Fugitive Under House Arrest Runs Stock Scheme

[george]

Fugitive under house arrest runs stock scheme

Forbidden by the court to leave his Richmond home, Thai banker Rakesh Saxena used a Vancouver law firm in a scheme that cost ordinary investors millions of dollars

Rakesh Saxena is wanted on charges of embezzling $88 million from Bangkok Bank of Commerce.

RICHMOND, CANADA: -- Financial fugitive Rakesh Saxena, while under house arrest in Vancouver, helped orchestrate an international stock scheme in which overseas investors lost millions of dollars, The Vancouver Sun has learned.

Other players in the scheme include three offshore boiler room operators who have prior criminal records, a Vancouver law firm whose two principal partners have been barred from practising law for 10 years each, and a former Howe Street broker who once made an unwitting cameo appearance in an ABC-TV expose of the old Vancouver Stock Exchange.

According to documents filed in B.C. Supreme Court, Saxena -- who is wanted by Thai authorities for allegedly embezzling $88 million from the Bangkok Bank of Commerce -- helped revitalize a series of shell companies whose shares were not listed on any public exchange.

He then arranged for high-pressure telemarketing organizations, commonly known as boiler rooms, to sell those shares to investors, mainly in the United Kingdom, from January 2001 to October 2003.

The boiler room operators told investors the shares would eventually be listed on a stock exchange. Meanwhile, they would receive dividends up to 25 per cent annually.

Investors were directed to send their money "in trust" to Martin & Associates, a Vancouver law firm. According to a forensic report prepared by chartered accountant Bill Kinsey, they sent a total of $18.4 million to the law firm.

One investor, Maurice Bowler of Stockton-on-Tees, England -- who invested $37,102 US in three fledgling companies -- said he was reassured by the fact that the money was being sent "in trust" to a Canadian law firm.

"The use of banks and law firms in such transactions is guaranteed to lend weight to, and give legitimacy to, otherwise fraudulent dealings," Bowler said in an affidavit filed in B.C. Supreme Court.

According to Kinsey, little money was remitted to the issuing companies. Instead, nearly all was distributed -- on Saxena's instructions -- to third parties, including $1.6 million to pay the law firm's fees even though he said the firm provided little in the way of legal services other than work relating to the trust accounting.

Securities records show that in most cases, the issuing companies had no viable business and no dividends were paid. Some investors say they did not get their shares, and in other cases, the shares were never publicly listed and are therefore essentially worthless.

In an effort to recover their money, dozens of investors, many of whom are elderly, have filed claims in B.C. Supreme Court.

Saxena admits he helped structure the deals and organize the selling agents, which he willingly characterizes as boiler rooms. "All brokerages are boiler rooms," he said in an interview.

But he said he was strictly an intermediary and not a party to any of the contractual arrangements. "It's a thin red line, I grant you, but it's still a red line," he said.

He also said he was not aware the investments were being misrepresented to investors. "No question that there was a gap between the representations made and the reality. I'm not aware of specifics, but I know it happens every day in all markets."

After receiving complaints from investors, the B.C. Law Society began an investigation into the law firm. In October 2003, the society asked the court to appoint a custodian to take over the practice. The custodian, in turn, hired Kinsey to review the law firm's trust accounts.

In July 2004, the firm's two principals, John (Jack) Martin and Craig Iwata, admitted to professional misconduct and agreed not to reapply for membership in the law society for 10 years. The settlement agreement refers only to trust account irregularities and makes no mention of Saxena or the stock scheme.

In a news release, the law society stated that "no client of the firm lost money as a result of these unauthorized withdrawals from trust." There is no mention that investors lost millions of dollars in the stock scheme.

It was not until this month, when The Sun obtained a copy of Kinsey's report, that details of the scheme became available.

Martin refused to answer any questions posed by The Sun on grounds he is restricted by rules of solicitor-client confidentiality.

Iwata denied he was involved in the stock scheme. "I'm not saying I didn't have knowledge of it," he said, refusing to elaborate. He insisted that he resigned from the society. "I wasn't suspended," he said, even though it is clear the society forced him out of practice.

Saxena, 53, was arrested at Whistler in 1996 and since then has been fighting extradition to Thailand to face the embezzlement charges.

