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The company thow left behind
Seven months after leaving Berkshire, investment adviser Ian Thow leaves a trail of questions about his schemes. The firm says it was left in the dark.

Andrew A. Duffy

Sunday, January 15, 2006
CREDIT: Bruce Stotesbury, Times Colonist
Berkshire founder Michael Anthony Lee-Chin promises to get to the bottom of the situation but did nothing until a group of Thow's former clients confronted Lee-Chin in Victoria in November 2005.

Seventy-three creditors, $32 million and counting in debts, financial advisers jumping ship, an RCMP investigation and countless shattered dreams. That's the bill left behind after former Berkshire investment adviser Ian Thow skipped the country amid claims from investors that he cost them millions through a series of investment schemes.

The RCMP Integrated Market Enforcement Team is investigating Thow, although no charges have been laid. In fact, seven months after Thow's departure from Berkshire Investment Group, there are few satisfactory answers to myriad questions from clients and creditors. At the top of that list: How could a respected and high-profile mutual fund salesman get away with what appears to be one of the highest-profile investment scandals in Victoria history?

The questions have peppered Berkshire's Burlington, Ont., head offices for months.

Berkshire, which hired Thow to open its Victoria offices in 1998, says it is investigating Thow's behaviour. It claims it was in the dark about what it sees as his outside activities and has promised to get to the bottom of the situation.

But those promises are being met with skepticism, rolled eyes and a lot of "we'll see" in the creditor group, which calls itself VOIT -- Victims Of Ian Thow.

And there are signs the company is feeling tangible after-effects of the scandal, as it deals with some internal bleeding. Berkshire advisers in Victoria and the rest of the province have been tarred with the brush of scandal. Many quietly admit to having considered jumping ship since the news started to hit the papers.

One Victoria adviser, Bruce Courtnall, left in July and joined CIBC Wood Gundy in August. Two mainland Berkshire advisers left the company recently -- Shel Nels Jacobsen, who worked in the Interior and had been with Berkshire since 1998, joined Assante Capital Management in the first week of November, and North Vancouver's Marc Latta joined Raymond James Ltd. at the end of October.

All three are rumoured to have left because of the scandal, although none would talk to the Times Colonist about their reasons for changing companies and Berkshire representatives refused to speak about it.

The company is also losing business, with some advisers complaining they have lost longtime clients and others conceding new business has been tough to come by.

In an interview, Geoffrey Charlton, Burlington-based executive vice-president of the Berkshire Group of companies, would not offer a ballpark estimate of losses, saying only that he had heard different numbers.

Many creditors and some Berkshire advisors think that, until now, there has been precious little reaction from head office to the scandal.

Berkshire advisers say they have made repeated attempts since June to explain the magnitude of the Victoria problem to head office, but Burlington did nothing until a group of Thow's former clients confronted Berkshire founder Michael Lee-Chin before an advisers' dinner in Victoria in November.

Berkshire's senior investigative team has since thumbed through papers and interviewed Thow's former clients, but apart from a pair of terse e-mails saying the investigation continues -- the latest of which arrived Jan. 10 -- head office has not communicated with the creditor group.

That won't change any time soon, as the interim report creditors were hoping for will not materialize, since the company maintains it was never promised.

'Our commitment was to communicate with them, and we have begun the process of communicating, whether [creditors] have attached a formal label that carries certain expectations, you'd have to speak to those clients," said Alison Fletcher, Burlington-based compliance officer for Berkshire Investment Group.

"Lip service," scoffed Shirley Garwood, one of Thow's former clients.

But Berkshire paints itself as just as much a victim of Thow as his former clients, whose financial experience and net worth run the gamut from mom and pop to multimillionaire.

"Betrayal? That would be the understatement," said Charlton in a lengthy interview with the Times Colonist. "When things like this happen in any firm, you are always disappointed and hurt.

"We built this firm on integrity, and this, well, I don't know what to say -- it's unbelievable."

In the same interview, Frank Laferriere, chief operating officer for Berkshire Investment Group, told the Times Colonist his company is "learning more every day" as the investigation proceeds.

"We're committed to try and get to the bottom of it in a timely manner," he said. "We understand the people who have been affected by this have been deeply affected and we are cognizant of the need for speed."

If that's the case, creditors wonder why it's taken Berkshire this long to even say anything about Thow.

"I think what was perceived was Berkshire was distancing itself [from Thow] and really, we don't want that to be the perception," said Charlton, arguing it took time for the full picture to develop. "You don't know it's more than one [victim] until you get two people. We didn't start out thinking there was this many situations."

Thow's bankruptcy trustee, Michael Cheevers, has admitted he wouldn't be surprised if the number of unsecured creditors continued to rise.

Both Charlton and Laferriere admit Berkshire was aware there was trouble in Victoria, but said until Lee-Chin was confronted by clients, the true extent of the problem wasn't clear.

But Thow's creditors don't buy that, and have told the Times Colonist they complained to the company on numerous occasions. "Is it reasonable that the top guy in a company doesn't know everything that goes on -- I think that's possible," said Andrea Racicot, spokeswoman for the creditors. "But he could have been protected by people who report to him. There were many creditors' phone calls to Berkshire. They did know there were multiple creditors."

