Ex-RBC brokers cited in Norshield saga

Date: Sunday, October 29, 2006
Author: Bertrand Marotte, Globe and Mail

MONTREAL — The tangled web in the financial scandal at collapsed hedge-fund firm Norshield Asset Management (Canada) Ltd. has widened to include allegations that two RBC Dominion Securities Inc. investment brokers were directly connected -- and may have referred clients -- to a Norshield-related offshore firm.

In a report to investors in the former Cinar Corp., Cinar's litigation committee says it has been advised that two RBC employees or former employees were part of a group of principal shareholders who controlled Globe-X International (GXI), a Bahamian investment company they say is related to other Bahamian companies operating under the Globe-X name and linked to Norshield.

The report says the two brokers in the downtown Montreal branch of RBC were the principal shareholders of the voting shares of GXI along with Globe-X Management Ltd., one of the offshore funds that allegedly engaged in financial transactions using Cinar money.

The two brokers "may have referred [RBC] clients to" GXI, the report alleges. Konstantine Dariotis and Alfonso Fiumidinisi were fired by RBC in September and now work for CIBC Wood Gundy Inc.

The Cinar litigation committee is seeking to recover tens of millions of dollars in Cinar cash allegedly improperly invested in Globe-X funds, and it has alleged in court that Montreal-based Norshield was closely linked to those funds.

Once one of Canada's largest hedge funds, Norshield was put into receivership in June of 2005, after it suspended distributions in the wake of heavy client redemptions.

Former Norshield chief executive officer John Xanthoudakis has denied his or Norshield's involvement in the disappearance of the Cinar cash, and he and the company have countersued the Cinar group as well as the head of its litigation committee, Wesley Voorheis.

Documents related to the liquidation process in the Bahamas of the Globe-X companies and obtained by The Globe and Mail indicate the extent of the alleged links between GXI and the brokers.

The two brokers controlled Bahamian-incorporated companies according to transaction records, agreements, letters and shareholder registers in the liquidation file.

Cap Dragon Holdings Ltd. was controlled by Mr. Dariotis and Vir Dragon Holdings Ltd. by Mr. Fiumidinisi, the documents indicate. Both companies were significant class C shareholders in GXI, according to a summary shareholder register for May 1, 2000.

Mr. Dariotis would not comment last night. Mr. Fiumidinisi could not be reached.

A fax cover sheet with RBC letterhead from Mr. Dariotis and signed by Mr. Fiumidinisi -- dated July 18, 1994 -- is addressed to Robert Daviault, the former chief financial officer of Globe-X Management and Globe-X Canadiana Ltd.

The fax, concerning GXI, has comments regarding a contract between GXI and Royal Bank of Canada (Suisse).

In a letter dated April 10, 1991, and addressed to Mr. Dariotis, Thomas Muir -- former president of Nassau-based Norshield International Ltd. -- offers advice on how to keep costs down in the incorporation of a private Bahamian company.

The two brokers are no longer employees of RBC. Mr. Dariotis and Mr. Fiumidinisi were "terminated with cause" from their positions at RBC in Montreal on Sept. 27, Royal Bank spokeswoman Teresa Pagnutti said. RBC is Royal Bank's investment banking arm.

Ms. Pagnutti would not comment on the brokers' alleged ties to Norshield or why they were fired.

The brokers were hired almost immediately by the downtown Montreal branch of CIBC Wood Gundy Inc. "We have hired these individuals. They were hired in late September," Canadian Imperial Bank of Commerce spokesman Robert McLeod said. Wood Gundy is a subsidiary of CIBC.

The Investment Dealers Association will neither confirm nor deny whether there is an investigation into the allegations.

But a source close to recent events at RBC in Montreal said there is no IDA investigation and no plans to launch one.

Norshield has attributed the fund's flood of redemptions to adverse publicity arising from its legal fight with the Cinar litigation committee over the offshore investments.

The Ontario Securities Commission recently alleged that Mr. Xanthoudakis and former Norshield president Dale Smith participated in distributing a false offering document to investors, and misled OSC staff during their investigation.

Apart from the Cinar funds, about $132-million of retail investors' money in Norshield is missing. The OSC says receiver RSM Richter Inc. expects to recover only $8.5-million of that amount.