Under a novel arrangement with the court, he pays about $30,000 per month for security guards to detain him around the clock in his personal residence, originally a condo in False Creek and more recently a rented home in Richmond. There are no restrictions on his business dealings.

According to Kinsey's report, Saxena and his B.C. private company, West Shore Ventures Ltd., headquartered at 2000-1066 West Hastings, were key players in the scheme.

Kinsey said they "purchased shell companies and sold their shares to overseas buyers, or had the companies issue preferred shares for that purpose."

Kinsey said several companies were purchased for "relatively nominal amounts" -- $40,000 to $75,000 for two million to three million shares, or about three cents per share. Affidavits filed by investors in B.C. Supreme Court show the shares were re-sold to investors for $1 each or more.

Kinsey said West Shore, initially operating from offices in Spain and later South Africa, and other selling agents told prospective investors the shares were backed by hard assets and, in one case, were likely to rise to investment grade through the company's purchase of insurance.

However, Kinsey noted that "available information indicates a lack of assets necessary to produce the promised returns."

In an interview, Saxena acknowledged that he owns West Shore, but claimed the people who represented themselves as West Shore sales reps were impostors.

Saxena also said that, in certain cases, West Shore letterhead used to communicate with investors was used without his authorization, and his signature -- which appears on some West Shore correspondence to investors -- was either forged or electronically reproduced.

Kinsey said another key player in the stock scheme was Francoise Otto, 55, a former Vancouver stockbroker who acted as Saxena's right hand.

Otto is best known for her appearance on ABC television's PrimeTime Live program while working as a broker at Wolverton Securities.

In 1990, ABC reporters posed as prospective investors and secretly filmed Otto making exaggerated claims about a Vancouver Stock Exchange company called Puff Pac Industries, run by promoter Don Farrell, who has since been blacklisted by VSE officials.

Puff Pac was promoting an inflatable packaging product as an alternative to foam products: "They've had three major, major corporations having a look at it. . . . One of them is Mobil Oil, okay, one was Du Pont," Otto told the undercover reporters.

After the show aired, Wolverton fired Otto and the VSE, embarrassed by her remarks, cited her for improper conduct. She was eventually cleared, however, and found new work at Georgia Pacific Securities.

In 2000, she quit the brokerage business and incorporated a private firm called Stareclimber Enterprises Inc., which shares the same West Hastings office address as West Shore.

Kinsey said Otto "did the main administrative work in connection with most, if not all, of the share offerings and, in general, seems to be RS's [Rakesh Saxena's] operations manager."

According to an affidavit filed on behalf of the custodian, a junior lawyer at Martin & Associates said "Ms. Otto often acted as the 'contact person' for that entity referred to as [West Shore Ventures]."

The junior lawyer also said Saxena instructed him on more than one occasion "that he should deal directly with Ms. Otto on matters concerning [his] files," the affidavit stated.

Otto also met frequently with Saxena at his residence. Saxena said that at some times, she visited almost daily. Otto declined to be interviewed for this story.

Kinsey said he reviewed Stareclimber's trust account and 61 associated accounts at Martin & Associates.

He reported that -- from January 2001 to October 2003 (when the society took over the law firm's practice) -- there were more than 7,800 transactions in those accounts, representing nearly 30 per cent of the firm's trust activities.

He said 1,861 of these transactions were stock sales to investors who remitted payment to the law firm -- a total of $18.4 million during the period.

He said the funds, usually in foreign currencies between $4,000 and $20,000, but sometimes as high as $100,000 or more were collected in what he called "scoop accounts" and then transferred to what he called "funnel accounts" where all but $538,306 was paid out.

"Over $18 million has been paid out from these accounts to 281 individuals and organizations. Much of this has been on specific written instructions of RS," he said.

Kinsey also determined that the issuing companies -- which should have been the primary beneficiaries -- got very little money. "Usually share proceeds were not paid to the client named in the trust records," he noted in his report.

In some cases, he said, sales commissions exceeded 50 per cent of the selling price. In the case of one company, Diversified Equities International Corp., none of the $2.04 million raised from the sale of shares was paid to the company.

"Martin & Associates trust accounts became, in effect, [Rakesh Saxena] et al's banker," he said.

Saxena denied that he directed the distribution of funds. He noted that Kinsey acknowledged in his report that he had not compared the bookkeeping entries to underlying documents, and therefore could not be said to have "audited" the transactions.

