THE JITEC AFFAIR
THE INFORMANT WITH UNCLEAR MOTIVES
Montreal businessman Herbert Black made a fortune. But the financial results do not tell all, as is evident in two recent cases in which the winner of an Ernst & Young award received help for questionable means. Before Norbourg took over the headlines, JITEC was one of the hot topics of the Quebec Stock Exchange’s (QSE) watchdog, the Commission des valeurs mobilières du Québec (CVMQ), which now bears the name Autorité des marchés financiers (AMF).
JITEC, a SMB from Verdun that offered remote computer software services, arrived on the QSE in July 2000. But only a few weeks later, the founder of JITEC became the subject of a denunciation, which would trigger a chain reaction in autumn 2000. The CVMQ suspected Benoît Laliberté of manipulating JITEC’s shares in the QSE by buying and selling shares through seven different accounts without reporting its transactions, which constitutes insider trading. They also suspected him of having helped JITEC to announce misleading information, such as contracts that were only letters of intent.
On November 10th, the CVMQ prohibited Benoît Laliberté from trading his shares. When JITEC was launched on the QSE in late July, Benoît Laliberté held more than 38 million shares, or 72% of the total. The ban was eventually lifted on January 16th, 2001, but JITEC would not recover from its problems with the authorities. Due to a class action lawsuit launched by disappointed investors, according to the trustee of the case, the renowned company Advantage Link is unable to find funding. It surrenders in December 2002.
Who is the CVMQ’s informant? Herbert Black. He and Benoît Laliberté met at the chic restaurant Milos, on September 23rd, 2000, says the founder of JITEC in a record lawsuit of $124 million against the CVMQ. But their versions of the story differ completely. JITEC’s former president says that Herbert Black wanted to meet him in order to buy shares in his company. He believed it was a long-term investment. He will later discover that Mr. Black was looking for ways to cover up his short selling of JITEC’s shares. In a short sale, a speculated transaction, an investor agrees to sell a share it does not hold at a predetermined price. They hope that the stock price will fall and they can buy it back at a lower price before they must confess, in order to pocket the difference. Totally false, counters Herbert Black. The founder of JITEC needed money and was looking for someone to sell his shares. This is why Benoît Laliberté told Herbert Black all the information on various accounts at brokerage firms, registered on a napkin. "But I did not want to buy it. Hi actions were illegal," said Herbert Black.
Of the 38 million shares owned by Benoît Laliberté in late July 2000, 29 million were in escrow, that is to say, these equities could not be redeemed for 18 months, as is the norm for a new company entering the QSE. But the President of JITEC could have sold as he pleased the 9.7 million shares, on the condition that he disclosed the transactions. It is not certain that Benoît Laliberté was still in possession of all of these shares when he spoke with Herbert Black in mid-September because of numerous transfers and transactions in accounts controlled by Benoît Laliberté. If Herbert Black denies that he wanted to buy shares from Benoît Laliberté, he admits bluntly that he short sold the JITEC shares. But in his eyes, there's nothing wrong with that. He says he has denounced Benoît Laliberté to the CVMQ and that he leaked this information to newspapers.
"I told them everything I knew, and then I sold the share short, after everyone knew what I knew," said Herbert Black. Benoît Laliberté confirms that short selling occurred well before Black Herbert denounced him to the authorities. When asked about it, the president replied that "the time of the transactions does not matter."
Actually, Herbert Black's intentions were not as clear as that in the eyes of the CVMQ, which at first did not know much about the Montreal businessman. "I had great difficulty understanding his character and why he came with such insistence, because he was very insistent, wanting to denounce this situation and asking us to intervene in JITEC," Jean Lorrain, Director of Compliance at the time, said under oath at an arbitration hearing held in February 2003.
"I was not the only one who was questioned, my colleagues (...) were questioned on the motives of Mr. Black, they could not see the motivations, why this last one was involved so actively, so ferociously, in the sense that he was very intense.” "What he responded with,” continues Jean Lorrain, “is that he acted as a good citizen, a person who wanted justice to prevail." Jean Lorrain would learn from the newspapers that Herbert Black short sold the JITEC shares. "Serious doubt set in even more once the fact that he was short selling became clear (...) and that he had to, well, maybe ask himself questions in regards to his own motives."
