OSC Penalizes Norshield Executives - Hardly

You have just dropped off your children to a well established boarding school which is sanctioned and approved by the government. They have an established record over many years. You receive report cards and regular updates. Your children are doing well and getting above average marks. Near the end of the term, you read in the newspaper that the boarding school no longer knows where the children are.
Not yours. 
Not anyone else's. 
Almost every child has disappeared.

You are grief stricken. There has been a government inquiry. It turns out that the three people who ran the school lied. They were not teaching the children at all. They were not taking care of them. They were not protecting them from harm. The school has no idea where the children are or where the children were. The government concludes that the three leaders knowingly misled every single parent and jeopardized the safety of the children.

The three leaders of the school violated the trust of the parents.

The three leaders of the school destroyed the future of every parent. All the years of love and sacrifice each parent gave for their child was lost.

The three who ran the school (and knowingly cheated the children, the parents, and the government) were found to be guilty. 
They will not be jailed. 
They will not have a criminal record. 
They were fined significantly - over a million dollars for the two leaders. 
They don't have to pay though.

They will not be allowed to run another school.

1900 families.

1900 family futures.

This is not a real story.

Here is a summary of the real story. The OSC found the three leaders of Norshield to have misled the public and two of them "knew that the net asset values (“NAVs”) for funds in the Norshield Investment Structure were artificially inflated" (pg. 17, Section [78] (a)). John Xanthoudakis and Dale Smith were asked to pay over $1 million in fines. After all, they lost almost $500 million for almost 2000 individual investors and countless others affected by the corporations (pension funds, cities, companies) that invested over $300 million of the $500 million lost. Below is some coverage from the Canadian Press.

The Globe and Mail

The Montreal Gazette

The Toronto Star

The original Ontario Securities Commission documents:


The sanctions that were imposed on the guilty three. 
HTML version    PDF version

The detailed accusations, reasons and decisions.
HTML version    PDF version

The way it is in the USA. The way it isn't here in Canada!

It is so frustrating to see inaction here in Canada and even more so when we see the contrast to actions in the USA. Remind our politicians that their promises have yet to be realized as actions.
The latest example is one where the mastermind of a Ponzi scheme in Florida which defrauded investors of over 1 billion dollars was sentenced to 50 years in prison.
The article "Florida Ponzi mastermind gets 50-year sentence" highlights the similarities between Scott Rothstein and Norshield's John Xanthoudakis and the two fraudulent investment schemes. When it comes to consequences for the two crooks, the similarities cease.
Rothstein's scheme only started operating in 2005. In five short years, he has been caught, tried and convicted. Xanthoudakis' Norshield Asset Management (NAM) organization was shut down by the Ontario Securities Commission (OSC) in 2005 after it ran for over 10 years. It took five long years for the OSC to conclude that there was wrong-doing at NAM and that Xanthoudakis was behind it. There are no charges laid, there are no criminal charges pending. Johnny X (Xanthoudakis) has apparently opened a million-dollar restaurant in the Bahamas.
Welcome to white-collar crime in Canada, or perhaps what is being implicitly stated is "Welcome, white-collar crime to Canada!"

Auditing: Trust or Frustration, but where is the Retribution? When will Justice come?

It is so frustrating to read this article from the Bahama Tribune wherein even the "trusted" auditor from the Bahamas (from a "reputable" firm, Grant & Thornton) didn't have any faith in his own work! The title says it all "Auditor had 'no confidence' in failed $440m fund's value".  Or does it? How can it be that there is no criminal investigation yet for any aspect of this Norshield debacle? Where is the retribution, the penance, the castigation? When will there be justice?

A follow-up ("Bahamian fund audit sign-off is seyed[sic] again") to the original article seems to indicate that Paul Gomez, the Bahamian auditor, was forced to accept potentially fallacious information because his firm was not permitted to audit other funds in the Olympus Univest Investment Fund's structure. The overall audit was conducted by a Canadian accounting firm (we believe that to be KPMG) selected by the Fund's manager. Regardless of the avoidance of responsibility, why did the auditor or the audit firm wait to be interviewed to raise this issue? The matter dates back to December of 2001! RSM Richter, the receiver, has indicated that the Bahamian Channel Funds played a key role in the collapse of Olympus and "were overstated by at least $200 million in 2002 and $300 million in 2003, an overstatement of approximately 88 per-cent in 2003."

Norshield key personnel perhaps insane?

Scot Blythe has covered Norshield issues in the Advisor.ca online magazine since trading of Olympus Funds was stopped and I'm certain long before that as well. His latest article summarizes the OSC findings brilliantly. Here are some highlights:

• $472 million in total was invested into Norshield Asset Management.
• The five year inquiry by RSM Richter will halve the money that can be recovered by investors.
• The efforts by RSM have provided no further information into where money went in the Caribbean.
• RSM Richter has launched a civil case against John Xanthoudakis & Dale Smith for $159 million.
• RSM Richter has offered to cooperate should there be criminal proceedings.

