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Thow's misdeeds laid bare in hearing testimony

October 18, 2007 |Mark Noble  

 
The sordid testimony of Ian Thow's multi-million-dollar fraud hearing has been released by the British Columbia Securities Commission.

The hearing details paint a picture of an advisor who excelled at earning client trust and abused that trust to commit excessive yet fairly straightforward securities fraud.


It's alleged that Thow, who is reportedly bankrupt and living in Seattle, Washington, convinced his clients to invest more than $30 million in non-existent investments. Thow then took the money and used it to fund his lavish lifestyle. In order to prove fraud, the BCSC looked at only 26 of the hundreds of clients he may have misled.

Most of Thow's victims were near or in retirement and had little knowledge about investing. In many of the cases, Thow convinced the clients to take out large loans, usually secured by bank lines of credit, or to take out mortgages, usually approved by one specific loan officer he worked closely with at Scotiabank.

The effect on the clients, most of whom were not especially wealthy, has been devastating. Many of the witnesses said they have lost their life savings and are now struggling to pay bills.

Altogether, Thow received almost $8.7 million from these clients to invest in preferred shares of the National Commercial Bank Jamaica Limited and construction loans secured by mortgages. Neither investments ever existed. Only about $2.6 million has been recovered. Of the 26 cases looked at, only one of the clients succeeded in getting his or her money back.

James P. Blatchford, a forensic accountant with more than 30 years' experience, including 14 with the RCMP, testified that Thow was able to misappropriate money by using off-book accounting and unauthorized trading in clients' accounts as well as by creating an environment of non-disclosure. He attempted to keep outsiders from recognizing his fraud by warning clients not to tell others about their investment dealings with him, even insisting one couple sign a confidentiality agreement.

Blatchford said Thow did not flow client funds through Berkshire but instead deposited their money into his own personal, family and corporate bank accounts. He then would make a significant number of transfers among these accounts to pay off his own personal debts, which included mortgages on luxury properties and payments for his personal jet and luxury cars.

When clients grew suspicious or were hesitant to invest, Blatchford said Thow would often use money from other client accounts to win their favour or pay them part of their "profit," sort of like a ponzi scheme, where new money funds previous investments. Usually, he would use these payments as a means to develop trust and convince them to invest more.

Thow's powers of persuasion were so deft he actually wrote a cheque to a married couple to secure their principal investment, which he later guilted them into not accepting.

The BCSC says Thow convinced the couple, nearing retirement, to invest $390,000 for construction loans, which Thow assured them would earn $40,000 in three months. To fund the investment, the couple raised $90,000 from the sale of mutual fund savings and $300,000 from a line of credit from Scotiabank, secured by their mortgage.

The couple at least had the good judgment to ask for some documentation as evidence of their investment. Thow said he would give them a cheque for $390,000 for them to hold as security. For two months, the couple hounded Thow, who finally showed up with a cheque.

The wife testified that at the visit, Thow stated the investment was doing great and they would realize a $40,000 return early in the New Year.

"And and just before leaving, he he pulled the cheque from his pocket and just it was folded, and he just pulled it out of his shirt pocket and, you know, then he he kind of looked at me and said, 'You know, this is really a lousy way of doing business,'" she said. "Well, our relationship at this point had been based on trust and and goodwill. And and, you know, up to this point Mr. Thow had not done anything untoward towards us."

When the couple followed up later to get their money back, Thow told them he had reinvested it for them. Afterward, they read newspaper accounts of his conduct. They never recovered any of the investment.

Blatchford said in this specific case, the money was used to pay bank account overdrafts, reduce loan balances, pay expenses and, possibly, Blatchford says, to pay other clients. One hundred and twenty transactions withdrawn from funds commingled with the clients' funds helped pay $667,000 to luxury car dealerships.

Client after client brought before the panel shared similar stories about how they were willing to listen to Thow against their better judgment because they trusted him.

Thow also had a flair for personal touches, the BCSC noted.

"[Trust] was based on a sort of hundred large and small things. He took a real interest in our son and in his medical school. He had a picture of our son's medical school graduation on his bookcase in his office, the only picture outside of members of his family that he had in his office," the former client told the panel.

Some had been clients with him when he was a salesperson at Investors Group and followed him to Berkshire. Others were in awe of his ability to personally fly them to Jamaica or "meet a billionaire" events, where they would get to meet then Berkshire principal Michael Lee-Chin.

In one case, the panel said Thow used an invitation to dinner with Lee-Chin to forestall having to pay back $200,000. Thow told the client he would get his money after the dinner but that it couldn't be mentioned to Lee-Chin.

The BCSC reports when the client asked why, Thow said, "Well, it's all taken care of, and I've got your money for you.... We don't need to get Michael excited or anything." Afterward, Thow said he didn't have the money.

Others still testified that they were drawn to him because of the high-profile charitable work he did in the Victoria area.

"We thought he was a paragon of virtue," one client testified. "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 hour."

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com


(10/18/07)

see: 

Ian Thow takes flight