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The sordid testimony
of Ian Thow's multi-million-dollar fraud hearing has been released
by the British Columbia Securities Commission.
The hearing details paint a picture of an advisor who excelled at
earning client trust and abused that trust to commit excessive yet
fairly straightforward securities fraud. |
It's alleged that Thow, who is reportedly bankrupt and living in
Seattle, Washington, convinced his clients to invest more than $30
million in non-existent investments. Thow then took the money and used
it to fund his lavish lifestyle. In order to prove fraud, the BCSC
looked at only 26 of the hundreds of clients he may have misled.
Most of Thow's victims were near or in retirement and had little
knowledge about investing. In many of the cases, Thow convinced the
clients to take out large loans, usually secured by bank lines of
credit, or to take out mortgages, usually approved by one specific loan
officer he worked closely with at Scotiabank.
The effect on the clients, most of whom were not especially wealthy, has
been devastating. Many of the witnesses said they have lost their life
savings and are now struggling to pay bills.
Altogether, Thow received almost $8.7 million from these clients to
invest in preferred shares of the National Commercial Bank Jamaica
Limited and construction loans secured by mortgages. Neither investments
ever existed. Only about $2.6 million has been recovered. Of the 26
cases looked at, only one of the clients succeeded in getting his or her
money back.
James P. Blatchford, a forensic accountant with more than 30 years'
experience, including 14 with the RCMP, testified that Thow was able to
misappropriate money by using off-book accounting and unauthorized
trading in clients' accounts as well as by creating an environment of
non-disclosure. He attempted to keep outsiders from recognizing his
fraud by warning clients not to tell others about their investment
dealings with him, even insisting one couple sign a confidentiality
agreement.
Blatchford said Thow did not flow client funds through Berkshire but
instead deposited their money into his own personal, family and
corporate bank accounts. He then would make a significant number of
transfers among these accounts to pay off his own personal debts, which
included mortgages on luxury properties and payments for his personal
jet and luxury cars.
When clients grew suspicious or were hesitant to invest, Blatchford said
Thow would often use money from other client accounts to win their
favour or pay them part of their "profit," sort of like a ponzi scheme,
where new money funds previous investments. Usually, he would use these
payments as a means to develop trust and convince them to invest more.
Thow's powers of persuasion were so deft he actually wrote a cheque to a
married couple to secure their principal investment, which he later
guilted them into not accepting.
The BCSC says Thow convinced the couple, nearing retirement, to invest
$390,000 for construction loans, which Thow assured them would earn
$40,000 in three months. To fund the investment, the couple raised
$90,000 from the sale of mutual fund savings and $300,000 from a line of
credit from Scotiabank, secured by their mortgage.
The couple at least had the good judgment to ask for some documentation
as evidence of their investment. Thow said he would give them a cheque
for $390,000 for them to hold as security. For two months, the couple
hounded Thow, who finally showed up with a cheque.
The wife testified that at the visit, Thow stated the investment was
doing great and they would realize a $40,000 return early in the New
Year.
"And — and just before leaving, he — he pulled the cheque from his
pocket and just — it was folded, and he just pulled it out of his shirt
pocket and, you know, then he — he kind of looked at me and said, 'You
know, this is really a lousy way of doing business,'" she said. "Well,
our relationship at this point had been based on trust and — and
goodwill. And — and, you know, up to this point Mr. Thow had not done
anything untoward towards us."
When the couple followed up later to get their money back, Thow told
them he had reinvested it for them. Afterward, they read newspaper
accounts of his conduct. They never recovered any of the investment.
Blatchford said in this specific case, the money was used to pay bank
account overdrafts, reduce loan balances, pay expenses and, possibly,
Blatchford says, to pay other clients. One hundred and twenty
transactions withdrawn from funds commingled with the clients' funds
helped pay $667,000 to luxury car dealerships.
Client after client brought before the panel shared similar stories
about how they were willing to listen to Thow against their better
judgment because they trusted him.
Thow also had a flair for personal touches, the BCSC noted.
"[Trust] was based on a sort of hundred large and small things. He took
a real interest in our son and in his medical school. He had a picture
of our son's medical school graduation on his bookcase in his office,
the only picture outside of members of his family that he had in his
office," the former client told the panel.
Some had been clients with him when he was a salesperson at Investors
Group and followed him to Berkshire. Others were in awe of his ability
to personally fly them to Jamaica or "meet a billionaire" events, where
they would get to meet then Berkshire principal Michael Lee-Chin.
In one case, the panel said Thow used an invitation to dinner with
Lee-Chin to forestall having to pay back $200,000. Thow told the client
he would get his money after the dinner but that it couldn't be
mentioned to Lee-Chin.
The BCSC reports when the client asked why, Thow said, "Well, it's all
taken care of, and I've got your money for you.... We don't need to get
Michael excited or anything." Afterward, Thow said he didn't have the
money.
Others still testified that they were drawn to him because of the
high-profile charitable work he did in the Victoria area.
"We thought he was a paragon of virtue," one client testified. "He was
running Crime Stoppers, and he was always donating to these various
charities, and he just seemed, like, you know, the man of the hour."
Filed by Mark Noble, Advisor.ca,
mark.noble@advisor.rogers.com
(10/18/07) |
