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David Baines
Friday,
December 14, 2007
Berkshire Investment Group Ltd. has agreed to pay a $500,000 fine and
$50,000 in costs after admitting it should have done a better job
checking into two earlier complaints about the dealings of its former
Victoria branch manager, Ian Thow.
In a settlement Thursday with the Mutual Fund Dealers Association, the
Burlington, Ont-based mutual fund dealer conceded that it if its
compliance staff had dug deeper into complaints filed by investors in
September 2004 and April 2005, Thow's bogus investment schemes might
have been discovered at an earlier date.
As it was, Thow did not resign until June 1, 2005. In the meantime, Thow
duped investors out of an additional $6.34 million, of which $4.51
million was provided by Berkshire clients.
The settlement notes that Berkshire's "failure to conduct reasonable
supervisory investigation did not arise from any general failure to
maintain and adhere to appropriate supervisory polices and procedures,
or from any intentional non-compliance on the part of the respondent."
It also says MFDA staff are satisfied that since these events occurred,
Berkshire -- which has since been acquired by Manulife Financial -- has
reviewed its policies and procedures and supplemented them with new
procedures relating to its supervision of its employees' outside
business activities.
The settlement also notes that Berkshire settled with 29 clients,
reimbursing them a total of $4.2 million. It also says MFDA staff will
continue to monitor the firm's handling of other complaints related to
Thow's activities and reserves the right to take further disciplinary
action against the firm, if necessary.
The settlement does not address one of the over-arching questions in
this case: How did Berkshire reconcile Thow's lavish lifestyle - which
included jet planes, a helicopter and a waterfront home - with his
relatively modest income as a branch manager?
MFDA enforcement director Shaun Devlin said in an interview that
enforcement staff reviewed that issue and were satisfied that Berkshire
committed no supervisory breaches in that regard.
He said Berkshire was aware of that Thow had an outside business -
leasing block air time on his jet planes - and approved it as a "dual
occupation." He said Berkshire also reported this outside endeavour to
the B.C. Securities Commission, which also approved it.
Thow was working as a senior vice-president and co-branch manager of
Berkshire's Victoria office when he persuaded at least 40 people to
invest more than $18 million in three types of investment schemes:
shares of the National Commercial Bank of Jamaica, a purported initial
public offering of Berkshire shares, and short-term loans to property
developers.
However, other than $3.2 million which he used to repay other investors,
he has not accounted for or repaid the money. Instead, he used it to
support his extravagant lifestyle.
In October, the B.C. Securities Commission described Thow's scheme as
"one of the most callous and audacious frauds this province has seen"
and banned him for life from the B.C. securities market. The RCMP is
also conducting a criminal investigation. Thow has fled the country and
is now living in Seattle.
Several clients have filed lawsuits against Berkshire, claiming the firm
did not properly supervise Thow. Those cases revolve mainly around the
question of when Berkshire knew or ought to have known that Thow was
engaging in unauthorized dealings.
The settlement agreement notes that in September 2004, Berkshire was
indirectly told by a wealthy businessman, who was not a Berkshire
client, that he had given Thow $1.2 million for shares in the Jamaican
Bank and had not gotten any confirmation of his investment. He also said
several others had provided lesser amounts for the same purpose.
When Berkshire compliance staff confronted Thow, Thow claimed it was all
a "mistake," that the money had been provided for block air time and
that the businessman was trying to "play hardball with him."
The businessman subsequently confirmed that it was a "misunderstanding,"
that the money was for block air time and that Thow was his personal
friend. On that basis, Berkshire's compliance staff considered the
matter resolved and took no further steps.
Little did Berkshire know, but it was all a set up. According to the
settlement agreement, Thow had promised the businessman he would repay
the $1.2 million if he played along.
The settlement notes that during this period - from September 2004 to
April 20, 2005 - Thow solicited $5.8 million from investors, of which
$4.3 million was obtained from Berkshire clients. He failed to account
for or repay that money, other than the money he used to repay other
investors.
On April 20, 2005, another investor - once again, a non-client - advised
Berkshire he had also given Thow $200,000 to buy shares of the Jamaican
bank, but had not gotten any confirmation of the investment and Thow was
not returning his calls. However, he later cancelled a meeting with
Berkshire compliance staff and refused to cooperate.
Once again, unknown to Berkshire, the investor had pulled back because
Thow promised to repay money. (As events unfolded, Thow never did return
the money.)
On May 5, Berkshire compliance staff met with Thow, and Thow tendered
his resignation. Once again, Thow denied the investor had given him
money to buy bank shares, rather he said it was to purchase block air
time.
But this response was not consistent with a $100,000 cheque the investor
had given Thow. That cheque clearly indicated it was for bank shares.
The settlement says Berkshire had an obligation to immediately suspend
Thow, but instead agreed that his resignation would not be effective
until June 1, 2005.
During this period - from April 20 to June 1, 2005 - Thow solicited
another $510,000 from investors, or which $210,00 was obtained from
clients. Once again, he did not account for or repay any of that money,
other than the amounts he used to repay other investors.
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