Accused advisor likely a no-show

Barry Critchley

Tuesday, May 29, 2007

Misappropriating up to $30-million of client assets isn't a small feat.

But that's what Ian Thow, a director and branch manager at the Victoria office of Berkshire Investment Group Inc., is alleged to have done between January, 2003, and May, 2005.

Thow, who crossed the Canada-U.S. border almost two years ago, is set to face a hearing before the B.C. Securities Commission that starts this morning. The chances are that Thow, who worked for Berkshire, a unit of Burlington-based AIC Ltd., for six and a half years, won't be in court.

In theory, Thow, who was licenced to sell only mutual funds, has no money, given that he was petitioned into bankruptcy in September, 2005. Mike Cheevers, who works for the receiver, Wolridge Mahon Ltd., said yesterday he has been able to garner "one or two cents on the dollar" for Thow's clients, who claim they are owed more than $40-million.

The notice of hearing details the main allegations against Thow. The main one is the misappropriation of client funds.

Thow, who prior to working with Berkshire was with Investors Group, told his clients he could invest their funds in shares of National Commercial Bank of Jamaica. A short time earlier, AIC -- a mutual fund manager controlled by Michael Lee-Chin -- had bought 75% of the bank. Thow also told his clients he could get them shares in Berkshire's initial public offering and in high-yielding mortgages. "Thow's representations were all false," said the notice of hearing.

But the clients were not aware Thow couldn't do what he had promised. They gave him the cash and Thow "falsely represented to the clients that the client funds had been invested in the securities."

When it was all over, Thow was up to $30-million better off -- the same amount the clients were worse off.

Nothing much is expected today, even though the BCSC has set aside about two weeks (over four separate sessions) for the hearing. The main reason: Thow isn't likely to appear and the BCSC's only real power is to bar him from the industry and impose a fine. But if he isn't planning to come back to Canada, it's tough to know how the penalties will be collected.

Meanwhile, another regulator, the Mutual Fund Dealers Association of Canada, has also been trying to get to the bottom of the Berkshire/Thow matter. The entity is the national self-regulatory organization for the distribution side of the Canadian mutual fund industry and was established nine years back. According to its Web site, "The MFDA regulates the operations, standards of practice and business conduct of its members and their representatives with a mandate to enhance investor protection and strengthen public confidence in the Canadian mutual fund industry."

While it has spent almost two years on the matter, it seems there is a lack of urgency about the process. One can't imagine Eliot Spitzer, the former attorney- general of New York who did a lot to clean up some of the abuses of the financial-services industry, taking as long. The trick, as Spitzer showed, is to use the powers that are available, including breaking new ground.

With the MFDA, the question remains: How long does it take to investigate a firm's compliance department for matters that some claim were brought to Berkshire's attention years back? As a result, there is a clamouring for action.

"They, the MFDA, have the power to do something, so why not do it?" said one client who has lost money as a result of investing with Thow and makes the reasonable assumption that member firms are responsible for the conduct of all their employees at all times. While clients need to be diligent, they can't be expected to be fully conversant with all the nuances of securities regulation.

Calls to the MFDA yesterday seeking a comment were not returned. In the past, the MFDA has said it is working as fast as it can and that a thorough investigation takes time.

Calls to Berkshire were not returned. In the past, it has said it has "conducted mediations with 17 complainants," which may be code for settling with clients of Thow who gave him capital to invest in mortgages.


Ian Thow takes flight