Quebec’s financial-sector watchdog says its investigation into massive investment losses at Mount Real Corp. of Montreal will press forward — even after 24 investment advisors were charged with 619 infractions under the province’s securities act.

Some 1,600 small investors stand to lose the $130 million they poured into investment notes issued by affiliates of now-bankrupt Mount Real, which mainly sold magazine subscriptions to U.S. residents.

Most of the advisors charged in late January by the Autorité des marchés financiers are former investment reps of the bankrupt iForum group that sold the unregistered investment notes.

No charges were laid against senior executives and directors of Mount Real, including chief executive Lino Matteo and Joseph Pettinicchio, the latter of whom served as president of both Mount Real and iForum Financial Network.

“The investigation continues,” says AMF spokesman Frédéric Alberro.

Among the accused are Yves Mechaka, former president and a broker at iForum Securities, and former iForum vice president Enrico Bruni. Former iForum broker William Marston also has been charged. Marston sold his clients $17 million of Mount Real investment notes, making him the top vendor of the investments. He was once one of Quebec’s most successful investment reps, with a large practice on the West Island of Montreal.

If found guilty, the accused face fines ranging from $1,000 to $15,000 on each charge, for a possible total of $4.2 million, says the AMF.

NOT REGISTERED

The AMF says the 24 advisors have been charged before the criminal and penal chamber of Quebec Court with one or more of the following infractions:

> acting as a broker or advisor without being registered with the AMF or its predecessor agency, the Quebec Securities Commission;

> having aided by act or omission Mount Real and three affiliated companies in offering promissory notes without a prospectus approved by the AMF or the QSC;

> having furnished false and misleading information to investors.

The AMF shut down Mount Real and iForum in November 2005. The agency alleges the promissory notes, a form of corporate IOUs, had been illegally issued and sold to investors. The AMF alleges Mount Real was an empty shell company with practically no business activities in the year before it was shut down.

Until things began falling apart in 2005, Mount Real presented itself as a healthy Toronto Stock Exchange-listed company, reporting $45.7 million in revenue and $89.7 million in assets at the end of 2004. In the spring of 2005, however, interest payments started to be missed on the investment notes, provoking a panic among investors.

Among the main assets of Mount Real’s affiliated companies were magazine subscription contracts sold by telephone to U.S. residents. The contracts, stretching back to before 1997, totalled about $100 million, says bankruptcy trustee Jean Robillard. He found, however, only $5.3 million of the contracts were active at the end of 2005.

Robillard, an accountant with Ray-mond Chabot Grant Thornton, says a further $105 million was on Mount Real’s books as advances, loans and investments to about 30 companies. Complex transactions among the companies, many located in the U.S., the Bahamas or Bermuda, were directed by Matteo, Robillard told a public meeting of investors last March. Investors’ money ended up in those countries; recovery efforts have so far come up empty.

Matteo has stated that Mount Real was overcoming its business difficulties when it was prematurely shut down by the AMF.

The promissory notes were mostly distributed by investment reps working for iForum Securities and its sister company, mutual fund dealership iForum Financial Services Inc. The parent company, publicly listed iForum Financial Network, operated out of the same offices as Mount Real.

John Bracaglia, a lawyer for Mechaka, Marston and four other of the advisors, has denounced the AMF charges as ludicrous and says his clients will plead not guilty. He has been quoted in Montreal’s The Gazette as saying the investment notes had been sold by Mount Real since 1993. If they were illegal, why had the AMF “allowed it to go ahead for so long?” he asked.

GOOD FAITH

Bracaglia has argued the notes were not illegal under the securities rules of the time and were sold by his clients in good faith. He says none of his clients have been charged with providing false and misleading information to clients.

@page_break@In a letter to The Gazette in December 2006, Mechaka wrote that iForum Securities had $220 million in assets under management, of which 18% was in investment products from Mount Real and its affiliated companies. He wrote to complain about what he saw as unfair coverage of the Mount Real affair, maintaining the notes were sold legally and under the supervision of regulators.

“It may … seem as a large percentage of a single product, but it is a very common practice in our industry to promote a like product which is in high demand by customers and had outperformed many other investment products for years,” the newspaper quoted Mechaka’s letter as stating.

Among those charged by the AMF are Carole Dorion, a former iForum Securities broker who had her licence permanently revoked by the AMF last year for interfering with the Mount Real investigation.

Also charged is Yves Tardif who, along with Marston, was given a three-month suspension and a $5,000 fine by the AMF last year for interfering in the investigation via inappropriate e-mails to clients.

Marc-André Froment is also among the accused. His insurance firm also received a three-month suspension and $5,000 fine for improper communications with clients about the investigation.

The AMF’s Alberro says most of the advisors who have been charged have moved on to other firms.

He adds that the Investment Dealers Association of Canada and the provincial Chambre de la sécurité financière are responsible for deciding whether professional disciplinary action is warranted against the advisors, depending on whether they are licensed, respectively, as securities brokers or mutual fund reps. IE