Ian Thow arrested in Oregon

Accused fraudster Ian Thow has been arrested by U.S. Marshals outside his condominium in Portland, Oregon. The former senior vice-president of Berkshire Investment Group allegedly bilked investors to the tune of $10 million.

Thow allegedly sold clients non-existent investments, pocketing the cash to fund an extravagant lifestyle that included private jets and luxury automobiles. Some estimates tally investor losses as high as $30 million.

The RCMP’s Integrated Market Enforcement Team first started investigating Thow in the summer of 2005. In June 2008 he was charged with 25 counts of fraud.

Thow is currently in custody in the Multnomah County Detention Center and will appear in court in Oregon today, according to the RCMP’s Integrated Market Enforcement Team.

Most of Thow’s victims were in or near 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.

Thow told his clients that the funds were invested in preferred shares of the National Commercial Bank Jamaica Limited and construction loans secured by mortgages. Neither investment 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.

Thow’s alleged fraud began to unravel in September 2004, when a lawyer for one of the investors complained to Berkshire. The complaint was retracted, apparently after Thow paid the investor.

This pattern was repeated with another investor.

The alleged fraud investments were all conducted off book, so there was little visible evidence for Berkshire compliance staff to follow up on. Because both complaints were withdrawn, the matter was dropped by the firm.

That did not sit well with the MFDA, which accused Berkshire of failing to conduct reasonable supervisory investigations into the two complaints in 2005.

In December 2007, Thow’s former firm reached a settlement with the MFDA, agreeing to pay a fine of $500,000 plus $50,000 in costs. In the settlement, the MFDA acknowledged that the firm was unaware of Thow’s alleged fraud.

“We were pleased to see that he had been arrested pursuant to the charges that were laid by the RCMP and we think that its important that if registered persons engage in criminal activity, that the criminal process be followed through to the end,” says Shaun Devlin, vice-president, enforcement, MFDA.

“What would give the public the most confidence is if this kind of thing never happened, and it does point out the pitfalls of investing and the importance for clients to do their research and ask the right questions,” says Devlin. “The fact that the conduct happened is bad for public confidence, but at least arrests have been made in an attempt to restore confidence.”

While Thow faces 25 counts of fraud, there is some good news awaiting him in British Columbia. On February 13, 2009, Thow won an appeal to have a BCSC administrative penalty dramatically reduced, from $6 million to $250,000.

Until his arrest today, it was unlikely that he would ever actually pay either amount.

The Court of Appeal for British Columbia has ruled that the securities commission overstepped its regulatory bounds by imposing such a large penalty, which far exceeded the maximum penalty spelled out in the B.C. Securities Act (1996).

In essence, the Honourable Mr. Justice Groberman said the BCSC could not scale its penalty based on the magnitude of the alleged wrongdoing.

“It has not been suggested that an administrative penalty less than the maximum should have been imposed on Mr. Thow,” Groberman said in his reasons for the decision. “In light of the commission’s finding that Mr. Thow engaged in ‘one of the most callous and audacious frauds this province has seen,’ the imposition of the maximum administrative penalty is appropriate.”

(02/18/09)