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Quebec raids chase missing millions

Embezzlement alleged at Montreal asset manager; IFIC chairman quits

With files from reporters Karen Howlett and Andy Hoffman

MONTREAL AND TORONTO -- A Montreal asset management company has been shut down by Quebec's financial services regulator amid allegations it embezzled nearly $70-million from thousands of investors to finance acquisitions.

Offices were raided by police yesterday morning in the Montreal and Quebec City areas and Toronto.

The Autorité des marchés financiers (AMF) said it has ordered Norbourg Asset Management Inc. to cease all activities, alleging that it and its president and controlling shareholder Vincent Lacroix "no longer have the integrity required under the Securities Act." Norbourg's and Mr. Lacroix's licences to act as investment counsellors were suspended, as were those of three securities brokers working for Norbourg.

The dramatic developments led to the sudden resignation yesterday afternoon of the chairman of the Investment Funds Institute of Canada (IFIC), Michel Fragasso, who is listed on IFIC's website as a senior vice-president of Norbourg.

Early last year, the asset manager acquired all the shares of three subsidiaries of Teraxis Capital Inc., a company that was headed by Mr. Fragasso.

Jean St-Gelais, the AMF's chief executive officer, said between 5,000 and 10,000 investors -- most of them middle class and with small portfolios -- may have been victims of the alleged embezzlement.

"This is not good news," he told reporters in Montreal. "It's likely investors lost money. What we did was to secure the assets left."

Mr. St-Gelais also said it is "very difficult to tell the likelihood they will recover money, and in what amount."

The AMF said it has frozen the bank accounts of both Norbourg, which was founded in 1998, and other companies related to Mr. Lacroix, and that at its request, the Quebec Finance Ministry has appointed a provisional receiver to manage them.

In addition, it has ordered the firm's Norbourg and Evolution Funds Inc. mutual fund operations not to dispose of any assets they manage for investors.

In its last financial statement, for the fiscal year ended December, 2004, Norbourg claimed assets of $155-million, but $70-million were missing, Mr. St-Gelais alleged.

The AMF is also alleging that as well as embezzling almost $69.8-million from the funds, Norbourg has failed to provide a "valid justification" for a "discrepancy" of $70.7-million between the firm's latest financial statements and assets under management.

In addition, the AMF alleged the firm's financial statements for the past three years contain misrepresentations and that Norbourg "fabricated and falsified" documents about its operations, including information requested by the AMF.

Neither Mr. Lacroix nor Mr. Fragasso could be reached for comment. However, a spokeswoman for IFIC said yesterday that Mr. Fragasso has told her he has no other position at Norbourg except chairman of Fonds Evolution.

This is the third time an IFIC chairman has had to resign amid controversy. Terrence Wright of Winnipeg-based Investors Group Inc. stepped down last year following a market timing probe, and in 1998, then chairman Dax Sukhraj resigned over his involvement in a fund company that collapsed.

Norbourg bought Evolution Funds late in 2003. In early January, 2004, it announced the deal with Mr. Fragasso's Teraxis, which included Tandem Financial Services Inc., and said the deal would increase the volume of client assets it managed to about $2.4-billion.

Mr. St-Gelais said yesterday that Norbourg consolidated a total of four firms into Tandem, where there are 350 mutual fund salespeople. The money Norbourg used to purchase the firms actually came from investors' money, Mr. St-Gelais alleged, adding that the funds were transferred in large chunks.

The police raids yesterday involved about 100 people, most of them investigators from the RCMP's Integrated Markets Enforcement Team (IMET), which specializes in financial crime, but about 30 of them from the Quebec provincial police.

Yves Roussel, an officer with IMET's Montreal unit, said the case is now being investigated as a possible fraud but that there have been no arrests so far.

Searches were conducted in Montreal, in suburbs south of the city, in Quebec City and in the Eastern Townships areas. One search was also conducted in Toronto.

Nathalie Drouin, the head of the AMF's legal affairs services, said the Toronto search warrant was executed at a financial institution that is not under investigation but kept records investigators wanted to consult. Other sources said it is a trust company and that it is co-operating with the investigators.

AMF officials did not give details of the Quebec searches, but Mr. Lacroix's home is in Candiac, south of Montreal. He is from Magog, in the Eastern Townships, and several of his companies' administrators live in the area. According to a local paper, Mr. Lacroix and his brother Patrick this summer bought a four-star inn on Lake Memphremagog.

In downtown Montreal, meanwhile, RCMP and Sûreté du Québec officers wearing vests marked "Police" carrying stacks of folded cardboard boxes came in and out of the elevators in one of the smaller commercial buildings on René-Lévesque Boulevard, where Norbourg and Tandem have offices.

The case came to the AMF's attention last fall during a nationwide audit of the mutual fund industry. "Our inspection turned into an investigation," Mr. St-Gelais said.

Subpoenas were issued and forensic auditors called in.

The probe found assets being shuttled between accounts belonging to different companies. Regulators also checked where the acquisitions were financed.

"We found major discrepancies between what was told to regulators, what was told to investors and what was left in assets," Mr. St-Gelais said.

Police raided offices in Montreal, above, and Toronto yesterday morning as part of a major fraud investigation into Norbourg Asset Management Inc.

The allegations

1 Norbourg defrauded investors of about $70-million.

2 Norbourg's financial statements contain misrepresentations.

3 Norbourg documents were fabricated and falsified.

4 There is a $70.7-million gap between the amounts on the latest financial statements and assets under management.

Norbourg Asset Management Inc. and company president Vincent Lacroix, left, "no longer have the integrity required under the Securities Act," the integrity required under the Securities Act," the Autorite des marches financiers alleges.

© 2007 The Globe and Mail. All rights reserved.

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