2007 BCSECCOM 627 

1. failing to deal fairly, honestly, and in good faith with his clients,
2. trading in securities without being registered,
3. making misrepresentations, and
4. perpetrating a fraud.

“. . . was based on a sort of hundred large and small things. He took a real interest in our son and in his medical school. He had a picture of our son’s medical school graduation picture on his bookcase in his office, the only picture outside of members of his family that he had in his office.”

“We knew nothing, really. We just relied on Mr. Thow totally.”

“People may wonder why did you give Thow that much money without having documentation. But we had worked with Ian Thow since 1993 and we trusted him. You know, he was the senior vice-president of Berkshire. . . . . He was a significant person in the community, and when he told us that, you know, this was a safe investment and that we would be getting documentation, we took him at his word. And you know, we found that, you know, one of the major products that the financial industry sells is trust, and we trusted him after 12 years of working with him. So that’s why we did it.”

“He hit us at a very vulnerable point in our life . . . . He just targeted us and because we were good friends with this guy and trusted him, he got away with it.”

• 8% interest in one month on $100,000, with a bonus of $8,000
• $484,000 in return for a five-month investment of $349,000
• 20% in six months

“ . . . he stated that our investments were doing great and in the early part of 2005 we could expect to realize a healthy return, about, you know $40,000 or so.
. . .
And – and just before leaving, he – he pulled the cheque from his pocket and just – it was folded and he just pulled it out of his shirt pocket and, you know, then he – he kind of looked at me and said, ‘You know, this is really a lousy way of doing business.” Well, our relationship at his point had been based on trust and – and goodwill. And – and you know, up to this point Mr. Thow had not done anything untoward towards us.
. . .
And he made me feel really petty – and uncomfortable, and made me feel like I didn’t trust him after all these years. So I didn’t take the cheque.”

“We revealed to him all that was important to us, and we were accessible, open and honest. We expected no less from a senior officer of Berkshire. The bottom line is that we trusted him on the basis of both his position and performance, and we never expected our trust to be abused for his personal gain and self-interest.”

CLIENT NO.	AMOUNT ADVANCED	AMOUNT RECOVERED	LOSS (GAIN)
Construction loans
1 & 2	349	0	349
3 & 4	455	40	415
5	447	40	407
6 & 7	475	0	475
8 & 9	350	251	99
10 & 11	313	0	313
12 & 13	390	0	390
14 & 15	365	10	355
NCB Jamaica
16	1,600	975	625
17	1,040	400	6401
18 & 19	650	300	350
20	360	193	167
21 & 22	539	370	169
23	2002	0	200
24	30	40	(10)
25	1,000	50	950
Berkshire IPO
26	120	0	120
Total	8,683	2,669	6,014

1 Client testified that his losses were about $750,000
2 US Dollars. Valued at par for purposes of chart totals.

• Thow used client funds to eliminate overdrafts in Thow’s personal, family and corporate accounts and to pay existing balances on Thow-controlled credit cards, lines of credit, and corporate loans.
• Thow’s use of funds were more consistent with the payment of Thow’s personal, family and corporate expenses than with investment in construction loans or shares in NCB Jamaica.
• Client funds were traceable through several bank accounts and were used in a manner inconsistent with investment in construction loans or shares in NCB Jamaica.
• Thow commingled client funds with each other and with other funds in a manner inconsistent with the implicit trust expected by investors of a registered representative.

• Thow did not manage or control funds received from clients in a manner consistent with their expectations.
• Thow depleted client funds, contrary to the purported purpose of investing in the construction loans or shares of NCB Jamaica.
• Thow purposely used client funds to support personal, family, and corporate financial obligations.
• Thow purposely commingled client funds in a manner intended to extinguish the individual client’s proprietary claims to their funds.

“From an accounting perspective, it was apparent that the circumstances analyzed . . . were not due to inadvertent error. We found that Mr. Thow often received client funds by way of cheque purportedly intended for an investment on their behalf, after which the proceeds he then immediately transferred to his personal, family, or corporate bank accounts. The volume of transactions subsequent to the receipt of clients’ cheques alone suggests that Mr. Thow was intimately aware of the movement of the funds between the various bank and credit card accounts that he controlled.”

“In other cases, Mr. Thow directly applied his investor clients’ funds towards the retirement of personal, family and corporate debt or outstanding credit card balances. In the documents reviewed, we found no evidence of the purchase of preferred shares of [NCB Jamaica] or lending for the purposes of property development . . . . That is, in our view, there was no evidence of a structured or discrete handling of the proceeds from each investor in a manner in that we would consider to be consistent with the purchase of [NCB Jamaica] shares or . . . lending . . . . In our opinion, there was little, if any, inadvertent error.”

• bank and credit card accounts are to Thow-controlled accounts
• commingling of funds are to commingling in Thow-controlled accounts
• cash withdrawals are to cash withdrawals from Thow-controlled accounts
• personal expenses are to personal expenses of Thow and his family
• business expenses are to Thow’s own business expenses

• $200,000 was commingled with other funds and used either to make a payment to Client 17, or to reduce an overdraft (the overdraft was caused by a US$84,000 payment to an unknown recipient)
• $175,000 was commingled with other funds and used for operating cash flow for Thow-controlled accounts
• $100,000 was used to eliminate overdrafts in Thow-controlled accounts, and to make a $34,000 aircraft lease payment to “GECEF Canada”

1. failing to deal fairly, honestly, and in good faith with his clients,
2. trading in securities without being registered,
3. making misrepresentations, and
4. perpetrating a fraud.

