When the whistle stops

The ex-employee who tried to bring down Saskatoon
financial adviser Brian Mallard died two years ago. But
Mallard's fight for his reputation
didn't.

 

Word of Kent Shirley's death arrived on Boxing Day 2004. Brian Mallard, who owns a successful financial advisory firm in Saskatoon, was vacationing in Hawaii. He visited an industry website and read about the fate of his erstwhile 30-year-old administrative assistant. The news shocked Shirley's friends and family, but Mallard had long predicted it. So, today's the day, he thought.

By then, the two men were on the worst of terms. Nearly a year earlier, Shirley had launched a wrongful-dismissal suit in which he'd claimed that Mallard's company, Brian Mallard and Associates, and its mutual fund dealer, Assante Corp., flouted industry rules and placed their own interests above those of clients. The unproven accusations pitched Mallard into the fight of his career. And they forced Assante to delve deep into its controversial past to confront whispered rumours that had plagued the company for years.

Shirley had become a potent symbol for those who distrust investment advisers and the regulatory apparatus charged with supervising them. But he had a tormented history of drug addiction, mental illness and poor performance on the job. Even worse, some accused him of stealing the documents that he put forth as evidence against Mallard and

Assante. Was it merely sour grapes, or did Shirley have a credible case?

Plenty of people thought Shirley's allegations warranted a closer look. Many would later regret their curiosity. Shirley's dispute with Mallard consumed reputations, destroyed careers and pushed some to self-destructive behaviour. And matters did not end with his death. If anything, they got worse.

It was 1994, long before everything went wrong, and Kent Shirley was a 19-year-old looking for work. A former fencer who'd competed at international competitions, he had few credentials besides ambition. He did, however, have a brother who already worked with Brian Mallard. It was enough to get him a summer job doing data entry. In an interview in September 2004, Shirley claimed he worked “his ass off” for Mallard. “I worshiped him,” he said. “He was God. He was great. He was an idol….I did everything I could to please him.”

A consummate salesman, Mallard had made a name for himself in Saskatoon. He began selling insurance at the Canada Life Assurance Co. in 1973 and attained his chartered life underwriter designation in 1979. The next year, he founded Dataplan Consulting Associates (later Dataplan Financial Services) and added mutual funds to his product lineup in 1987. During the ensuing years, Mallard fell out with his partners and became a one-man dynamo. In 1996, Assante bought Dataplan; Mallard held the position of CEO until Dataplan merged with another Assante acquisition, Equion Financial. After that, he formed Brian Mallard and Associates, but retained Assante as his mutual fund dealer.

In recent years, Mallard's branch boasted $350 million in assets under management from 4,000 clients, of which 650 were Mallard's own. He became sufficiently wealthy that he now spends part of the year in Hawaii. And his extensive use of TV commercials made him a recognizable figure in Saskatoon, a city of more than 200,000. Though less recognized elsewhere, Mallard has been a leading voice in his industry, holding senior board positions with the Canadian Association of Insurance and Financial Advisors and its successor, Advocis, serving a two-year term as the association's chair.

When Mallard needed a personal assistant in 1996, he chose Shirley. “He was hard-working, keen, followed the rules, and did what he was told as fast and efficiently as possible,” Mallard recalled in an interview this summer. In his new role, Shirley sat in on client meetings, taking notes as Mallard provided clients with financial plans and advice. Shirley deemed his compensation generous, and at one point Mallard even co-signed a $50,000 loan agreement for him.

These were heady times. Winnipeg entrepreneur Martin Weinberg founded Assante's predecessor, Loring Ward Investment Counsel, in 1987. It bought Optima Strategy Funds, a family of eight mutual funds, in 1993, and merged with the Equion Group of Toronto in 1995. That year, Weinberg embarked on an ambitious bid to buy up smaller mutual fund dealers across the country. He oversaw 18 acquisitions during the coming decade, including Mallard's DataPlan. The company went public in 1999.

As Assante's ranks of advisers and customers swelled, however, so did controversy about how it sold mutual funds. Many advisers across Canada sell third-party funds, and receive compensation from those third-party fund companies in return. In contrast, Assante's business strategy hinged on selling its own “in-house” mutual funds, including its Artisan and Optima products. Assante told shareholders this approach offered “the potential for a nine- to sixteenfold increase in operating margins.”

Not everyone shared Assante's enthusiasm. The financial services industry has attracted an odd cast of characters, loosely described as “investor advocates,” who attack behaviour they view as detrimental to the public. Some of them are former investment professionals who have been punted from the industry. Others claim they've lost fortunes at the hands of unscrupulous advisers. A number of investor advocates pounced on in-house funds. Despite the fact that other companies (like Investors Group) also sold them, Assante became the lightning rod.

One oft-heard criticism was that, across the board, Assante's products were (and are) expensive to own. The Artisan Most Conservative Portfolio, for example, features a management expense ratio that has averaged about 3%, compared with an industry average of about 2%. In an article published in 2001, mutual fund analyst Dan Hallett observed: “Assante stands out in its apparent goal to use its growing advisor base to increase its in-house funds, most of which have fees that are far greater than their peers.”

