Canada: From ‘Set for Life’ to ‘Banned for Life’: New B.C. Securities Act Penalty Provisions Pack Some Punch

On December 21, 2007, the British Columbia Securities Commission (BCSC) imposed on Ian Gregory Thow a $6-million fine and a permanent prohibition from participation in B.C.'s capital markets for what the BCSC said was "one of the most callous and audacious frauds this province has seen." Thow was the first person fined under legislative changes to the B.C. Securities Act introduced in 2006 and 2007.

A Trail of Financial Devastation and Heartbreak

Thow was a Senior Vice President at Berkshire Investment Group Inc., a mutual fund dealer and member of the Mutual Fund Dealers Association of Canada (MFDA). He was also considered by many to be a community leader in Victoria.

Between 2003 and 2005, Thow relied on his perceived stature in the community and his apparently close connection with Michael Lee-Chin, Chairman of AIC Ltd., to persuade clients in British Columbia and Alberta to participate in a number of investment opportunities, including short-term construction loans, shareholdings in National Commercial Bank Jamaica Limited and a public offering of Berkshire.

Thow advised clients to finance these investments by liquidating their mutual fund portfolios, mortgaging their homes or using other sources of borrowed funds. Ultimately, 26 clients gave him a collective $8.7 million to invest, and Thow used the money to reduce personal loans and overdrafts, pay other clients and support his lavish lifestyle. By the time investors discovered the investment opportunities were bogus, the money was gone, causing $6 million in losses to these clients.

In its findings released earlier on October 16, 2007, the BCSC had found that Thow:

  • failed to deal fairly, honestly and in good faith with his clients, contrary to the Securities Act Rules and the MFDA Rules;
  • traded in securities in violation of the Act;
  • made misrepresentations when he made untrue statements of material facts about the securities he offered to his clients and when he omitted material facts about those securities; and
  • perpetrated a fraud when he made misrepresentations to his clients and used their funds for his own purposes instead of investing them as the clients had intended.

In taking money from his clients, a number of whom were retired seniors who had entrusted their life savings to him, the BCSC found that he had betrayed their trust, leaving "a trail of financial devastation and heartbreak in the process."

Retrospective Application of Sections 161 and 162 of the Act

While this case is notable because of the large penalty imposed, it is significant because it is the first application of the amended sanction provisions (Sections 161 and 162) in the B.C. Securities Act, and the BCSC considered it appropriate to apply the amended sections rather than those that would have been in force at the time Thow contravened the Act. Before the amendments, Thow would have faced a maximum fine of $250,000.

Section 162 was amended in 2006 to increase the maximum administrative penalty the BCSC could order from $250,000 to $1 million per contravention, while the amendments to Section 161(1) came into force in November 2007. These amendments give the BCSC new powers to make enforcement orders against registrants, investment fund managers and promoters, as well as the ability to prohibit a person from acting in a management or consultative capacity in connection with activities in the securities market.

Notwithstanding that Thow's misconduct had occurred between January 2003 and May 2005, and that the Executive Director of the BCSC had not issued a Notice of Hearing until June 29, 2006, the panel found that it had the jurisdiction to apply Sections 161(1) and 162 as amended, rebutting the legal presumption against the retrospective application of statutes. The BCSC found that the paramount objective of the Act was to protect the public and maintain public confidence in the marketplace, rather than to punish the person in question. As a result, the amended sanction sections could be applied retrospectively in Thow's case.

In the BCSC's view, imposing on Thow a lifetime prohibition from B.C.'s capital markets was appropriate since the clients he deceived were unlikely to participate in the markets again, either because they had lost confidence in the marketplace or because they had no money left to invest. Further, a $6-million fine was appropriate in light of the hundreds of contraventions, the seriousness of Thow's conduct, his disregard for the law, the harm caused to his clients and the marketplace, and the extent of his enrichment. A penalty in the same order of magnitude as the amount Thow's clients lost was only fitting.

Buyer Beware, Investor Beware and Employer Beware

Thow's employer, Berkshire, also did not escape unscathed. A few days before the release of the BCSC's decision, it had agreed to pay a fine of $500,000 to the MFDA for failing to properly supervise Thow, as well as hearing costs of $50,000. In its settlement agreement with the MFDA, Berkshire acknowledged that it did not take reasonable supervisory and disciplinary measures after it received complaints from two individuals in 2004 and 2005 regarding Thow's activities. Berkshire further acknowledged that had it taken those measures, Thow would have been prevented from continuing to engage in conduct that was harmful to his clients.

Thow is seeking leave to appeal to the BC Court of Appeal from the imposition of sanctions. McCarthy Tétrault has been retained to act on behalf of the BCSC in relation to the pending appeal.

Thow is currently the subject of a criminal investigation by the Vancouver Integrated Market Enforcement Team of the Royal Canadian Mounted Police.

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