October 17, 2007
Wednesday, a B.C. Securities Commission hearing panel told us what we
already know about Victoria Investment executive Ian Thow and the scam
he perpetrated on dozens of clients.
"This case represents one of the most callous and audacious frauds this
province has seen," the panel concluded. "Thow preyed on his clients by
offering them non-existent securities and instead using the funds to
support his lavish lifestyle. He took their money and betrayed their
trust. He has left a trail of financial devastation and heartbreak."
BCSC enforcement staff originally accused Thow of defrauding dozens of
clients out of as much as $30 million in a variety of non-existent
investment schemes. For the purposes of the hearing, however, they
narrowed it to 26 clients, who invested $8.7 million and lost about $6
million. Of this amount, forensic accountant James Blatchford traced
$5.4 million and found that Thow didn't spend any of it as he said he
|The panel will consider an appropriate penalty -- which will almost
certainly include a lifetime ban from the B.C. securities market -- at a
later date. Meanwhile, Crown prosecutors are considering what criminal
charges to lay.
It is appropriate to cast Thow as the villain, but it's trite to dismiss
the victims as dupes who were too stupid or greedy to know better.
Evidence arising from the BCSC hearing shows the story is much more
complicated. What might have been easily exposed as a fraud-in-progress
was heavily masked by the trappings of legitimacy.
As noted in previous columns, one of those trappings was Thow's status
with Berkshire Investment Group.
"People may wonder why did you give Thow that much money without having
documentation," said one witness, as quoted in the BCSC decision. "But
we had worked with Ian Thow since 1993 and we trusted him. You know, he
was the senior vice-president of Berkshire. . . . One of the major
products that the financial industry sells is trust, and we trusted him
after 12 years of working with him. So that's why we did it."
The message here is that, if Berkshire had been more discriminating
about who it named to be a senior vice-president, clients may not have
been exposed to his treachery.
Then there was his relationship with Berkshire's principal, Michael Lee
"Thow invited clients to presentations and dinners involving Michael Lee
Chin," the panel noted. "Many were impressed that Thow introduced them
to Michael Lee Chin, often having them photographed with him. Thow
touted these events to his clients as 'billionaire's presentations,' or
an 'opportunity to meet a billionaire'."
In fact, it was Berkshire that touted these events as a "Spend an
evening with a billionaire." This gave Thow's grandiose representations
some real corporate legitimacy. Once again, the message is that if Lee
Chin had been more wary and kept Thow at arm's-length, Thow could not
have used him to the extent that he did.
Another thing that gave Thow legitimacy, the panel noted, was his
"Clients testified about Thow's large waterfront home, his aircraft
[including a Cessna 182 single-engine aircraft, a Bell 206 helicopter, a
Cessna Citation X personal jet, and a Cessna Bravo personal jet], his
sports and luxury cars [including two Mercedes, a Cadillac Escalade, a
Corvette, and a Porsche Boxster], his boats [a SeaRay ski boat and a
Boston Whaler] and his 56-foot Sea Ray yacht. All of these, Thow told
his clients, he owned outright."
I think it's obvious that if Berkshire had made more concerted efforts
to reconcile Thow's lifestyle with his income, his duplicity might have
been exposed at a much earlier date.
Then there was Thow's tight relationship with ScotiaBank, one of
Canada's big five banks. Client after client testified how Thow induced
them to borrow hundreds of thousands of dollars by remortgaging their
homes through Dalene Payne, a loans officer at ScotiaBank in Victoria.
Here are some excerpts from the BCSC decision:
||"To help fund the
investment . . . Thow also arranged for [two elderly clients] to
obtain a line of credit through a loan officer with a Victoria
branch of Scotiabank. This loan was a major source of funds for
||"To help fund the
investment . . . Thow arranged for [another client] to borrow
$50,000 from Scotiabank from the same loan officer."
||"To help fund the
investment, Thow recommended that [another couple] mortgage
their home. . . . He sent them to the same loan officer at Scotiabank, where they obtained a mortgage, raising $375,000."
that they sell their mutual funds and draw down a line of credit
secured by a mortgage on their home that they had previously
arranged with the previously-mentioned loan officer at Scotiabank. They did, raising $90,000 from the sale of their mutual
funds and $300,000 from the line of credit."
These excerpts, by no means exhaustive, show that Thow was trotting his
clients into the bank on a regular basis and getting them to raise large
sums of money against their homes for bogus investments. If the bank had
been more vigilant with its clients and less deferential to Thow, his
scam might have been nipped in the bud.
Then there was the legitimacy provided by the media, which lionized Thow
for his community endeavours and philanthropy.
"We thought he was a paragon of virtue," one client told the hearing.
"He was running Crime Stoppers and he was always donating to these
various charities, and he just seemed, like, you know, the man of the
My review of the Victoria Times-Colonist archives shows the newspaper
gave him 35 favourable mentions before the scandal broke. Most related
to charitable donations which he had pledged, but not delivered on. The
charities kept silent. If somebody had spoken up, he would have been
exposed as a phony at a much earlier date. At a minimum, if the
newspaper had been less fawning, Thow couldn't have marketed his
duplicity with such ease.
I am not suggesting that anybody other than Thow is legally culpable. I
am simply saying that, in financial matters, people should always be
skeptical. In this case, several key players -- his employer, his boss,
the bank, local charities and media -- accepted Thow at face value. This
acceptance provided a basis for investors to trust him. It was a mistake
that everybody, not just investors, should acknowledge.