Did clients get what they paid for? A cursory analysis of Assante's products shows that over the years many have performed admirably compared with peers. “At least a couple of managers running their funds have done a really good job,” observes Hallett. He adds, however, that to justify such fees, advisers should provide a high level of service. And “the higher the fees, the tougher it is to put out strong returns over time,” he warns.

Another problem was that Assante encouraged its advisers to own company shares. The tactic was intended to encourage them to keep working with Assante and align their interests with those of shareholders. The problem is that the interests of shareholders don't always square with those of clients. Assante didn't gloss over this. In one mutual fund prospectus, it warned investors that the more Assante shares an adviser owned, the more he benefited each time he sold Artisan products to clients.

Among investor advocates, there were whisperings of even deeper conflicts of interest. Rumours surfaced from former Assante advisers that the company set quotas for selling in-house products to clients, and offered company shares to advisers in exchange for meeting those targets. Such incentives would encourage advisers to favour Assante products regardless of whether they were right for clients. “I certainly got a lot of calls from media asking about it,” Hallett recalls. “People wanted to write about it, but they couldn't until they had documented proof, and there wasn't any.”

One journalist who jumped on the story was Jonathan Chevreau, a personal finance columnist with the National Post. In November 2002, Chevreau warned readers to be wary of firms hawking in-house funds. He cited Assante as an “egregious” example. “As in-house funds are added to the mix, investors should question how 'independent' these advisors are,” Chevreau wrote.

Chevreau's criticisms were not well received by Assante. It responded by holding meetings between senior executives and Post journalists, and wrote a letter to the Post's editor. “Assante does not impose quotas,” the company stated, “nor do we pressure advisors to sell our own in-house portfolio management solutions.” Allegations that advisers received more compensation for selling in-house products were similarly untrue, the letter added. The Post's executive editor at the time, Doug Kelly, later wrote a letter to Weinberg apologizing for “any inaccuracies” in the Post's stories. Weinberg considered Kelly's letter a victory; he distributed it to Assante employees.

Where did the rumours originate? In an interview this summer, Weinberg explained that when Assante acquired other companies, it offered owners of those companies additional compensation if they met certain profitability targets during the following three years. “Some of the most profitable things they could sell were the Optima Strategy and Artisan funds,” Weinberg conceded. “But that wasn't the only way to get there. You could have sold insurance or grown your practice or done other things” to reach the profitability targets. Assante terminated such arrangements when rules governing industry sales practices changed in 1998. “There were no quotas, ever,” Weinberg added.

But rumours of secret quotas and incentives persisted. Stephen Gadsden, a former Assante adviser, who left in 2002, claimed that during one meeting that year an Assante executive vice-president instructed managers and sales representatives to redeem up to 80% of their clients' money and reinvest the proceeds in Assante products. And a dissatisfied client, Jocelyne Robidoux of Thunder Bay, Ont., sued Assante in 2003, alleging that without her consent, her Assante adviser redeemed her third-party mutual funds and bought Artisan products. Assante claimed that Robidoux authorized her adviser to conduct discretionary trading on her behalf; Robidoux denied that. The matter was settled out of court when Assante paid Robidoux $13,000, the amount she claimed she'd lost as a result of the transactions. Assante admitted no wrongdoing.

“I don't know what caused [the rumours] — it was very frustrating for me at the time,” said Weinberg. “The industry could not quite understand how we were gaining such market share, and concluded that we must be doing something aggressive.”

Even a change in ownership did little to quell suspicions. In 2003, CI Fund Management (now called CI Financial Income Fund) bought Assante for $846 million. At the same time, CI purchased Toronto-based Synergy Asset Management and a new management team was brought in to steer the Canadian acquisitions. The team included former Synergy boss Joseph Canavan, who was appointed as Assante's new chairman and CEO. Weinberg and his team departed.

In an interview with Advisor's Edge Report (a trade publication) last year, Canavan said that at the time of CI's purchase Assante was a “dog's breakfast” — a good company with a “challenged business structure,” but one that had been “totally dressed up to be sold.” He claimed that infighting was common, and advisers were unhappy. He added that some of Assante's products paid advisers huge compensation — and described that as being “not legit.” Such comments could only contribute to perceptions that Weinberg's management was aggressive. (Weinberg found such claims offensive. “We built a firm with a strong culture and a strong offering to clients, that demonstrated its success in the marketplace,” he said. “It was never built to sell.”)

By the time of its purchase by CI, Assante sat on a powder keg of suspicion. Kent Shirley lit the fuse.

Aphotograph of Kent Shirley at an office pool party in August 2000 reveals broad shoulders and a powerful build. He sported cropped hair and a confident smile. He was an avid bodybuilder, but his bulked-up physique concealed tremendous vulnerability.

