Norbourg scandal

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The Norbourg scandal is a major financial scandal that took place in 2005. The scandal involved a Montreal, Quebec based Norbourg Financial Group a trust-fund company. Nearly 9,200 investors in Quebec lost millions of dollars after the money from a Norbourg trust fund was diverted by ex-founder Vincent Lacroix for personal interests. It is considered as one of the largest Canadian financial scandals in history and largest in Quebec. ^[1] ^[2]

1 Origins
2 Investigation and fraud tactics
3 Investors
4 Criminal trial
5 References
6 External links

[edit] Origins

The scandal came into light during the Summer of 2005 after it was discovered by the Autorité des marchés financiers which is the province's top financial regulator that $130 million went missing by the company (initial numbers were estimated at $70 million before a report by Ernst & Young revealed that additionnal money went missing). 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 ^[3] 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. ^[4] ^[5]

The Autorité des marchés financiers had filed 51 charges against Lacroix in March 2006 related to false and misleading information and manipulating mutual fund values. The regulator accused Lacroix for using Norbourg's funds for personal reasons. 29 fonds were affected with 11 of them having nearly no value left and 17 others had $300 000 or less left. ^[6]

[edit] Investigation and fraud tactics

Investigators had scrolled through some of the transactions and cheques dating back to 2000 and found 69 files related to the 51 charges. However, fonds 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" which some of the money was transferred to Lacroix and his wife. False receipts were also made in order to hide the company's losses. In addition, Norbourg hired a computer specialist to falsify reports of Northern Trust. The worker had access to all the financial data of Norbourg. Some of the money from investors were also used for bonuses to some of the workers including one employee who've had his house paid via the investors money from the fund. ^[7] It was reported that Lacroix filed up to 115 false reports with securities regulators. ^[8] ^[9]. Each charge had a maximum penalty of five years in jail and a fine of up to $5 million. In October 2005, the AMF also sued Lacroix for $94 million and an investigation was also launched by the Royal Canadian Mounted Police (RCMP). ^[10]

[edit] Investors

Up to 9,200 investors were affected by the money laundering scandal. Many of the investors involved in the scandal had requested the province of Quebec to launch a public inquiry. The Action democratique du Quebec and the Parti Quebecois had also requested such commission to the provincial government of Jean Charest. ^[11]In June 2006, Ernst & Young agreed on distributing $31 million to about 5,600 investors who were among those the hardest hit. The AMF refused to give a settlement to all but 900 of the investors. ^[12]140 other investors later launched a class action accusing the regulator of abusing its power. According to the AMF, investors are not protected from fraud when the fund diverting is made by an administrator of equity funds and thus don't receive a settlement contrary to if the fraud was made by a stock broker where an investor can received as much as $200 000 in settlement. ^[13] ^[14] ^[15]

[edit] Criminal trial

Lacroix's criminal trial took place in 2007 and lasted for up to 58 days. Lacroix did not have legal defense aid after a court ruling. In November 2007, he requested 30 witnesses to testify instead of him but it was rejected by Judge Claude Leblond who headed the trial. ^[16] Lacroix cited that he could not testify himself at the trial because his credibility was attacked. ^[17] On December 11, 2007 Lacroix was pleaded guilty to all 51 counts and was sentenced to 12 years in prison and fined $255 000 on January 28, 2008. He later received a permission to appeal his sentence on June 6, 2008. ^[18] ^[19] ^[20]