Berkshire reaches settlement over Thow
December 14, 2007
| Ashley Ford
The Mutual Fund Dealers Association of Canada (MFDA) has imposed a
$500,000 fine and a further $50,000 in costs against Berkshire
Investment Group, now owned by Manulife Financial Corp. The settlement
stems from accusations that the firm should have been aware of the
actions of former vice-president Ian Thow, who stands accused of
stealing millions from investors.
But the second hearing to reach an agreement between MFDA and Berkshire
in Vancouver Thursday was greeted with derision by upset investors. The
association did not impose any further business restriction or
suspension, as it had the power to do on Berkshire, and said it was the
heaviest fine it has ever imposed.
Out of pocket investors were hoping the association would restrict the
ability of the firm to operate for a period, saying that would be a far
more effective penalty than a cash fine and send a strong message across
Canada that investors can expect to be protected.
Brad, Daryl and Don Goodwin of Vancouver who lost over $1 million
described the settlement "as a joke. It's self-regulatory working at its
best. This doesn't cut it."
Krista Kleven and Kirk Wong, who lost $244,000, said the agreement "is
an insult to every investor who lost money. We were hoping this
settlement would have sent a loud and clear message to investors across
Canada that their interests would be protected; it doesn't."
Shaun Devlin, vice-president of enforcement for the MFDA said he
understands the anger but pointed out it was the heaviest penalty ever
handed out by the association. He described the activities of the former
Berkshire vice-president as those of a "thief and a liar." The
association does not have the power to award compensation.
Berkshire gained international notoriety through the activities of Thow,
who was Berkshire's senior vice-president in its Victoria, B.C. office
and once a prominent "pillar" of the community.
The agreement concerned Berkshire's failure to conduct reasonable
supervisory investigations between September 16, 2004 and June 1, 2005
in response to complaints it received from two individuals concerning
Thow's activities. "Over a period of several years, Thow persuaded
numerous individuals, including clients of Berkshire, to provide him
with money that he promised to invest on their behalf but instead used
for personal benefit," the association said.
The association found that Berkshire was not aware of Thow's fraudulent
activities, but said "Berkshire acknowledged in the agreement that it
did not take reasonable supervisory and disciplinary measures after it
received the reports from the two individuals. Berkshire further
acknowledged that, had it taken those measures, it is more likely that
Thow's activities would have been discovered and brought to an end. Thow
was able to continue to persuade individuals to provide him with an
addition $6.3 million, almost $4.5 million of which was received from
clients of Berkshire."
The panel noted that Berkshire has paid substantial amounts of
compensate some of the individual who provided money to Thow. It said
investors do have other avenues to try and recover their investment;
bringing a complaint to the Ombudsman for Banking Services and
Investment, which can recommend compensation of up to $35,000 or
commence their own civil litigation.
It also pointed out that Thow remains the subject of an ongoing criminal
investigation by the Vancouver Integrated Market Enforcement Team of the
RCMP. It has handed in its report to Crown and is awaiting the next
Meanwhile, Thow currently sits in a so-far safe haven of Seattle. He was
found to have committed fraud by the B.C. Securities Commission (BCSC).
It said he "perpetrated a fraud, made misrepresentations, traded in
securities without being registered, and failed to deal fairly, honestly
and in good faith with his clients when he took millions of dollars from
his clients to invest in securities that did not exist."
But the BCSC has only investigated about $8-million of missing investor
monies and Thow is alleged to have misappropriated many millions more.
Sources say that 73 investors may have been fleeced of over $80 million
Given investor distaste for this settlement Berkshire's new owner
Manulife may feel compelled to weigh in with far-reaching compensation
and put the business behind it, thereby demonstrating it really does
care for its clients.
Self-interest provides part of the reason, as Manulife likely does not
want to see the $13-billion of assets and 700 advisors it bought erode
in value because of the antics of one former executive.
Kleven and Wong have laid a complaint with the Ombudsman for Banking
"We have been told the complaint has been accepted but have not yet had
any formal notification," the pair said. Other investors attending the
meeting said litigation is simply out of the question and would cost
them hundreds of thousands of more dollars they now do not have.
Ashley Ford is a Vancouver-based financial journalist.
Copyright: "Copyright 2007. Advisor.ca All Rights Reserved"