The Gazette

Norbourg class action gets go-ahead
Enough evidence found of fraud by CEO and of negligence by the AMF, judge says

DON MACDONALD
The Gazette


Wednesday, September 13, 2006



A judge has authorized a massive class-action suit on behalf of defrauded investors in Norbourg mutual funds against former chief executive Vincent Lacroix and other defendants including Quebec's financial regulator, the Autorite des marches financiers.

Superior Court Justice Pierre Jasmin said there's enough evidence of fraud on the part of Lacroix and negligence on the part of the AMF and other parties to allow the $130-million class-action suit to proceed against them.

The AMF and its employees are immune from civil litigation as long as they conduct their affairs in good faith, Jasmin noted.

But the AMF's failure to halt the siphoning of investor money from Norbourg mutual funds raises the question of whether the regulator was guilty of a "gross fault," the judge says.

"The plaintiff alleges that several mistakes were committed by AMF representatives," Jasmin states in his judgment. "He alleges that taken together these mistakes constitute a gross fault of the kind that would deprive the AMF of its immunity defence."

He said the issue can only be decided after an in-depth examination by the trial judge.

The AMF has come in for heavy criticism in the media and elsewhere for failing to uncover misappropriation of money at Norbourg earlier despite signs of trouble.

At a hearing before Jasmin in the spring, a lawyer for the AMF argued the agency had committed no error and tried to persuade the judge the class action shouldn't go ahead, but rather be rolled into the AMF's own $94-million civil lawsuit against Lacroix.

Yesterday, AMF spokesman Philippe Roy said the regulator will defend itself at trial.

"We will show that the Autorite fulfilled all its obligations in terms of inspection and investigation in the Norbourg file," Roy said.

Besides its lawsuit, the AMF has filed 51 criminal charges under the Securities Act against Lacroix, alleging he manipulated mutual fund values and falsified documents.

The $130-million figure sought in the class-action suit represents the difference between how much money was supposed to be in the 29 funds offered by the now bankrupt Norbourg and the amount actually found when the scandal broke.

Norbourg investor Wilhelm Pellemans, the lead plaintiff in the class action, represents about 9,200 clients of the Norbourg group.

The group lost money after the AMF and the RCMP raided the firm in August 2005. Pellemans's lawyer, Jacques Larochelle, said his client lost about $150,000 in the scandal.

Lacroix's lawyer said his client is bankrupt and therefore cannot be sued except by court permission. Gilles Thibault said a hearing on a request for that permission is scheduled for Sept. 29.

Jasmin also authorized the class-action against several other defendants including:

- Two former employees, Serge Beaugre and David Simoneau, and a business associate of Lacroix, Felicien Souka, who are alleged to have helped in the fraud.

- The accounting firm Beaulieu, Deschambault and one of the firm's partners, Remi Deschambault. The firm acted as auditors for some Norbourg funds from 2001 to 2004 and handled the tax returns of Lacroix and several of his companies. The firm and Deschambault have denied any misconduct.

- Northern Trust Co. Canada, the securities custodian used by Norbourg. Northern Trust has denied any wrongdoing.

Jasmin refused to authorize the class action against four parties: Claude Boisvenue, a businessman who sold two financial services firms to Norbourg, accounting firms KPMG and PriceWaterhouseCoopers and trust-services provider Concentra.

Larochelle said he's considering his options regarding defendants excluded by Jasmin. He said he might decide to appeal or institute separate lawsuits against KPMG and Concentra, which were excluded because they provided services to some mutual funds but not others.

dmacdonald@thegazette.canwest.com