Andrew A. Duffy
Sunday, January 15, 2006
|CREDIT: Bruce Stotesbury,
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
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
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
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
That won't change any time soon, as the interim report creditors were
hoping for will not materialize, since the company maintains it was
'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
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
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
"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
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
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,
"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.
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
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
May 31 -- Thow resigns from
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
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
- 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
Ran with fact box "THOW TIMELINE "BUY, HOLD, PROSPER: ABOUT BERKSHIRE "
which has been appended to the story.
© Times Colonist (Victoria) 2006