Saturday, May 26, 2007
BY DAVID BAINES
The B. C. Securities Commission’s
hearing into rogue Victoria investment executive Ian Thow gets under way
on Tuesday, but it would be an exaggeration to say this is any sort of
“day of reckoning” or “ date with destiny” for either Thow or his
The commission is alleging that Thow, formerly a senior vice- president
at Berkshire Securities in Victoria, conned certain clients into buying
unauthorized investments, most notably shares in the National Commercial
Bank of Jamaica, that would supposedly yield high returns. However, the
representations were false, he diverted most of the funds for his
personal use, and his clients ended up losing about $ 30 million.
What makes this story so gripping was his pathological extravagance,
which included jet planes, helicopters, yachts, a waterfront mansion
and, most famously of all, $ 10,000 bottles of scotch. His nickname,
appropriately enough, was “ Got- tohaveit- now Thow.”
In May 2005, Berkshire’s compliance people finally caught up with him.
He resigned, declared bankruptcy, and made a midnight run to Seattle,
where he has been holed up ever since.
The hearing into this matter has no material import, and little symbolic
meaning. The worst the commission can do is ban him from the B. C.
securities market, which doesn’t mean much: He long ago decided that the
better part of discretion was Seattle.
Financial penalties mean nothing because he is already bankrupt. Victims
are looking at a recovery of less than five cents on the dollar from his
estate and, if a fine is imposed, the commission would likely postpone
its claim to these people. Similarly, any order for disgorgement of
illicit gains would remain bone dry.
It would be interesting if Thow actually shows up, but that won’t
happen. There is already an outstanding warrant for his arrest for
allegedly spiriting some of his personal assets, which are supposedly
the property of his creditors, across the border. And there is an RCMP
investigation in progress that will undoubtedly result in criminal
charges and his immediate arrest ( should he happen to be on Canadian
soil) or extradition from the United States ( should he still be in land
of the free).
In his absence, the commission enforcement staff will go through the
process of describing his alleged sins and producing documents and
calling witnesses to prove those allegations. Given the massive amount
of information we have already reported about this case, these
proceedings are unlikely to be revelatory.
There are, however, several other areas of activity that have very
material consequences and/ or are offering some dramatic relief. In the
former category is the criminal investigation, which potentially offers
Thow’s victims a degree of justice and vengeance.
Insp. George Pemberton, who heads the RCMP Integrated Market Enforcement
Team, says the investigation is “ progressing well.” I’m not sure what
that means, but speed is not critical here: We know Thow will be
charged, it’s just a matter of when. The only suspense is, will he flee
to an island in the South Pacific? And if he is arrested and brought
back to Canada and convicted, how much jail time will he serve?
The real drama is being played out in the civil courts, where victims
have launched several lawsuits against Berkshire Securities for
allegedly failing to properly supervise their wonder boy.
Berkshire has taken the initiative and negotiated settlements with 17
former clients. But many others — most notably the people who bought
shares of the Jamaican bank — have been left adrift. Some are pursuing
their cases in B. C. Supreme Court.
I think these suits are quite viable. First, there’s a lot of money at
stake, which make them worthwhile. I also think there are some good
arguments for holding Berkshire vicariously responsible.
It’s true that the unauthorized investments Thow recommended to his
clients did not show up on client statements, a clear sign they were
outside Berkshire’s orbit. On the other hand, an effective compliance
program might have determined at a much earlier stage that Thow was
conducting private business with clients, a well- established no- no in
the securities industry.
One of the lawsuits has been launched by Nanaimo businessman George
Thomson, who is claiming $ 686,000 on account of an investment in the
Jamaican bank. The voluminous court file shows that Berkshire’s lawyers
have balked at answering questions and providing information.
Earlier this year, Judge Richard Goepel chastised the firm for its
stonewalling tactics: “ Berkshire’s failure to comply with the rules of
court and various court orders made during the course of this
application is not acceptable,” he remarked.
Boosting the stakes is the spectre of regulatory action against
Berkshire. The securities commission decided that the Mutual Fund
Dealers Association — the self- regulatory body for mutual fund
purveyors like Berkshire — should review the firm’s conduct in this
affair. Based on the association’s record to date, I wouldn’t be
Since it started taking complaints in November 2002, the association has
concluded only two disciplinary actions in B. C., and neither was the
product of a contested hearing ( one was settled, and in the other case,
the respondent didn’t show up). I would have thought that, with more
than 12,000 licensed mutual fund sales people in B. C., the association
could have found more to do.
Two years have passed and association officials still aren’t saying when
they will wrap up their investigation. If they ever wake from their
slumber, it could be interesting: Their rules allow them to assess fines
up to $ 5 million per offence.
The trustee who is handling Thow’s bankruptcy, meanwhile, is having his
own struggles. With Thow in Seattle and refusing to cooperate, Michael
Cheevers of Wolrige Mahon Ltd. has not been able to thoroughly examine
him about his financial circumstances.
Thow’s second wife, Alyssa, whom he married after his world blew apart,
said during an examination conducted by the trustee’s lawyer last
September that Thow maintained two apartments in Seattle and paid for
her rent, food, gas, and even her Pilates classes. She also revealed
that Thow drives a Ford Explorer, and she drives a Cadillac Escalade
that Thow gave her a couple of years ago.
Thow reportedly works as a mortgage broker in Seattle, but documents
filed in U. S. bankruptcy court in Seattle reveal he has also been
getting money from a surprising source — two of his victims.
One is Tom Harris, owner of a car dealership in Nanaimo, who claims that
Thow burned him for $ 820,000. The other is Kevin Prins, owner of a
potato farm near Lethbridge, Alta., who is claiming $ 577,000.
In a series of written questions, Cheevers asked Thow to describe his
relationship with these two men, how much money he had received ( and
expected to receive) from them, “ and the goods, services or
consideration you provided in return for [ their] payments to you.”
Why in heaven’s name would these people — who have vocally expressed
their disdain for Thow — advance him more money?
Prins confirmed in an interview that he had sent Thow more money “ for
rent and stuff like that,” but refused to say how much. Asked why he
would do this, he replied, “ My heart is a little soft.”
Harris ducked the question: “ I don’t know where they got that from,” he
said in an interview.
So it’s not true that he gave Thow more money? I asked.
“ I’m not sure what document you are looking at, but it doesn’t make a
lot of sense to me. . . . Probably it would be more appropriate if I
called you back,” he said.
By late Friday, he had not called back.
Thow was not very forthcoming either. In response to each question posed
by Cheevers, he advised that he was invoking the Fifth Amendment so he
wouldn’t incriminate himself.