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Berkshire's Thow settlement proposal rejected
Ruling by mutual fund dealers panel leaves former clients waiting for closure


Andrew A. Duffy

Tuesday, October 23, 2007

VANCOUVER -- Berkshire Investment Group's proposed settlement to placate the Mutual Fund Dealers Association over the Ian Thow affair was unanimously rejected yesterday.

Shaun Devlin, vice-president of enforcement with the MFDA, could not comment on specific reasons why the three-member hearing panel rejected yesterday the proposed settlement worked out between Berkshire and the MFDA. The entire substance of the hearing, including all transcripts and submissions, are declared confidential.

"This means the MFDA has a case ongoing, and we are free to take any action we could have taken previously so we could attempt to negotiate another settlement with Berkshire or bring about a notice of hearing and proceed on a contested basis," said Shaun Devlin, vice- president of enforcement with the MFDA.

It is the first time in the three-year history of the MFDA's enforcement program that a settlement has been rejected.

Thow's former clients and creditors claim to have been bilked out of more than $32 million by the former vice-president of Berkshire. They claim the investment adviser convinced them to invest in schemes that ranged from a Jamaican bank to loans for Vancouver developers and seed shares with his former employer. Thow left the company at the end of May 2005, filed for bankruptcy in Canada and the U.S., left Victoria and has been living in Seattle since August 2005.

The MFDA's hearing was convened to consider the settlement agreement concerning allegations Berkshire failed to conduct reasonable supervisory investigations of Thow's activities and to take reasonable supervisory and disciplinary measures as required.

But while both the MFDA and Berkshire were tight-lipped about the hearing -- Berkshire counsel Julie Clarke would not discuss the case after the hearing -- there was plenty of speculation outside the hearing room where some of Thow's former clients waited for hours on a decision.

"We were hoping for a decision that would have meant a little closure for everybody but now the long wait begins again," said Brad Goodwin, whose family claims Thow bilked them out of $1.4 million.

Some observers wondered if the panel, realizing the high profile of the Thow case, wanted any settlement agreement reached to send a strong message to the industry and that what they saw in the document was deemed too lenient.

"I hope that's what's happened, I hope they go back and have a public hearing or negotiate again and really hammer it this time," said Goodwin.

Devlin would not speculate on whether the profile of the Berkshire hearing had any bearing on yesterday's outcome, but did note "in every region the panel is aware of regional concerns."

In a news release, Berkshire expressed disappointment the deal was rejected, but suggested it intends to pursue a new settlement with the MFDA rather than face a public hearing. "[Berkshire] will continue to co-operate with regulators working to settle the matter," it said.

If the MFDA does go to the contested hearing stage instead of a settlement with Berkshire, penalties can run to a $5 million fine, termination or suspension of membership or terms and conditions under which Berkshire can operate.

The panel is not able to award compensation, and any fine levied is paid into a discretionary fund that Devlin said is used in "the public interest."

Last week, the B.C. Securities Commission, in what it called one of the most callous and audacious frauds in B.C. history, ruled Thow perpetrated a multimillion-dollar fraud when he took money his clients gave him to invest and instead spent it on a luxurious lifestyle.

Sanctions are expected to be handed down next month.

aduffy@tc.canwest.com

see: 

Ian Thow takes flight