Mount Real - AMF files 682 charges against 5 officers, seeks prison terms and hefty fines

Securities

Montréal – The Autorité des marchés financiers (AMF) has launched penal proceedings in the Court of Québec (Criminal and Penal Division), district of Montréal, against five officers in the matter of Mount Real: Lino P. Matteo, Paul D’Andréa, Joseph Pettinicchio, Laurence Henry and Andris Spura.

The accused were shareholders, directors and/or officers of one or more of the following companies: Mount Real Corporation, Gopher Media Services Corporation, Gestion MRACS Ltée, Real Vest Investments Ltd. and Real Assurance Acceptance Corporation. These companies illegally issued promissory notes and/or made misrepresentations to the financial market regulatory authority.

The AMF filed 682 charges against these individuals for:

  • aiding, by act or omission, various companies related to Mount Real Corporation, in making a distribution of a form of investment governed by the Securities Act, R.S.Q. c. V-1.1 (the "Act") without a prospectus approved by the regulatory authority, thereby violating section 11 of the Act (285 counts);
  • aiding in making a misrepresentation that could influence the market price or the value of securities, thereby violating section 196 of the Act (252 counts);
  • aiding in making a misrepresentation in the course of soliciting proxies or sending a circular to security holders, in a document or information filed with the AMF or one of its agents and/or in a document forwarded or record kept by any person pursuant to the Act, thereby violating section 197 of the Act (145 counts).

The AMF has filed 308 charges against Lino P. Matteo, who allegedly orchestrated the ploy in the matter of Mount Real, and is seeking a prison term and fines totalling $204 million against him.

Moreover, further to the AMF's investigation, Paul D’Andréa has offered to co-operate. In addition to his co-operation, Mr. D'Andréa admitted his guilt and pleaded guilty, on September 18, 2008, to 131 charges. In consideration for his co-operation, the AMF does not intend to seek a prison term against him.

The AMF's investigation uncovered an extremely complex strategy. "I would like to highlight the depth of the investigation and analysis undertaken in this matter, which was particularly complex and generated an extensive paper trail," noted Jean St-Gelais, AMF President and CEO.

The investigation revealed that the officers of Mount Real had apparently set up an elaborate ploy involving, in particular, fictitious transactions, which resulted in significantly improving the appearance of the company's financial position, thereby misleading the public. The investigation also revealed that some companies in the Mount Real group illegally issued promissory notes apparently to finance these entities.

Need for penalties with deterrent impact
The penal sanctions sought in these suits are imprisonment not exceeding 5 years less one day and fines ranging from $500,000 to $5 million for each offence. The total fines sought amount to $551.5 million.

"Economic crimes are serious and detrimental to investors and society at large. Offenders should therefore be harshly penalized. This is why the AMF is seeking sanctions that deliver the maximum deterrent effect permitted by law," added Mr. St-Gelais.

The AMF is seeking tough penal sanctions in light of the losses incurred by investors, the premeditation, the planning, the complexity of the strategy, the repetitive nature of the offences and the role of the perpetrators as shareholders, directors and/or officers of the companies involved. According to the data gathered by the AMF, nearly 1,600 investors have lost some $130 million as a result of this fraud.

Key decisions in the matter of Mount Real
On January 24, 2007, the AMF filed 619 charges against 24 individuals who acted as representatives in the matter of Mount Real Corporation and its subsidiaries. To date, five individuals (Victor Lacroix, Armando Ferruci, Christophe Balayer, Luigi Muro and Anthony Cappellano) have been found guilty, for a total of 143 charges and $802,000 in fines.

In November 2005, the Bureau de décision et de révision en valeurs mobilières (BDRVM), at the request of the AMF, issued various freeze and cease orders against numerous individuals and companies related to Mount Real.

Also in November 2005, at the request of the AMF and on the recommendation of the BDRVM, the Québec Minister of Finance appointed Jean Robillard of the firm Raymond Chabot Grant Thornton as provisional administrator.

The Autorité des marchés financiers (AMF) is the regulatory and oversight body for Québec’s financial sector.

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Information:

Media only:
Sylvain Théberge: (514) 940-2176

Information Centre:
Québec City: 418-525-0337
Montréal: 514-395-0337
Toll-free: 1-877-525-0337

Facts and figures

Charges filed since 2005:
682 charges filed in September 2008
619 charges filed in January 2007
1,301 charges filed to date by the AMF

Total fines sought to date by the AMF in the matter of Mount Real:
$555,719,000

Number of charges punishable by imprisonment of 5 years less one day in suits against officers:
324

Number of accused since 2005 in the matter of Mount Real:
29 individuals facing charges to date

Estimated loss incurred by investors:
$130 million

Estimated number of investors affected:
1,600

Number of investigators assigned to the Mount Real case:
6

Estimated number of companies related to Mount Real:
120

Estimated number of boxes of archives examined as part of the investigation:
375

Estimated number of electronic documents for which search warrants were issued for the investigation:
1,500,000, mainly e-mails, spreadsheets and other documents.

Amount of fines imposed to date:
$802,000, representing total fines imposed by courts at the AMF's request.

Number of guilty verdicts to date:
5: Victor Lacroix, Armando Ferruci, Christophe Balayer, Luigi Muro and Anthony Cappellano.

Background

  • June 2005:
    • Publication of a press release announcing that the AMF was carrying out an investigation into the activities of Mount Real and that it had retained the services of a forensic accounting firm to assist in the investigation.
  • November 2005:
    • AMF obtains freeze and cease trade orders from the Bureau de décision et de révision en valeurs mobilières (BDRVM) with respect to various companies and individuals, in particular the directors, against whom charges were filed.
    • At the AMF's request, Jean Robillard of the firm Raymond Chabot Grant Thornton is appointed provisional administrator.
  • December 2005:
    • Provisional administrator files his initial report.
    • Activities of Mount Real are halted.
    • Searches take place at premises of various companies related to Mount Real. A massive number of documents are under search warrants.
    • Start of a series of legal debates regarding professional secrecy raised by several parties with respect to the search warrants. 95% of documents retrieved to date; the debate is ongoing.
  • January 2006:
    • New cease trade orders prohibiting all solicitation and transactions in the securities issued by Mount Real Corporation, Gestion MRACS ltée (MRACS), Real Vest Investments Ltd. (Real Vest) and Real Assurance Acceptance Corporation (RAAC), particularly previously issued promissory notes, including with respect to exchanging, converting and transferring said securities.
  • February to July 2006:
    • AMF suspends three representatives related to Mount Real: Yves Tardif, William John Marston and Carole Dorion.
  • January 2007:
    • AMF files 619 charges against 24 representatives.
  • October 2007:
    • Representatives Victor Lacroix and Armando Ferruci found guilty of the 26 and 48 charges respectively filed against them by the AMF. The court orders them to pay fines of $156,000 and $288,000 respectively.
  • January 2008:
    • Representative Christophe Balayer pleads guilty to the 10 charges filed against him by the AMF. The court orders him to pay a fine of $34,000.
  • April 2008:
    • Representative Luigi Muro is found guilty of the 50 charges filed against him by the AMF. The court orders him to pay a fine of $324,000.
    • Representative Anthony Cappellano is found guilty of the 9 charges filed against him by the AMF. In May, the court orders him to pay a fine of $18,000.
  • September 2008:
    • The AMF files 682 charges against 5 officers related to Mount Real and seeks prison terms and fines totalling more than $550 million.

Officers accused

Lino P. Matteo

  • Chairman of the Executive Committee and CEO of Mount Real Corporation as of 2001
  • President and CEO of Mount Real Corporation from 1995 to 2001
  • Chief Financial Officer (CFO) of Mount Real Corporation from 1993 to 1995
  • Director of Mount Real Corporation since 1993
  • Director of Real Vest Investments Ltd. from 2000 to 2005
  • President of Real Vest Investments Ltd. from 2000 to 2001
  • Director of Gestion MRACS ltée from 2000 to 2003
  • President of Gestion MRACS ltée from 2000 to 2003
  • President de Real Assurance Acceptance Corporation from 1998 to 2002
  • Director of Real Assurance Acceptance Corporation from 1998 to 2002 and from 2004 to 2005

The AMF filed 308 charges against Lino P. Matteo, who allegedly orchestrated the ploy in the Mount Real matter. The AMF is seeking fines totalling $204 million and imprisonment not exceeding 5 years less one day for each of the 74 charges punishable by a prison term for:

  • aiding, by act or omission, various companies related to Mount Real Corporation, in making a distribution of a form of investment governed by the Securities Act, R.S.Q. c. V-1.1 (the "Act") without a prospectus approved by the regulatory authority, thereby violating section 11 of the Act (201 counts – $100,500,000 in fines);
  • aiding in making misrepresentations to investors, thereby violating sections 196 and 197 of the Act (107 counts – $103,500,000 in fines).

