The supreme court of Canada has rejected a class-action lawsuit brought by advisors that accused Quebec’s securities regulator of negligence in a massive fraud at the Norbourg Asset Management Inc. mutual fund group.

The suit was brought on behalf of hundreds of investment reps who had sold the firm’s Norbourg Evolution and Perfolio mutual funds; they claimed the scandal had cost them commissions and damage to their reputations. Lead plaintiff Francis Rosso, a former advisor with Norbourg subsidiary Tandem Wealth Management, claimed the scandal at Norbourg had cost him $160,000 in damages.

The suit alleged the regulator, the Autorité des marchés financiers, had not adequately protected investors or properly supervised the firm.

The Supreme Court’s refusal to hear the case means earlier, lower court rulings against the suit have been upheld. As usual, the high court gave no reasons for its refusal to hear the appeal.

Both the Quebec Court of Appeal and the Superior Court had sided with the AMF in refusing to authorize the class-action suit on grounds the advisors did not form a sufficiently homogeneous group to bring such a lawsuit.

The AMF had argued that the advisors did not represent a class because some had not incurred a loss in the Norbourg fraud, while others had actually taken part in improper activity.

The AMF also alleged that some advisors had accepted money from Norbourg — totalling almost $4.8 million — in exchange for transferring clients to the firm. Some advisors would have therefore benefited at the expense of defrauded investors, said the AMF.

AMF spokesman Frédéric Alberro says the regulator is satisfied with the Supreme Court decision not to hear the appeal. He adds the regulator is focused on recovering as much as possible for defrauded investors and ensuring that those responsible are punished. The agency has argued it acted correctly and in good faith in its Norbourg investigation.

The AMF isn’t out of the woods yet, however. It is named as a defendant in a $130-million class-action lawsuit brought on behalf of investors who lost money in Norbourg funds. That suit is going ahead.

It was authorized last November in Quebec Superior Court, with Wilhelm Pellemans of Morin Heights, Que., acting as the lead plaintiff for 9,200 fellow Norbourg investors.

Besides the AMF, the lawsuit also names Norbourg CEO Vincent Lacroix, four of his former associates and Norbourg’s former auditors as defendants.

In authorizing the class action, Superior Court Justice Pierre Jasmin said there is enough evidence of fraud on the part of Lacroix and others, as well as negligence on the part of the AMF, to allow the class-action suit to proceed against them.

The $130 million sought 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 by authorities in August 2005.

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

The AMF has come under heavy criticism for failing to uncover wrongdoing at Norbourg earlier, despite signs of trouble well before the regulator and the RCMP moved into to shut down the firm.

Lacroix is currently on trial in Montreal on 51 criminal charges filed against him by the AMF under the Securities Act. He is accused of manipulating mutual fund values and falsifying documents.

Lacroix, who has maintained he is innocent, faces fines of $20,000-$5 million and up to five years’ imprisonment on each count if he is found guilty. The trial has been a lengthy affair, with dozens of witnesses already called to testify or scheduled to testify. Lacroix is acting as his own lawyer.

The AMF alleges that $115 million was moved from mutual funds into accounts controlled by Lacroix during a five-year period. The money was used to make acquisitions, fund the operations of the firm and finance Lacroix’s lifestyle, the agency alleges. IE