His life began to unravel in 2001. According to Mallard's court filings, Shirley's performance deteriorated markedly. He failed to complete paperwork, behaved erratically, forged client signatures, engaged in “inappropriate personal conversations” with female staffers, and showed up for work looking dishevelled. Mallard noted that Shirley was packing on muscle. “He went from being a little over six feet, 180 pounds, to about 260 pounds — and it wasn't fat,” he said in an interview. “I believed he was doing steroids. He denied it, but the signs were definitely there.” Some days, Mallard claimed, Shirley flew into a rage over trivial matters or sat in his office and sobbed for hours at a time. “He was GQ material,” said Mallard, “but underneath that veneer, he was a mess.”

Shirley denied some of Mallard's allegations. Those he admitted to were disturbing enough. In an interview months before his death, he revealed he'd become addicted to Valium while fighting insomnia. He confessed that he was “very involved in the steroid scene.” Things took a turn for the worse in 2001. He attempted suicide and was hospitalized due to an overdose. The personal turmoil spilled over into his professional life. “Apparently some clients said, 'Kent appeared as though he was stoned,'” Shirley said. “It may very well have happened. I was trying to work and function in life at the same time, and I probably shouldn't have been.”

Shirley went on an eight-month leave of absence in 2002, on the condition that he seek medical help and enter a rehabilitation program. Mallard claimed that Shirley wasn't co-operating, and didn't want him to return. In December 2002, however, Mallard says he received a call from Shirley's father that changed his mind. “He was very afraid that Kent would hurt himself and felt that he needed a safe place to work, and that was my place,” says Mallard. “So I said I would look for a way.” Mallard's change of heart was unpopular with his staff and lawyers.

When Shirley returned to work in February 2003, he and Mallard struck a written agreement stipulating that Shirley would refrain from abusing drugs, maintain a “neat and businesslike appearance” and obtain the Certified Financial Planner designation. The idea was that he would work under heightened supervision, with less responsibility, but gradually resume his old duties. It didn't work. Shirley was upset with the demotion, and Mallard accused Shirley of bungling a major project. Shirley also failed a CFP course. Mallard decided he had “no alternative” but to terminate.

At a performance review in January 2004, Mallard told Shirley to go home and think about his future during the weekend. After Mallard left the room, Shirley remained seated, silent and unmoving, for about 10 minutes. “I left that meeting wanting to slit my wrists,” Shirley recalled later. “They were so cruel.” Shirley never returned to work, and soon advised Mallard in writing he would sue for constructive dismissal.

Months later, Mallard noted something unusual about the credenza in his office: the dust inside one of its compartments had been disturbed. “It doesn't get opened that often,” says Mallard, who thought little of it at the time. “We had this little skirmish going on with Kent, but I didn't realize that World War III was breaking out.”

On Feb. 6, 2004, Shirley visited the offices of the Saskatchewan Financial Services Commission, the province's securities regulator. There he met two investigators, Vic Pankratz and Rick Mitchell, whom he deluged with allegations against Mallard and Assante. One was to become particularly significant: he claimed that Assante pushed in-house products because they produced bigger profits. “That's why 90% of our book is in Assante [products],” Shirley said. He offered the investigators documents to support his claims.

As the interview wrapped up early that afternoon, the investigators asked Shirley why he was speaking to them. Shirley categorized his grievances in detail — they were mostly personal. “A lot of people are going to say it's revenge,” he told the investigators. “And somewhat, yeah, it is.”

Shirley's documentation included much correspondence, such as letters and e-mails — everything from internal memos to communications between Mallard and senior Assante executives. There were also business plans, documents laying out internal policies and procedures, and lots of information about clients, including their social insurance numbers and account statements. Not, in other words, the sorts of things any employer would want floating about.

Shirley claimed that when he'd gone on leave, his own files had been placed in banker's boxes — and that he'd later received permission from the office manager to take them home. He also backed up the data on his office computer. “Did I steal information? Absolutely not,” Shirley said in an interview. “I took information to give it to the regulatory authorities in the proper jurisdictions to show to them wrongdoing.”

Mallard's account is strikingly different. Citing forensic evidence collected later in 2004, he claims that Shirley returned to the office the weekend following the fateful performance review. He gained entrance using his security pass, which the company had yet to cancel. He copied documents to a receptionist's computer, which he then burned onto a compact disc. And he collected the boxed-up documents. “He went into my desk drawer, took copies of my personal family trust documents, took copies of my income tax records, personal correspondence,” Mallard says. “He ransacked my office.” The company's computers and security system — and dust trails in the credenza — gave Shirley away.

Shirley was subject to numerous rules and regulations on handling client information. Be it his employment contract with Brian Mallard and Associates, or the codes of conduct of bodies to which he was accountable (like Advocis, the MFDA and the Insurance Council of Saskatchewan), these all said roughly the same thing: he couldn't disclose client information to others without express consent, unless he was required to do so by a court or regulatory authority. As he said later, however, Shirley reasoned that “under Advocis rules, under [the rules of] pretty much every regulatory body there is, if you have information that pertains to illegal matters, you can take that information.” That belief would soon be put to the test.

