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Fox Guarding the Hen House


Nesbitt achiever's fall from grace

Sandra Rubin and Jason Chow

Monday, April 16, 2001

Senior management at BMO Nesbitt Burns must have been filled with dread March 12 when they received the lawyer's letter that finally forced them to acknowledge they had grave problems with Doris Lau, the brokerage firm's managing director.

Ms. Lau was a woman in a man's world, an immigrant in a sea of white faces in the upper echelons of Bay Street, a persistent and ambitious power broker who was as close to untouchable as anyone in the brokerage-house hierarchy.

She was Nesbitt's secret weapon in attracting lucrative Asian business. Highly accomplished, highly polished and impeccably connected politically, she has long been one of the best-known figures in Canada's Chinese community, and a respected financial guru to many wealthy Hong Kong emigres.

But when they laid eyes on that letter claiming losses "in the range of US$650,000," the Nesbitt brass were compelled to admit that she was seriously out of control.

It was not the first time one of her clients had alleged she had traded in their account without their knowlege or consent. She had been reprimanded, fined and forced to take management retraining. However, that letter would have confirmed fears that the problems had not gone away.

The couple who apparently delivered the final push in Ms. Lau's fall from grace at Nesbitt Burns is more than 11,000 kilometres away from the towers of Bay Street.

Patrick Ho, a chartered accountant, and Hermine Yang, his wife, live in Hong Kong, where Ms. Lau was born and lived for two years before college, working as a journalist for the South China Morning Post. She would later tell people that it was "one of the best jobs in the world."

The lives of Mr. Ho, Ms. Yang and Ms. Lau intersected when the couple travelled to Canada in August, 1997, to visit family members who had left Hong Kong to settle in Vancouver.

They must have seen Ms. Lau's daily business articles in Sing Tao, Canada's leading Chinese-language newspaper, or her weekly program on Chinese-language television. They were surely told by friends and family she had been a citizenship judge, deciding whether people like them would be permitted to remain in Canada. They were impressed enough to telephone her in Toronto to discuss setting up an account with her to invest in stocks and bonds.

They say Ms. Lau telephoned them several times after they returned to Hong Kong to pursue the matter. They say she told them a number of times that she had happy clients, with substantial portfolios.

The couple finally decided to take the plunge, and Ms. Lau couriered the account-opening forms to Hong Kong to be signed. In the area of the form where it asks about the client's level of financial knowledge, they bypassed the boxes marked "sophisticated" and "average" and ticked off "limited." They wanted 70% of their money invested for "moderate growth," they said on the account agreement, with 30% earmarked for "aggressive trading."

By September, 1997, they had formally opened an account with Ms. Lau and deposited almost $1.5-million in two tranches, leaving them perfectly positioned to take advantage of what would turn out to be a remarkable bull market. But by last fall, they knew something was terribly wrong. Despite the surging market and technology bubble, their portfolio had fallen by a third. They had troubling questions. They decided to contact Ms. Lau directly on Nov. 21 for an explanation of what had happened.

"Dear Mrs. Lau," they wrote. "In September, 1997, when we opened the account with you, DJIA [Dow Jones industrial average] was 7,622, today it is 10,645, up 40%. NASDAQ was 1,685 and today [it is] 2,624, up 55%. Meanwhile, the value of our account is down 30%. Obviously something is terribly wrong.

"We were surprised to learn that majority of investment was in one sector, technology. You did not follow our mandate of a diversified portfolio taking only some risk, and 70% moderate growth and 30% aggressive trading."

It was not the first time Ms. Lau had received this type of complaint. As reported in the National Post on April 6, she had been disciplined at least twice before.

In April, 1999, a civil suit alleging unauthorized trading was settled out of court. Nesbitt fined Ms. Lau $40,000, and placed her under close supervision for six months, while paying her client $30,000. Last May, the firm fined her $60,000 - and this time required her to complete a partners and senior officers exam -- after another client also alleged Ms. Lau had made unauthorized trades in his account.

There were complaints to the Investment Dealers Association, the body that regulates brokers, which has recommended disciplinary action be brought against her.

Looking at her life -- the affluence, the profile, the respect -- and her meticulously choreographed career, it is difficult to fathom why Ms. Lau repeatedly made this kind of slip-up.

Ms. Lau could not be reached for comment. She does not have an answering machine at the Rosedale home she shares with her husband, a doctor, or it is turned off. No one has been answering the telephone.

- - -

The Chinese call it guanxi (pronounced gwon-she), which means personal loyalties or connections, and Doris Lau has them in spades. Whether it is a gala for the opera, the ballet or a new wing at the hospital, or a $1,000-a-plate political fundraiser for the Conservatives or the Canadian Alliance, chances are Ms. Lau is front and centre. Her friends say she loves dancing.

"I don't know her that well, but I have always found her to be very bubbly, very upbeat and very cordial," says Paul Godfrey, chief executive of the Toronto Blue Jays, who has run into her at many social functions.

She is a director of Toronto's 2008 Olympic bid committee. The University of Toronto has an MBA fellowship in her name. She was awarded the Order of Ontario in 1999 for her charitable work and support of multiculturalism, and once said her true ambition was to become a diplomat.

"Everybody knows me," she told the Financial Post in an interview in 1996. "Most Chinese, from here to Vancouver."

From many people, that would be a boast. From Ms. Lau, it is a simple statement of fact. She has so much guanxi that she was invited by both the British and the Chinese governments to be their guest at the ceremonies accompanying the handover of Hong Kong in 1997.

