Greed and glory on Bay St.

Disgraced broker grew rich at his clients' expense

12May01: Greed and glory on Bay St. Part I
13May01: Greed and glory on Bay St. Part II
27Aug02: Fraudster broker on parole after 18 months
09Jan04: Former broker's day parole revoked

Tony Van Alphen
The Toronto Star

Breach Of Trust

Part I 12May01

On a bleak November day in 1994, David and Suzie Cunningham stood on the windswept grounds of Toronto's Mount Pleasant Cemetery.

Only a few months earlier, they had come here to bury their infant sons Jordan and Daniel, who had died shortly after birth. Suzie's brother-in-law had generously helped the couple out then, paying for the funeral and giving them space in a family cemetery plot.

Now the Cunninghams were back, watching workers dig their sons up again for reburial elsewhere. The brother-in-law, Michael Edward Holoday, former hotshot stockbroker on Bay Street, was selling the family plot. He needed the money.

``It was not a pleasant moment,'' said a subdued David Cunningham.

This was not the Holoday the Cunninghams thought they knew - the affable relative whose smooth talk and charm were surpassed only by a seemingly uncanny ability to make money on financial markets.

It appeared Holoday had the golden touch. He had all the trappings of success.

The young salesman and his wife, Maureen, lived in a posh home in Forest Hill. They had a Jaguar, a Ferrari, a power boat. They took trips and threw lavish parties.

But by the time people peeled away the facade, Holoday had swindled millions of dollars from clients, friends and relatives during a three-year romp.

Police called it one of the biggest known frauds involving an individual broker in Canadian history.

Testimony from Holoday's recent trial, tape recordings, letters, brokerage house records, statements and interviews reveal how his work amounted to nothing but a con and a cover-up.

One detective described Holoday as a ``cold, calculating and callous'' man who took the life savings of elderly people and destroyed marriages and families.

Holoday countered that he wasn't a crook, just a ``lousy broker.''

``I think I am basically a good human being.''

After a 41-day trial, Madam Justice Patricia German saw him differently. She said he was a ``dangerous man'' who betrayed the trust of people around him, turned their lives into a nightmare and raised serious doubts about the integrity of the investment industry.

Some of those people sat stoically behind Holoday in a University Ave. courtroom recently when German sentenced the former star broker to 71/2 years in prison and ordered him to pay more than $6.1 million in restitution.

Crown lawyers calculated that clients collectively lost at least $12.8 million. They say the losses could have been much higher because clients had invested or risked more than $23 million.

Confusion caused by Holoday's practice of sending phony investment reports to clients made it impossible to accurately assess the final damage.

Holoday's career on Bay Street is a cautionary tale about a charming salesman, personal relationships, trusting clients and less than stringent supervision by leading investment dealers.

Seven years ago this week at his 30th birthday party, Michael Holoday was a high flying prince. The baby-faced broker basked in the limelight in a party room on top of the ritzy Four Seasons Hotel.

His wife had planned an extravagant feast with a desert theme including veils, artificial palm trees, belly dancers and mood music.

Guests got a surprise when fortune tellers popped out of holes covered by turban centrepieces at each table.

``Happy birthday to you, Michael,'' cooed his mother-in-law, Carole Boczan, after she had read aloud a poem she had written to commemorate the occasion. ``Michael. Michael. The best is yet to come.''

Holoday, sultan for a day, broke into an impish grin while more than 100 friends, clients and other business associates applauded and cheered.

`There was more caviar and champagne at that party than on the set of a James Bond movie.'
- John Keen
Car repair shop operator

``There was more caviar and champagne at that party than on the set of a James Bond movie,'' recalled John Keen, a luxury car repair shop operator who attended the do.

``It was an extremely lavish, over-the-top affair that I had not ever seen in my life,'' said Elaine Roberts, one of Holoday's wealthy clients.

The bill for the feast and celebration easily topped $20,000, according to cheques later filed in court.

That was small change. A few days earlier, Holoday had written a cheque for $500,000 toward a $5.2 million mansion in Toronto's exclusive Bridle Path area, a deal that would never close.

Holoday refused to talk to The Star, but court documents and interviews with friends and relatives portray a young man in thrall to money.

Holoday, the adopted son of a chartered accountant from Revelstoke B.C., said his childhood was like living ``in Pleasantville.''

``It was a great upbringing.''

The family lived in an upper middle class neighbourhood, attended church on Sundays and took family vacations. Holoday was a good student and enjoyed playing hockey. As a teenager, he worked after school and in the summer to help pay for his university education.

``He was interested in becoming wealthy,'' said Ervin Schleith, a childhood friend and best man at Holoday's wedding, in an interview.

``Money meant a lot to Mike.''

After finishing high school and studying economics at the University of British Columbia, Holoday moved to Toronto and joined Midland Doherty Ltd. as a cash accounting clerk on Oct. 19, 1987. The stock market crashed the same day.

In the clerk's job, Holoday learned about the firm's deposit and withdrawal practices. But he was dissatisfied with his modest clerk's salary. Two years later, the lure of big money led him to join the sales force as a stockbroker. He was 25.

His personal life also looked bright. He had met Maureen Boczan, who worked as a stylist at a barber shop in First Canadian Place. They married in 1991.

That spring, Holoday raised his earning potential by getting approval to trade commodity and financial futures, a high-stakes game for wealthy, sophisticated investors with nerves of steel.

But many of Holoday's clients at what was then Midland Walwyn Inc. had little experience in commodities and didn't want to take big risks. Several clients were retired and more suited to conservative investing.

Holoday told clients that he had developed a special ``strangle'' strategy that reduced risk and almost always produced eye-popping returns.

Colleagues said later the strategy came from an industry text book. It involves the simultaneous purchase of options with exercise prices above and below the current market price of the underlying commodity. Investors make or lose money when they sell the options.