Shirley filed his constructive dismissal lawsuit in March 2004. The statement of claim alleged that Mallard breached the terms of their mutual agreement by “condoning, engaging and requiring Shirley to engage in unethical and/or illegal conduct,” and “harassing and condoning the harassment of Shirley.” It also claimed that Mallard regularly breached industry rules by providing clients with inside information and personal loans, overbilling them, offering them stock advice while lacking the necessary licence, selling his own shares to clients, and so on. Shirley claimed that one of his fellow employees regularly forged Mallard's signature on forms, with the latter's knowledge and consent.

In his statement of defence, Mallard claimed Shirley's allegations were lies intended to embarrass him. Mallard denied “breaching ethical codes, laws, rules and regulations or requiring [Shirley] to do so.” Mallard asserted in an interview: “I run a scrupulously compliant office, and I will not tolerate anything that lacks integrity.”

Upon learning of Shirley's lawsuit, Mallard says he notified Assante and requested he be personally audited immediately to address the allegations. He heard nothing until April 28, when he got a call from an Assante vice-president, who said the Mutual Fund Dealers Association of Canada had raised the matter with company management. The MFDA is the self-regulatory body for Canada's mutual fund dealers, with the power to suspend a firm's licence, and the Saskatchewan Financial Services Commission had instructed it to investigate. Mallard, however, found the Assante conversation reassuring. “He made it sound like they were under siege by the MFDA and that they would be arm in arm defending me against these spurious charges,” Mallard says.

Actually, Assante was doing some digging of its own. Jaime Ross, the company's senior vice-president of risk management, said in an interview this summer that the new management team didn't know what took place under Weinberg's watch. It was eager, however, to demonstrate to regulators that it was serious about compliance. “We had to uncover all of this ourselves,” Ross said. “[Shirley] cited facts with quite an amazing amount of specificity….The focus on sales incentives gave us some concern as a new management team.”

In May 2004, two Assante auditors conducted a two-day inspection of Mallard's offices. Mallard claims the auditors, too, reassured him he had nothing to worry about. Several days later, though, one of Mallard's employees told him some forms had disappeared from his office. These were incomplete forms that clients had already signed, and Mallard's employee broke industry rules by possessing them. Mallard knew they could be construed as evidence of improper discretionary trading — in other words, buying and selling securities in a client's account without authorization. Mallard's position, though, was that they constituted an acceptable tactic for rural clients in a sparsely populated province like Saskatchewan. “Sometimes you have to do things that are beneficial to the client but not necessarily compliant, just because of the distances and the geography,” he explains.

Moreover, he believed Assante had no right to seize the forms in the first place. He phoned one of Assante's auditors and asked her whether she'd taken the forms. She confirmed that indeed, she had. He accused the auditors of committing a crime. Following the conversation, Mallard checked and determined that other documents were also missing. (Assante's Ross admitted that taking documents during an audit is not standard practice, and that Mallard should have been notified.)

It didn't take long before the other shoe dropped: Assante attempted to suspend Mallard and two of his employees. But Mallard's suspension didn't square with the terms of his employment contract, so he refused to accept it. Soon after, Assante told Mallard he would be removed as branch manager and fined $60,000. Mallard stepped down and sued Assante for $10 million.

Meanwhile, in March 2004, Shirley, frustrated that he could not find a job, moved to Red Deer, Alta. For the rest of the year, he contacted anyone and everyone who would listen to his claims about Mallard — and more than a few who wouldn't. He regularly communicated with SFSC investigators. He launched a complaint against Mallard with the Financial Planners Standards Council, the body that controls the CFP designation in Canada. He spoke with the RCMP and the Investment Dealers Association of Canada. He wrote a letter to Canada's then-finance minister, Ralph Goodale. “I've given the documents to the MFDA and the OSC,” Shirley said in an interview. “They've got them now. I've confirmed it.”

But Shirley quickly ran into a wall. For example, he claimed that he filed a complaint against Mallard with Advocis (Mallard was a board member at the time), and offered a document from Mallard's office to support it. Advocis, however, demanded that Shirley obtain Mallard's permission to use it. “It's just ludicrous,” Shirley fumed. Meanwhile, investigations into his other complaints progressed slowly. “Every day, I think about dropping the entire thing because it's so frustrating,” he said at the time.

That summer, Mallard believed he was gaining the upper hand against Shirley. “[We] seized some assets, brought financial pressure to bear — the usual tactics you use when you're fighting a lawsuit,” he says. “You could see an end in sight. I was thinking, this thing is probably going to cost me $20,000 in legal fees. We'll wrap her up and call it a day.”

Mallard didn't count on Joe Killoran.

An Oshawa, Ont., resident, Killoran describes himself as “Canada's most feared investor advocate.” A father of three and occasional substitute teacher, he worked in financial services during the 1980s (including at Merrill Lynch Canada and Prudential Bache Securities), but claimed that his employment was terminated four times “for having and showing a conscience.” More recently, Killoran waged a one-man crusade against the financial services sector and its various regulators, and Assante ranked among his favourite targets. “I was unfortunate enough to be on Joe Killoran's e-mail list,” says analyst Dan Hallett. “Not all of his e-mails were about Assante, but a large percentage were. That name always popped up, highlighted in big red letters.”

