The investigation into Stephen White, the star Bank of Nova Scotia broker who resigned under mysterious circumstances two weeks ago, has spread to accounts at other dealers and is focusing on his dealings with a wealthy Toronto family that appears to have lost millions of dollars.
Mr. White's lawyer, Joseph Groia, said "Stephen has been co-operating with his former clients and investors," including Michael Rothfeld of Toronto, whom Mr. Groia described variously as a friend, business acquaintance and partner of Mr. White.
Reached by phone, Mr. Rothfeld confirmed he was a "friend" of Mr. White and knew he was no longer employed by the bank's ScotiaMcLeod retail unit. He would provide no other comment and said calls should be directed to his lawyer, Wendy Berman of Heenan Blaikie. "Michael and Stephen are friends," she said. "We're still in the fact-finding stage and we're not prepared to jump to conclusions."
She added that her client "is looking to collect on his promissory notes" that were issued to him by Mr. White.
Little is known about Mr. Rothfeld other than he is a businessman who had careers in insurance and commercial mortgage brokering. Sources said he lent "millions of dollars" to Mr. White, for which he received promissory notes in return. The money, they said, was invested — and lost — in the high-risk options and futures markets.
The number and identity of Mr. White's other clients and partners is not known, although it is probable that they will hire lawyers in an effort to gain restitution from Mr. White and possibly ScotiaMcLeod itself.
The money invested by Mr. White, sources said, was more than $20-million, although the actual losses are thought to be less than that. By far the biggest amount, thought to be $15-million or more, came from Mr. Rothfeld.
Mr. Groia said Mr. White "wants to see that everyone involved in the case is treated fairly."
The question is whether Mr. White has enough money to make restitution to his former clients and Mr. Rothfeld. The other question is, if he doesn't, will ScotiaMcLeod come to their rescue.
The bank is clearly trying to distance itself from Mr. White for fear of attracting client lawsuits. It, with the help of the Ontario Securities Commission and the Investment Dealers Association of Canada, is conducting a review of Mr. White's business dealings. Mr. Groia said he has had contact with no other authorities.
Pam Agnew, a spokeswoman for Scotiabank, said: "The review relates to dealings we believe he had with some clients that he had not disclosed to us. We have a strict requirement that brokers disclose all personal financial dealings with clients or outside business activities."
Brokers borrowing from clients, that is, entering into personal business relationship with a client, is strictly forbidden in the securities industry. The handbook of the Canadian Securities Institute states: "Registrants should avoid personal financial dealings with clients, including the lending of money to or the borrowing of money from them."
Sources said accounts at other financial institutions, including Refco Group, where Mr. Rothfeld had an account, would be tracked down and examined. Scotiabank said yesterday that Mr. White "may have been involved in introducing certain clients to investments outside of ScotiaMcLeod."
Mr. White would not comment. Mr. Groia called him a "top broker" and he apparently lived well.
Mr. White and his wife, Marla, bought a house last July in Toronto's pricey Lawrence Park neighbourhood for $1.6-million. To help pay for the house, they took out a $1.1-million loan from Scotiabank on July 12. Property records indicate that the house is in Mrs. White's name. Those records also indicate that the Scotiabank loan was interest free. No interest payments are listed on the documents and the repayment date for the loan is simply noted as "on demand."