"If he had, he would have seen that direction and control of the whole process was mainly with Francoise Otto and Jack Martin," he said.

Kinsey said $501,426 was paid from the trust accounts to Saxena's mother, of which $20,000 came from the account of Diversified Equities. Kinsey said she was described as "respected legal scholar."

Saxena said his mother is not a lawyer, but he insisted the funds were his, the proceeds of unrelated stock sales.

Kinsey said $1.6 million was paid to Martin & Associates, but it is not clear why the firm got so much money: "The files indicate, with few minor exceptions, Martin & Associates did little legal work other than related to the trust accounting," he said.

He added that he "saw nothing to indicate that Martin & Associates was concerned with representations made [by the boiler room operators] to would-be investors."

He also said sales documents given to investors initially indicated the law firm "would not release investors' funds until certain events took place." However, he said, it appears that "little or no appropriate due diligence took place" and this release provision was discontinued for later offerings.

In July 2004, after the law society took over their practice, Martin and Iwata signed a settlement agreement in which they admitted to withdrawing money from trust accounts that did not belong to them and to creating trust account shortages. They agreed not to re-apply for reinstatement as lawyers for 10 years.

The agreed statement of facts describes dozens of trust account irregularities, but there is no mention of Saxena or his stock scheme.

"The public interest was served expeditiously by the agreed statement of facts and their withdrawal and undertaking [not to re-apply for 10 years]," society president Ralston Alexander said in an interview.

"We saw that as an efficient outcome. Our objective, in the protection of the public interest, was to get them out of public practice, which was accomplished by that outcome. It's a police matter to prosecute allegations of money-laundering and/or fraud."

Saxena has a different point of view. He suggests the law society purposely didn't test the legality of what Martin & Associates was doing.

"It's a classic negative conspiracy. They are covering the fact that regulations allow Canadian lawyers to do this sort of business. The reputation of the Canadian legal system, that's what they are protecting."

In March this year, the law society revised its Professional Conduct Handbook "to reinforce a lawyer's duty to be on guard against becoming the tool or dupe of an unscrupulous client."

"In recent years, the law society has learned of dishonest investment promoters who have asked to deposit funds in lawyers' trust accounts," the society stated, without referring to any specific case.

"The funds typically come from investors who have been promised spectacular profits. Perpetrators of these scams use a lawyer's trust account and insurance coverage to add credibility to a fraudulent enterprise."

The society said lawyers "have always been under an ethical obligation to refrain from dishonest or fraudulent activities," but the rule changes "expressly highlight a lawyer's duty to refrain from any activity the lawyer 'knows or ought to know' assists a fraudulent enterprise" and "explicitly warns a lawyer to be wary of clients who promise third parties unrealistic returns on investments placed in trust with the lawyer."

For most investors, the amendment is a case of too little, too late. Martin and Iwata, however, appear to be doing well. Both are working as immigration consultants. Martin, 54, lives in a $830,000 condominium in Yaletown and Iwata, 49, lives in a newly renovated $1.4-million home in Kerrisdale.

--Canada.com 2005-06-26

[Kerryd]

Rakesh Saxena is wanted on charges of embezzling $88 million from Bangkok Bank of Commerce.

I had heard it was a lot more than that originally. Back in '98, it was thought he was the major reason for the big banking collapse (the Asian Flu). I thought they said back then he had fled the country (Thailand) with over 1 billion (US).

When he got caught in Canada, the country decided not to extradite him, as he would have faced the death penalty in Thailand.

They couldn't charge him with anything in Canada, and didn't want to spend taxpayers money guarding him. He offered to provide his own security, and basically gets to live like a king on the money he stole.

[The_Moog]

I met Rakesh Saxena in his Bangkok Bank of Commerce offices 10 years ago.

Very charming and full of borderline schemes.

He filled me up with Margaux Claret whilst knocking back the double whiskies himself.

Most jolly meeting I ever had !

[Pattaya_Fox]

I met Rakesh Saxena in his Bangkok Bank of Commerce offices 10 years ago.

Very charming and full of borderline schemes.

He filled me up with Margaux Claret whilst knocking back the double whiskies himself.

Most jolly meeting I ever had !

<{POST_SNAPBACK}>

A genial host indeed.

business and Margaux....a perfect blend