Investors Scrutinizing the Regulators

Home Page

InvestorVoice.CA


Securities Regulation In CanadA


Fox Guarding the Hen House

   

Thow client sues bank, official over loans for investments

Andrew A.Duffy

Sunday, January 15, 2006

Some ex-clients of former Berkshire investment adviser Ian Thow are considering filing lawsuits against Scotiabank, alleging the bank didn't follow proper procedures when it issued loans for questionable investments that cost them millions of dollars and left them at risk of losing their homes.

In some cases, the clients allege they had no contact with the bank, and received their loan approvals directly through Thow.

Scotiabank has already been targeted by one lawsuit from a former Thow client, and could be in the sights of as many as 15 of Thow's creditors. They all have one thing in common -- a line of credit or loan with Scotiabank from which funds were procured and transferred to Thow and his numbered companies.

The former clients reported at regular creditor meetings that their former investment adviser convinced them to open lines of credit with Scotiabank over the last few years, with the intent of using the funds to invest in various schemes.

Of the 15, 11 indicated they dealt with Dalene Paine, former manager of personal banking with Scotiabank.

They say they were loaned a total of $4.95 million by the bank, and now have lines of credit and mortgages hanging over their heads with nothing to show for it.

In the lawsuit already filed -- naming Thow, Berkshire, Thow's companies 657594 B.C. Ltd. and AYG Investments, the Bank of Nova Scotia and Paine -- clients Paul and Beverly Haley allege they were induced by Paine to obtain a line of credit secured against their home.

The Haleys claim Paine expressed or implied that Thow was a reputable business person and the investments for which the money was being borrowed were legitimate and endorsed by Scotiabank.

The money they drew from the line of credit -- $375,000 -- was transferred to Thow by personal cheque, along with $100,000 the Haleys cobbled together from GICs and Canada Savings Bonds, so the Haleys could participate in a short-term loan program to fund Vancouver developers.

The Haleys say they were never given an accounting of how their $475,000 was spent. When they tracked Thow down in March, he told them he had an opportunity to reinvest their money in other short- term loans, and would provide further information on those investments in the future.

That never happened. The next time they heard from Thow was through a letter advising them he was leaving Berkshire effective June 1.

The Haleys allege in their statement of claim their funds were never invested in the short-term loan scheme, and were in fact disposed of by Berkshire, Thow, AYG and 657594 B.C. Ltd.

The Haleys are seeking a judgment against all defendants for $475,000, as well as an accounting of the funds. From Scotiabank, they want a recission of the line-of-credit documents and discharge of the mortgage against the title of the Haleys' home.

They aren't the only ones.

Sisters Shirley Garwood, 67, and Helena Kells, 78, have been Thow clients since 1989 when, following the deaths of their husbands, they settled their affairs in Toronto and moved to Victoria.

They face the loss their home -- which they owned outright -- if they can't pay $440,000 back to Scotiabank, after they say they were convinced by Thow to take out a series of loans for investment purposes.

"He had everything set for us, so we just went in and signed our names," Garwood recalled, noting the sisters dealt with Paine and were surprised that the bank asked no questions. "They never asked what we wanted the money for, she had our house [as collateral]. . . We are so ignorant about all this but we trusted Ian."

So did many others.

In a letter obtained by the Times Colonist, former Thow client Barry Hewko alerted Scotiabank in December that he would no longer be making payments on the line of credit set up for him by Paine, allegedly with Thow's help.

Hewko's line of credit was established so he could invest $50,000 in the National Commercial Bank of Jamaica, a bank majority owned by Berkshire founder Michael Lee-Chin.

In the letter, Hewko asserts he told Thow he could not come up with $50,000 because of financial problems. In response, he says, Thow said he would use his borrowing strength at the bank to arrange a line of credit through Paine.

Hewko wrote that a few days after Thow said he would call the bank, one of Thow's associates handed Hewko a bank draft for $50,000, along with a personal credit agreement already signed by the bank. The money was deposited by Hewko into his personal account, then transferred to Thow's company.

In the letter, Hewko says he is now unemployed due to health problems and has no assets, a fact he said the bank would have been aware of had it done due diligence at the time of the loan.

"I have no way of making any more payments on this line of credit," he wrote.

Olga McColl told a similar tale. Another long-time Thow client -- he'd been her adviser since 1988 -- McColl said she never saw the inside of a Scotiabank office. She said Thow asked her to sign a blank loan application while sitting in his car at a local White Spot restaurant, and three days later, she had a line of credit from the bank for $75,000.

McColl said the line of credit was not secured by her home, adding she was told by Thow the bank used old income tax records to verify her income, despite the fact she is retired. She also pointed out she had no assets, saying Thow had drawn them all out of her Berkshire account.

"I didn't even get a cup of coffee," she quipped, remembering the scene in the parking lot. "He said it would be for three months and I'd just have to pay the interest down and then we'd get our money back."

Kells said Thow told her and her sister the investments they were making were safe and common.

"I don't think he uttered a true word, ever," she said. "And all these stories are the same -- the only difference is where he said the money went."

Scotiabank spokesman Frank Switzer said he wasn't aware that more than one former Thow client had complaints about Scotiabank.

"I would say at this point that our position is that this is a situation where we did not offer any of the people involved financial advice, we simply loaned them money," he said. "We're going to contest the case."

He did not know when the company intended to file a statement of defence, but said the company would contest the characterization of the loans as unorthodox.

According to the bank, there are instances when a legitimate agent -- an accountant, real estate agent, adviser -- may refer a client or initiate discussions with the bank for a loan, but funds are not advanced until the bank takes proper precautions, like credit checks, to manage risk.

Switzer would not comment on Paine, whom the Times Colonist has learned was fired by Scotiabank in March 2005. According to B.C. Securities Commission records she joined Thow at Berkshire in May, only to leave in July.

When contacted, Paine who now works at U-Select Mortgage Services, said she could not talk about the lawsuit on advice of her counsel. Her lawyer, Lisa Martz, who represents Scotiabank, did not return calls.

see: 

 

Ian Thow takes flight