Investors Scrutinizing the Regulators

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Fox Guarding the Hen House

   

November 2007
Fraudster Ian Thow had four aircraft, five luxury cars
BCSC panel finds that the former investment advisor defrauded investors of millions to support his lavish lifestyle


By David Baines

To nobody’s surprise, the B.C. Securities Com-mission has found that former advisor Ian Thow of Victoria defrauded his clients of millions of dollars by inducing them to invest in several bogus investment schemes.

“This case represents one of the most callous and audacious frauds this province has seen,” the BCSC panel concluded. “Thow preyed on his clients by offering them non-existent securities, 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. But for the purposes of the hearing, the BCSC narrowed the charges to encompass 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 that as he said he would.

The panel will consider an appropriate penalty at a later date. But the penalty will almost certainly include a lifetime ban from the British Columbia securities market and the maximum fine allowable, which was $250,000 at the time of the offences. But the sanctions will have little impact on Thow. Shortly after his scheme was detected in May 2005, he fled B.C. and is now living in Seattle. He also has declared bankruptcy and has no identifiable source of income to pay the fine.

The only major sanction is prison time. The RCMP’s integrated market enforcement team in Vancouver has recommended criminal charges to Crown prosecutors, and it is clear that charges will eventually be laid. If Thow does not return to B.C. voluntarily, the federal Department of Justice will have to ask its U.S. counterpart to extradite Thow.

Meanwhile, theMutual Fund Dealers Association of Canada was to approve a settlement agreement on Oct. 22 with Thow’s former employer, Berkshire Investment Group, relating to the firm’s supervision of Thow.

Watching this settlement closely will be several former clients who claim that Thow duped them out of millions of dollars and who have filed lawsuits charging that Berkshire was negligent in its supervision and is, therefore, responsible — even though the investments were not approved by Berkshire and were transacted off-book without the dealer’s knowledge.

Until May 2005, Thow worked as a senior vice president for Berkshire in Victoria. He was also a member of Berkshire’s advisory board and closely allied himself with Michael Lee Chin, then Berkshire’s principal shareholder. (Berkshire, a sister company of AIC Ltd. of Burlington, Ont., has since been sold to Manu-life Financial Corp. of Toronto.)

Exploiting his affiliation with Lee Chin, Thow induced many of his clients to invest in shares of the National Commercial Bank of Jamaica, which is 75%-owned by AIC and Lee Chin’s pet project. Thow did not actually buy the shares, however. Instead he diverted the funds to support his lavish lifestyle.

In its decision, the BCSC panel, headed by BCSC vice chairman Brent Aitken, provided details of Thow’s extravagance: “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.”

Thow also induced clients to invest in real estate mortgages in the Vancouver area. But, once again, he did not actually invest the money as represented; rather, he diverted the funds for his personal use.

In yet another case, Thow persuaded a client to invest in what Thow described as the initial public offering of Berkshire. This, too, was a ruse. Berkshire never went public, or even intended to.

Although Berkshire had no knowledge of these investments and they did not show up on client statements, investors allege that Thow’s schemes were simply an extension of his Berkshire dealings. In many cases, he induced clients to redeem their mutual funds at Berkshire. And in the case of the Jamaican bank shares, he made much of Lee Chin’s involvement. The phony IPO investment is also allegedly related to Berkshire business.

Some of Thow’s victims were well-known Vancouver Island businessmen, including Tom Harris and George Thomson, who own car dealerships in Nanaimo, and Alex Campbell, owner of Thrifty Foods, a B.C. supermarket chain.

Berkshire settled with investors in the mortgage investments, but, with one exception, has refused to deal with clients who lost money in the Jamaican bank’s shares.

Thomson, who invested $686,000 in what he thought were shares of the Jamaican bank, argues that if Berkshire had been more vigilant and tried to reconcile Thow’s employment income with his luxurious lifestyle, it would have realized he was up to no good and intervened at a much earlier date. Thomson’s case, which is set for December, will be the first to go to trial.

Thow, meanwhile, is playing cat and mouse with the receiver of his bankrupt estate, Michael Cheevers of Wolrige Mahon LLP in Vancouver. Thow is still living a comfortable lifestyle in Seattle, and Cheevers is trying to determine how Thow is financing it. The underlying question is whether Thow has hidden assets or some undisclosed source of income.

Cheevers’ earlier inquiries turned up some shocking results. Two of Thow’s victims — Harris and potato farmer Kevin Prins of Lethbridge, Alta. — gave large sums of money to Thow after he had been exposed as a fraudster. Why they did this is not clear, but other creditors view it as a highly treacherous act and have subsequently shunned them.

So far, Cheevers’ attempts to ques-tion Thow about his financial affairs have been met with little success. Thow has been consistently pleading the Fifth Amendment — the right not to answer questions on the grounds the answers may incriminate him in any criminal proceedings. Cheevers wants Thow in a U.S. court, in which a judge can compel Thow to answer questions for which he is not entitled to plead the Fifth.

But even if Cheevers succeeds, it is doubtful that Thow will co-operate in any meaningful way. IE
 

see: 

Ian Thow takes flight