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Peter Brieger
Wednesday, March 05, 2008
When the Ian Thow scandal exploded
last year, Berkshire Investment
Group told clients it wasn't legally
responsible for the renegade broker
fleecing them out of $32-million.
After all, Mr. Thow operated outside
Berkshire's authority, something
clients should have known, the firm
said.
Now, Berkshire's insurer is relying
on those statements to deny its
request to cash in a policy that
would cover millions of dollars in
payouts to victims of what British
Columbia regulators call one of
B.C.'s most "callous and audacious"
frauds.
"The [fraud victims] paid their
money to Thow or his companies, not
to Berkshire, and Berkshire did not
handle or become responsible for the
handling of those funds at any
time," says a claim filed in Ontario
Superior Court by St. Paul Guarantee
Insurance Co.
"The funds stolen by Thow do not
qualify as insured property ... and
there is therefore no coverage for
any loss suffered by Berkshire."
St. Paul wants the court to declare
that financial planner Berkshire's
insurance policy does not cover
losses stemming from the fraud.
None of St. Paul's arguments has
been proven and Berkshire has not
filed a statement of defence.
"Berkshire's dealings with its
insurers ... are of a private,
contractual nature and, as such,
Berkshire will not publicly comment
on any such matters relating to any
insurance claims regarding Mr. Thow
or otherwise," the company said in
an e-mailed statement.
The legal spat comes two months
after the B.C. Securities Commission
slapped the former mutual fund
salesman with a record $6-million
fine.
Regulators found that Mr. Thow, who
set up Berkshire's Victoria office
in the late 1990s, persuaded clients
-- many of them elderly and disabled
-- to sell their investments and
take on debt to buy non-existent
construction loans and shares in a
Jamaican bank.
Spending $32-million in client
funds, Mr. Thow, 46, financed a
lavish lifestyle filled with yachts,
private jets and luxury homes,
regulators said.
Although Berkshire has argued that
Mr. Thow sold securities that he was
not registered to sell -- and was
therefore outside Berkshire's
control -- the financial planner has
paid out $4.1-million to a total of
29 clients. Last month, the company
settled more claims but won't reveal
any dollar figures, citing a
confidentiality agreement.
The firm, founded by AIC Ltd.
chairman Michael Lee Chin, also
settled with the Mutual Fund Dealers
Association, paying a $500,000 fine
for failing to take action when
clients complained about Mr. Thow,
who now lives in Seattle.
Berkshire's insurance policy covers
losses stemming from an employee's
dishonesty, but St. Paul argued that
Berkshire itself has denied any
legal responsibility for Mr. Thow's
actions.
That means it is not a direct loss
required to cash Berkshire's
insurance policy, St. Paul argued in
court documents.
The policy doesn't cover voluntary
payouts to clients, the insurer
added.
"Even if the [victims] are
successful in transferring their
losses to Berkshire through their
claims that Berkshire is liable to
them for Thow's conduct, such result
to Berkshire is at best an indirect
result of Thow's actions," St.
Paul's claim says. "Thow caused the
loss to [the victims] and there is
no evidence to establish his intent,
manifest or otherwise, to cause
Berkshire to sustain a loss."
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