Holoday, with his smooth monologues and lack of hesitation, enticed clients to invest in futures because he seemed to know his business.

He would talk about puts and calls, short selling, currency spreads, hedging and complex strategies that many clients naturally found difficult to comprehend.

He also talked about big returns, which clients readily grasped.

Holoday was personable, discussing a complex strategy and then easing into talk about skiing and motor homes and finally inviting the client to his office.

``We'll have a cappuccino for you waiting,'' he told a client over the phone.

Over at The Beauty Shop in Cobourg, mother-in-law Carole Boczan was happily telling her c commissions for Midland. He earned $1,063,763.45, according to his income tax return.

But unbeknownst to his clients, Holoday had been filling in their application forms with false information so they would be allowed to trade more in futures, which requires substantial net worth. The false details made clients appear to fit the brokerage's requirements for futures trading even though in reality they were unsuitable.

Documents for one client showed a $400,000 house as an asset. The client rented it.

Another document excluded a $300,000 liability.

Carole Boczan's form listed her as a president and chief executive officer when she was a hairdresser and shop owner.

Holoday would also increase commissions by trading without the permission of the client or the brokerage, another violation of rules.

He was making not only unsuitable trades for clients but also unprofitable ones. Some clients made money at first but gradually most began losing.

Holoday did not adhere to common guidelines for selling losing positions to limit the damage and moving on to other trades.

In late 1991, he started sending misleading financial statements to clients that showed fictitious profits. When clients wanted to pull money from their accounts, he pumped in cash from other sources including himself to cover up the losses.

Holoday would deflect calls about conflicting statements by blaming the firm for errors and sloppiness and urging clients to rely on his numbers.

In early 1992, Midland suspended Holoday briefly for sending out the reports, which he called ``simulations.'' An internal investigation concluded Holoday showed poor judgment but not dishonesty.

As his clients' losses mounted, Midland, which later became Merrill Lynch Canada, urged him to change his trading strategy. Holoday persisted until management ordered him to stop in July, 1993.

That meant fewer trades and less commission income, which he needed to cover up his clients' losses.

In August, Holoday resigned.

But he had already lined up another position - a better one - at First Marathon Securities Ltd., one of the Street's most aggressive brokerages.

David Wood, a First Marathon director and officer, was impressed with Holoday's intelligence and energy after meeting him at Midland. He hired Holoday to run a new futures division as part of the firm's correspondent network under First Marathon's umbrella.

First Marathon, which later became part of National Bank Financial, also raised Holoday's credibility and stature by naming him ``managing partner, futures division'' although he wasn't technically a manager or a partner with the firm.

Life was good again for the 28-year-old Holoday.

He and his wife were settling into their $1.3 million home in the city's posh Forest Hill neighbourhood. They bought it the previous October as his commissions soared - and his clients' losses mounted.

He borrowed $170,000 for a down payment from a company called Elka Estates Ltd. and took out two large mortgages. As it happens, the Roberts family owned Elka - putting Holoday in a conflict of interest that breached long-standing brokerage rules against borrowing from clients.

That summer, the Holodays rented a five-bedroom cottage on Lake Simcoe for more than $2,000 a month year round.

Holoday also bought a lot across the road from the Roberts' home in Sandy Lane, Barbados, where he planned to build a big estate.

For the cottage, Holoday bought a 38-foot Cigarette powerboat with twin 600-horsepower engines to speed around the lake. The five-tonne monster dubbed Bad Company cost $250,000.

``We wanted to be the fastest guy on the lake,'' said his boyhood friend Ervin Schleith.

Holoday got good mileage out of the boat. Just after joining First Marathon, he entered the annual Orillia Poker Run where boats race to different checkpoints to collect cards.

He even hired a helicopter so a client could film him zipping across the lake wi skills cost thousands of dollars.

The Holodays would entertain at swanky Toronto restaurants like Centro where Holoday wouldn't blink at paying $650 for a bottle of wine.

Money appeared to intoxicate him. In a pre-sentence report, Ronald Holoday said his son had difficulty separating fact from fiction. He wanted to be ``the big shot.''

In the report Holoday's mother, Mary Lou, said her son ``doesn't know where reality begins or ends.''

If, as his wife said, money ``was a big high'' for Holoday, she liked it, too.

In two years, Maureen Holoday spent more than $32,000 at the exclusive Chanel Boutique on Bloor St., according to court records. She bought at least $31,000 worth of jewelry at two other stores.

Once, according to a relative, she flew with a woman friend on the Concorde to Paris for a week of shopping and sightseeing. She spent thousands of dollars to dress up their house for a Halloween bash.

At First Marathon, she decorated her husband's big office in the opulent style of Gordon Gecko, the ruthless raider in the Hollywood movie Wall Street who said: ``Greed works.''

Sitting at his custom-designed desk, Holoday bragged that real estate mogul Paul Reichmann once occupied the room.

Employees from Reichmann's Olympia & York Developments would come down to Holoday's office for investment tips, he claimed.

Holoday liked to show off, impress clients and make them feel important. He would have a chauffeur-driven limousine pick up cheques at their homes.

But within weeks of Holoday's joining First Marathon, Wood started hearing rumours about irregularities during the broker's Midland days, including payments to clients to cover their losses.

Wood later testified that Midland reassured him the rumours were not true. Holoday said people at his former employer were trying to discredit him.

But Holoday had made payments to clients. To persuade his Midland clients to join him at First Marathon, Holoday had to close their accounts and pay them the balance. So he had to write them personal cheques to support the fictitious statements that hid their real losses.

He also continued his habit of trading without permission. It meant more heavy trading, bigger commissions and a higher profile.

Holoday concocted other schemes. Client David Channing, a television producer, wrote a cheque to First Marathon for $1 million in early 1994 with instructions to place 90 per cent of it in conservative investments and 10 per cent in riskier securities.

