Norbourg scandal
Encyclopedia
The Norbourg scandal is a major financial scandal that took place in 2005. The scandal involved the Montreal, Quebec based Norbourg Financial Group, a trust-fund company founded by Vincent Lacroix. He diverted money from a Norbourg trust fund for personal interests. Nearly 9,200 investors in Quebec
lost millions of dollars. It is considered as one of the largest Canadian
financial scandals in history and largest in Quebec.
(AMF - "Financial Markets Authority"; the province's top financial regulator) discovered that C$130 million was missing from company accounts. The loss was initially estimated at C$70 million before a report by Ernst & Young
revealed additional losses. On August 25, 2005, police raided the Norbourg headquarters office in Montreal as well as smaller offices in Quebec City
and in the Eastern Townships
region. After having its assets frozen, the company ceased its operations in October 2005 and filed for bankruptcy. Lacroix himself was declared bankrupt in May 2006 by a provincial judge. A report by Ernst & Young revealed that all firms run by Lacroix including Norbourg Gestion d'actifs, Norbourg Groupe Financier, and Fonds Évolution had operational deficits up to $6.5 million in 2005 alone.
The AMF filed 51 charges against Lacroix in March 2006 related to false and misleading information and manipulating mutual fund values. The regulator accused Lacroix of using Norbourg's funds for personal reasons. 29 funds were affected, with 11 of them having nearly no value left and 17 others having C$300,000 or less left.
, whose Toronto
office was asset custodian for the Norbourg and Evolution funds. The worker had access to all the financial data of Norbourg.
Some of the stolen money was paid out in bonuses and gifts to favored Norbourg employees; one employee's house was purchased with embezzled funds. It was reported that Lacroix filed up to 115 false reports with securities regulators. Each charge had a maximum penalty of five years in jail and a fine of up to C$5 million. In October 2005, the AMF also sued Lacroix for C$94 million and an investigation was also launched by the Royal Canadian Mounted Police
(RCMP).
and the Parti Québécois
also asked thee provincial government of Jean Charest
to appoint an investigating commission. In June 2006, Ernst & Young
agreed to distribute C$31 million to about 5,600 investors who were among those the hardest hit. The AMF offered settlements to 900 investors, but denied the rest. According to the AMF, investors are not protected from fraud in embezzlement by made by an administrator of equity funds and thus don't receive a settlement, unlike fraud by a stock broker
, where an investor can receive as much as $200,000 in settlement.140 other investors later launched a class action
accusing the regulator of abusing its power.
On January 19, 2011 CBC http://www.cbc.ca/canada/montreal/story/2011/01/19/norbourg-settlement-reached.html reported that an agreement has been reached under which all investors would by fully reimbursed.
Lacroix, who was released during the summer of 2009, went through a transition home and performed several hours of community work. On September 21, he returned to trial for the additional criminal charges and pleaded guilty on September 21. He was immediately jailed by Justice Richard Wagner of the Quebec Superior Court. On October 9, 2009, he was sentenced to 13 years in jail to be served consecutively with his previous 5 year term. If he gets early parole, Lacroix could be out of jail by the fall of 2011.
Quebec
Quebec or is a province in east-central Canada. It is the only Canadian province with a predominantly French-speaking population and the only one whose sole official language is French at the provincial level....
lost millions of dollars. It is considered as one of the largest Canadian
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
financial scandals in history and largest in Quebec.
Origins
The scandal came into light during the summer of 2005 after the Autorité des marchés financiersAutorité des marchés financiers (Québec)
The Autorité des marchés financiers is the body mandated by the government of Québec to regulate the province's financial markets and provide assistance to consumers of financial products and services....
(AMF - "Financial Markets Authority"; the province's top financial regulator) discovered that C$130 million was missing from company accounts. The loss was initially estimated at C$70 million before a report by Ernst & Young
Ernst & Young
Ernst & Young is one of the largest professional services networks in the world and one of the "Big Four" accountancy firms, along with Deloitte, KPMG and PricewaterhouseCoopers ....
revealed additional losses. On August 25, 2005, police raided the Norbourg headquarters office in Montreal as well as smaller offices in Quebec City
Quebec City
Quebec , also Québec, Quebec City or Québec City is the capital of the Canadian province of Quebec and is located within the Capitale-Nationale region. It is the second most populous city in Quebec after Montreal, which is about to the southwest...
and in the Eastern Townships
Eastern Townships
The Eastern Townships is a tourist region and a former administrative region in south-eastern Quebec, lying between the former seigneuries south of the Saint Lawrence River and the United States border. Its northern boundary roughly followed Logan's Line, the geologic boundary between the flat,...
region. After having its assets frozen, the company ceased its operations in October 2005 and filed for bankruptcy. Lacroix himself was declared bankrupt in May 2006 by a provincial judge. A report by Ernst & Young revealed that all firms run by Lacroix including Norbourg Gestion d'actifs, Norbourg Groupe Financier, and Fonds Évolution had operational deficits up to $6.5 million in 2005 alone.
