Monday, July 13, 2009

Quebec's Investor Nightmare

Quebec must be the most over-regulated jurisdiction in North America. There are inspectors and watchdog agencies for just about any activity you can imagine.
I once witnessed an inspector from the government of Quebec, come into the clothing store where I was working and demand to verify those little white labels which describe the materials used in the lining (Do Not Remove Under Penalty of Law!) that were attached to some ski jackets we were selling.
Should the corner bicycle shop decide to raffle off a $1000 mountain bike, it has to get a permit from the government to insure that contest entrants don't get stiffed.

That being said, when it comes to protecting the nest egg of ordinary investors, it's seems that it's every man and women for themself, as any scam artist and fraudster can open up shop and take in investment money from the public, with virtually no regulation.
The fact that there aren't more frauds is remarkable considering the lack of oversight.

How easy is it to do?

Just open up a company and rent offices in a swanky and prestigious building, furnish the office attractively and make it look professional.
Hire a couple of employees who don't even have to know that you're a crook.
Advertise in local papers and hire salesmen to push investment products that pay a much higher interest rate than is currently available in legitimate institutions.
Pay the first investors off handsomely by giving them back some of the very same money that they gave you to invest.
The wonderful return serves as bait and as their trust in you grows, so too do their investments. Before long they are boasting to their friends and relatives about the great money manager they employ and the incredible returns they are making. These first investors are you best sales people.
New investors come in based on the recommendation of these trusted friends or family members and the con expands exponentially. Eventually the investor pool dries up or the government comes snooping. It's then time to fly the coop and abscond with all the money that's left, leaving behind a group of financially ruined and humiliated suckers.

Sound too moronic to work? This scam has been successful for as long as there have been investment advisers.
Imagine what a fraudster can do if he's even more sophisticated.

From big frauds to small frauds, Quebec is fertile grounds for scammers.

With the disappearance of Earl Jones last week with anywhere from $30 million to $50 million of the money entrusted to him, Quebec is once again rocked by a big investor fraud.

In 2005 Vincent Lacroix's Norbourg company disappeared $115 million from mostly elderly francophone investors. Lacroix was convicted of security fraud but served only 550 days before being released into a halfway house. By the way, the money has never been located.

In 2007 Triglobal's president Themis Papadopoulos, invested over $86 million of his client's money in an offshore company in the Cayman Island that he had an interest in. The money disappeared and so did Themis.

If you think that the investors who lose money in these scams are all naive rubes, you'd be mistaken. The Zunenshine family of Belcourt real estate fame lost a total of $14 million dollars in the Triglobal scam.

Not all scams are so impressive, but they hurt those who are bilked of their savings just the same.
In 2006 Kevin McKenzie and Brian Thicke of Lachine bilked about twenty neighbours of close to $600,000 in a fraudulent real estate scheme. They were both convicted and Thicke, the mastermind, received two years in jail.
Another recent fraud of note is the one perpetrated by André Charbonneau, who ran a scam that between January 1995 and September 1999, defrauded 440 people of a total of $14 million by convincing them to invest in a phony insurance firm called l'Alternative Compagnie, which Charbonneau, as a broker, set up. He got seven years in prison.

The other important type of investment fraud is the one where worthless stocks are touted and pumped up in value, only to collapse after insiders sell off at a huge profit. Bre-X and Livent are two examples of Canadian companies that perpetrated this scam.

Investors should understand the Quebec and Canada have the most poorly regulated financial markets of any of the important western economies. It's so bad that some international investment firms will not buy a Canadian publicly traded stock unless it is traded in the United States, where stringent rules apply and enforcement is real.

The fact that Ottawa is trying to counter the problem by creating a national regulatory agency is proof of the magnitude of the problem. Unfortunately, it's implementation is being hampered by Quebec's steadfast refusal to give up regulatory power, even in the face of the recent humiliating frauds and the failure of it own regulatory agency, the AMF, who's motto "Information, Regulation, Protection" seems sadly inappropriate.

Will change come? Don't count on it.

What can you do?
It reminds me of the time when I went to Florida to visit my parents. I accompanied my dad on a number of errands, one of which one was a trip to SEAR'S to buy insurance.
"Dad" I asked. "Why are you buying insurance at SEARS, I'm sure you can get a better deal at an independent broker?"
"Son, you may not get the very best price at Sear's, but you sure as hell don't get cheated!"
If you're with a small independent brokerage house, think about changing your account to one of the big banks or large national brokerage firms. Brokers who work for them never get to handle your money or issue statements. You'll never be cheated and you'll sleep better at night.

Remember one other thing above all else;
If someone offers you a significantly higher interest rate then that which is commercially available, it's because it's a risky investment or a fraud.

Although it sounds simple enough, I've seen countless friends and neighbors, both rich and sophisticated get caught by ignoring that old tenet and remember, just because someone is recommended by a friend or member of your family, they too may be in the process of being scammed.


  1. Fraudsters exist in every industry... I was defrauded by someone who was offering freelance translation work... after much fighting with the local police departments, the SQ finally stepped in and arrested the man... you guessed it, the conman keeps delaying his trial date... The SQ only mentions $275,000 in fraud, but we were over 50 victims represening over $500,000 (spanning over 2 years), however this man has been doing the same thing since 1998... you do the math!

    Gotta love the Quebec Justice System!

  2. The best thing to do is to learn how to manage your own money . These days all the information and tools are in place to do that.

    Learn to understand your own risk tolerance
    DIVERSIFY because you're going to make mistakes.
    Get a brokerage account , do your homework and
    take responsibility for your own money.

  3. Regarding the Triglobal fraud, they have just found out that Papadopoulos had secretly invested $500,000 in a gym before leaving the country. Tristar Gym - Triglobal Fraud: