The autorité des marchés financiers, Quebec’s securities regulator, has changed gears in its ongoing investigation and prosecution of Mount Real Corp.

On Sept. 22, the AMF laid 682 charges against five Mount Real executives — including CEO Lino Matteo, president Joseph Pettinicchio and chief financial officer Paul D’Andrea — for presenting false financial data. The AMF’s investigation, which began in 2005, has uncovered a network of an estimated 120 companies with accounts in Canada, the U.S. and the Caribbean. The AMF is seeking $551.5 million in fines as well as jail time for 324 of those 682 charges.

But that is cold comfort for the estimated 1,600 investors who lost more than $130 million buying promissory notes from Mount Real-related companies.

The AMF’s most recent moves effectively target the architects of the scam, while the first charges laid in the case — 619 charges against 24 individuals — took on the distributors of the dubious securities with which Mount Real was associated.

To date, five of the first 24 individuals charged with distributing the illegal securities — Victor Lacroix, Armando Ferruci, Christophe Balayer, Luigi Muro and Anthony Cappellano — have been found guilty of 143 charges and have been fined a total of $802,000.

The charges stem from the issue of promissory notes by three companies: MRACS Management Ltd., Real Vest Investments Ltd. and Real Assurance Acceptance Corp. The notes were then sold by iForum Financial Services Inc. and iForum Securities to retail investors. In June 2005, investors complained to the AMF that they had not been paid the interest that was due on the paper.

In November of that year, at the AMF’s request, the Bureau de décision et de révision en valeurs mobilières — the independent tribunal for the enforcement of securities law in Quebec — halted operations at Mount Real and named Jean Robillard of Raymond Chabot Grant Thornton in Montreal as the provisional administrator of Mount Real, iForum Financial Services and iForum Securities.

In January 2006, the AMF laid the first 619 charges, with the focus squarely on the distribution of securities without prospectuses and misrepresenting those products to retail investors.

The AMF started to see results only in the waning months of 2007. In October, Lacroix was found guilty on 26 charges and fined $156,000; Ferruci was found guilty on 48 charges and fined $288,000. Balayer subsequently pled guilty to 10 charges and was fined $18,000. In April of this year, Muro was found guilty on 50 charges and was fined $324,000; Capellano was convicted of 10 charges. In May, Capellano was fined $18,000.

The most recent charges show a shift in the focus of the investigation from the distribution of the illegal securities to the alleged elaborate effort of Mount Real’s executives to paint a false financial portrait of Mount Real and related companies.

Mount Real had provided CFO-type services for media companies and sold magazine subscriptions by phone to American consumers. The AMF cites the involvement of more than 120 companies. William Urseth, author of the forthcoming Death Spiral: The Collapse of Cinar, Northshield and Mount Real, contends many of those companies were clients of Mount Real’s legitimate business — victims of the scam, not participants.

Still, Mount Real’s audited financial statements — its shares traded on the Toronto Stock Exchange — painted a rosy picture. Ultimately, Robillard and a team of investigators have concluded that Mount Real had only a fraction of what it said it did and have accused its executives of fiddling with the numbers and listing false transactions.

At first glance, the connection between Mount Real and the companies that issued and sold the paper — MRACS, Real Vest and RAAC, as well as the firms in the iForum network — is tenuous. Mount Real’s connection to the other firms in the scam was through a network of executives.

Of the five executives the AMF has charged for their roles in allegedly deceiving investors by presenting false financial statements, Mount Real CEO Matteo was Mount Real’s CFO in the 1990s and was also president of Real Vest in 2000-01 and remained a director there until 2005. He was also president of MRACS from 2000 through 2003 as well as president of RAAC from 1998 to 2002 and from 2004 to 2005. Matteo is facing 308 charges. The AMF is seeking $204 million in fines as well as prison terms on 74 of those charges.

@page_break@Pettinicchio, who was the president and chief operating officer of Mount Real from 2001 through to 2005, was also president and CEO of the iForum sister companies before they placed themselves under bankruptcy protection. (Their joint advisor network was subsequently acquired by Winnipeg-based Great-West Lifeco Inc.to bolster its mutual fund arm, Quadrus Investment Services Ltd. ) Pettinicchio is facing 70 charges and jail time on 43 of them, as well $63.5 million in fines.

Pettinicchio had held senior positions with AGF Management Ltd., Royal Bank of Canada and other firms before joining Matteo’s companies at the turn of the century.

D’Andrea, Mount Real’s CFO, has also filled various senior positions at MRACS. He has co-operated with the AMF and on Sept. 18 pleaded guilty to 131 charges in order to avoid jail time. But the charges could carry fines of as much as $137.5 million.

The fourth executive charged, Laurence Henry, had been vice president of corporate development at Mount Real in 2000-01 and subsequently moved to Real Vest as its president until its demise in 2005. He was simultaneously a senior executive at MRACS, from 2003 to 2005, and president of RAAC from 2003-05. Henry is facing 103 charges, 94 of which carry prison sentences, and $89.5 million in fines.

Andris Spura, the fifth executive facing charges, held executive positions at Mount Real, Real Vest, MRACS and RAAC as well as with Gopher Media Services from 1996 until the exposure of the swindle in 2005 — and usually more than one position at a time. He is facing 66 charges, 39 of which carry jail time, as well as $57 million in fines.

The AMF has been aggressive in its pursuit of crimes against Quebec securities laws. Vincent Lacroix, the architect behind the investment swindle that brought down Norbourg Group, is serving a prison term in addition to paying fines — a sentence unprecedented in Canada.

But while the Mount Real charges may bring closure for victims and deter further criminal activity, the odds of recovering the money is slim. IE