more than a glorified branch manager. His compensation wouldn't come close to supporting his hugely extravagant lifestyle. He claimed, however, to have some lucrative sideline businesses, most notably an investment in a Jamaican bank. This wasn't as crazy as it sounded. In 2002, Berkshire's sister company, AIC Ltd., had bought a 75% interest in National Commercial Bank at the direction of its chairman, Michael Lee-Chin, a Jamaican native. Thow claimed that the bank's business was booming, and that he had made a fortune investing in the shares. At his urging, several of the scotch-and-lobster guests had also bought shares.

Among them were Brad Goodwin of Richmond, B.C., and his brother Daryl of Delta, B.C., who along with several other family members invested a total of $2.5 million. As the evening at the Bellagio rolled on, Brad Goodwin--a big-game hunter who had gone on eight African safaris-- began to view Thow's excesses as a sign of danger. In ensuing months, he pressed for repayment. After enduring several false promises and NSF cheques, his family recovered only $1.4 million. With a $1.1-million shortfall, he realized--too late--that he had become Thow's prey.

In June this year, Thow's high life began to unravel. He suddenly resigned from Berkshire and relinquished his mutual fund licence. The Goodwins filed a lawsuit against him in B.C. Supreme Court. So did three other client groups who claimed Thow had induced them to invest in the Jamaican bank, but had failed to deliver their shares or return their money. Thow denies the allegations, claiming that he never counselled any of his clients to buy bank shares. All four lawsuits also allege that Berkshire was vicariously responsible for Thow's actions, or negligent in its supervision of him. Berkshire officials say none of the investments were authorized by the firm and insist they had no knowledge of what they characterize as Thow's "outside business activities." Secured creditors, meanwhile, moved to seize Thow's major assets, including his jet, a waterfront home near Victoria and a power yacht named Swept Away. Unsecured creditors obtained a court order freezing the rest of his assets. The B.C. Securities Commission and, more ominously, the Vancouver RCMP Integrated Market Enforcement Team, announced formal investigations. Boxed into a corner, Thow would have to rely on a few more acts of legerdemain to slip his pursuers, at least for the time being.

Thow was born in California, but at an early age moved with his family to West Vancouver. In his 20s, he started a travel business, but quickly became mired in debt. In 1986, when he was just 24, he filed for bankruptcy. He was discharged in 1987 and the next year he became registered as a mutual fund salesman at Investors Group. Then-regional manager Don Jenson remembers him as a "Type A" personality. "He exceeded my expectations," says Jenson. "He was supportive, loyal and an achiever. I couldn't have asked for more." In 1993, Investors promoted Thow to regional manager and he assumed a much higher community profile. He organized dinners for the poor and was a fixture at local fundraisers. He also became president of Victoria Crime Stoppers, where he helped raise $125,000 for a police boat. But he was also spending a lot of money on himself, which raised some eyebrows. "I could see his lifestyle changing," Jenson, who retired the year before Thow's promotion, recalls. "He was driving bigger cars and he bought a yacht, which I couldn't afford as a regional manager."

Investors Group began asking questions and, in October 1998, Thow abruptly resigned, ostensibly "for personal reasons." The firm refused to discuss the matter. One month later, he was named a vice-president of Berkshire and announced the opening of the firm's first office in Victoria. He developed an even bigger public profile by making large personal pledges to charities, including a $500,000 donation to the Greater Victoria Hospitals Foundation in memory of his mother. He also announced he had raised $2 million to finance the fledgling Greater Victoria Police Foundation and gathered $1.1 million in pledges to create a fund at Royal Roads University in the name of his good friend and client Alex Campbell Sr., founder of the Thrifty Foods supermarket chain on Vancouver Island. Unfortunately, almost all of Thow's pledges would evaporate into thin air.

