Class action authorized for alleged victims of $130-million financial scandal

MONTREAL - A Quebec judge has authorized a class action lawsuit on behalf of 1,600 Canadian investors who say they lost $130 million in an alleged fraud scheme.

Justice Jean-Francois Buffoni ruled that investors in Montreal-based Mount Real Corp. have the right to sue accounting firms and trustees they allege didn't do their jobs properly.

Three major accounting firms — Deloitte & Touche, BDO Dunwoody and Schwartz, Levitsky, Feldman — are named in the suit. So are two financial service companies: B2B Trust, a subsidiary of Laurentian Bank, and Services Financiers Penson Canada Inc.

The suit also targets former Mount Real head Lino Matteo and chief financial officer Paul D'Andrea.

Investors, represented by Andree Menard, are seeking $130 million, plus interest.

Bruce Johnston, a lawyer for one of three firms representing the investors, says the authorization has a deeper significance.

According to Thursday's judgment, the accounting firms argued their employees couldn't be held liable unless each individual investor had relied on the financial statements to make their investment decisions.

But lawyers for the investors argued that if the accountants had done their due diligence, Mount Real would have fallen apart early on and the fraud would not have occurred, Johnston said.

"The principles are remarkably simple: there are many obvious things that should have been detected by any competent accountant auditing this firm (Mount Real)," Johnston said in an interview.

"This firm was bogus from A to Z, it had no real activities to speak of, yet it was showing assets of $100 million and booming sales and booming profits.

"It's only with the participation of the accountants and the trustees that a fraud such as this one is possible."

Approval of the class action comes three years after it was initially filed with the court. Now there will be a delay before the case goes to trial — current backlogs are around two years.

But a spokeswoman for the investors said they are happy to see some movement.

"It's six years we've been waiting for something so this is great news," said Janet Watson, one of Mount Real's investors who says she lost $70,000.

"This was our only chance to recover any of our money and also to give us some sense of justice — the perpetrators of this alleged Ponzi scheme haven't gone to trial yet.

"There were three accounting firms involved in Mount Real in five years and that's usually a sign that something is not right," Watson said from her home in the Eastern Townships.

Watson said investors were told they were giving their money to a financial services and planning company that had the earnings and reputable advisers to prove it.

But the core business was actually far from financial planning.

"Basically, their main business was the sale of magazine subscriptions and had we known that we would have never invested," Watson said.