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
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
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
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
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
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