And those creditors are not about to roll over and forgive a company they claim legitimized Thow and didn't effectively oversee his actions.

Clients and creditors want to know, for example, why the company didn't ask how Thow could afford his jet-set lifestyle or question the number of client accounts that were closed.

"That's one of the questions we put to [Berkshire's investigative team]: What sort of flags go up when all of a sudden, accounts from that one office start closing -- to me, there would have been red flags," Racicot said.

According to Racicot, those accounts started closing in the spring of 2004 and continued until Thow left Berkshire in May 2005. Some creditors say Thow convinced clients to transfer the money via personal cheque to his private companies, or to Thow himself, so it could be invested in a variety of schemes on their behalf. That money, they say, was either never returned or only partially accounted for.

"Why [wasn't Berkshire] suspicious? And why didn't they follow up on his lifestyle?" said Racicot.

But Charlton defends the company. "I think if somebody makes up their mind in our industry to go outside the business of the firm and negotiate with clients or prospects, as is being revealed now, there is not a heck of a lot you can do about it."

Laferriere said the company remains confident in its day-to-day regulatory process and oversight. "I think we will be reviewing a number of items, but the difficulty comes when things flow outside of the firm through outside business interests."

According to Lenore Davis, a Victoria-based director of the Institute of Advanced Financial Planners, Thow's activities appear to be "off book" -- clients were investing in something outside the normal regulatory structure.

Davis said it's common for clients to close accounts without raising the eyebrows of an institution's compliance department. As for what those clients might do with those funds -- in this case, writing personal cheques to Thow -- there's no way Berkshire could know about it, she said.

"The problem is if it's happening off-book, you have no control."

As at other investment firms, when Berkshire advisers process a trade order on behalf of a client, there is a waiting period before the company executes the order, which allows time to ensure the transaction squares with a client's risk profile and investment goals.

According to Wendy Royle, director of the Mutual Fund Dealers Association's Pacific Regional office in Vancouver, firms such as Berkshire are responsible for ensuring a two-tiered supervisory structure for oversight.

"Obviously, every trade that's executed isn't going to be subject to an individual review, so we require that each firm has a process in place for selecting trades to be reviewed," she said, noting most firms key "know-your-client" information into their systems so trades can be electronically screened for suitability. "You have to ensure that each transaction on an account of a client is suitable."

Royle said every trade also has to appear on the trade blotter the next day and a sample of those trades must be reviewed. In an office of more than four advisers -- which constitutes a branch -- a branch manager is required to do an initial review, after which head office does a second review.

Royle said an account closure or redemption order might not come up on the radar screen. "But you look for patterns. If it's a pretty obvious pattern, hopefully supervisory structures they have in place would detect that."

However, some advisers have said that if Thow had given a "heads-up" to his compliance department that accounts were closing or funds were being redeemed ahead of time, the transactions would likely have passed without so much as a second glance.

As Berkshire continues to point out, activities Thow carried out through his personal businesses would not have been reviewable. Local Berkshire advisers and clients also note that client meetings often took place in homes and other out-of-office venues.

That doesn't answer why Thow's million-dollar lifestyle didn't raise eyebrows with a head office that knew he was making a low- to mid-range six-figure mutual-fund dealer's salary.

Laferriere said there's little he can comment on publicly, since there is an RCMP investigation into Thow. "Suffice it to say there were questions asked and reasonable responses," he said.

Davis said she would not be surprised if Berkshire did not do much of a background check before hiring Thow as an adviser, which means the company would have missed his declaration of personal bankruptcy in 1986 and the lawsuit filed against him by his former firm, Investors Group, in 1999.

"Once you establish yourself as a producer, then companies are quite happy to let you go on producing because they are bottom-line driven," she said. "When you get a chance to collect someone of the reputation of Mr. Thow -- and he was well-known with Investors Group -- getting a producer is good for the bottom line. Whether that person has any complaints against them -- that's a question for the licensing bodies and, if there's nothing written, there's nothing to find.

"Should Berkshire have looked sideways at Mr. Thow when they hired him? Well, it's not in their culture. They are looking at someone who can bring over a block of assets who can produce."

Asked if the company will change its practices in light of the Thow situation, Charlton maintained the company has a "good setup."

"You can't let one situation like this, as bad as it is, govern your decision-making in the future."

Berkshire did, however, shift the supervision of six Victoria-area investment advisers from branch manager Richard Burke -- who has assumed responsibility for the bulk of Thow's former clients -- to another manager in Richmond.

The reason given was the increase in Burke's workload.

THOW TIMELINE

How His Life, Career and Troubles Unfolded

1961 -- Ian Thow is born in Glendale, Calif.

1969 -- Arrives in Canada, lives in West Vancouver

1985 -- Arrives in Victoria

1985 -- Joins Investors Group,

a nationwide personal-investment advisory firm

1986 -- Declares personal bankruptcy

1993 -- Investors Group appoints Thow as regional manager

for Victoria

1998 -- Thow resigns from Investors Group on Oct. 22

1998 -- In November, Berkshire Investment Group hires Thow as B.C. vice-president; he opens an office at 730 View St.