Holoday suggested he invest in Northbridge Unit Trust. Holoday poured the money into a leveraged bond play that lost hundreds of thousands of dollars. Northbridge didn't exist.

Holoday persuaded other clients to invest in the fictitious Northbridge as well as a firm that did exist, New York-based Eastbridge Management Trust.

But millions of dollars intended for Eastbridge were diverted, his trial revealed. He used the money to pay for his high living and to cover up losses.

In early May, 1994, Holoday came under scrutiny at First Marathon for taking positions in trades for clients with no money in their accounts. The firm ordered him to stop ``free riding'' or he would have to absorb the losses personally.

He had also run into a snag over his pending purchase of the Bridle Path area mansion. His $500,000 cheque bounced.

He wrote another one but the deal soon fizzled.

If Holoday was feeling the heat, he hid it well at his 30th birthday bash.

But six days later, he took the hit of his career. It was Friday, May 13.

Holoday opened the day with $405,000 in his personal trading account. He had been betting U.S. bond prices would fall, a strategy that had been costing him money for weeks.

That day Holoday changed his bet and became a bull.

The bond market promptly reversed course and prices plunged. A stubborn Holoday stuck to his position rather than limit the damage. His losses soared.

Holoday was stuck in a cl appearance he had enough money in his accounts to pay the Roberts family when he actually didn't.

He always relied on the next day's cheque coming from them to cover shortfalls. Accountants call it cheque-kiting, which can be used as a vehicle to commit fraud.

When Elaine Roberts decided on May 12 to move her business to the Royal Bank of Canada, where Holoday also had his accounts, there were no more time delays.

Roberts made a $5.4 million (U.S.) deposit the same day. The next day, she didn't advance anything and waited for her return. It never came.

The absence of cash from the Roberts family and the market hit left Holoday with an overdraft of more than $5 million (U.S.) in his bank account.

Roberts expressed alarm about not being paid for her family's latest investment and demanded security and an explanation.

Like so many times before, Holoday talked his way out of the jam.

He told Roberts that everything was fine and pointed to $10 million the family held in Eastbridge Asset Management.

He showed Roberts phony documents with a ``cut and paste'' Eastbridge letterhead.

Holoday also showed her documents suggesting he had about $10 million in Eastbridge himself.

But the world had started closing in. It became increasingly difficult for Holoday to cover clients' losses. He was deep in the hole himself. Cash from the Roberts family had dried up. They wanted their money back. First Marathon had restricted his trading, limiting commission income. Clients were calling his office.

Paul Simpkin, a retired Campbellford businessman and client, visited First Marathon's offices one day in late May and saw a frantic Holoday fielding calls.

Simpkin overheard Holoday talking to people on the phone about moving ``money around.'' Holoday also told his wife ``they would have to tough it out'' for the next few months.

Simpkin also had concerns about losses on his First Marathon statements but Holoday told him - as he did so many other clients - that the numbers were wrong and he was making money.

In one telephone discussion, Holoday said he had conducted ``some very fancy manoeuvring'' with Simpkin's account and created a tax shelter.

``It'll come out tickety boo,'' Holoday assured Simpkin.

But there were a lot of things that weren't ``tickety boo'' including Simpkin's accounts. Simpkin found out later he lost about $350,000.

By June 1, Holoday still had a shortfall of $1.5 million (U.S.) in his bank account. That didn't stop him from writing a $1.6 million (U.S.) cheque to Elaine Roberts. The cheque bounced.

The next day, Holoday borrowed $1.5 million from Toronto businessman Sheldon Fenton on the premise that it would be used to complete a profitable trade. Holoday instead used the money to cover the deficit in his bank account.

Holoday then borrowed heavily from other clients to pay back Fenton and other creditors.

Between June and August, clients lent him hundreds of thousands of dollars in short-term loans at exorbitant interest rates. In many cases, he never paid the clients back or missed deadlines for repayment.

Holoday persuaded Channing, who had already invested $1 million in the fictitious Northbridge, to lend him personally another $239,000 (U.S.) in a short-term loan for a First Marathon ``mutual fund.''

Some of the money went to Fenton instead. When the money was due, Holoday suggested Channing leave it in the mutual fund. An unsuspecting Channing agreed.

Holoday also sought a $2 million loan from First Marathon to help ease his financial pressures. The firm refused.

Instead, Wood advised Holoday to go to the banks for money, sell his assets and cut back his lavish lifestyle.

First Marathon realized that Holoday had become a major problem. An internal memo at the end of June revealed more than 90 per cent of Holoday's clients had net trading losses. Several clients had positions but no money in their accounts.

The memo disclosed Holoday's per other things, Holoday took out a $1.6 million mortgage on his house in her favour.

He sent her cheques totalling $122,000 in July and August. She got $72,000 from the sale of his Ferrari and another $50,000 when he unloaded the Jaguar.

Roberts also sought the Barbados property but Holoday sent the $689,000 proceeds from its sale to another client, Dr. Randy Lang, a Toronto orthodontist who was trying to recoup his losses.

Maureen Holoday recalled that when her husband put all their money on the line in 1994, she asked him why and he said it was greed but he believed they would be okay, a parole official said in Holoday's pre-sentence report.

``He had gotten himself so far into the hole it was a make or break thing,'' the officer quoted Maureen Holoday as saying.

She said her husband was ``delusional'' because he thought that if he fought hard enough ``he will be okay.' She thought he needed counselling.

Holoday gave little hint to clients that he was crashing, seeming optimistic as ever in conversations with them.

Holoday told them he had run into a ``capital'' problem but it would be overcome soon.

``Don't worry, when this is all over, I'll have $10 million,'' he told one client.

Holoday said that in a few months he would probably be ``the wealthiest young guy in Canada.''

The bravado didn't last. By late September, clients were clamouring for payments on short-term loans, promissory notes and investments.

