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The Ian Thow affair
A few troubling questions and not enough answers

 

By David Baines

 

Friday, August 05, 2005
 

Former Victoria investment executive Ian Thow has submitted a list of more than 50 companies and individuals to whom he says he owes a total of $28 million, but it is clear that this figure significantly understates the situation.

Thow and his Vancouver lawyer, Rod Anderson -- a specialist at getting errant brokers out of sticky situations -- submitted the list to Mike Cheevers of Wolridge Mahon Ltd. in Vancouver, who is acting as receiver for Thow and his companies.

Cheevers was appointed after Thow filed a notice of his intention to make a proposal to his creditors under the Bankruptcy Act. What sort of proposal he intends to make is not clear, but it probably won't amount to much. He doesn't have any equity, and his future earnings potential has been seriously compromised, to say the least.

Thow resigned from Berkshire Investment Group Inc. on May 31 after clients filed numerous complaints about his off-book business dealings with clients. By off book, I mean private investments that he personally promoted and transacted with clients, rather than the mutual-funds that are the standard fare of Berkshire.

After talking with many of his clients, I have determined that Thow offered four types of private investments:

1. The National Commercial Bank of Jamaica: This bank is 75-per- cent owned by Berkshire's parent company AIC Ltd. of Burlington, Ont. AIC chairman Michael Lee-Chin, a Jamaican-born businessman, wants to use the bank to revitalize the country's economy.

Clients claim that Thow persuaded them to buy shares of the bank through him. All they had to do was write a cheque to him personally, or his private holding company, and he would hold the shares in trust for them. However, they claim that Thow never delivered their shares, and failed to return their money.

2. Real estate loans: Thow told clients that real estate developers in Vancouver were looking for short-term money for their projects. These developers were purportedly willing to pay as much as 10 per cent for a three-month loan, plus a lending fee. Again, Thow got investors to write their cheques to him personally or to one of his private companies.

3. Berkshire seed stock: Thow told several clients that Berkshire was going public, and they could buy seed stock before then. At least one investor took him up on his offer, writing a cheque to his personal holding company, A.Y.G. Investments Inc. However, Berkshire never went public. In fact, it never intended to.

4. High-yield investments: Thow told clients he could buy them safe, high-yield investments that were paying 10 per cent per annum. Once again, clients wrote their cheques to him, rather than Berkshire.

All of these people were clients of Thow at one time or another. Some stopped being clients, but maintained a relationship with him and invested at his urging. Many borrowed against their homes to raise the required funds.

It appears, however, that Thow did not invest the money as he had promised. Rather, much of it was diverted to finance his extravagant lifestyle. By his own admission, he is insolvent and investors stand to lose millions. Some have been wiped out, including several elderly people who have been reduced to lives of quiet desperation.

The list of creditors provided by Thow also includes financial institutions, such as the Bank of Nova Scotia, which holds a $2.9- million mortgage on Thow's waterfront home in Saanichton, and GE Canada Equipment Financing, which is claiming $15 million on account of two jets and a Bell Ranger helicopter that it financed on Thow's behalf.

There are also trade creditors, including landscapers and contractors who did work on his waterfront home, and lawyers who provided legal services but were not paid.

The total amount owing, according to Thow's list, is $28 million. But several creditors told me this week that some of the individual amounts are understated. One creditor who Thow has marked down for $300,000 told me that Thow actually owes her $450,000.

Some creditors aren't on the list at all. One is Alex Campbell Sr., founder of the Thrifty Food supermarket chain. He is claiming $4 million, of which $1.8 million is allegedly on account of an investment in the Jamaican Bank.

There are also several other creditors who pre-purchased block air time on his private jets. I have been told they paid hundreds of thousands of dollars for the privilege of using his jets, but did not receive full, or any, consideration. The planes have since been seized.

So it is clear that the eventual total will be much higher than $28 million. How much higher remains to be seen. Cheevers is encouraging anybody who has a claim to contact him and "provide us with any documentary information they have." (Thow's proposal must be filed with the court by Aug. 22, and the first meeting of creditors must be held by Sept. 12.)

What of Berkshire's role in all this? Some investors have sued the firm, alleging it is vicariously responsible for the losses they suffered at Thow's hands, or that the firm was negligent in its supervision of Thow. Leading this charge is Katherine Ducey, a low- profile but high-powered partner with Campbell Froh May & Rice in Vancouver.

Berkshire has quickly moved to dissociate itself from what it describes as Thow's "outside business activities." Berkshire's Vancouver lawyer, Doug Eyford at Borden Ladner Gervais, is pouncing on any reporters or clients who might dare suggest, or even imply, that Berkshire has some responsibility in this matter.

I am not a legal expert, so I cannot comment on Berkshire's culpability, if any. But I can apprise you of some of the dynamics that come into play in the broker-client relationship, and how they might relate to this situation.

The first is that people retain financial advisers because they don't think they can look after themselves. They defer to a professional, and are willing to pay professional fees for the advice. They place their trust in the advisers, and in most cases will do anything they suggest.

Thow encouraged this trust. He repeatedly told his clients he would look after them. In fact, he is still telling clients he will make up their losses, even though his career is in tatters.

Secondly, brokerage firms like to drape their employees with trumped-up titles to give clients the impression they are dealing with top-level executives. Berkshire gave Thow the title of senior vice-president, even though he was little more than a branch manager. His business card also stated that he was a member of the "Berkshire Advisory Board." Thow did little to dispel the impression that he was a bigwig, and everything to cement it.

He lived in the reflected glory of Michael Lee-Chin, continually dropping his name and rubbing up against him whenever he was in town. He told everybody who would listen that he was hugely wealthy. He didn't just live an extravagant lifestyle, he flaunted it: $10,000 bottles of scotch, Cartier watches, Hummers, jet planes -- three of them, for pete's sake.

It was clearly a lifestyle that exceeded any compensation that Berkshire was providing. Were Berkshire's compliance people aware of this? If not, why not? If they were, what inquiries did they make to determine the source of his money?

Many clients have acknowledged that Thow told them these investments were not approved by Berkshire, that they were outside investments and that they should not tell anybody about them. He got them to write their cheques, not to Berkshire, but to him personally or his private companies.

But this does not necessarily let Berkshire off the hook. First of all, these transactions didn't come out of the blue. They were an extension of a long relationship with a broker that, by all appearances, was extremely successful, highly placed and well- regarded by his employer.

Secondly, it is highly irregular for a broker to take personal cheques from clients for non-approved investments. If Berkshire's compliance people knew Thow was doing this, they would have undoubtedly intervened. So once again, it begs the question: Where were Berkshire's compliance staff when all this was happening?

B.C. Securities Commission officials, who have launched a formal investigation into this matter, will most certainly be asking these same questions, if they haven't already.

dbaines@png.canwest.com

 

see: 

Ian Thow takes flight