Saturday, December 15, 2007
Did the Mutual Fund Dealers Association do its job Thursday when it
fined Berkshire Investment Group Ltd. $500,000 for failing to take
swifter action against its former Victoria branch manager, Ian Thow?
The answer is, who knows? It depends on how you define the case.
Certainly the case that MFDA enforcement staff put before the hearing
panel was handled sensibly enough. That was the issue of whether
Berkshire responded appropriately to two complaints that were filed
about Thow's illicit dealings in September 2004 and April 2005.
The MFDA panel decided that the firm had not, which is why it imposed a
$500,000 fine and $50,000 in costs.
But there was another issue that was not mentioned. That was the
question of what efforts Berkshire made to reconcile Thow's lavish
lifestyle -- which included jet planes, a helicopter, and a waterfront
home -- with his relatively modest income as a branch manager.
That was the elephant in the hearing room that everybody ignored.
Everybody, that is, but the victims.
On Thow's advice, many of his clients had liquidated their accounts at
Berkshire, incurring huge deferred service charges in the process. This
large-scale liquidation of client accounts should have rung loud alarms
Then these clients put their money into Thow's investment schemes. Or so
they thought. In fact, Thow was taking the money and spending it on all
sorts of insane luxuries, including flying planeloads of people on
weekend trips to the West Coast Fishing Lodge, and buying $10,000
bottles of scotch.
It was a profligate spending pattern that was abundantly obvious to
everybody who came within his orbit. This conspicuous consumption should
have rung loud alarms at Berkshire. Where was all this money coming
The question, however, wasn't raised by enforcement staff at the
hearing, or in the settlement agreement. It was like it didn't even
When I asked MFDA enforcement director Shaun Devlin about this apparent
omission, he insisted that his staff had reviewed the matter, and found
no supervisory breaches.
He said Berkshire was aware that Thow had an outside business interest
-- selling block air time on his airplanes -- and had approved it as a
"dual occupation." He also said this outside business had been reported
to the B.C. Securities Commission, which had also approved it.
Okay. So as part of its due diligence process, did Berkshire review the
business's financial statements to make sure it was generating the kind
of profits required to finance such an expensive lifestyle?
Surely this is the acid question. But at that point, things got fuzzy.
Instead of answering the question, Devlin gave more vague assurances
that, when it came to reconciling Thow's lifestyle with his income,
Berkshire did not commit any supervisory breaches.
I'm skeptical. I don't think Berkshire made serious inquiries, otherwise
Thow would have been immediately exposed as a fraud. But the point is,
we don't know for sure, because this issue has not been publicly
addressed. All we have is the vague response of a regulator who is
essentially saying, "Trust us, we looked at this and there was nothing
As I have said so many times before, whenever a regulator asks you to
trust him, you know you are on the road to hell.
Birthdays are not always happy occasions.
Certainly, the fourth birthday of the Vancouver RCMP Integrated Market
Enforcement Team is no cause for celebration.
So far, the team has laid only one charge, against commodities fraudster
Kevin Steele. He pleaded guilty and was sentenced to six years in jail.
This is a pathetic level of production. Taxpayers should be concerned.
The annual budget of the Vancouver team is about $2.5 million. It has 13
RCMP and civilian members, two Vancouver Police Department members, a
forensic accountant, a federal prosecutor, and four public service
support staff. Starting Monday, there will be two more RCMP
This is a lot of input for relatively little output. But Insp. George
Pemberton, who heads the Vancouver IMET, says the team is "starting to
get things together."
It has submitted two briefs to Crown for charge approval (one relates to
Thow) and is working on the alleged case of assay-altering by former
Southwestern Resources CEO John Paterson.
The team has also assisted on many other cases. For example, it helped
the Investment Dealers Association of Canada investigate (and eventually
shut down) securities dealer Graydon Elliott, and it helped U.S.
authorities in their investigation and arrest of former Vancouver
promoter Beverlee Kamerling.
The Vancouver team has also been doing a lot of "door knocking" in
relation to dubious U.S. over-the-counter promotions that are being run
out of Vancouver. The idea is to stop these deals before they gain any
But, sigh, we have heard all of this before. The bottom line is criminal
charges, and the sad fact is that, so far, there has only been one.
Of course, charges are laid by the Crown, so we must also point the
finger at the B.C. attorney-general's ministry. And there are many other
impediments to the efficient operation of the criminal justice system
that have nothing to do with the RCMP, ranging from onerous disclosure
requirements to unreasonably high evidentiary standards.
The net result is that it is impossible to hold any particular component
to account, which is why we are in such a mess.
© The Vancouver Sun 2007
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