A desperate Holoday tried to turn the tables. He admitted to Wood he had sent misleading statements to 18 clients while at Midland and settled with 12 of them.

However, he claimed the other six were blackmailing him and had threatened to complain to the Ontario Securities Commission if he didn't continue to cover their trading losses. Holoday said he could no longer afford to pay and would sue them.

If Holoday thought the claim would lead to sympathy and support from Wood, he got a big surprise.

``I'm getting your resignation today,'' said Wood.

Holoday resigned but hung around the office for a few more days still trying to borrow money from clients, including more than $300,000 from Simpkin.

He told Simpkin he was ``restructuring'' and moving but would resume trading soon.

``I got so many Indians around me right now.''

In his conversation with Simpkin, Holoday compared his trading to the board game, Monopoly.

``It's a game of Monopoly but it's real life.''

In late September, 1994, First Marathon escorted Holoday off the company's property and notified the Toronto Stock Exchange, which turned the case over to local police.

After a two-and-a-half year investigation, Holoday found himself facing 14 charges of fraud and a three-year odyssey through the courts. He would stay in his Forest Hill home for almost six more years until creditors forced him into bankruptcy.

Holoday ended up leaving a trail of misery and pain during his career as a broker. It led to places like Mount Pleasant Cemetery on that gray November day when his sister-in-law, Suzie Cunningham, watched her two infant sons moved from their burial place.

Adding salt to the wound, Holoday - as was his wont - bounced one of the cheques he had given the grieving parents to pay for the lavish funeral, sticking them with half the $16,000 bill.

Outside of court after one of Holoday's appearances, author John Lawrence Reynolds asked him to co-operate on a book Reynolds planned to write about the broker's Bay Street escapades.

Holoday, who didn't appear worried about the case, said he would co-operate if Reynolds split the profits after the first $100,000. Reynolds said no.

During their meeting, Holoday characteristically had grander designs.

``I think it should be a movie,'' he told Reynolds. ``Tom Cruise would be a good choice to play me.''

Breach Of Trust
Part II 13May01

ALMOST FROM the first time the daily stock-trading reports came across his desk in 1991, Albert Robinson had serious doubts about Midland Walwyn's phenomenal new broker, Michael Holoday.

Robinson, a veteran Midland credit manager, was sure the young hotshot couldn't be trusted. Holoday was breaking industry rules and putting his clients and the firm at risk.

``We should fire the guy,'' Robinson recalls telling his superiors. ``He's a habitual liar.''

Robinson found it odd that other Midland officials monitored Holoday's futures trading accounts, a job he would normally do.

Holoday's breaches continued throughout the next year and Midland's level of supervision troubled Robinson.

But the brokerage didn't fire Holoday, its million-dollar commission man.

In late 1992, Robinson found himself out of a job when Midland fired him after he asked to take early retirement. Robinson, who had continued to openly wonder about why the firm kept Holoday, had worked at Midland for 25 years.

The alarm bells rang a lot on Holoday during the next three years.

But a Toronto Star investigation shows that despite repeated signs of trouble, Holoday was able to continue breaking industry rules, putting his clients severely at risk.

Evidence at Holoday's trial showed he:

  • traded for clients without authorization;

  • sent them bogus statements;

  • covered up their losses;

  • borrowed from them and lied extensively.

    He made millions of dollars in commissions and fees in a few years but lost more in trading.

    `But it didn't seem to matter. I guess they were all making money. That's the only thing that would make any sense to me as to why he was still there'
    - Albert Robinson,
    former credit manager, Midland Walwyn

    It was only in the fall of 1994, after Holoday had switched from Midland to First Marathon Securities, that he was finally ousted from the securities industry.

    By then, he had swindled at least $12.8 million - and possibly more than $23 million - from more than two dozen clients in one of the biggest known frauds involving an individual broker in Canadian history.

    Nearly 10 years after Robinson first warned his bosses, a judge convicted Holoday on 14 counts of defrauding clients and the two brokerage firms.

    In March, Madam Justice Patricia German of the Superior Court of Justice sentenced an unremorseful Holoday to 7 1/2 years in prison and ordered him to repay $6.1 million to former clients.

    Creditors eventually petitioned Holoday into bankruptcy. The Investment Dealers Association, which regulates the brokerage industry, slapped him with a lifetime ban.

    About two dozen clients sued Holoday and Midland, now Merrill Lynch Canada, and First Marathon, which later became National Bank Financial. They claimed the brokerage firms breached their fiduciary duties by not supervising the salesman properly.

    Most of those clients eventually settled their civil claims out of court. They can't talk about the terms because of confidentiality agreements, but they are bitter about their experience.

    'His reason was ridiculous. And how could any brokerage believe that? If they were simulations, why had he been sending them on a regular basis?'
    - Helen Rentis,
    a former client, about Holoday's 'simulations' of her financial statements

    ``This could've all been nipped in the bud if they had listened to Albert Robinson,'' says Brian Rocks, a former Holoday client who lost about $110,000.

    But nobody did.

    Although it knew about allegations of impropriety against Holoday, the Toronto Stock Exchange approved his switch from Midland to First Marathon in 1993.

    In 1998, after a lengthy investigation, the TSE ruled that First Marathon had ``properly supervised'' Holoday. The TSE would not release or discuss its findings.

    That Holoday's spree continued unchecked for so long raises questions for investors about how brokerage firms police their operations and whether regulators properly investigate and enforce the law.

    Correspondence, tape recordings and other evidence at Holoday's criminal trial plus court filings, interviews with investors and a report by one of the country's foremost experts on securities regulations reveal that time after time clients were not protected. It appears from documents that the brokerages didn't even follow their own rules.

    But Lorie Haber, an executive vice-president at National Bank Financial, says First Marathon handled Holoday properly.

