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OFF THE RECORD
No bite in MFDA ‘mauling’


Barry Critchley


Saturday, December 15, 2007

Talk about being mauled and savaged. But in this case it wasn’t a bear or a lion that was beating up on the Berkshire Investment Group — but a dead dog.

That’s one assessment of the settlement announced with the Mutual Fund Dealers Association of Canada — the body that regulates the distribution side of the mutual fund industry.

The settlement was actually the second reached between the regulator and Berkshire, a company in which AIC Funds/Michael Lee-Chin was the largest shareholder, and which had the dubious distinction of employing Ian Thow, whose conduct, according to a recent B.C. Securities Commission hearing, amounted to “one of the most callous and audacious frauds this province has seen.” Claims of $32-million have been filed against Thow, who departed Berkshire’s Victoria office in June, 2005. Thow is now based in Seattle.

But the first settlement was rejected by the three-person hearing panel, presumably on the grounds that it wasn’t tough enough.

Accordingly, it can be concluded that version two is much tougher. For what it’s worth, Berkshire — a firm with about 700 financial planners and $13-billion of assets under management — is set to fork out $500,000 and pay costs of $50,000. For a company that was recently sold to Manulife for at least $100-million, the fine — which is being paid by the former owners of Berkshire — amounts to nothing more than a few good lunches. No wonder Berkshire was dead keen to settle.

The MFDA was involved because its job was to determine whether Berkshire conducted reasonable supervisory investigations of Thow’s activities.

The 20-page agreement details that Berkshire knew something about Thow in September, 2004 — a considerable period of time before Thow departed. And the agreement makes it clear that Berkshire did nothing of substance after receiving a call from a lawyer acting for one of Thow’s clients. “The respondent took no further steps to investigate the matters..... including not taking the step of notifying the co-branch manager of the respondent’s Victoria branch of the information received,” reads one paragraph from the agreement.

And what’s more, “in light of the potentially serious implications, the respondent had an obligation to conduct a reasonable supervisory investigation ... in order to ensure that Thow was complying with his regulatory obligations and was acting in the best interests of the respondent’s clients, but failed to do so.”

If that happened, “it would have increased the likelihood that Thow’s solicitation of monies ... would have been discovered...”

The agreement stated Berkshire should have suspended Thow on May 5, 2005, and not wait until June 1 to make it effective.

Over the period Sept. 16, 2004, to April 20, 2005, Thow received another $5.8-million from individuals, of which $4.3-million came from existing clients. And over the period April 20 to June 1, a further $510,000.

And for not being quick enough, for not acting in the interests of its clients, Berkshire pays out $500,000.
 

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Ian Thow takes flight