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Panel frowns on Berkshire settlement

 

Barry Critchley

Wednesday, October 24, 2007

Not good enough. Those three words sum up the reaction by a panel of the Mutual Fund Dealers Association of Canada that was assembled in Vancouver on Monday to opine on the settlement agreement between the MFDA staff and Berkshire Investment Group, now a unit of Manulife Financial.

The three-person panel declined to approve the settlement agreement that concerned allegations Berkshire "failed to conduct reasonable supervisory investigations of the activities of former approved person, Ian Gregory Thow and to take such reasonable supervisory and disciplinary measures as would be warranted by the results of its investigations, contrary to MFDA Rules 2.5.1, 2.1.1(c) and the public interest."
 

Ian Thow, left, and Michael Lee Chin pose in front of Thow’s executive jet in an undated photo.

Thow is the former Berkshire senior vice-president based in Victoria whom the BC Securities Commission said perpetrated "one of the most callous and audacious frauds this province has seen. Thow allegedly preyed on his clients by offering them nonexistent securities [in mortgages and shares of a Jamaican bank owned by Berkshire's parent, AIC, and its chairman, Michael Lee-Chin] and used the funds to support his lavish lifestyle. He took their money and betrayed their trust. He left a trail of financial devastation and heartbreak," the commission said in its ruling.

Thow is alleged to have misappropriated more than $30-million from clients. (The BCSC looked at about $9-million of that amount.)

The panel has thrown the matter back to the MFDA. It has two choices: try and reach a tougher settlement and one that presumably deals with matters more than paying a fine; or go to trial. The MFDA disciplinary panels have lots of powers, including the ability "to terminate or suspend membership, levy fines and impose terms and conditions on membership."

The panel's message is clear: Make the penalty fit the situation. Indeed the panel's decision is a call for the MFDA to use the considerable power that it has. Accordingly, the MFDA is also under the microscope.

Certainly the crowd gathered at the hearing on Monday afternoon want appropriate penalties, given that a lot of them lost considerable sums by investing with Thow, a person of considerable prominence in Victoria.

"Throw the book at them," was one of the comments made yesterday. "Investors in Canada's $600-billion mutual industry are watching. And investors have to have confidence that their interests are being protected, because the average person needs mutual funds to fund their retirement."

Berkshire's new owner, Manulife, was also trying to distance itself from the MFDA's panel's decision. It said yesterday the former owners of Berkshire "continue to be financially responsible, and have indemnified Manulife for all claims and losses relating to Thow's activities, including the MFDA settlement." For good measure: "Although Manulife is not responsible for the unfortunate and regrettable activities of Thow, Manulife is monitoring the status of any remaining outstanding claims. Manulife is anxious to see that any remaining claims that are determined to be legitimate after receipt of additional information or determination by the courts are honoured and paid."

The hope is Manulife has some sway with Berkshire's former owners to put this matter behind them as soon as possible and avoid unnecessary litigation.

bcritchley@nationalpost.com

see: 

 

Ian Thow takes flight