    ``The firm doesn't accept there was a lack of compliance,'' says Haber. ``The regulator (TSE) affirmed that.''

    Haber emphasized that First Marathon had no knowledge of any improper dealings between Holoday and his clients until after he had left the firm.

    ``They took place off our books,'' he adds. ``There were no complaints from clients during that time.''

    Merrill Lynch Canada, which bought Midland in 1998, says the predecessor firm had high standards of compliance and supervision and the new firm raised them further.

    ``We take compliance issues very seriously because it is in the best interests of our clients,'' says Peter Kahnert, Merrill's director of communications. ``We are among the leaders in that area.''

    Kahnert says expectations have also changed. Five or six years ago, management didn't make routine calls about compliance to clients because it might worry them and possibly disrupt their relationship with their broker.

    Now, he says, it's ``reasonably routine'' for firms to contact clients about accounts.

    While the brokerage firms wrestled with Holoday's breaches for years, it didn't take long for Robinson to suspect him at Midland.

    Robinson was responsible for making sure clients met their obligations on margin accounts, in which they borrow money from the firm to trade.

    He phoned one day in 1991 to tell Holoday that a client with a margin account had borrowed too much and exceeded his limits.

    Robinson said the broker told him he had deposited a cheque to bring the margin back in line. The cheque didn't arrive. Two calls later, Holoday finally deposited one of his own personal cheques to the client's account. It bounced.

    A cheque finally cleared a few days later and the account was back within its limits.

    ``I never had to call a salesman three times in my life,'' says Robinson. ``This industry is based on trust. I trusted the people in the firm to tell me things straight the first time. Otherwise, the business couldn't function.''

    The tactic of writing, bouncing and writing more cheques became Holoday's signature as his stature grew.

    Robinson says that once Holoday encouraged him to buy a stock. Robinson said he didn't have $6,000 to make the investment.

    ``Michael replied that I didn't need to worry about it (the money),'' Robinson says. ``I couldn't get over his attitude.''

    Robinson says he also noticed Holoday had become a regular visitor to the offices of Midland's compliance supervisors.

    But Holoday's problems with accounts didn't seem to get him into trouble. Month after month, Holoday was Midland's top-producing broker.

    In 1991, Holoday generated more than $1 million in commissions for the firm. In 1992, he doubled it.

    He was a star broker at Midland, gaining entry into the firm's ``chairman's club'' o

    Evidence at Holoday's trial showed he violated trading strategies and made trades with the client's permission but not the firm's approval. He also sometimes traded without his clients' authorization.

    But the losses, sudden changes to client profiles, big trading volume and breaches of rules didn't prompt any quick action from Midland.

    Holoday had appeared on Midland's radar screen for potential trouble as early as October, 1991, when compliance head Brad Doney noted in a memo that two departments were looking at Holoday ``to minimize our risk to exposure.''

    In January, 1992, the alarm bells rang louder when an audit of accounts revealed Raines had rejected a statement from the firm because it didn't match a report from Holoday.

    Midland didn't know about the statements Holoday was sending his clients. Midland's records showed Raines had $85,119 in her account, while Holoday's report showed she had $204,323.

    Midland discovered that other clients had received personal ``summaries'' from Holoday.

    When questioned, Holoday told his bosses the summaries were ``simulations'' to show how each client would have done if they had invested more in his strategy.

    Client Helen Rentis says Holoday never mentioned simulations and that she only heard his explanation during litigation against him years later.

    ``His reason was ridiculous,'' she says. ``And how could any brokerage believe that? If they were simulations, why had he been sending them on a regular basis?''

    A scathing, 69-page report by David Walters, a former long-time deputy director of the Ontario Securities Commission, supported her contention. Walters said Midland's management should have realized Holoday's explanation was ``preposterous.''

    Walters, who was hired by some former clients to examine the conduct of Holoday and the brokerage firms, said Midland had grounds to fire him with cause for his conduct. Doing less constituted an ``unconscionable breach'' of TSE regulations and the firm's compliance manuals, he argued.

    Although Midland didn't fire Holoday for the summary reports, it did suspend him briefly. Midland barred him from the firm's offices and started an investigation. It downloaded his computer files and found more summaries.

    Midland compliance officer David Davis acknowledged during litigation involving clients' claims that he did not completely believe Holoday about Raines.

    Davis said no one, except possibly Holoday, told clients the firm had restricted trading in their accounts during the investigation which would have flagged them that something was wrong.

    Holoday freely talked to clients during the probe, even though he couldn't trade for them.

    He was also present during a meeting in January, 1994, among Midland's audit head Scott Sinclair, Davis and Raines at which she denied her earlier answers about conflicts between the firm's reports and the broker's statements.

    Midland never knew the reason Raines withdrew her complaint: Holoday had agreed to pay her $120,000, covering her losses, ``to save his career,'' she testified later in court.

    In response to written questions from The Star, Doney, now Midland's general counsel, says the firm had no reason to question Raines' reversal.

    ``Securities dealers such as Midland Walwyn monitor activity carefully, but it is virtually impossible to detect wrongdoing away from the firm, even if it involves an employee as it did in this instance,'' Doney says.

    'We are very excited by the prospect of working with you as a partner in building your business'
    - David Wood,
    First Marathon Securities, in a letter to Holoday

    According to Walters, another client also withdrew his complaint, an oddity no one investigated.

    ``Very clearly, Midland Walwyn management, in my opinion, wanted positive audit confirmations and nothing else,'' Walters said in his report.

    Walters, who helped draft industry bylaws and enforced them for more than 15 years at the OSC, described Midland's failure to advise clients about Holoday's specific misconduct as a ``most grievous breach of their duty.''

    Midland countered in its written responses to The Star last week that the firm made efforts to contact clients who had received the ``hypothetical investment projections'' to ensure they knew the statements were not official.