Shirley contacted Killoran in July 2004. The two men communicated mostly by e-mail and sometimes by phone; they never met. Killoran estimates he contacted Shirley more than 3,000 times in five months.

Killoran pressed Shirley to send him documents. He told Shirley that Eliot Spitzer, New York state's attorney general, was interested in evidence regarding Assante's practices. Killoran noted that whistle-blowers sometimes receive a cut of court judgments in the United States, and predicted fines resulting from Shirley's information “would be several billion dollars.”

Shirley appreciated the encouragement. “I have full faith in trusting you,” he wrote Killoran. “You are helping me, and I like to think what I have can help you long term possibly with a settlement.” Killoran received his first batch of documents in August 2004. He became frustrated, though, that Shirley wouldn't send him the rest. Killoran wrote:

Kent, I'm offering you the best ray of sunshine, the best potential to light your way out of the tunnel that my creativity + contacts can achieve. If you don't want my help, just tell me straight up and I'll spend my time looking to help other abused individuals…your delay to forward the rest is really hurting our credibility with [Spitzer].”

Shirley sent another bundle of documents in September 2004. All told, Killoran claimed he received more than 7,000 pages.

The internal documents shook Killoran. He began calling them “smoking gun whistleblower evidence.” Killoran claimed the documents showed that Assante not only encouraged advisers to sell in-house products, but gave them Assante shares in reward for doing so. Shirley confirmed that. He said that the scheme provided bonus shares to advisers when their clients invested 40% or more of their portfolios in Assante products. “I have a copy of [a document showing] all the advisers that got stock,” Shirley said, “and where they were sitting on the conversion basis, how many were still in escrow, how many had been released.” But Shirley added that Assante “kiboshed” the program around 1997.

Killoran concluded that the program constituted “the largest premeditated criminal fraud in Canada's history.”

He provided documents to the National Post's Chevreau. In August 2004, Chevreau interviewed Mallard and produced an article calling the case a “classic David v. Goliath tale.” He concluded that “this case may or may not end up swept under the rug. But from what I've seen, it merits closer attention.” Mallard was incensed. The two-hour interview did, however, provide him with a valuable insight: during it, Chevreau revealed that he'd obtained documents originating from Mallard's offices. Those documents provided critics an unprecedented window into the business affairs of Assante and Brian Mallard and Associates. And suspicious eyes were peering in.

Working together as they did for eight years, Mallard and Shirley knew each other well. Shirley predicted, for example, that Mallard would attack his credibility and portray him as a drug-crazed lunatic. “It's a wonderful defence,” Shirley said, “but it certainly doesn't hold up against a stack of documents.” Indeed, he believed that if he could make those documents public, he could turn the tables against his former employer. He also knew there were complicating factors. “I can see a problem being that none of the documents will be admissible because they're all confidential,” he said.

Mallard faced a dilemma of his own. He believed Shirley was mentally ill. “I'm dealing with a guy who has a psychosis,” Mallard said in a September 2004 interview. “He believes he's a whistle-blower and is out to prove I'm an evildoer. Once that fails, I'm concerned that he will try to commit suicide….I don't want to push him into that position.”

But Mallard also worried that his clients' confidential information was blowing in the breeze. He wrote a letter to the Post demanding the return of internal documents in Chevreau's possession, which he eventually received. He wasn't alone. Assante, too, inspected materials returned by Chevreau, and it whetted the company's appetite to see more. Brian Foster, a lawyer for Fraser Milner Casgrain, who served as Assante's outside counsel, wrote Shirley's lawyer a letter in September 2004 demanding that Shirley return documents directly to Assante. “While these records and the information were located at the offices of Mr. Mallard and may have been produced by Mr. Mallard or others in his employ,” Foster argued, “the records remain the exclusive property of [Assante].”

Foster intended to use the documents to investigate Brian Mallard and Associates. “They thought there was something wrong with me,” Mallard says. “The fact that a psychopath had their clients' information and could sell it to an identity theft ring in Brazil didn't seem to enter into their psyche at all.” But Assante's Ross claimed that the company didn't know what information had been taken from Mallard's office: “Having gone through an agonizing period of time defending the firm against the regulators related to sales practices, we didn't know what we were going to find.”

Through his lawyer, Geoff Dufour, Shirley vowed that any documents pertaining to Mallard and Assante that “are not strictly personal to him” would be returned “to either Assante or Mallard.” Privately, however, he had no such plans. “I'm scared if I return the docs then I get charged for sure,” he fretted to Killoran in an e-mail. Killoran advised against returning the materials. “Bury it, hide it, rent a storage locker someplace,” he suggested.

Shirley didn't guess that Mallard had other means of retrieving the documents. On Oct. 12, 2004, Shirley received an unexpected visit from Albert Sweet, who introduced himself as a fellow tenant in his apartment building. Sweet complained of wiring troubles, and inquired whether Shirley had experienced similar difficulties. He had. He invited Sweet in, and the two began chatting. “The apartment was generally messed up and had very disorganized papers all over the place,” Sweet said later in an affidavit. He described Shirley as shirtless, unshaven and thin.

