Nova Scotia fraudster faces another lawsuit

Nova Scotia fraudster faces another lawsuit

Nova Scotia fraudster faces another lawsuit

A convicted East Coast fraudster – who bilked dozens of clients out of an estimated $14 million – is back in the limelight facing another lawsuit.

Former financial advisor, John Alexander Allen – who once represented Global Maxfin Investments Inc. of Toronto and Keybase Financial Group Inc. of Markham, Ont. – is accused of negligence and breach of contract for alleged investment losses of a Trenton, Ont. woman, reported the Chronicle Herald on Wednesday.

According to court transcripts, the plaintiff Grace Weatherbie says she met Allen in 2005 when she was 47 years old and earning a $20,000 salary working part-time. Weatherbie – who claims she had minimal investment experience and few liquid assets – alleges that Allen recommended she pursue an aggressive leveraged investment strategy, which accrued about $375,000 in investment loans by the end of 2007.

Mutual funds purchased as part of the strategy enacted under both companies experienced significant value depletion and monthly distribution, contributing to Weatherbie's inability to meet required debt payments, she alleges.

Weatherbie is seeking special, punitive and general damages; as well as costs for an unknown amount to be determined at trial. Her action was filed in a Nova Scotia Supreme Court on Tuesday.

Last November, Allen was handed an 18-month conditional sentence by a Nova Scotia provincial court after pleading guilty to four counts of fraud, while working for Keybase Financial in Truro, N.S. The first nine months of his sentence must be served under house arrest, while the latter nine months under a curfew of 11p.m. to 6 a.m. The sentence includes 300 hours of community service and 18-months’ probation.

Allen was also fined more than $1 million by the Nova Scotia Securities Commission – the highest fine ever imposed for forging documents and misleading clients, according to the Chronicle.

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  • Mark 2014-03-13 12:00:38 PM
    Not to defend this "advisor"s actions in any way, how can someone earning $20,000 annually qualify for anywhere close to $375,000 in loans? Shouldn't the lenders also be held responsible? Were the documents sent to the lenders vetted in any way? And if the investments were mutual funds, where were the compliance officers and oversight from the Mutual Fund Dealer? I sure would like to know more about how this was done. Perhaps a follow up article?
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  • Heather 2014-03-13 12:15:34 PM
    Since it was a leveraged investment, that usually means she used another asset to take the loan out to purchase the mutual funds. For example using a house. The banks now have plenty of security, plus the investments so she may have qualified for an interest only typle loan, and in that case her TDS (total debt service ratio) would have been fine. However Mark does have a point when it comes to the compliance side of this. There should be accountability on the side.
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  • Mark 2014-03-14 9:46:44 AM
    Heather, the problem is the article doesn't provide the details so we are just guessing. Some loans are 1:1, 2:1 or 3:1 using a client's money/investment to leverage the loan but this doesn't seem to be the case. This sounds like the loan or loans were funded 100% by the lenders which means she should have shown some assets, at least equal to the amount that she was borrowing if not more. The rules for some of these loans are now 1.5 net worth. Is it plausible that someone earning $20,000 annually part time owns a home worth close to $400,000? It could happen but it seems unlikely. We are just guessing here without all the details, however, even if the investor had the assets in place, the interest payments would have exceeded her disposable income. A $300,000 loan at a good interest rate of prime + 1% is over $1,000 monthly. I know some of these loans with mutual funds use the monthly distributions to pay the interest and a portion of the loan but given the risk that distributions could be reduced or even stopped which history has shown can happen, what lender would allow this amount of leveraging for this client? Again, it would help to have more details but along with the "advisor" being held to account, I would want to see everyone who allowed these loans to be approved to be held to account as well.
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