Thanks to this information and that which was obtained from other jurisdictions, Jean Lorrain has developed a more accurate opinion of Herbert Black. He finished by describing him as "an industrialist who has had disputes before (...) with other securities commissions in the world, always as an informant or as (...) a white knight, in the way of a person who crusades against illegal activities. (...) So, Mr. Black had a certain reputation in that regard, but equally he had the reputation of a person who makes a lot of money from these scandals. So, he always turns a personal profit from the scandals in which he acts as an informant.” Jean Lorrain gave this testimony at the hearing of the complaint filed by an investigator of the CVMQ, Paul Trudeau, who challenged his dismissal.
Mr. Trudeau was one of the first investigators to address JITEC’s file. In this capacity, he was in close liaison with Herbert Black. He even went to his home in Westmount a few times, which is highly irregular, according to his superiors. Paul Trudeau was dismissed in August 2002 for accepting a bribe of $1,000. In his confession to the Quebec Provincial Police (QPP) and to his superiors at the CVMQ, he confirmed that it was Herbert Black who gave him the money.
It would have happened around 6 pm on December 22nd, 2000, according to the declaration of the QPP. At the invitation of Herbert Black, Paul Trudeau went to Resto McGill in Old Montreal after leaving the office. After talking over coffee, the two men headed for Herbert Black’s car, parked on La Gauchetière Street between the Central Station and the Place Bonaventure. It was there, in his Mercedes, that Herbert Black put 10 $100 bills in his hand.
Having trouble making ends meet that month, Paul Trudeau accepted the money to give nice Christmas gifts to his children. He told police he never rendered any service to Herbert Black in exchange for this gift. Benoît Laliberté argues against this in his pursuit, alleging that Paul Trudeau deliberately leaked a confidential study to Herbert Black from the PricewaterhouseCoopers firm stating that JITEC's technology had nothing revolutionary.
Paul Trudeau did not voluntarily surrender to the police. It was a former employee of the CVMQ who turned him in. A lawyer, Catherine Gagnon, discovered the truth by chance in April 2002. Her brother wanted to introduce her to an acquaintance of his, Marc Beaudoin, a stockbroker and close friend of Herbert Black. At dinner, Marc Beaudoin told her that Paul Trudeau had accepted a gift from Herbert Black. The broker even told her that the exchange was filmed. Shortly after, Catherine Gagnon bumped into Paul Trudeau in a food court, she says in her sworn testimony. She confronted him and he confessed everything.
Catherine Gagnon was terribly disappointed with this colleague, she thought to herself. She found him fragile, but feared he would try to commit suicide as a result of this confrontation. So, she decided to keep the secret after making him promise not to do it again.
To convince him of her sincerity, she testified, she told her own secret: she had an affair with Premier Bernard Landry for two years, even traveling with him during his official visits to France. The other reason for keeping the secret was that she feared for her life. "Herbert Black, I have not heard anything nice about him,” she testified.”I knew that he was very, very wealthy. So I said to myself: My God, this guy, if he wants to get rid of me, he can pay someone to kill me, it wouldn’t bother him ... it won’t be a big deal for him. "
However, Catherine Gagnon changed her mind in July 2002. She alerted Paul Trudeau’s boss after hearing from former colleagues that another employee had been fired from the CVMQ for fraud. "I panicked and I said to myself, ‘In the end, Paul, it might be just the tip of the iceberg, perhaps there are plenty of people in the department who do illegal things,’” she said. Herbert Black denies offering $1,000 to Paul Trudeau. But why would he lie? "It's beyond me,” says Herbert Black, “and you know, I have other things to do than worry about a guy who had a nervous breakdown..."
The businessman finds it hard to understand why La Presse is interested in history. "Benoît Laliberté has cost the investing public between 25 and 30 million dollars, and you tell me about the $1000: you missed the story."