Though he didn't let on, Sweet knew Shirley's history. A private investigator with Bison Security Group, he didn't live in the building and couldn't give a damn about its wiring. He was more interested in the computer and papers in Shirley's living room. He reported their whereabouts to Mallard.

Armed with that knowledge, Mallard approached the Court of Queen's Bench of Alberta and applied for an ex parte Anton Piller order. Sometimes described in the legal community as a “nuclear weapon,” the order allows a plaintiff to enter a defendant's home (or other premises) to search and seize materials and documents belonging to the plaintiff. Ex parte meant that Shirley would not know about Mallard's request until the order was executed and, therefore, have no opportunity to prevent the seizure. Simultaneously, Mallard also filed a lawsuit against Shirley for misappropriation of the internal documents, defamation and for disclosing confidential client information.

Anton Piller orders are rarely granted. Theoretically, a court will place significant requirements on any plaintiff requesting one. Mallard's lawyer, Richard Billington, argued it was necessary because Shirley had misappropriated the information, was disseminating it to reporters, and had defamed Mallard using Internet chatrooms. “We don't know what he has done with these documents,” said Billington, who has considerable experience with Anton Pillers. He argued that Shirley was likely to destroy, alter or hide evidence Mallard needed for his court actions against Shirley. He nominated KPMG to supervise the search and seizure.

Justice D. B. Mason of the Court of Queen's Bench of Alberta granted the order. The following day, KPMG representatives — accompanied by Billington and a police officer — went to Shirley's apartment at 9:30 a.m. After Shirley answered the door, Billington explained the court order to him. Billington remained near the front door while KPMG employees seized Shirley's computers, compact discs, paper files and other materials. KPMG also conducted a “bit-stream imaging” of the hard drives — a process by which an exact copy is made to preserve it as evidence. KPMG summed up what it found in a seven-page report to Justice Mason. Among other things, it found more than 1,500 communications between Killoran and Shirley.

The Anton Piller order prevented both Assante and the MFDA from accessing Shirley's documents, and its gag provision barred Shirley from talking with investigators. But both organizations still wanted to investigate. They subsequently asked the court to give them access to the documents. Assante suspected that Mallard — who ultimately paid hundreds of thousands of dollars for KPMG's custodial services — was hiding something. “One would wonder and question why Mr. Mallard wanted that [gag order],” Assante's lawyer, Brian Foster, told the court. “One has to give some thought to that.”

Judge Mason barred them from the documents. “I see the piggybacking of the MFDA and Assante under these proceedings as being simply that,” Mason said at the hearing. “I do not propose to open these proceedings to a wholesale review and fishing expedition on behalf of Assante or [the] MFDA.” Mason's ruling removed any doubt: the documents were kryptonite to anyone hoping to use them outside the context of the lawsuits between Shirley and Mallard.

During the fall of 2004, Killoran encouraged Shirley to keep up the fight. In one e-mail, he wrote: “You will persevere!! You will survive!! You will overcome it!! You will be much stronger when this is all over!!” Later, he was even more unequivocal. “Get your head out of your asshole,” Killoran admonished. “It's time that you realize you are going to WIN.”

Shirley, though, understood that if he couldn't use the documents to support his allegations, his campaign was hamstrung. In an e-mail to an investigator with the Saskatchewan Financial Services Commission, he pleaded: “Get me my computer from KPMG and I will show you….It's in there.”

Continuing setbacks took an obvious toll on Shirley. When Mallard encountered him at a mediation meeting in November 2004, he was shocked by Shirley's appearance. “He looked like crap,” Mallard later recalled. “He was unshaven, thin and had a pasty pallor. His eyes were bloodshot and sunken.”

Shirley made a last-ditch effort to tell his story. In December 2004, he contacted several journalists (including Doug Watt and John Lawrence Reynolds, author of several books about malfeasance in the financial services industry) about writing a book. Echoing Killoran, Shirley told Reynolds in an e-mail that he had firsthand information about “what may turn out to be the largst [sic] scandal in our industry.” The message, however, suggested his aptitudes were not equal to the task. “I have al [sic] the evidence etc, but not very good at writting [sic],” Shirley wrote. By then, his communications were a mess of jumbled thoughts.

That month, Mallard informed Shirley that he intended to seek contempt-of-court charges against him for distributing confidential documents. Later, Mallard, Shirley and their lawyers participated in a settlement conference at which broad terms were reached. A week before the Christmas break, Mallard formally sent his proposed terms to Dufour. According to Mallard, they included a public letter of apology from Shirley.

“I'm very pissed off and depressed,” Shirley wrote in an e-mail to an associate in December 2004. “I wonder how many other cases they [regulators] sit on or sweep away.”

On Dec. 20, Killoran wrote an e-mail to investigators at the SFSC and OSC, expressing concern about Shirley's well-being. He requested employment at a rate of $100 to $200 an hour, half of which he vowed to pay to Shirley. The request was implausible and, in any case, too late. On Christmas Eve, Kent Shirley died suddenly in his parents' home. The cause of death has not been made public.