1999 -- Investors Group files lawsuit against Thow, alleging poaching of clients and staff

2005

May 31 -- Thow resigns from

Berkshire

June 20 -- Goodwin family files suit against Thow, claiming $1.4 million owing due to an investment

involving the National Commercial Bank of Jamaica

June 21 -- George Thomson files lawsuit against Thow, claiming $686,000 owing due to investment involving the Jamaican bank

June 22 -- Derek Stimson files suit against Thow, claiming $200,000 owing due to Jamaican bank investment

June 29 -- Gary Sartorio sues Thow, claiming $1 million owing due to Jamaican bank investment

July 10 -- Thow files affidavit denying allegations made by Goodwins, claiming the money was for block air time on his aircraft, not part of an investment scheme

July 13 -- Court freezes Thow's worldwide assets

July 21 -- Thow files intention, under the Bankruptcy and Insolvency Act, to file a proposal to creditors

Aug. 22 -- Thow files proposal to creditors, to whom he owes $32 million, offering proceeds

of the sale of remaining assets -- principally his mansion on West Saanich Road -- and $5 million from an anonymous benefactor if they accept the proposal

Sept. 7 -- Thow files for bankruptcy in the United States

Sept. 8 -- Thow crosses border into the U.S. and sets up home in Seattle

Sept. 12 -- Thow's creditors meet in Victoria, unanimously vote down his proposal and put him into bankruptcy

Sept. 19 -- Arrest warrant issued for Thow for violation of Bankruptcy and Insolvency Act: Removing assets from his home

Oct. 13 -- Thow has a date to appear in bankruptcy court in Seattle

Oct. 13 -- Thow breaks his silence and agrees to speak in Seattle with Times Colonist; he claims to be "living on buttons" and deniesallegations he sold shares in Jamaican bank

Nov. 9 -- Berkshire founder Michael Lee-Chin is confronted by Thow's former clients in Victoria; he agrees to meet with them and soon starts an internal investigation into Thow's activities

Nov. 18 -- U.S. bankruptcy court tosses out Thow's bid to declare bankruptcy in U.S., meaning creditors will not have to file statements of claim against him twice; this allows the Canadian process to continue without interruption

Dec. 23 -- Thow's $5.75-million mansion is taken off the market after an offer for the property is reportedly accepted by the trustee. The identity of the buyer is unknown, as is the final sale price. The sale is expected to be closed in the spring2006

Jan. 10 -- Berkshire officials communicate with creditor group saying their investigation into Thow's activities continues and officials will meet with creditors again within the next two or three weeks. Creditors are also left with the impression Michael Lee-Chin will meet with them when he comes to Victoriain early February

BUY, HOLD, PROSPER: ABOUT BERKSHIRE

- Berkshire has three divisions:

Berkshire Investment Group Inc., which sells mutual funds and distributes a range of retirement savings plans; Berkshire Securities Inc., which provides registered and non-registered products, stocks, bonds and tax-assisted investments; and Berkshire Insurance Services Inc., an independent insurance broker.

- The company was founded by Jamaican-born Michael

Lee-Chin, 54. The eldest of nine children, Lee-Chin came to Canada in the 1970s and studied civil engineering at McMaster University in Hamilton. In 1977, he entered the financial services industry as an adviser, and soon bought into the buy, hold and prosper philosophy of Warren Buffett of Berkshire Hathaway.

- Lee-Chin has been ranked as high as 216 on the Forbes magazine list of the wealthiest individuals in the world (Forbes, April 2004). He has also been honoured for his philanthropic work, which includes large donations to Joseph Brant Memorial Hospital (Burlington, Ont.), McMaster University, the University of Toronto and the Royal Ontario Museum.

- In 1986, Lee-Chin bought AIC (Advantage Investment Counsel), a fund company with $800,000 under management. That same year, AIC Investment Planning was created, with its advisers selling mutual funds, RRSPs, RRIFs and other products. A year later, he established AIC Securities Inc. to sell stocks, bonds, GICs, mutual funds and other investment products.

- In 1995, AIC Investment Planning and AIC Securities changed their names to Berkshire Investment Group Inc., Berkshire Securities Inc. and Berkshire Insurance Services Inc. Two years later, the head office moved to Burlington, Ont.

- The Berkshire Group added new firms to its arsenal starting in 2001 with the acquisition of Retirement Counsel of Canada, a mutual fund dealership, and a year later with the acquisition of the TPA group of companies, which includes both a mutual fund and securities dealership. Two years later, Berkshire Group joined with TWC Group, a merger of more than 1,000 advisers and more than $11 billion in assets under administration.

Ran with fact box "THOW TIMELINE "BUY, HOLD, PROSPER: ABOUT BERKSHIRE " which has been appended to the story.

Times Colonist (Victoria) 2006
 

see: 

 

Ian Thow takes flight