BMO Nesbitt has quick deal on table in OSC's Lett case

Canada StockWatch
by Brent Mudry
September 19, 2002

BMO Nesbitt Burns has negotiated a pending settlement with the Ontario Securities Commission in the Lett case, in which the Bay Street brokerage allegedly failed to supervise two senior brokers and served as a prime bank fraud conduit. The details of the deal are not yet known, but a panel of commissioners is expected to review the proposed settlement agreement in a hearing on Monday.

The speedy settlement appears to involve a high-stakes bid of damage control, as it will quickly clear the cloud hanging over Nesbitt Burns and parent Bank of Montreal. The OSC launched its prosecution on Wednesday, in the first major regulatory attack on a major Bay Street brokerage over serious know-your-client deficiencies in recent memory.

The OSC claims that Patrick Fraser Kenyon Pierrepont Lett, who singlehandedly caused the near-collapse of Gordon Capital a decade ago, opened BMO Nesbitt accounts in 1995 and deposited $21-million (U.S.) for his own clients, including several notorious U.S. prime bank fraudsters and an offshore insider trader wanted by U.S. authorities.

The regulator cites Nesbitt Burns with failure to supervise John Craig Dunn, who ended a 16-year career as manager of Nesbitt's Mississauga branch in February, and broker John Steven Hawkyard, terminated by the branch last month. (Mr. Hawkyard had previously been manager of Bank of Montreal's private banking branch in Mississauga, at the same address as the Nesbitt branch run by Mr. Dunn.) The OSC claims Nesbitt Burns ignored several warning lights from regulators, let Mr. Lett, Mr. Dunn and Mr. Hawkyard run amok, and let the fox run the henhouse.

While Nesbitt's parent, Bank of Montreal, has not yet made an official statement on the Lett case, bank spokesman Ralph Marranca extolled Bank of Montreal's vigilance and due diligence prowess in a full-page National Post story Thursday. (This story featured two unrelated cases. In one, former Bank of Montreal Edmonton branch manager Nick Lysyk, hired despite a prior bankruptcy, who gave himself a hefty pay raise from his $61,000 official salary by allegedly stealing $16-million from his branch. In the other, a $38,000-a-year Calgary bank employee, Anita Koo, allegedly flew the coop after stealing $9-million (U.S.) from a Mexican client.)

"We believe people are honest, our employees are honest. We are always looking at our processes to ensure they are as rigorous as they need to be. That's something we do on an ongoing basis. I think we're satisfied that our controls and our processes work for us," Bank of Montreal spokesman Ralph Marranca told the Post.

Left unmentioned was a series of setbacks suffered by Bank of Montreal in Vancouver in recent years, chronicled by Stockwatch. The Lett case demonstrates continued money laundering prevention failures in the wake of the Exchange Bank and Trust scandal in Vancouver.

In that case, the British Columbia Securities Commission, on behalf of the United States Securities and Exchange Commission, froze the $19-million (U.S.) account of EBT, an offshore bank run by securities violator Terry Neal, at Bank of Montreal's main downtown branch in April, 2000. Soon after, regulators and Stockwatch revealed the EBT account was largely a prime money laundering account for assorted stock crooks and violators, notably Ed Durante, a New York Mafia-linked promoter with a 20-year record.

A year later, in April, 2001, the City of Vancouver abruptly fired city treasurer Sandy Maddalena, who managed to wire $112,000 from the city's corporate accounts at Bank of Montreal's main downtown Vancouver branch to his own CIBC World Markets brokerage account in Toronto. The day after the city announced Mr. Maddalena's termination, Stockwatch revealed the treasurer had filed for personal bankruptcy three times in recent years, something which shocked city officials.

In June, 2001, two months after the Maddalena affair, another embarrassing case blew up. Court documents revealed another penny-stock-related embarrassment for the Vancouver operations of Bank of Montreal, Canada's oldest bank and one of the largest in North America. In that case, a recently fired employee allegedly embezzled almost $1.6-million in bogus loans over the past five years and funnelled some of her illicit proceeds through the public company of her brother, who recently ended a 17-year BMO career with a stint as a senior private banker.

The buttoned-down bank filed suit against Worldbid Corp., one of the OTC Bulletin Board promotions of controversial self-exiled Vancouver promoter Harry Moll, and its treasurer and director, Howard Thomson, in a bid to retrieve funds misappropriated by Mr. Thomson's sister, Paulette Thomson, a "financial services manager" at one of the bank's Vancouver branches in Kitsilano.

Fortunately, Mr. Thomson has escaped the fate of another notable former Bank of Montreal private banker closely associated with Mr. Moll. In August, 1994, Nick Massee, who had retired from Bank of Montreal that January after 37 years with the bank, mysteriously disappeared, ostensibly en route to meet a potential investor in Turbodyne Technologies, a controversial and ultimately disastrous Moll-related promotion. While at Bank of Montreal, Mr. Massee served as the private banker for Mr. Moll, amongst other Howe Street promoters. After leaving the bank, Mr. Massee joined Leon Nowek, another associate of Mr. Moll, as a director of Turbodyne. While Mr. Massee and his wife Lisa Massee were featured on NBC Television's Unsolved Mysteries in June, 1995, the couple have not yet surfaced.

In an unfortunate coincidence, the latest Thomson suit was filed the day after one of Bank of Montreal's Vancouver money-laundering penny-stock clients, penny-stock tout Stephen Sayre, made news in the Exchange Bank and Trust case. The United States Securities and Exchange Commission announced it has won a $1.2-million (U.S.) judgment against the moonlighting Los Angeles tree trimmer. The SEC's pursuit of Mr. Sayre in April, 2000, revealed more than $1-million (U.S.) in money-laundering wire transfers he made the previous month from a bank account in Las Vegas to the dubious offshore bank's main operating account at Bank of Montreal's main Vancouver branch. Within weeks, this Vancouver account yielded an intriguing can of worms.


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