Kent Shirley's death crippled the already shaky case against Mallard. The star witness was dead. Not a single client came forward to lend credence to the allegations. The documents Shirley put forth as evidence were locked in a vault. Copies were still circulating, but anyone who passed them around risked attracting the ire of a judge. This thwarted anyone who sought to use those documents as evidence of alleged impropriety at Brian Mallard and Associates or Assante.

And yet, Mallard's problems were not over. Numerous regulators — not to mention Assante — remained highly suspicious. By early 2005, a loosely organized group of investor advocates were pushing Shirley's case. To them, he had become a martyr.

Killoran was the most zealous. For his troubles, Mallard had already served him with a defamation lawsuit for a bizarre e-mail Killoran had sent to a long list of recipients several months earlier. It contained two cartoons and contained disparaging comments about Mallard. Mallard claimed Killoran's antics damaged his reputation and humiliated him. Killoran continued to lobby various regulatory and law-enforcement bodies to investigate, and dug himself deeper.

He was assisted by Robert Kyle, an investor advocate with a controversial history. Formerly a derivatives trader, Kyle was suspended by the Investment Dealers Association of Canada in 1998. After he refused to provide his firm's records to investigators, the IDA commenced a disciplinary process that eventually resulted in stiff fines for him and his firm, as well as the termination of their registrations. Kyle has been a thorn in the IDA's side ever since, unsuccessfully appealing its ruling to higher authorities. (The Ontario Divisional Court rejected Kyle's case this year, effectively ending the matter.)

Kyle operates a website dedicated to criticizing Canada's regulatory system, and he began a page about the Shirley-Mallard struggle, to which he posted court documents, correspondence and other materials. Mallard complained that the site was incomplete and defamatory and threatened to sue Kyle's Internet service provider. The ISP immediately shut down the site, but Kyle found another service provider and re-established it. Mallard sued this summer. Kyle has since removed the material involving Mallard and Shirley from his site but still faces legal action.

The two investor advocates pushed regulators vigorously. Killoran delivered two boxes of documents to the OSC, couriered materials to Eliot Spitzer, sent documents to then-Minister of International Trade Jim Peterson, and contacted the Royal Canadian Mounted Police. Kyle wrote letters to Lorne Calvert and Dalton McGuinty, the premiers of Saskatchewan and Ontario, respectively, calling attention to Shirley's allegations. He also offered evidence to the SFSC, and lobbied the OSC to collect documents from him relating to the matter.

Mallard was particularly concerned about the MFDA, which requested a meeting with him in February 2005. “I believed that they would use information provided to them by Kent Shirley that he had obtained illegally and had altered to make their case against me,” he recalls.

At that interview, Mallard claims, MFDA investigators (including enforcement counsel William Donegan) presented him with a two-inch-thick binder containing many of the same documents seized from Shirley's apartment under the Anton Piller order. It was an audacious move: Donegan attended the hearing months earlier at which Judge Mason made clear he would not grant access to those documents. Mallard's response was equally audacious: he threatened to seek an injunction and sue Donegan personally. “I remember smiling and saying to Donegan that I would answer all of their questions providing that he admit where the MFDA got the stack of documents from,” Mallard says. “The so-called evidence was nothing more than the cobbled-together lies and misrepresentations of a bipolar drug addict bent on revenge.” (Donegan declined comment.)

Gradually, the tide turned against Mallard's accusers. In February 2005, the Financial Planners Standards Council told Mallard that Shirley's complaint had been dismissed. Less than three months later, the OSC informed Killoran that it had closed its file on the matter, with no action taken against Mallard or Assante. The RCMP's Integrated Market Enforcement Team, which deemed the matter insufficiently important to warrant its attention, refused to consider Killoran's calls for an investigation. And in July 2005, the MFDA informed Mallard that it had completed its investigation and would be taking no further action.

In an interview, Assante's Ross confirmed that as part of the OSC and MFDA investigations, the company hired forensic accountants and delved deep into its past. This internal investigation uncovered the Weinberg-era program under which advisers received bonus shares for meeting sales targets, but nothing more. In other words, Shirley's allegations about the program were largely accurate, but Assante did not break any industry rules. Ross said Assante's investigation confirmed that no quotas or improper incentives existed after 1998, and that the OSC cleared Assante after an “exhaustive and thorough” process.

What was it about Shirley's cache of documents that others found so alluring? Regulators seldom discuss investigations, so what they made of them is anyone's guess. (The MFDA, for example, refused to confirm or deny whether Mallard was ever investigated.) Defending himself against the numerous legal challenges sparked by those documents cost Mallard about $1 million. “I've been looked at by more goddamn people than I deserve, and none of them has found any evidence of malfeasance or inappropriate actions,” Mallard fumes. “It is mysterious to me why it will not die.

“'He's an adviser. All advisers are dirty. Must kill adviser.' That was the prevailing mentality,” Mallard says. “Kent Shirley came to them with a bunch of lies and an agenda, and they chose to believe [him] over me.”