As Thow's profile grew, so did his consumption. He acquired a $3-million Cessna Citation II jet (which he bought with a partner), then a $12-million Citation X, and finally a $4-million Citation Bravo. He hired pilots and flight attendants to fly him and his friends and clients to exotic locales. Twice he took a group of clients and friends--including Nickelback lead singer Chad Kroeger, retired NHL star Geoff Courtnall and then-Electronic Arts boss Don Matrick--to the West Coast Fishing Club's luxurious resort on Langara Island, where he presented each guest with a $600 fishing reel. He also announced that Lee-Chin and his hero, billionaire investor Warren Buffett, were going to make a surprise visit. If the two luminaries were ever on the agenda, however, they didn't show up. Not missing a beat, Thow made a noisy public display of tipping the lodge staff $10,000 and later sent each guest a DVD of the trip.

In November 2002, Thow purchased a waterfront home in Saanichton, 20 minutes from the Victoria airport, for $4.25 million. The property included a pad for his US$500,000 Bell 206 JetRanger helicopter and moorage for his $1.5-million Sea Ray 560 Sedan Bridge. The luxurious power boat was featured in the winter 2002 edition of Sea Ray Living magazine. The article included glossy photographs of Thow, his wife, Teresa, and their four children touring the spectacular B.C. coastline. "The way I see it," the writer mused, "a boat this grand deserves such a family. A charmed life indeed, but only because the Thows make it that way." But there was still that one nagging question: exactly how did Thow make his money?

In the spring of 2003, Thow invited the Goodwins to hear his billionaire boss, Michael Lee-Chin, speak at a Berkshire function. "He talked about AIC mutual funds, Berkshire, and how great they were, and how they owned a bank in Jamaica," Brad Goodwin recalls. "It was quite an inspirational speech. It made us think that maybe we should be doing something with our investments." They moved their portfolios to Berkshire and, almost immediately, Thow urged Brad Goodwin to mortgage his house and invest the proceeds in the Jamaican bank. "He said, 'You don't have to worry, this is a rock-solid investment. Michael Lee-Chin is behind this,'" Goodwin recalls. Thow, he said, instructed him to make the cheque payable to him personally and promised to hold the shares in trust. As security, Thow issued Goodwin cheques for identical amounts drawn on his personal account. In ensuing months, Thow kept telling the Goodwins how well their investments were doing. "We were confident this guy was doing something really good for us," Goodwin says. There was no doubt that the Jamaican bank was a real business. Every day, its common shares, as shown on its website, increased in value. Thow told clients that they had acquired "special preferred shares," which were even more valuable and moved in tandem with the common shares.

In the summer of 2003, Brad Goodwin became anxious and suggested they take some profits. At that point, he remembers, Thow caressed the gold trim of his Citation X jet and said, "This is Jamaica and you are part of it. My best advice to you is to max out whatever leverage you can get and put in more." In December that year, Thow flew the Goodwin brothers in his private jet to Jamaica so they could visit the bank. They stayed in Montego Bay in a seaside villa, complete with two cooks and a bodyguard. Brad Goodwin says Thow told them he got the villa for sitting on the bank's board. Derek Stimson of Coaldale, Alta., tells a similar story. He says Thow offered him the chance to buy bank shares and emphasized his tight relationship with Lee-Chin. "He said when Mike zigs, he zigs. And when Mike zags, he zags," he recalls. Stimson said Thow told him only Berkshire clients were eligible to purchase the shares, and they had to be bought in Thow's name "due to restrictions on the shares." Stimson says he agreed to buy US$200,000 worth of shares, but became worried when he did not receive trade confirmation slips. "In February [this year], I called a Berkshire compliance officer and she said they had no record of me buying any bank shares. She said they were 'perplexed' and looking into it."

On june 1, Thow resigned, claiming it had been a "difficult" decision. On July 22, under pressure from creditors, he filed notice of his intention to make a proposal under the Bankruptcy and Solvency Act to settle his debts and avoid bankruptcy. It was not clear that he could make any sort of proposal that creditors would accept. He had declared $43 million in liabilities, against about $7 million in assets in his house. In late August, however, Thow announced a mystery benefactor would contribute $5 million cash. This would increase the anticipated recovery for unsecured creditors from about 15¢ on the dollar to about 50¢. The identity of the donor was never revealed and, judging by later events, it may have all been a ruse.