    When Robinson heard from Davis about Holoday's monthly statements to clients in 1992, he believed Holoday was ``a goner.''

    ``I told Davis that's highly illegal and he (Holoday) should be out the door,'' Robinson recalls.

    ``But it didn't seem to matter. I guess they were all making money. That's the only thing that would make any sense to me as to why he was still there.''

    Midland reinstated Holoday a few weeks later and put him under what it called strict supervision. It concluded he showed poor judgment but not dishonesty in sending his own reports.

    Evidence at his trial revealed Holoday continued to send out statements after his suspension, despite Midland's tighter scrutiny.

    In June, 1992, Midland received a letter from Raines instructing the firm how to deal with profits in her account. Midland informed her there were no profits. It didn't pursue the possibility that Holoday was still sending phony statements.

    Holoday's conduct crossed other lines as well.

    By the fall, 10 clients had exceeded risk capital limits, another breach of rules governing a client's suitability for trading. But Midland did not discipline Holoday.

    Walters also said a review of clients' activity to Nov. 19, 1992, showed that, in more than 60 client accounts, Holoday had abandoned agreed-upon trading strategies. Holoday did it although he was supposedly subject to ``close'' supervision.

    Holoday also failed to submit updates on account documents for nine clients - and they kept trading despite restrictions.

    Meanwhile, the 62-year-old Robinson, who had become increasingly frustrated with the lack of action against Holoday, asked Midland for early retirement in 1992.

    Robinson said Midland then fired him and gave a severance package of $45,000 and a reduced pension.

    A Midland official told him to clean out his desk immediately and escorted him out of the company's offices.

    Robinson said he didn't fight Midland over his dismissal because of the likelihood of long, costly litigation.

    A few days later, he received a big basket of toiletries sent to his home with the message: ``Sorry I didn't see you before you left. Michael.''

    Midland sent a memo to Holoday that indicated it was suspending his personal trading privileges immediately because he had surpassed the capital he could risk, which could taint his judgment when trading for clients.

    The day Robinson left, Doney warned Holoday in a memo about further disciplinary action or dismissal because ``your repeated violations of requirements, either through carelessness or deliberate attempts to circumvent restraints, have seriously undermined the level of trust that must exist between you and the firm.''

    Doney said in another memo he believed Holoday had become ``a moving target in respect of factual information.'' He mused about taping Holoday's phone calls to clients, but the firm did not pursue the idea.

    Midland officials also suspected Holoday was generating huge commissions because he was likely trading without his clients' authorization, according to Doney.

    He said the firm was concerned about allegations that Holoday was making payments to clients to cover their losses.

    Doney said last week through a Midland spokesperson that he ``did not recall the references being made'' to brokerage suspicions that Holoday was paying clients and trading without authorization. Doney could not be reached directly for comment.

    Client losses piled up and, by the summer of 1993, the firm ordered him to stop using his strategy in view of losses and a failure to follow trading guidelines.

    Holoday finally resigned in August, 1993. He had been Midland's top producer in the previous two years, generating commission revenues of $1,117,499 in 1991 and $2,038,823 in 1992.

    But the member of Midland's ``chairman's club'' didn't make much money for clients by the end of his tenure there.

    Internal Midland records showed only two of Holoday's clients with investments of more than $50,000 had gains. The value of accounts for all his other clients shrank from between 4 per cent to 72 per cent, according to Walters' review.

    Doney said there was no requirement to advise the TSE about Holoda

    It didn't take long for Holoday to find a much better job on Bay Street.

    He had met David Wood, a First Marathon director and officer, the previous year when the high-flying broker pitched the idea of a lucrative investment opportunity in Eastbridge Asset Management of New York. Although the two worked at rival firms, they flew to New York to study the investment.

    Holoday impressed Wood with his intelligence and energy. Wood hired him to run First Marathon's new futures division. Holoday planned to eventually set up his own brokerage firm with back-office support from First Marathon.

    ``We are very excited by the prospect of working with you as a partner in building your business,'' Wood wrote Holoday.

    First Marathon gave him the impressive title of ``managing partner, futures division,'' a label that gave him instant cachet with clients. However, Holoday wasn't technically a senior executive with the firm.

    TSE officials approved a ``conditional'' transfer of his registration as a salesman to First Marathon. They also gave the brokerage firm a clue about his past by noting that Holoday ``is currently the subject of an investigation'' by the exchange.

    The TSE soon completed the probe and concluded there were ``no substantive violations,'' clearing Holoday to work at First Marathon.

    Over at Midland, officials expressed relief about the move of their former big shooter.

    ``I was relieved he was someone else's responsibility,'' Doney testified at Holoday's trial.

    The firm warned First Marathon. Midland's lawyer, Brigitte Geisler, told Wood about rumours concerning Holoday's payments to some clients to cover their losses. Geisler also indicated she was uncomfortable about Holoday.

    Wood had heard about the Raines incident and Holoday's statements to clients. First Marathon dismissed the notion of impropriety, saying in a memo Holoday's statements were ``a very aggressive form of marketing but not deliberate misrepresentation.''

    First Marathon said the TSE had cleared Holoday. The firm also indicated it had investigated his performance at Midland and talked to former associates and managers.

    But by April, 1994, Wood was hearing more. Roy O'Hearn, one of Holoday's clients, complained that he couldn't withdraw $10,000 from his account, even though he had more than $800,000 in it.

    Wood said in court he pulled Holoday into his office the next day and phoned O'Hearn to tell him there wasn't $800,000 in the account. An argument between O'Hearn and Holoday followed over the phone. Wood said Holoday appeared to become physically ill and bolted from the office.

    O'Hearn said Holoday later called him back and told him to talk to no one at First Marathon but him.

    O'Hearn later received a cheque for $299,200 (U.S.). The money came from Holoday's bank account, not from O'Hearn's account at First Marathon.