Mallard and Assante reached a settlement earlier this year. In April, Brian Mallard and Associates transferred its registration to Quadrus Investment Services, a mutual fund dealer based in London, Ont. Although Mallard admits his relations with Assante were strained, he expressed satisfaction with the firm's co-operation during the transition. “They [Assante] behaved in a manner which exhibited high integrity,” he says. Mallard remains confident in Assante's products. “We have not moved a single dime of [client] money away from Assante.”

Ross expressed regret about the way Mallard was treated. “If this were to happen today, we'd deal with it in a far more supportive manner,” Ross said in an interview. “He [Mallard] is a guy of integrity. It's clear that he was an innocent victim in this situation. We departed on amicable terms, and we wish him well.”

As Mallard's troubles eased, Killoran's mounted. The court took a dim view of his distributing documents. For example, Killoran e-mailed KPMG's report on the raid on Shirley's apartment to a diverse group of recipients. Spitzer, of course, made the list — as did another mysterious choice: Mallard's lawyer Richard Billington. Mallard promptly alleged that Killoran was in contempt of court.

Saying he couldn't afford a lawyer, Killoran chose to represent himself in legal actions in both Saskatchewan and Alberta. He proved a less-than-able advocate; the judges didn't know quite what to make of him. Under cross-examination in the Alberta defamation lawsuit, Killoran refused to answer questions and contradicted himself. Judge W. F. Gerein of the Saskatchewan court observed that Killoran's statement of defence read “like a bad speech.” Gerein added: “The document is rambling, disjointed and only marginally consistent with the acceptable form of pleadings.”

Killoran attempted to have Shirley's documents entered as evidence, a move that would effectively make them accessible to anybody. But these efforts, too, came to naught. In a decision issued in April 2005, Judge Gerein observed that Killoran failed to follow court procedure. Gerein deemed most of the documents irrelevant to the matter at hand, and struck them from the record, along with large parts of Killoran's statement of defence. Gerein issued an injunction instructing Killoran to cease publishing oral or written statements about Mallard and his clients and advisers. It also barred him from distributing the documents obtained from Mallard's offices.

Court orders apparently made little impression on Killoran; he promptly violated them. Among other things, he sent unsolicited e-mails to police officers making fresh allegations against Mallard. On occasion, Killoran referred to Mallard as “a duck” rather than mention him by name — apparently in the mistaken belief that this approach circumvented the order. Judge Gerein branded this tactic “too clever by half.” In October 2005, he found Killoran in contempt of court and fined him $5,000.

The following month, this time in Calgary, Killoran was again found in contempt. Judge Mason cited him for distributing the KPMG interim report and for refusing to disclose from whom he obtained it. “By the conclusion of the hearing, I was concerned about Mr. Killoran's mental state,” Mason wrote in his decision. “There was no medical evidence before me of Mr. Killoran suffering from a mental disorder, and I was unable to find on the basis of his conduct in Court that he was likely to present a danger to himself or others. I chose not to take the matter further.” Mason sent Killoran to jail for 10 days and fined him another $5,000. As a result of the sentences, the Durham District Board of Education dropped Killoran as a supply teacher. Even that did not dissuade him. He continued to distribute documents relating to the Shirley-Mallard dispute — at considerable risk to himself, and to little effect.

Shirley's cache of documents continued to claim victims. Earlier this year, investor advocate Larry Elford (who worked as an adviser with RBC Dominion Securities for 17 years but left the industry following a legal dispute with his employer) and Toronto-based forensic accountant Al Rosen filed separate complaints to the Institute of Chartered Accountants of Alberta. Both alleged that because KPMG had conducted work for Assante prior to 2004, it had a conflict of interest when it served as court-appointed custodian for the materials seized from Shirley's apartment. But both made critical mistakes: they provided the ICAA with documents Mallard's lawyer believed they had obtained from Killoran. When the Court of Queen's Bench of Alberta got wind of the complaints, it demanded that both men appear to explain why they should not be found in contempt of court. The court seized the documents from the two men and ICAA, effectively terminating the complaints.

Rosen was dropped from the proceedings, but Killoran and Elford are expected to appear before Judge Mason in Alberta sometime in the next few months. For the previously jailed Killoran, in particular, the stakes may be high. “This is a private lawsuit,” Mason said during a hearing this summer. “I thought I had got that through Mr. Killoran's head; obviously I didn't….We will deal with that.”

As for Assante, it's tough to say how this dispute — and attendant rumours about its sales practices — affected its reputation. But it's clear that reputation is not top-drawer. This year, J. D. Power and Associates conducted a survey in which it obtained opinions from more than 5,000 Canadian investors about their full-service investment institutions. Of the 15 brokerages ranked, Assante came last.

As of the time of this writing, there's no telling how far Shirley's cache of documents has travelled, where they might crop up next, or who will have cause to regret encountering them. Mutual fund analyst Hallett, for example, received many e-mails from Killoran regarding Assante. “Maybe there's real information in what Killoran was sending around,” says Hallett, his tone dubious and uncertain. “But like most people, I have a day job and don't have time to read all that stuff.” Perhaps it's for the best.

geoff howe

November 6-19, 2006 canadian business

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