National Post (National Edition)
‘We worked on this company together from the beginning’
BAKER IS A CONVICTED CRIMINAL WHO HAS ADMITTED THAT HE DEFRAUDED HUNDREDS OF INVESTORS, AND WHO HAS PUBLICLY STATED THAT HE DOES NOT WANT TO BE PUNISHED ALONE. — MICHAEL MEREDITH, LAWYER FOR JOHN KURGAN BAKER SPENT MORE THAN SIX YEARS IN GERMANY AND U.S. PRISONS.
Baker’s tale is well documented in court filings, prison records, and media stories. But the intersection between Lake Shore, Baker, and Kurgan, a vice-president and investment advisor at RBC since November of 2011, is harder to find.
Documents filed in the United States in 2010 and 2011, in court and by the firm’s Los Angeles-based receiver in connection with the bankruptcy proceeding, lay out Kurgan’s involvement with Baker and companies linked to Lake Shore. They describe him signing documents — including a partnership agreement with Baker — carrying out trades, and receiving a few million dollars in payments from a company in the Lake Shore group.
Baker credits Kurgan with pulling him back from one of his darkest moments of despair when a business he attempted to launch before Lake Shore had failed, and describes it as part of his “personal story of loss” that Kurgan distanced himself when the fund’s trading losses were ultimately discovered and everything unravelled.
“He has escaped responsibility and profited from it for years. Kurgan’s life did not change at all,” said Baker, who spent more than six years in German and U.S. prisons, including Fort Dix in New Jersey, before being transferred to Canada last year and released on Sept. 9.
“Baker is a convicted criminal who has admitted that he defrauded hundreds of investors, and who has publicly stated that he does not want to be punished alone,” Kurgan’s lawyer Meredith said in the emailed statement.
Lake Shore’s bankruptcy proceeding largely took place in court in Chicago, but special permission was sought by the receiver to conduct a deposition of Kurgan in Canada. Written “interrogatories” were also sent to Kurgan’s wife Patricia.
In Kurgan’s deposition, described in court documents, he denied that he ever worked at Lake Shore.
However, he acknowledged that he executed trades for Baker with Refco Canada. Kurgan “also admits that he helped establish… Hanford,” a company that was connected to the Lake Shore group and was a party to the bankruptcy proceeding, according to a document filed in U.S. District Court for the Northern District of Illinois on Aug. 19, 2011.
The receiver, Los Angelesbased Robb Evans & Associates LLC, tracked payments to both Baker and Kurgan from Hanford between March 8, 2002, and Dec. 11, 2008.
“Hanford made documented payments totalling approximately $3.9 million for the benefit of Baker... (and) $3.7 million for the benefit of Kurgan,” Robb Evans & Associates said in an Aug. 14, 2010, report.
In his deposition, Kurgan “denied have an ownership interest in Hanford,” though “he acknowledged that he did receive commission income from Hanford.”
Kurgan said his role was limited to “signing documents so Hanford could open bank and trading accounts as Mr. Baker’s poor credit rating made him ineligible to do so.”
He said he was trying to help Baker, who had fallen on hard times.
“Mr. Kurgan loaned money to Mr. Baker and signed a partnership agreement (in a company called FTG Capital Canada Ltd.), allegedly so Mr. Baker could prove to his father that he was employed,” said a document filed in Illinois court in 2011 that describes the deposition.
Baker said this version of events is “not true,” adding that Kurgan’s signature is on the partnership agreement because they were partners in FTG, a predecessor company to the Lake Shore group.
“(It’s) absolutely clear, we worked on this company together from the beginning,” said Baker, who has a large stash of emails, business cards, and other documents from his days at Lake Shore.
Robb Evans and Associates, the receiver in the Lake Shore case, appeared to establish a link between FTG Capital Canada and Lake Shore. In tracing funds to try to recover them for Lake Shore customers, the receiver sought access to FTG Capital Canada in 2011.
Kurgan was FTG’s sole officer and his wife was the sole shareholder.
“The receiver contends that the Canadian discovery established that FTG conducted transactions on behalf of the Lake Shore Group of Companies,” said a document filed in the U.S. District Court for the Northern District of Illinois, in August 2011.
In support of its effort to expand the receivership to include FTG, Robb Evans & Associates stated that in “between 2002 and 2006, FTG transferred millions of dollars between itself and various Lake Shore entities and their officers, employees, legal agents, and other service providers.”
“Additionally, the receiver states that Lake Shore entities sent funds to FTG and FTG operated as the predecessor to Lake Shore asset Management Ltd. (LSAM), which was a key part of the Lake Shore common enterprise.”
Michael Meredith, Kurgan’s lawyer, said the receiver’s reports do not constitute evidence. He added that the receiver, appointed by the U.S. Commodities Futures Trading Commission, “has at no time commenced any proceeding against Mr. Kurgan.”
