A judge has author–ized a massive class-action lawsuit on behalf of defrauded investors in mutual funds offered by Norbourg Asset Management Inc.

The suit will go ahead against former CEO Vincent Lacroix and other defendants, including Quebec’s financial regulator, the Autorité des marches financiers.

Superior Court Justice Pierre Jasmin says there is 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 to proceed against them.

“From 2001 until Aug. 25, 2005, Vincent Lacroix, helped by a few acolytes, set up different strategies that allowed him to get his hands on a considerable sum … that belonged to more than 9,000 investors the plaintiff wishes to represent,” Jasmin writes in his judgment.

The judge notes the AMF and its employees are immune from civil litigation as long as they conduct their affairs in good faith. But the AMF’s failure to halt the siphoning of investor money from Norbourg funds raises the question of whether the regulator was guilty of negligence so egregious as to nullify the immunity, 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.”

The issue can only be decided after an in-depth examination by the trial judge, Jasmin says.

The AMF has come in for heavy criticism in the media and elsewhere for failing to uncover wrongdoing at Norbourg earlier, despite signs of trouble well before the agency and the RCMP moved in to shut the firm down in August 2005.

In his ruling, Jasmin refers to examples of which, in his opinion, the AMF could have uncovered fraud at Norbourg, including one incident in the summer of 2003.

At a hearing before Jasmin in the spring, a lawyer for the AMF argued the agency had committed no error. The AMF has argued that the class action shouldn’t go ahead, but rather should be rolled into the AMF’s $94-million civil lawsuit against Lacroix.

The AMF appears anxious to look tough in its handling of the Norbourg case, the highest-profile of a series of financial scandals that blew up in Quebec last year.

AMF spokesman Philippe Roy says the regulator has acted properly and will defend itself at the trial of the class-action suit. “We will show that the Autorité fulfilled all its obligations in terms of inspection and investigation of the Norbourg file,” Roy says.

As well as its civil 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 firm was closed down.

The AMF has alleged that Lacroix misappropriated a total of $84 million from various funds, of which $18 million was used for his personal benefit.

Lacroix also faces disciplinary complaints from the Quebec regulator of financial planners, mutual fund representatives and other financial professionals. A three-person panel of the Chambre de la sécurité financière will hear a complaint that Lacroix diverted almost $10 million from his firm’s funds to bank accounts belonging to himself and his wife.

Norbourg investor Wilhelm Pellemans is the lead plaintiff in the class action. Pellemans, who lost about $150,000, represents about 9,200 Norbourg clients who also lost money.

Lacroix’s lawyer says his client is bankrupt and, therefore, cannot be sued except by court permission. At press time, a hearing on a request for such permission had been scheduled for Sept. 29.

Besides Lacroix and the AMF, Jasmin also authorized the class action against several other defendants, including: two former Norbourg employees and a Lacroix business associate who are alleged to have aided in the fraud; an accounting firm that acted as auditor for some Norbourg funds and prepared Lacroix’s tax returns; and Northern Trust Co. Canada, Norbourg’s securities custodian.

Jasmin did not authorize the class action against four parties: businessman Claude Boisvenue, accounting firms KPMG LLP and PriceWaterhouseCoopers LLP, and trust-services provider Concentra Financial.

@page_break@Pellemans’ lawyer, Jacques Larochelle, told the Montreal Gazette that he may decide to appeal or institute separate lawsuits against KPMG and Concentra, which were excluded from the class action because they provided services to some mutual funds but not others. Both firms have denied doing anything wrong, as has Northern Trust. IE