Investors Scrutinizing the Regulators

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Thow affair a useful teaching tool
Regulator's approach: too little, too late

Barry Critchley

Wednesday, June 20, 2007

One can just imagine the clouds of hot air that must have been created when the federal Finance Minister sat down with his provincial counterparts yesterday to talk about a national securities regulator -- an admirable objective. And the air should be thick today as the politicians gather for a second-day talk-a-thon.

Before the politicians talk about new directions, they might like to reflect on how the current system is working and the extent to which the existing practices enhance investor protection.

If they are looking for examples, they might like to assess how the regulators dealt with the Ian Thow affair, now the subject of a hearing by the B.C. Securities Commission into the alleged misappropriation of funds. Thow, a former senior vice-president at Berkshire Investment Group Inc. -- a firm controlled by AIC Ltd., which is controlled by Michael Lee-Chin -- left the country, leaving his investors $30-million worse off. Thow, who boasted constantly of his relationship with Lee-Chin, isn't at the hearing.

But the sad tales of those investors who trusted Thow -- a trust that arose because Thow was the senior vice-president at Berkshire -- were on full display. And they weren't pretty, as families told of their financial hardship, the stress caused by losing a pile of cash and their views on the system.

It is easy to say people should be smarter with their money and that they should know more. But Thow, at least from his public persona, was a well-respected member of the community, as typified by his role as president of the Greater Victoria Crime Stoppers. And as a senior vice-president of Berkshire, he was the senior person in that firm's Victoria office. One's position and influence do attract business.

Through it all, Berkshire, which has denied any knowledge of Thow's activities, has played numerous roles: It has settled with some of Thow's victims but not with others; it has outsourced some of its process to Tory's, its law firm, which is firing the bullets to some clients who haven't been compensated. The clear message: See you in court. And after advising some clients to take their case to the Ombudsman for Banking Services and Investments, Berkshire then refuses to deal with the body that can provide compensation. Again, it outsources the work to Torys. Meanwhile, the MFDA-- the regulator for the mutual fund industry -- is a few weeks away from making its determination.

Some conclusions from all this: The regulators' approach can be characterized as "too little, too late," enforcement actions were too slow to be effective and rules haven't been followed. As one frustrated investor asked yesterday: What good have the regulatory bodies done?



Ian Thow takes flight