One ironic closing statement is the following "Xanthoudakis & Smith argue that claims should be thrown out due to the length of time that has passed." It took them 10 years to lose the money, five years to investigate the fiasco they created, but a lifetime for their victims to toil and now suffer. What gall! Perhaps the two of them are insane?

OSC Finds Key Norshield Asset Management Personnel Misled Investors

After almost five years of investigation, the OSC has concluded that CEO John Xanthoudakis, President Dale Smith, and Chief Advisor Peter Kefalis misled investors while they lost $159 million dollars for 1900 retail investors in Canada.

This is really of no surprise to anyone. The real question is, will there be any criminal charges against these three crooks?

Other media that covered the story:

OSC finds wrongdoing in Norshield Hedge Fund Affair - Morningstar
Norshield trio breached security laws: OSC - Montreal Gazette
OSC rules Norshield hedge fund misled investors - Globe and Mail
Many questions remain unanswered in Norshield saga - Montreal Gazette
OSC finds wrongdoing in Norshield hedge-fund affair - Toronto Star
Affaire Norshield: une vaste tromperie, conclut la CVMO - la Presse - Montreal

Canada, world class Olympics, world class athletes. Investor protection: world class embarassment

Having been overwhelmed by the outstanding Vancouver 2010 Winter Olympics, we can see how capable Canadians are and how proud we can be of Canada. Turning to investor protection and the prosecution of white collar criminals reveals a secret that appears to be something that is not being addressed.

To begin, take some specific information presented on the Canadian Broadcasting Corporation (CBC), Sunday News show which aired November 23, 2008.

$700,528	salary and compensation for David Wilson, head of the OSC, 2007
2	the number of criminal prosecutions for securities fraud in Canada for 2002 - 2007
$158,500	salary and compensation for David Cox, head of the SEC, 2007
1,236	the number of criminal prosecutions for securities fraud in the US for 2002 - 2007
17x	How much larger the average fine is for securities fraud in the US compared to the comparable fines levied in Canada

The numbers become even more embarassing to think that the SEC is responsible for 300 million Americans while the OSC isn't even responsible for 30 million Canadians. Furthermore, with a salary that is over 4 times that of his US counterpart, David Wilson remains at the helm of the OSC. I recall no outcry, no disgust, no media frenzy -- now we really know we are in Canada.

Looking now at what our criminals face, Earl Jones received a sentence for 11 years, but may be out in 2 years. The blatantly guilty Garth Drabinsky and his henchman Myron Gottlieb have spent something like 6 hours in jail thus far and it appears that it will be some time before will waste more taxpayer's money in an attempt to stay out of jail.

How do we remove these ugly examples of Canada's attitude towards these criminals and make Canadian's proud on the world stage in financial justice?

RSM RIchter - Norshield Bankruptcy Trustee - Reports sealed from public

It is very surprising to search the findings of the trustee investigating Norshield as there are regular reports available. At least, there should be. In fact, thirteen reports were supposedly written. However, seven of the thirteen reports noted on the bankruptcy/restructuring trustee (RSM Richter) website are unavailable and all are presumed to be sealed from the public by request to (and then of) the courts. (I say presumed because there is no indication of the whereabouts of many of the reports.) The first example of a sealed report was from May of 2006, almost 4 years ago.
"The court has ordered the fourth report sealed from the public because it contains sensitive confidential information about the company in which the investment was made."
Isn't the precise mandate of the trustee to uncover sensitive confidential information about the company in which the public invested its money? Why are these results hidden? The claim is that the reports are sealed because they contained some information which must remain confidential to preserve the success of the investigation and/or because some key information lies within the report that is critical to a criminal investigation. Since the documents are permanently sealed with no intent of making them public, the information must be criminal. Since the trustees are being paid from the meagre remaining funds of Norshield, the investors' money, these funds will never reach the investors.
Why is investors money being used to obtain information which is sealed from these investors?
Why is the investors' money funding the search for criminal information?
Most importantly, why have no criminal charges been laid after almost five years?

The following is a chronology of the reports of RSM Richter, the appointed trustee for Norshield

1. July 12, 2005: First Report - a summarized version
2. November 15, 2005: Second Report 
3. February 2, 2006: Third Report - administrative issues
4. May 30, 2006: "The Fourth Report contains certain proprietary and confidential information regarding the company's business and financial affairs..." - Court order this report sealed from the public record.
5. October 12, 2006: "The Fifth Report ... contains confidential information regarding the Reciever's realization efforts ... [and] remains under a protective order of the Ontario Court."
6. March 6, 2007: Sixth Report - comprehensive report regarding receivers activities since the Second Report.
7. ??: Seventh Report - unknown - no information on RSM website
   
8. July 17, 2007: Eighth Report - 
9.  ??: Ninth Report - unknown - no information on RSM website
10.  ??: Tenth Report - unknown - no information on RSM website
    
11.  ??:  Eleventh Report - unknown - no information on RSM website
    
12.  ??: Twelfth Report - unknown - no information on RSM website
    
13. December 17, 2009: Thirteenth Report -

Norshield Victims Sites Officially Launched with News Release

The following News Release was made available today.

