Vincent Lacroix, the former president and CEO of the Norbourg Group, was sentenced to 12 years less a day in prison and fined $255,000 — $5,000 for each of the 51 charges he faced — on Jan. 28 for his role in the Norbourg scandal.

The jail sentence, handed down by Justice Claude Leblond of the Quebec Court (criminal and penal division) in Montreal, is unprecedented for a securities fraud case. Quebec’s securities regulator, the Autorité des marchés financiers, which prosecuted the case, has only had the option of asking for jail time for the worst securities-related infractions since 2001.

The case sets a precedent for the AMF on several counts. Not only is it is the first time that the regulator has secured a prison sentence for a Securities Act infraction, it is also the first time the AMF got someone convicted for manipulating financial statements. As well, it is also the first case in which a defendant has received consecutive sentences.

In his decision, Leblond concludes that although more despicable examples of securities fraud are “imaginable,” he felt justified in handing down a sentence that sets a new standard in Canada based on the scale of the fraud, the number of investors affected and the moral culpability of the defendant.

AMF president and CEO Jean St-Gelais was “satisfied” with the verdict, according to an AMF statement.

The AMF’s accomplishment is a reflection of the priority and the resources that enforcement now commands at the regulator. “When I started in this role in 2004,” says Nathalie Drouin, the AMF’s executive director of enforcement and legal affairs, who has been with the regulator since 1991, “St-Gelais made it clear that the Autorité’s two priorities were harmonization of regulators and enforcement.”

Drouin has seen to it that policy and practice remain in line. The AMF has pursued several high-profile cases, with an eye on convictions, with Drouin at the helm. First, there was Lacroix; then, on Feb. 21, Benoît Laliberté was found guilty of 41 charges in the Jitech Inc. insider trading case. The AMF is currently investigating Themistoklis Papadopoulos and Mario Bright, among others, in the Triglobal Capital Management Inc. case. (See page 39.)

To a certain extent, the AMF’s success is a reflection of its structure. The AMF is accountable to an independent tribunal for securities laws, the Bureau de décision et révision en valeurs mobilières, while the other provincial securities commission are self-regulating and accountable only to themselves.

“Success breeds success,” Drouin says of the AMF’s increasing momentum in prosecuting securities fraud cases. But the AMF hasn’t done it alone. It has drawn on help from lawyers in private practice to manage individual cases.

At several stages, the AMF brought in outside counsel to prepare and then try the Norbourg case. As for not using AMF staff, Drouin explains, “We were in the process of bringing in new people. And it would have been wasteful to tie our limited resources to a trial that could potentially take years.”

“COLOSSAL” TASK

On Aug. 25, 2005, the AMF and the RCMP, among other police forces, established a provisional administration for Norbourg and executed search warrants, after Eric Asselin, Lacroix’s second in command, disclosed the extent of the fraud to the AMF.

The AMF brought in Lise Girard and Yan Paquette from a Quebec City law firm in August 2005 to prepare for the search and for the provisional administration of Norbourg, then write up the charges when the forensic accountants completed their report in March 2006. “Other people in our firm said it would be impossible” to get through the documentation of the Norbourg case in a matter of weeks, says Girard of the “colossal” task. “But I preferred to look at it as something that just had to be done.”

After the forensic accountants released their report, Girard and Paquette wrote up the 51 counts so that the AMF could press charges within 24 hours. “Preparation had a lot to do with that. It was a complicated case, where outcomes, even charges in one court, would have ramifications on cases in others,” Girard says.

A former crown attorney, Girard was convinced from the beginning that Lacroix should get jail time for the fraud. Girard identified two cases from England in 1876 that provided the precedent for sentencing Lacroix to consecutive sentences, instead of concurrent sentences for three sets of charges.

@page_break@Although Girard, who joined the AMF as its head litigator in March 2006, found the work she had initially done on the Lacroix case rewarding, she did not prosecute the case herself. The AMF brought in Éric Downs and his team, including associate Tristan Desjardins, from Montreal-based law firm Downs Lepage. The lawyers crossed the aisle to prosecute the case and Girard was always at Downs’s side.

“She has a lot of energy,” says Downs of Girard.

Downs’s and Desjardins’s job was to assimilate massive amounts of information. Lacroix faced 51 charges under the Loi sur les valeurs mobilières, Quebec’s Securities Act, ranging from falsifying accounts and issuing false financial statements to manipulating the Norbourg Group’s market value.

The fraud amounted to $115 million, or 83% of the funds placed under Lacroix’s or his firm’s management. The funds disappeared from accounts and portfolios between January 2000 and Aug. 25, 2005, when the AMF named a provisional administrator and the investigation went into full swing.

“We told a five-year story in the course of a 50-day trial,” Downs says. “Some days, we would put one aspect under the microscope; the next, we would be trying to draw a broader picture.”

Downs and Desjardins focused on simplifying the complex jumble of companies, false filings and accounts. There were 137 irregular withdrawals that funnelled money out of Norbourg Group companies. But money also moved in Lacroix’s company as if he was moving money between his savings and chequing accounts. One of the charts used in the trial illustrates a network of companies and covers that Lacroix was operating. “We call that one ‘the octopus’,” Desjardins says.

Another exhibit, the size of a garage door with hundreds of parallel and perpendicular lines intersecting, outlines 10,000 transactions. “We call that one the circuit board,” Desjardins adds.

As for the jail sentence, it is reserved for the very worst offenders — a standard Lacroix fit. “He was completely unrepentant,” Downs says. When Lacroix finally testified before sentencing, “It was always somebody else’s fault,” he adds.

“People still want to know where the money went, but I don’t think they will ever find much,” Downs says. He figures Lacroix spent it all — Norbourg grew by acquisition and Lacroix, personally, lived like a rock star.

Despite the AMF’s success in prosecuting the case, not everyone is pleased with the regulator’s conduct. Some critics feel that the AMF did not act fast enough to protect investors. (The AMF is, in fact, a defendant in a lawsuit by some of the 9,200 investors whom Lacroix defrauded.)

Although Norbourg investors will not benefit from the lengthy jail sentence handed down to Lacroix, the threat of a long prison sentence for white collar criminals in Quebec will go a long way toward preventing future scams. IE