Norbourg proved one hot potato

If there was a Guinness record for the longest game of hot potato, the Norbourg scandal would probably be included among the finalists—and this without counting all the other unenviable records linked to it, like most confused court proceedings, greatest ever financial scandal in La Belle Province, greatest number of lost faxes, worst collaborative effort ever by the RCMP’s Integrated Market Enforcement Teams (IMET), and most unjust compensation judgment ever meted out to advisors.

For over five years, during which investors like Réal Ouimet de Bromont were chomping at the bit, the authorities were busy outdoing each other at passing the hot potato, to the point of making an indigestible poutine for investors, who have lost confidence in front-line advisors and their investment practice.

They have also succeeded at cooking up an inedible dish for advisors, who have reimbursed to clients half of the immense sums pilfered by Vincent Lacroix. To date, advisors are the only ones to have shelled out.

A big thank you to the Ministry of Finance and the senior officials who put in place the nutty financial services compensation fund (FISF) rules, which Jean Saint-Gelais defended in a public finance commission as one of the jewels of our market monitoring system under the benevolent umbrella of the AMF. This fund is out of step with any sense of fairness, and seems more to serve the interests of the AMF, giving it an aura of defender of investing widows and orphans by drawing its generosity from the pockets of advisors.

In this story, the authorities, despite their honeyed words, have never had investor protection as a priority. “Save our own skin first” seems to be the catchphrase for a core of entrenched and well protected “public servants” who are never held responsible for anything.

For a long time advisors been frustrated by this injustice, which has them coming out the loser on all fronts. On the one hand, they contribute to the financial services compensation fund year in, year out, without being able to participate in the management of the fund, as they do not have access to the board of directors, even though it seats the “representatives of the public and the AMF.”

On the other hand, their contributions fluctuate—upwards—with the scandals and frauds for which they are almost never responsible. Moreover, by contributing to a compensation fund, they become the target of choice for public opinion, which does not hesitate to say that if advisors are paying, they must be the guilty parties. So much for the presumption of innocence!

Lastly, the investing public scrutinizes cases of financial fraud with the keenest interest. Not surprisingly, the result is a growing mistrust of the system, which can’t repay extremely naïve victims, as in the case of Earl Jones, and will not compensate the others, as in the case of more than half the victims of Vincent Lacroix.

Advisors have lived with this suspicion every day since the beginning of this deluge of dirty business.

Over all these years of misery no one at the AMF or the Ministry of Finance realized the safety net in place was more of a noose to hang everyone. By dint of being told by the media and the dubious campaigns of the AMF that financial advisors should not be trusted, and that they should investigate before investing, investors no longer know where to put their investments to make them grow.

As a result, advisors—especially the independent ones—have seen their business falter. As a society, can we really permit ourselves to be so short-sighted? The financial services and insurance industries employ over 150,000 people in Québec. With a GDP of over $16 billion, one wonders who is at the proverbial wheel in Québec to so recklessly harm a sector that is so crucial to our economy.

But let us return to Norbourg, the class action suits, the settlement agreement and the dazzling speed with which this whole case was settled once the Caisse de dépôt et placement du Québec was named in the class action claim. What a strange coincidence!

Since June 2006, Advisor.ca’s Quebec affiliate Conseiller.ca has discussed the unfortunate involvement of the Caisse (read the PDF document), which led directly to the collapse of Norbourg. Here again, dozens of state representatives have shirked their responsibilities towards 10,000 investors, who were literally sold to the highest bidder. They were sold like numbers on a balance sheet. Yet the advisors who had offered their clients Évolution funds did so by proudly emphasizing that the management of these funds was done here in Québec, and that the Caisse was on guard. You can’t have a better business card than that!

The rest is well known. Advisors caught in this turmoil have, for the most part, lost their livelihood, their shirts, their passion and, more importantly, their credibility and reputation.

Adding insult to injury, Mr. Saint-Gelais’ super-sleuths have accused them of being involved in the fraud, casting doubt over the whole profession. There are still a dozen of them caught up in this spiral, for which the AMF is hoping to have liability insurance paid out. Imagine the fiasco if a judge ordered liability insurance companies like Lloyd’s to pay for the mess.

How much will your liability insurance cost? Are you going to be in a position to take out new insurance?

The silent victims of Norbourg are the advisors, but we won’t see them complaining in public. They have lived through the disgrace and degradation alone, with their families. Talk about it with the advisor Gilles Viel, who has fought tenaciously and been a source of inspiration for everyone who has lived through this injustice, but could not bring themselves to attack it head on. Congratulations, Mr. Viel.

We should also give our warmest thanks to the tenacious ex-chief of police of Bromont, Réal Ouimet, who through his determination didn’t allow the Caisse to hide, and forced the Superior Court to seriously examine his request to add the Caisse to the class action claim on November 25, 2010. It would not be at all surprising if the key to the settlement in favour of the Norbourg investors lies precisely there. And Dr. Pellemans is not far behind—dispossessed investors owe him a debt of gratitude.

In retrospect, it would perhaps have been better to corner the Caisse at the beginning than to rely on the AMF to resolve this sticky issue.

It remains for advisors to campaign to get the FISF out of the AMF’s hands. This fund should be financed primarily by the users of the services: the investors. The current arrangement is a bit like forcing car salesmen alone to cover La Société de l’assurance automobile du Québec’s compensation fund.

Once again, we come back to the question of who is at the wheel in Quebec. If we don’t examine this seriously, we’re left with a complete absurdity and history will repeat itself.

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Yves Bonneau is the editor-in-chief of Conseiller magazine