Thow filed for bankruptcy protection in the United States on Sept. 7. In his filing documents, he gave a Seattle address. The next day, during the early-morning hours, he pulled up at the Pacific Truck Crossing at Blaine, Wash., in a Ford F350 truck filled with household effects. Behind him was another truck, also loaded with his furnishings. U.S. border officials, tipped that he may try to slip over, called the RCMP. But before an officer could arrive, Thow showed proof of American citizenship. With no grounds to hold him, U.S. border officials let him through. In any event, it was not clear that the RCMP could have intervened: they had earlier asked B.C. Crown prosecutors to charge Thow, but their request had been rejected as premature.

After hearing about Thow's late-night move, bankruptcy trustee Michael Cheevers checked Thow's office penthouse and waterfront home and found several items missing, including three flat-paneled televisions and a washer and dryer. He applied for, and obtained, a warrant for Thow's arrest under the bankruptcy act on grounds that the truck and the goods belong to creditors. The warrant will enable police to arrest Thow if he returns to Canada. It is not, however, an extraditable offence.

As the creditor list grew, it became evident that Thow had been flogging other investments without Berkshire's knowledge. They included what he purported to be short-term real estate loans, Berkshire seed stock and high-yielding GICs. In all cases he directed clients to make their shares payable to him or one of his private companies. Clients interviewed by Canadian Business say they never got their money back.

On Sept. 12, about 60 creditors convened at the Hotel Grand Pacific in Victoria to consider Thow's bankruptcy proposal. Thow didn't show up, neither did the mystery donor. Instead, bankruptcy trustee Cheevers told them another unsecured creditor, Alex Campbell Sr., the supermarket czar, had filed a claim for more than $12 million, raising total unsecured claims to $32 million. Cheevers, noting that many creditors had not yet filed claims, warned the total figure was bound to increase. Cheevers also provided more evidence of Thow's profligate lifestyle. He said he analyzed 60 bank and credit card accounts and determined that Thow had received $7.15 million cash directly from creditors through his five private companies. During the 30-month period from January 2003 to June 2005, he had charged $2,648,726 on his credit cards, including "cash advances totalling $428,893, the majority of which were taken either in or close to casinos." Thow had also spent $145,313 on dining, $826,079 on trips (mainly hotel accommodation), $100,546 on jewelry, $137,963 on clothing and $180,487 on furniture. "He led a lifestyle to which I am not accustomed," Cheevers dryly remarked.

Brad Goodwin-- who was appointed one of the bankruptcy inspectors--noted that these expenditures don't come close to the $32 million that creditors are claiming. "There is a shortfall between what creditors provided and what Thow spent. It stands that there is still a substantial amount of money out there." Faced with the prospect of no material recovery, the creditors unanimously rejected Thow's proposal, which had the effect of automatically assigning him into bankruptcy.

After Thow's world began to crumble, it slowly became clear that his philanthropy was also a ruse. Victoria police chief Paul Battershill says Thow had not, as previously reported, raised $2 million to fund the police foundation. Stephanie Slater, communications manager for Royal Roads, says the university had confirmed only $141,000 of the $1.1 million in pledges that Thow had purportedly arranged in Campbell's name. And of that, only $77,000 had been collected. With regard to the $500,000 Thow pledged to the hospitals foundation in memory of his mother, nearly 18 months have passed and the foundation has not received a cent. "Let's just say we're still waiting," says one trustee.

For Berkshire and its sister company, the scandal comes at a bad time. AIC's total assets under administration have plunged to $9.2 billion from $15.4 billion in 2002. Berkshire, meanwhile, is working hard to distance itself from Thow, who was once viewed as one of its golden boys. The firm has taken out large ads in The Globe and Mail, National Post, Vancouver Sun and Victoria Times Colonist noting that he was restricted to selling mutual funds and insurance products, was not authorized to sell shares of the Jamaican bank and had no business relationship with Lee-Chin in connection with the bank. "We are concerned about how these allegations may negatively impact on the reputation of Berkshire and its advisors," the ad stated. Brad Goodwin, however, points to Thow's conspicuous consumption and asks, "How could Berkshire's compliance people not know that something was going on?" It's a fair bet that the B.C. Securities Commission investigators will be asking the same question.