    By that time, Holoday was in dire financial straits. He lost a whopping $2.1 million (U.S.) in personal trading in May, 1994. As well, a trading arrangement with the wealthy Dr. Ken Roberts and his daughter Elaine, principals of Fahnestock Viner Holdings, had collapsed. Clients complained and creditors clamoured for payments.

    Facing a cash squeeze, Holoday asked First Marathon for a $2 million loan. The firm advised him to sell assets and cut his spending.

    In June, a compliance officer with RBC Dominion Securities told First Marathon that a personal cheque from Holoday for $299,200 (U.S.) had been deposited into O'Hearn's account at RBC.

    Wood said in court testimony he believed this was the ``smoking gun.'' But Holoday claimed the payment to O'Hearn was for a 1989 real estate loan. Holoday admitted he had made a mistake by not disclosing the private deal with a client, a violation of industry rules.

    Wood wanted to see confirmation from O'Hearn in writing and the promissory note documenting the real estate deal. Holoday persuaded a skeptical O'Hearn to go along with the charade.

    ``I didn't even know you in 1989, Mike,'' said a worried O'Hearn in one conversation he taped. O'Hearn said he would look like ``an idiot'' if he had to account for the letter.

    Holoday assured him the ``loan'' was a gray area between brokers and clients.

    ``It's not illegal,'' Holoday said when O'Hearn considered going to see his lawyer.

    Wood got the letter from O'Hearn but the promissory note was dated June, 1994, and was for a different amount, Walters later discovered.

    Walters said the lack of disclosure about the loans, the discrepancy in dates and earlier ``alerts'' about Holoday's conduct should have triggered the broker's firing.

    The situation worsened and in late June, Joe Thurman, head of compliance at First Marathon, reported Holoday had become ``increasingly problematic'' in the areas of credit and compliance.

    Thurman, a former TSE compliance and enforcement official, revealed in a memo to Wood that 90 per cent of Holoday's clients had net losses and he had traded on their behalf when they had no money in their accounts.

    Several clients had debts written off against Holoday's own bad debt account, Thurman added in the memo filed in court.

    ``Most of his accounts had become outright speculators, gambling on which way the bond market will move in the short term,'' he added. ``As a result, some of the clients have suffered substantial losses.''

    Walters said his review of material ``suggests strongly that First Marathon in fact chose to see nothing, hear nothing and do nothing.

    ``To the extent it did anything at all, the response was limited to giving Mr. Holoday the benefit of every possible doubt for as long as possible,'' the report said.

    First Marathon said in written responses to The Star last week that the firm had addressed breaches in company rules immediately.

    ``First Marathon put Holoday under strict supervision regarding trading practices in a timely fashion to ensure client accounts were in good order,'' the firm said in response to a question about why it waited until months later to get rid of him.

    ``It was not until September, 1994, that Holoday revealed to First Marathon that he had been paying clients for their losses, thus providing cause for termination.''

    While clients lost their investments, First Marathon prospered from Holoday's work. The firm's records revealed Holoday's commodities futures division generated $3.3 million in commission revenue in the first nine months of 1994; he made $1.5 million.

    ``He had a great year,'' Wood said at Holoday's trial.

    Not really. Despite the big commissions, Holoday borrowed hundreds of thousands of dollars from clients for supposed investments during the spring and summer. He used the money to pay debts.

    Although First Marathon was unaware of his extensive borrowing, it finally forced Holoday's resignation in late September, 1994, after he admitted sending bogus financial statements to clients and covering their losses.

    That Holoday's spree could continue as long as it did still baffles clients.

    ``What I find incomprehensible is that the brokerage firms he worked for could watch him systematically continue this,'' said Rentis, a Toronto businesswoman.

    Rentis, who lost a ``substantial sum'' of money, said in an interview the brokerage firms should have suspected something was wrong when so many of Holoday's clients were losing money and no one was complaining.

    ``It is apparent that greed overtook common sense and they were happy to enjoy the commissions that Holoday could generate rather than protect the interests of their clients,'' she said.

    Former clients say that if First Marathon had fired Holoday earlier in 1994 as his violations continued, it would have saved them hundreds of thousands of dollars they entrusted to the broker in subsequent months.

    The TSE investigated First Marathon's conduct and said in 1998 that the firm ``properly supervised'' Holoday. The exchange would not release or discuss its findings.

    Former clients who lost their savings, homes and even their marriages, reached their own conclusion.

    Says O'Hearn: ``I'm afraid that anyone who plays the stock market in this country is out of their minds.''

    Fraudster broker on parole after 18 months

    Michael Holoday served just one-sixth of total sentence

    By Tony Van Alphen
    Business Reporter
    The Toronto Star

    Former Bay Street broker Michael Holoday, the man behind one of the biggest frauds in Canadian history, walked out of a residential-style prison yesterday after spending less than 18 months there.

    Holoday, a former star at two major downtown brokerages, left Beaver Creek Institution, just north of Gravenhurst in Muskoka, on day parole.

    He is to reside at an undisclosed halfway house under the supervision of a federal corrections officer until full parole Feb. 12, 2004.

    Corrections Canada released Holoday from Beaver Creek, a minimum security prison with residential units, a baseball diamond and a tennis court, following a National Parole Board decision in June that granted him partial parole.

    Under federal law, Holoday, 38, was eligible for parole after serving one-sixth of two sentences totalling 83/4 years for defrauding more than two-dozen former clients and the Hong Kong Bank of Canada, now HSBC Bank Canada, during the 1990s.

    An Ontario Superior Court judge also hit Holoday with a $6 million restitution order to several former brokerage clients.

    During its deliberations for day parole, the board could consider only the issue of whether Holoday would likely commit a violent crime before the end of his sentence.