News Release from Norshield Victims – Victims of the alleged Norshield Hedge Fund Fraud

Toronto, Canada, February 16, 2010 -  What do you do when almost five years have passed, you have seen little progress from organizations who are supposed to be investigating an allegedly fraudulent hedge fund company called Norshield Asset Management and you have received no help from the organizations that are supposed to help protect Canadian investors?

Help!

I am asking all 1900 investors in Norshield products to contact me by e-mail at:

Norshield.Victims@gmail.com

so that we can unite to combine our knowledge and effort in seeking justice. Institutional investors are also welcome. The intent is to have all victims step forward in order to create an accurate and complete contact list for the dissemination of information. I invite victims to join to obtain information about the Norshield class action lawsuit I recently learned of and to find out how we can all help to make this a success.

Joey Davis of the Earl Jones Victims Organizing Committee and the Be Strong Movement (www.BeStrongFoundation.org) has provided these words for the victims of Norshield, "By working together, all victims can achieve great success from a grass roots movement. Never give up hope that justice & restitution for the victims is possible, no matter how long that may take."

My name is Chris Ouslis and I am an investor in the Norshield funds. I have watched since May 20, 2005 when the Ontario Securities Commission (OSC) suspended trading of the funds after finding improprieties. In the intervening years, little information has come to me and I remain unaware of others who have been affected as my family and I have. We have all seen people like Joey Davis and the victims of Earl Jones achieve great success by working together. I have been inspired to follow their example.

There are now social networking pages established as Norshield Victims for victims of the alleged Norshield fraud at:

Facebook.com

LinkedIn.com

and there is a blog web page which can be viewed at:

NorshieldVictims.blogspot.com

where everyone can find information and links.

I ask the media to assist me in reviving this travesty of Canadian Justice. $500 million dollars has been lost in this potential Ponzi scheme operated by John Xanthoudakis, who remains free and against whom no criminal charges have been laid after almost 5 years of investigations. By comparison, the $50 billion dollar Ponzi scheme hedge fund operated by Bernard Madoff in the USA has seen justice meted out. Madoff’s fraud was discovered after Norshield and Madoff has been sentenced while criminal charges have not even been leveled against Xanthoudakis here in Canada.

Stan Buell, founder and President of the Small Investor’s Protection Agency (www.sipa.ca), supports Norshield victims and believes that, "It is outrageous that regulators fail to protect investors and leave it up to citizen groups to seek justice on their own. This is yet another example of the regulatory/self-regulatory disregard for investor protection."

Royal Bank of Canada (RBC) Royally #*%$@ing Investing Public?

Judging by the latest class action lawsuit from victims of Earl Jones, it seems that the RBC philosophy is greedy and sloppy. Electronic memos indicate that RBC was aware that Earl Jones was improperly using funds in his accounts.

This greed and inattention appears to be a company philosophy as a similar approach was followed when RBC lent $300 million to Norshield. As an investor in (victim of) Norshield, it surprises me to believe that RBC would have lent such a sum without conducting due diligence to ensure that the firm was not a potentially fraudulent organization. If i were an RBC shareholder, i would be shocked to see that the RBC was so cavalier in its practices that it would lend such a sum to a potentially fraudulent organization. From any perspective, it comes as no surprise that there is another class action lawsuit from the victims of Norshield Financial Group against the RBC. The Royal Bank seems to have trouble keeping track of its own staff as they are suing two of their Dominion Securities' brokers for questionable offshore dealings including Norshield.

One can not help but wonder how many other lawsuits are filed against the RBC for similar practices. The bigger wonder is how many such situations remain undetected...even now.

What is this Norshield Asset Management Mess about?

Norshield was the parent company overseeing a "conservative" hedge fund called the Olympus family. The OSC suspended Norshield from trading the funds on May 26, 2005. At that time there was almost CDN$500 million in the fund. There were approximately 1900 retail investors (like you and me) who had invested anywhere from CDN$132 million to CDN$215 million, depending on which article you read. Institutions also invested in Norshield, "Several pension funds for Quebec cities, including Laval and Sherbrooke" were included. These corporate investors directed over CDN$350 million into Norshield. Who knows how many people have been affected indirectly?

It has been almost five years since the OSC suspended Norshield. A trustee in bankruptcy has been appointed - RSM Richter. 

Allegations of fraud have been made of Norshield.

Nothing has yet been done for investors.

In this hedge fund scandal, wherein $500 million dollars has been lost to what may have been a Ponzi-like scheme, the largest such alleged fraud in Canada, nothing has been settled financially or criminally after five years. In the interim, the $50 billion dollar Bernard Madoff hedge fund fraud has been identified and its perpetrator has already been tried and jailed.

This makes us look like bumbling Canadians while the US discovers a fraud and metes out justice in a fraction of the time.