The trustee overseeing the bankruptcy of companies in the scandal-plagued Norbourg Financial Group has launched lawsuits against several former business associates of CEO Vincent Lacroix.

Lacroix is accused by securities regulators of misappropriating tens of millions of dollars from his firm’s mutual funds before the Quebec company was raided by police and securities regulators and shut down in August 2005.

Bankruptcy trustee Gilles Robillard is attempting to recover as much as $10 million from Lacroix’s former business associates, whom, Robillard claims, benefitted from fraudulent activity at Norbourg.

Norbourg’s former vice president of finance, Éric Asselin, is a defendant in three lawsuits brought forward by Robillard. The suits claim almost $830,000 from him, his wife and his consulting firm. Asselin is a former investigator for the Quebec Securities Commission; he joined Norbourg in March 2002.

The suits allege that Asselin was “at the heart of the financial embezzlement” at Norbourg. They allege he received generous payments over and above his salary to buy his loyalty. Among the specific allegations is that Asselin received $120,000 from Lacroix while he was still employed by the QSC, the predecessor agency to Quebec’s Autorité des marchés financiers.

“On Feb. 25, 2002, before he had even officially begun working at Norbourg, Éric Asselin received a sum of $120,000 in the form of a bank draft from the personal account of Vincent Lacroix,” one of the lawsuits states. “Éric Asselin must have known that the payment came from the Norbourg Group … and the fact that the sum was officially given to him by Vincent Lacroix was nothing more than a ruse.”

Asselin’s employment at the QSC ended in early March 2002. The suit alleges Asselin was first recruited for the job at Norbourg in the autumn of 2001.

Asselin, who reportedly has co-operated with the Norbourg investigation in return for immunity from prosecution, maintains the $120,000 was a simple signing bonus, his lawyer, Jean Lozeau, says. Lozeau says Asselin has been away on vacation and has not had an opportunity to read other allegations contained in the lawsuits.

Also hit with litigation is Michel Fragasso, the former chairman of the Investment Funds Institute of Canada and a senior vice president at Norbourg before it was shut down.

The trustee is claiming $300,000 from Fragasso, including $150,000 allegedly paid by Lacroix to retire outstanding campaign debts that Fragasso ran up when he was a federal Liberal candidate.

Fragasso is the former president of a mutual fund dealer called Teraxis Capital, owned by pension fund manager Caisse de dépôt et placement du Québec, which sold several of its operations to Norbourg in 2004.

In a media statement, Fragasso said he was surprised to be targeted by litigation from the bankruptcy trustee because he had been a victim in the Norbourg affair.

Fragasso, who denies any wrongdoing, says he was used by Lacroix for his reputation and senior standing in the investment community. He says sums he received as signing and performance bonuses from Norbourg were justified.

Among the other people named as defendants in lawsuits are Lacroix himself; a Quebec tax official accused of accepting a $20,000 bribe; and an accountant who acted as auditor for several of the Norbourg companies.

The lawsuits are just one of a series of civil and criminal proceedings flowing from the Norbourg scandal. Lacroix is accused of misappropriating $84 million from his firm’s mutual funds, including $18 million for his personal benefit.

The AMF has filed 51 charges against Lacroix under the Securities Act. As well, Lacroix and several other parties are named as defendants in a $130-million class-action lawsuit brought on behalf of investors who lost money in Norbourg mutual funds.

NORSHIELD DEVELOPMENTS

There are also developments in a separate financial scandal.

The Ontario Securities Commission has made public a series of allegations against three senior figures in the Norshield Financial Group including CEO John Xanthoudakis.

Norshield, a Montreal-based hedge-fund firm, collapsed last year after a series of damaging media reports about its involvement in offshore transfers of Cinar Corp. money in the late 1990s.

The firm was put into receivership in June 2005 by an Ontario court at the request of securities regulators in Ontario and Quebec. The move followed Norshield’s decision to halt redemptions in its funds following a rush of client withdrawals the firm blamed on the bad publicity from the dispute with Cinar.

@page_break@Individual and institutional investors are facing more than $400 million in losses on money entrusted to Norshield for investment, according to a court-appointed receiver.

The OSC is seeking a series of penalties against Xanthoudakis, Norshield’s former chief financial officer Dale Smith, and former director Peter Kefalas. These penalties include a permanent ban on the trio from acting as directors or officers of public companies.

Other possible penalties include fines of “not more than $1 million” for each failure to comply with Ontario securities laws and an order to disgorge any money obtained as a result of non-compliance with securities laws.

The receiver has determined that about 1,900 retail investors who have outstanding claims of $132 million will recover only a tiny fraction of their investments in Norshield hedge funds.

In a statement of allegations, the OSC alleges that Norshield’s complex offshore investment structure wasn’t properly disclosed to investors or the commission in the firm’s “misleading and/or untrue” offering memorandum.

The OSC also alleges Norshield improperly calculated the net asset value of its hedge funds: “As a consequence, subscription and redemption values were significantly inflated.”

DOCUMENTS TO U.S.

It also states that Xanthoudakis and Smith misled OSC staff regarding different aspects of the firm’s hedge-fund investment structure. As well, the commission maintains that Xanthoudakis and/or Smith failed to safeguard Norshield documents.

In late May, more than 40 boxes of Norshield Asset Management or Olympus documents were moved to a location in the United States where some of the documents were destroyed, the OSC’s statement alleges. The receiver, through proceedings brought in the U.S., was able to recover some documents including those that were “relevant to the flow of retail investors’ funds through the Norshield investment structure.”

The statement says: “The course of conduct engaged in by Xanthoudakis, Smith and Kefalas as described herein compromised the integrity of Ontario’s capital markets, was abusive to Ontario’s capital markets and was contrary to the public interest.”

The OSC is the lead regulator in the Norshield file because the majority of retail investors were residents of Ontario. A spokeswoman for the OSC says a hearing on the allegations is expected to begin within a couple of months.

Xanthoudakis has consistently denied there was any wrongdoing at Norshield, blaming his firm’s collapse on the bad publicity from the Cinar affair.

When those offshore transfers came to light in 2000, they led to a major scandal at Cinar, a children’s animation company. Litigation pitting the company, which has since been sold, against former top executives is grinding its way through the courts in Montreal.

Xanthoudakis been named as a defendant in a separate lawsuit brought by Cinar. His personal assets have been frozen in that case, which he is fighting in court. IE