    "... The board, after review of the case, found no evidence that the offender (Holoday) is likely to commit a violent offence prior to the expiry of the sentence and thus the board must direct release on day parole," the decision said.

    However, the board attached special conditions to Holoday's parole, including "full financial ongoing disclosure" to his parole officer and "psychological counselling."

    Holoday's release outraged some former clients who lost their life savings and investments.

    "I find it deplorable that the justice system would unleash this man on the public after serving a fraction of the sentence handed down barely 18 months ago for defrauding so many people," said former client Helen Rentis, who lost several thousand dollars.

    "This makes a mockery of the efforts of the fraud squad and the courts to obtain a conviction against people who prey upon the public."

    Rentis, a Toronto businesswoman, added she hopes that Holoday can find employment to start paying victims under terms of the restitution order.

    But Rentis and Gary Davidson, another former client who lost money, said they doubt clients will recover their investments.

    "I believe it will never happen," Davidson said.

    Victims will need to apply to the court for an order to force recovery of their funds. For example, they could seek an order that would garnishee portions of Holoday's regular earnings for disbursement to them.

    Holoday collected more than $3.1 million in commissions in 1991 and 1992. He spent lavishly on a Forest Hill home, cottage, power boat, luxury cars, trips and entertaining friends.

    But his career crashed in 1993 and 1994. He had transferred to First Marathon Securities in 1993 after a controversial tenure at Midland Walwyn Inc.

    At First Marathon, the losses piled up. He lost $2.1 million (U.S.) alone in personal trading in May, 1994.

    First Marathon finally forced Holoday's resignation in October, 1994. The Investment Dealers Association of Canada later slapped him with a lifetime trading ban.

    Creditors, including former clients and the Royal Bank, eventually pushed him into bankruptcy after he could no longer meet his mortgage payments or pay loans and other bills.

    Police charged Holoday, who started his own investment firm in 1995, with 14 counts of fraud in 1997.

    Evidence at Holoday's trial in 2000 and 2001 revealed he had traded millions of dollars in clients' money without permission, sent misleading statements to them, covered up their losses with his own cheques, borrowed from them to pay other creditors, committed forgery and lied extensively to protect himself.

    Prosecutors calculated that Holoday's clients lost at least $12.8 million but police said the amount could have exceeded $20 million. A detective said in a pre-sentence report that Holoday, a one-time member of the "chairman's club" at Midland and "managing partner" at First Marathon Securities, had ended marriages, taken people's life savings and destroyed families.

    But Holoday said he wasn't a crook, just "a lousy broker."

    At his sentencing, Holoday showed no remorse and said he was "basically a good human being" and only guilty of "being too generous" for covering other people's investment losses.

    Madam Justice Patricia German, who sentenced Holoday to 71/2 years and ordered the $6.1 million restitution, described him as "a dangerous man" because of his ability to charm people, gain their trust and then act "unscrupulously."

    Police charged him shortly before his sentencing with defrauding the former Hong Kong Bank by writing a series of cheques in 1997 and 1998 that Holoday knew he couldn't cover. Holoday pleaded guilty to that charge, and another judge slapped him with an additional 15 months.

    Former broker's day parole revoked

    Holoday on 'slippery slope' Parole board

    By Tony Van Alphen
    Business Reporter
    The Toronto Star

    The National Parole Board says it revoked day parole for convicted swindler and former Bay Street star Michael Holoday because he was "on a slippery slope" toward more crime.

    The board suspended Holoday's parole last September and revoked it recently after concluding he had misled parole supervisors about his business dealings and had associated with a suspicious individual whom police have charged with fraud.

    In its decision, the board said Holoday, 39, had breached his parole conditions by entering into a position of trust with business clients, the same type of relationships that led to multi-million dollar frauds during his meteoric rise on Bay Street during the early 1990s.

    "You were re-orienting your business dealings towards the financial field," the board said. "This is perceived as clearly a return to your former business life, and clearly a return to elements of your crime cycle.

    "You knew or ought to have known that your parole officer and the board would have been reluctant for you to engage yourself in this field. A reasonable person would have determined that you were clearly embarking on a `slippery slope.'"

    Among other things, Holoday's case management team at Correctional Services Canada indicated concern about lack of disclosure of his incorporation of a company and the opening of a new bank account for the firm.

    The team added that could lead to "cheque kiting," a technique Holoday used to defraud clients and banks in the past. Kiting occurs when someone creates a fraudulent bank balance by depositing a cheque from another account that has no money in it.

    After misleading his parole board officer about his business relationship with another individual, the team said Holoday told them last summer he had agreed to be the person's "agent" and locate clients for a commission.

    In its written decision, a parole board official said it blacked out the individual's name because it "was given in confidence."

    But police sources said the individual is French national Frank Sablon-Dauberton, who was charged here last month with numerous offences, including fraud over $5,000, attempting to obstruct justice and resisting arrest. Police have not charged Holoday in that case.

    Sablon-Dauberton, who remains in the Don Jail awaiting a bail hearing, runs Secure Investments International Inc. It operated a loan scheme in which borrowers had to pay fees and provide insurance guarantees, and then never received the funds, police say.

    French police also are investigating Sablon-Dauberton for fraud in France.

    The correctional services management team instructed Holoday to discontinue his business operations in July last year and seek other employment. The team also contacted police.

    Police provided further information and then the parole officer arrested Holoday and suspended his day parole in September.

    In 2001, a judge convicted him of defrauding more than two dozen clients and the Hong Kong Bank of Canada, now HSBC Bank Canada, of $12.8 million. The judge also slapped him with a $6.1 million restitution order.

    The high-flying Holoday, who lived lavishly as a former top broker at two major Bay Street brokerages, gained day parole in August of 2002 after serving 18 months or one-sixth of a prison sentence.

    After day release, Holoday, who is bankrupt, told parole officials he was employed in his own business providing analysis for institutions for investment of pension funds.


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