FTG, the Kurgans’ firm, was not ultimately included in the receivership by U.S. District Judge Blanche Manning in 2011. She ruled that the court was not in a position to determine whether FTG was an “alter ego” of Lake Shore without an “evidentiary hearing” to weigh the competing evidence. In addition, a higher court had determined that a district court could not issue an order directed at an alleged alter ego “unless that part is first named as a defendant and served with process.”
However, Hanford, the company Kurgan said in his deposition he helped establish, was a defendant in the bankruptcy case. Hanford also figures prominently in Baker’s plea agreement with the U.S. government less than a week after Manning’s order was filed with the courts on Aug. 19, 2011.
The plea agreement, dated Aug. 24, 2011, said Baker established Hanford with a person identified only as Individual A.
The plea said Individual A and others “performed the Lake Shore futures trading in Ontario, Canada,” and that Individual A, along with Baker, “knowingly provided false futures trading information to the back office firm knowing that the false information would be used to compute materially misleading account values for pool participants.”
Kurgan’s lawyer, Meredith, did not confirm or deny that Individual A refers to Kurgan, telling the Financial Post only that the plea agreement “is not evidence of anything regarding ‘Individual A’.”
“It is a confidential agreement reached between Baker and the U.S. Department of Justice, based on a rendition of events originating with Baker,” Meredith wrote. “It was made without Mr. Kurgan’s knowledge.”
Clifford Histed, the former assistant U.S. attorney who signed Baker’s plea agreement and is now in private practice at Chicago law firm K&L Gates, said he can’t discuss the identity or any details about Individual A because he is prohibited from speaking about someone who has not been charged with a crime.
He declined to discuss any other aspect of the case.
Daniel Rashbaum, Baker’s lawyer who negotiated the plea deal in 2011, said he remembers that Kurgan was involved with Lake Shore, but he does not remember specific details because so many years have passed.
“I know who John Kurgan is and I know his involvement, but I wouldn’t be the right person to be commenting on it because I really, I don’t remember the specifics,” Rashbaum said in an interview.
Through the passage of years, what he said he remembers clearly is that it was his priority to insert a clause into the plea agreement that would allow Baker to seek to be transferred to Canada, where he’d serve a far shorter sentence than the 20 years stipulated in the plea deal.
United States authorities did not oppose the transfer, but it took until last year for Baker to be transferred to Canada. He was released in August 2016.
“I knew that if he got transferred to Canada, he would likely serve very little additional time in jail,” Rashbaum said, noting that Baker had already been in custody for a couple of years by the time the deal was negotiated in 2011.
The sentence Baker received was substantial for a plea deal, yet indicative of the tough-on-white-collar-crime tone in the United States in the years following the financial crisis. Financial institutions were blamed for exacerbating, if not outright causing, the global economic meltdown.
The attention paid to such cases in that era was evident in the amount of media coverage Baker’s case attracted. Despite the fund having less than US$1 billion under management, Baker’s guilty plea was widely covered by the media, including Bloomberg and Reuters.
Kurgan stayed largely out of the limelight, even though he appeared in numerous documents tied to the case. His LinkedIn page does not mention Lake Shore, showing that he worked for Refco Futures Canada Inc. from 1990 until 2005, and then as a commodity/futures hedging specialist at MF Global Canada Co. until November 2011, when he joined RBC.
He is listed as vice-president and investment advisor at RBC Dominion Securities, through a unit called Plaza Futures Group. On LinkedIn, he bills himself as a commodities and futures specialist.
For its part, Royal Bank declined to answer questions about whether it knew Kurgan had any involvement with Baker and Lake Shore before the bank hired him in 2011. In an emailed statement, the bank said only that it holds its employees “to the highest standard of ethical conduct and to the RBC values, which include putting our clients first.”
In a strange twist, RBC had money tied up in the demise of Lake Shore.
One of the documents filed with the Illinois court in 2010 in connection with the bankruptcy proceeding contains a submission from Royal Bank of Canada, which was among those asserting claims on troubled firm’s funds. The bank weighed in on how available funds should be distributed among those with claims on them.
The document does not say how much money Royal Bank believed it was entitled to, but it indicates the bank was part of a group fighting for about $13 million of a $100 million pool of money frozen by authorities.
In an emailed statement this week, RBC spokesperson Catherine Hudon said the bank “had a very small number of investors who requested exposure to the fund.”
She added that Lake Shore funds were not on any list of recommended investments for clients in the bank’s retail channel.
Kurgan “was not employed by RBC at the time he traded a Lake Shore account,” his lawyer said, adding “RBC had no involvement with the events concerning Baker and Lake Shore.”