The AMF filed 51 charges against Lacroix in March 2006 related to false and misleading information and manipulating mutual fund values. The regulator accused Lacroix of using Norbourg's funds for personal reasons. 29 funds were affected, with 11 of them having nearly no value left and 17 others having C$300,000 or less left.
Investigation and fraud tactics
Investigators reviewed some of the transactions and cheques dating back to 2000 and found 69 files related to the 51 charges. However, funds were diverted starting in 2003 and the deficit ballooned from $9 million to $70 million and finally up to $130 million. Money was diverted from the funds to a "ghost account", some of which was transferred to Lacroix and his wife. False receipts were also made to hide the company's losses. In addition, Norbourg hired a computer specialist to falsify reports to Northern TrustNorthern Trust
Northern Trust Corporation is an international financial services company headquartered in Chicago, Illinois, USA. It provides investment management, asset and fund administration, fiduciary and banking services through a network of 85 offices in 18 U.S. states and 12 international offices in North...
, whose Toronto
Toronto
Toronto is the provincial capital of Ontario and the largest city in Canada. It is located in Southern Ontario on the northwestern shore of Lake Ontario. A relatively modern city, Toronto's history dates back to the late-18th century, when its land was first purchased by the British monarchy from...
office was asset custodian for the Norbourg and Evolution funds. The worker had access to all the financial data of Norbourg.
Some of the stolen money was paid out in bonuses and gifts to favored Norbourg employees; one employee's house was purchased with embezzled funds. It was reported that Lacroix filed up to 115 false reports with securities regulators. Each charge had a maximum penalty of five years in jail and a fine of up to C$5 million. In October 2005, the AMF also sued Lacroix for C$94 million and an investigation was also launched by the Royal Canadian Mounted Police
Royal Canadian Mounted Police
The Royal Canadian Mounted Police , literally ‘Royal Gendarmerie of Canada’; colloquially known as The Mounties, and internally as ‘The Force’) is the national police force of Canada, and one of the most recognized of its kind in the world. It is unique in the world as a national, federal,...
(RCMP).
Investors
Up to 9,200 investors were affected by the crime. Many of the investors involved asked the province of Quebec to launch a public inquiry. The Action démocratique du QuébecAction démocratique du Québec
The Action démocratique du Québec, commonly referred to as the ADQ is a centre-right political party in Quebec, Canada. On the sovereignty question, it defines itself as autonomist, and has support from both soft nationalists and federalists....
and the Parti Québécois
Parti Québécois
The Parti Québécois is a centre-left political party that advocates national sovereignty for the province of Quebec and secession from Canada. The Party traditionally has support from the labour movement. Unlike many other social-democratic parties, its ties with the labour movement are informal...
also asked thee provincial government of Jean Charest
Jean Charest
John James "Jean" Charest, PC, MNA is a Canadian politician who has been the 29th Premier of Quebec since 2003. He was leader of the federal Progressive Conservative Party of Canada from 1993 to 1998 and has been leader of the Quebec Liberal Party since 1998....
to appoint an investigating commission. In June 2006, Ernst & Young
Ernst & Young
Ernst & Young is one of the largest professional services networks in the world and one of the "Big Four" accountancy firms, along with Deloitte, KPMG and PricewaterhouseCoopers ....
agreed to distribute C$31 million to about 5,600 investors who were among those the hardest hit. The AMF offered settlements to 900 investors, but denied the rest. According to the AMF, investors are not protected from fraud in embezzlement by made by an administrator of equity funds and thus don't receive a settlement, unlike fraud by a stock broker
Stock broker
A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...
, where an investor can receive as much as $200,000 in settlement.140 other investors later launched a class action
Class action
In law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued...
accusing the regulator of abusing its power.
On January 19, 2011 CBC http://www.cbc.ca/canada/montreal/story/2011/01/19/norbourg-settlement-reached.html reported that an agreement has been reached under which all investors would by fully reimbursed.
Criminal trial
Lacroix's criminal trial took place in 2007 and lasted 58 days. Lacroix did not have legal defense aid after a court ruling. In November 2007, he requested 30 witnesses to testify in in his place, but this request was rejected by the trial judge, Claude Leblond. Lacroix claimed that he could not testify himself because his credibility was attacked. On December 11, 2007 Lacroix was found guilty of all 51 counts. On January 28, 2008, he was sentenced to 12 years in prison and fined C$255,000. On June 6, 2008, he received permission to appeal his sentence.Further charges in June 2008
On June 18, 2008, a further 922 criminal charges were laid against six people involved in the scandal, including Lacroix and former Quebec provincial civil servant Jean Renaud. Charges included fraud and conspiracy to commit fraud, falsifying documents and conspiracy to falsify documents, and money laundering. Renaud was fired by the Province hours before his arrest.Lacroix, who was released during the summer of 2009, went through a transition home and performed several hours of community work. On September 21, he returned to trial for the additional criminal charges and pleaded guilty on September 21. He was immediately jailed by Justice Richard Wagner of the Quebec Superior Court. On October 9, 2009, he was sentenced to 13 years in jail to be served consecutively with his previous 5 year term. If he gets early parole, Lacroix could be out of jail by the fall of 2011.