• He solicited funds from his clients to invest in the construction loans, the NCB Jamaica shares, and the Berkshire IPO. Then he used the funds his clients gave him to invest in those securities for other purposes.
• Most of the money he took was for investments that did not exist.
• He encouraged clients to sell their mutual funds and mortgage their homes to raise the money for these so-called investments.
• He “reinvested” their funds without their permission.
• He liquidated one client’s mutual fund account without the client’s permission and appropriated the proceeds before reversing the transactions at the client’s insistence.
• He provided no documentation to evidence his clients’ investments.
• He lied to them about where their money had gone, how much their investments were worth, and when they would be repaid.

“an issuer of a security that entitles the holder to receive on demand, or within a specified period after demand, an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets, including a separate fund or trust account, of the issuer of the security.”

“‘trade’ includes
(a) a disposition of a security for valuable consideration whether the terms of payment be on margin, installment or otherwise . . .
. . .
(f) any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of any of the activities specified in paragraphs (a) to (e);”

1. his untrue statements and omissions related to material facts, and therefore were misrepresentations,
2. Thow knew or ought reasonably to have known that they were misrepresentations, and
3. Thow made the misrepresentations with the intention of effecting a trade in a security.

• He told clients they would be investing in short-term construction loans, secured by mortgages and yielding high rates of return, with no risk. There is no evidence that the loans existed. The clients received no returns and in all cases lost most or all of their money.
• He told clients they would be investing in preferred shares of NCB Jamaica and a result would earn significant profits. The shares did not exist. The clients incurred significant losses.
• He told clients that the construction loans were safe because they were documented by a Vancouver law firm and held by the firm or by Berkshire. There is no evidence that the law firm had any involvement and none of these investments was booked through Berkshire. All of the money investors gave Thow to invest he deposited into accounts he managed and controlled.
• He told clients that he had invested in NCB Jamaica preferred shares on their behalf and that the shares he so acquired had increased in value significantly. None of that was possible because the shares did not exist.
• He told clients who gave him money to invest in NCB Jamaica preferred shares that their investment was “doing great”. This was impossible because the shares did not exist.
• He told clients that an investment in NCB Jamaica preferred shares was safe. This was untrue. The shares did not exist and the clients lost most of their money.
• He told one client that Berkshire was about to go public and took money from the client to invest in the offering. No such offering was planned and the client lost his money.

• A representation that a security exists when it does not obviously significantly affects its value.
• A representation about a security’s expected returns and safety of capital significantly affects its value.
• A representation that a security would be held by Berkshire, rather than in Thow’s personal and corporate accounts, is relevant to safety of capital and therefore significantly affects its value.

“57. A person . . . must not, directly or indirectly, engage in or participate in a transaction or series of transactions relating to a trade in or acquisition of a security . . . if the person knows, or ought reasonably to know, that the transaction or series of transactions
. . .
(b) perpetrates a fraud on any person in British Columbia.”

“57. A person . . . must not, directly or indirectly, engage in or participate in a transaction or series of transactions relating to a trade in or acquisition of a security . . . if the person knows, or ought reasonably to know, that the transaction or series of transactions
. . .
(b) perpetrates a fraud on any person anywhere.”

“29 Fraud is a very serious allegation which carries a stigma and requires a high standard of proof. While proof in a civil or regulatory case does not have to meet the criminal standard of proof beyond a reasonable doubt, it does require evidence that is clear and convincing proof of the elements of fraud, including the mental element.”

“. . . the actus reus of the offence of fraud will be established by proof of:

1. the prohibited act, be it an act of deceit, a falsehood or some other fraudulent means; and
2. deprivation caused by the prohibited act, which may consist in actual loss or the placing of the victim’s pecuniary interests at risk.

Correspondingly, the mens rea of fraud is established by proof of:

1. subjective knowledge of the prohibited act; and
2. subjective knowledge that the prohibited act could have as a consequence the deprivation of another (which deprivation may consist in knowledge that the victim’s pecuniary interests are put at risk).”

1. failed to deal fairly, honestly and in good faith with his clients, contrary to section 14(2) of the Rules and the rules of the MFDA, when he lied to them and took their money;

2. traded in securities without being registered to do so, contrary to section 34(1)(a) of the Act, when, while registered as a mutual fund salesperson, he traded securities that were not mutual funds;

3. made misrepresentations, contrary to section 50(1)(d), 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

4. perpetrated a fraud, contrary to sections 57(b) and 57.1(b), when he made misrepresentations to his clients, and used their funds for his own purposes instead of investing them as his clients intended.

By November 2 The executive director delivers submissions to Thow and the Secretary to the Commission

By November 16 Thow delivers response submissions (if any) to the executive director and the Secretary to the Commission

Either party wishing an oral hearing on the issue of sanctions so advises the other party and the Secretary to the Commission

By November 23 The executive director delivers reply submissions (if any) to Thow and the Secretary to the Commission