Born in the former British colony, she was schooled at Mary Knoll High School in Kowloon. According to Imagination, a Chinese-English magazine, she comes from a background of relative privilege. Her father owned the first mechanized shoe factory in Hong Kong, and she has told people his keen intelligence has been an inspiration. She is a devout Catholic who has been known to quote the Bible in interviews.

After her stint as a journalist, she went to university in Britain to study business administration and computer sciences. She emigrated to Canada in the grip of winter, in February, 1975. She has said she was attracted by the opportunities, freedom and space.

Her first job here was as a computer analyst and within five years she had been named manager. But she was drawn by the siren call of markets and finance, and in 1981 took a job as a stock and commodities trader at Bache Canada in Toronto. She so impressed her supervisors that she was transferred to the Wall Street office of Bache Group Inc., where she regularly pulled in a six-figure income.

"Doris moved up the ladder from being the low person on the totem pole to perhaps becoming the most prolific producer," said a former colleague from that era."She became really successful, because she asserted herself.

"I think she really hit her stride after she became a citizenship court judge because she might have parlayed part of the mystique, or stature, or whatever that might have gone along with that office. She ended up being in touch with the proper people with deep pockets.

"It's not exactly a rags-to-riches story, but here's a woman who worked hard -- had the smarts to get to this level. Her strongest trait is her personality. She's a digger, she's a scrapper. She had a goal. She had an obsession."

Most Chinese-Canadians approached about Ms. Lau were extremely reluctant to talk, saying they were nervous about being seen to discuss her business.

Her power and influence appear to be indisputable. Many people in Hong Kong still refer to her as "the Judge" from her three-year stint as a federal citizenship judge - a patronage appointment that drew fire from the then-opposition Liberals.

"I took this job to serve the public," she said at her swearing in April 7, 1987. "I'm one of the most prominent figures in our community and have done lots of good service. That's why I was nominated."

Therein may lie an important clue. Perhaps, if Ms. Lau did trade in some of her clients' accounts without their consent and contrary to their investment objectives, as they allege, it was because in the relentless quest to perform, she was convinced she was serving their best interests. She was convinced that she knew best.

- - -

Ms. Lau e-mailed Mr. Ho and Ms. Yang on Friday, Dec. 1, nine days after receiving their Nov. 21 complaint. She apologized for being unable to contact them by telephone, saying the lines had sounded funny, and urged the couple to be patient.

"I feel that the markets say one year from now you may find it a lot better than now," she counselled. "Our analysts in the U.S., and also Abby Cohen [Goldman Sachs' chief U.S. strategist] , who was on TV yesterday, said the market was oversold and very undervalued. She said that especially telecom and technology stocks would come back nicely.

"Talking about your investment objectives and the diversity of the portfolio, I'd like to talk to you. Please call me on Monday."

She e-mailed again on Tuesday, Dec. 5, again urging them to hang tough, saying everything would be fine.

"I am sorry I have not called you yesterday, as I wanted to see the outcome of the U.S. presidential judgment," she wrote. "At present, the market seems to think Bush will win the election. I see very positive sign for the markets.

"There will be a decisive decision on the president. Bush is good for the market. In the past week, Nasdaq reacted positively when there's good news on Bush. The earnings have been revised by the analysts brutally, that in the next quarter if the figures come out better than estimated that's great for the market. All the above will be very positive for the market."

In Hong Kong, Mr. Ho and Ms. Yang were growing increasingly frustrated at the vague promises, and what they saw as Ms. Lau's failure to address specifics. Their investment had dropped substantially. They wanted answers. They e-mailed back and forth a few more times, but remained dissatisfied with the responses

On Dec. 19, they e-mailed to complain one last time. This time, however, they also sent a copy of their complaint to Nesbitt Burns, where it landed in the hands of Bill Haldane, the manager of retail compliance.

Mr. Haldane wrote back the next day, saying: "We are in receipt of your letter. The compliance department will respond to your concerns, in writing, upon completion of our review."

The couple e-mailed him on Jan. 4, saying they would like to have his reply within 60 days, or by Monday, March 5. They say they have yet to receive an answer.

Shortly after their deadline expired, Mr. Ho and Ms. Yang hired Alan Lenczner, a prominent Toronto securities lawyer, to represent them. He sent Nesbitt a letter on March 12 reiterating their demand for compensation. Nesbitt Burns could no longer avoid the problem.

Two days later, Ms. Lau announced her sudden departure from the firm, saying after 10 years it was time "for bigger and higher challenges." In two separate conversations that day, she adamantly denied to reporters that she had been dismissed, insisting it was her decision to resign.

Two days after that, on March 16, the Investment Dealers Association recommended in a confidential report that disciplinary action be taken against Ms. Lau for repeated violations. According to notes filed with her termination papers, Nesbitt had solicited her resignation because she contravened firm and industry policies.

Mr. Lenczner said in a telephone interview he did not wish to discuss the case.

But Toronto's 400,000 member Chinese community has been abuzz with talk of Ms. Lau's troubles. She no longer supplies the half page of business news to Sing Tao, and appears to have discontinued her weekly TV program.

She recently picked up the telephone to blast one Chinese media outlet for reporting on her situation, according to a source who spoke on condition of anonymity. "She was really angry," said the source. "She asked for a retraction and a public apology. But they didn't back down. She phoned the editor-in-chief and asked if he could do her a favour and not follow up on this story. But they are still investigating what really went on. They didn't back down."