Paul D’Andréa

  • Chief Financial Officer (CFO) of Mount Real Corporation beginning in 2004
  • Corporate Controller of Mount Real Corporation from 2000 to 2004
  • Director of Gestion MRACS ltée from 2002 to 2003
  • Secretary of Gestion MRACS ltée from 2002 to 2003

The AMF filed 135 charges against Paul D’Andréa and is seeking fines totalling $137.5 million and imprisonment not exceeding 5 years less one day for each of the 100 charges punishable by a prison term for:

  • aiding, by act or omission, various companies related to Mount Real Corporation, in making a distribution of a form of investment governed by the Securities Act (the "Act") without a prospectus approved by the regulatory authority, thereby violating section 11 of the Act (25 counts – $24,500,000 in fines)
  • aiding in making misrepresentations to investors, thereby violating sections 196 and 197 of the Act (110 counts – $113,000,000 in fines).

Joseph Pettinicchio

  • President and Director of Operations of Mount Real Corporation from 2001 to 2005
  • Vice-President, Finance of Mount Real Corporation from 1999 to 2001
  • Director of Mount Real Corporation from 2001 to 2005

The AMF filed 70 charges against Joseph Pettinicchio and is seeking fines totalling $63.5 million and imprisonment not exceeding 5 years less one day for each of the 43 charges punishable by a prison term for:

  • aiding, by act or omission, various companies related to Mount Real Corporation, in making a distribution of a form of investment governed by the Securities Act (the "Act") without a prospectus approved by the regulatory authority, thereby violating section 11 of the Act (1 count – $5,000,000 in fines);
  • making misrepresentations to investors, thereby violating sections 196 and 197 of the Act (69 counts – $58,500,000 in fines)

Laurence Henry

  • Vice-President, Corporate Development of Mount Real Corporation from 2000 to 2001
  • Director of Real Vest Investments Ltd. from 2002 to 2005
  • President of Real Vest Investments Ltd. from 2001 to 2005
  • Director of Gestion MRACS ltée from 2003 to 2005
  • President of Gestion MRACS ltée from 2003 to 2005
  • Director of Real Assurance Acceptance Corporation from 2002 to 2005
  • President of Real Assurance Acceptance Corporation from 2002 to 2005

The AMF filed 103 charges against Laurence Henry and is seeking fines totalling $89.5 million and imprisonment not exceeding 5 years less one day for each of the 94 charges punishable by a prison term for:

  • aiding, by act or omission, various companies related to Mount Real Corporation, in making a distribution of a form of investment governed by the Securities Act (the "Act") without a prospectus approved by the regulatory authority, thereby violating section 11 of the Act (58 counts – $47,000,000 in fines);
  • aiding in making misrepresentations to investors, thereby violating sections 196 and 197 of the Act (45 counts – $42,500,000 in fines).

Andris Spura

  • Secretary of Mount Real Corporation from 1999 to 2000
  • Director of Mount Real Corporation from 1996 to 2005
  • Chairman of the Board of Directors of Mount Real Corporation from 1996 to 1999
  • Director of Real Vest Investments Ltd. from 2000 to 2005
  • Secretary-Treasurer of Real Vest Investments Ltd. from 2000 to 2005
  • Director of Gestion MRACS ltée from 2000 to 2005
  • Secretary of Gestion MRACS ltée from 2003 to 2005
  • Director of Real Assurance Acceptance Corporation from 1998 to 2005
  • Secretary of Real Assurance Acceptance Corporation from 1998 to 2005
  • Director of Gopher Medias Services Corporation from 1997 to 2004

The AMF filed 66 charges against Andris Spura and is seeking fines totalling $57 million and imprisonment not exceeding 5 years less one day for each of the 39 charges punishable by a prison term for:

  • aiding in making misrepresentations to investors, thereby violating sections 196 and 197 of the Act.

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