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Berkshire denies any legal responsibility

Peter Brieger


Wednesday, March 05, 2008

When the Ian Thow scandal exploded last year, Berkshire Investment Group told clients it wasn't legally responsible for the renegade broker fleecing them out of $32-million. After all, Mr. Thow operated outside Berkshire's authority, something clients should have known, the firm said.

Now, Berkshire's insurer is relying on those statements to deny its request to cash in a policy that would cover millions of dollars in payouts to victims of what British Columbia regulators call one of B.C.'s most "callous and audacious" frauds.

"The [fraud victims] paid their money to Thow or his companies, not to Berkshire, and Berkshire did not handle or become responsible for the handling of those funds at any time," says a claim filed in Ontario Superior Court by St. Paul Guarantee Insurance Co.

"The funds stolen by Thow do not qualify as insured property ... and there is therefore no coverage for any loss suffered by Berkshire."

St. Paul wants the court to declare that financial planner Berkshire's insurance policy does not cover losses stemming from the fraud.

None of St. Paul's arguments has been proven and Berkshire has not filed a statement of defence.

"Berkshire's dealings with its insurers ... are of a private, contractual nature and, as such, Berkshire will not publicly comment on any such matters relating to any insurance claims regarding Mr. Thow or otherwise," the company said in an e-mailed statement.

The legal spat comes two months after the B.C. Securities Commission slapped the former mutual fund salesman with a record $6-million fine.

Regulators found that Mr. Thow, who set up Berkshire's Victoria office in the late 1990s, persuaded clients -- many of them elderly and disabled -- to sell their investments and take on debt to buy non-existent construction loans and shares in a Jamaican bank.

Spending $32-million in client funds, Mr. Thow, 46, financed a lavish lifestyle filled with yachts, private jets and luxury homes, regulators said.

Although Berkshire has argued that Mr. Thow sold securities that he was not registered to sell -- and was therefore outside Berkshire's control -- the financial planner has paid out $4.1-million to a total of 29 clients. Last month, the company settled more claims but won't reveal any dollar figures, citing a confidentiality agreement.

The firm, founded by AIC Ltd. chairman Michael Lee Chin, also settled with the Mutual Fund Dealers Association, paying a $500,000 fine for failing to take action when clients complained about Mr. Thow, who now lives in Seattle.

Berkshire's insurance policy covers losses stemming from an employee's dishonesty, but St. Paul argued that Berkshire itself has denied any legal responsibility for Mr. Thow's actions.

That means it is not a direct loss required to cash Berkshire's insurance policy, St. Paul argued in court documents.

The policy doesn't cover voluntary payouts to clients, the insurer added.

"Even if the [victims] are successful in transferring their losses to Berkshire through their claims that Berkshire is liable to them for Thow's conduct, such result to Berkshire is at best an indirect result of Thow's actions," St. Paul's claim says. "Thow caused the loss to [the victims] and there is no evidence to establish his intent, manifest or otherwise, to cause Berkshire to sustain a loss."

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