BUSINESS/ECONOMY

Scandal in a small town

CHRIS WOOD November 10 1986
BUSINESS/ECONOMY

Scandal in a small town

CHRIS WOOD November 10 1986

Scandal in a small town

Just before 3 o’clock on the afternoon of Wednesday, Oct. 29, a sheriff and his deputy knocked at the door of one of the most elegant homes in Corner Brook, Nfld. After exchanging a few brief words with the home’s owner, 46-year-old financial planner George Rideout, the policemen departed, taking with them a midnight-grey Lincoln Continental from the detached two-car garage. A short while later the sheriff and deputy returned and took a second car, a meticulously refurbished 1932 Chevrolet. The seizures were dramatic evidence of an escalating controversy surrounding the trim, good-looking Rideout, who until a few weeks ago administered more than $1 million in annual health plan premiums for the Salvation Army’s 4,000 officers and employees across Canada.

One day before the car seizures, on Oct. 28, the Salvation Army’s Eastern Canada governing council had applied to the Supreme Court of Newfoundland to order two companies controlled by Rideout into bankruptcy. In Corner Brook (population 24,000), a paper mill town on the coast of Newfoundland’s rugged western highlands, lawyers acting for residents who had given money to Rideout for investment purposes tried to reclaim their clients’ funds. And RCMP commercial crime specialists in

Halifax and St. John’s continued to investigate allegations that at least $1 million may be missing from accounts handled by Rideout’s two troubled companies, Counsel Ltd. and George Rideout and Associates Ltd. Last week Rideout, a Salvationist from birth who plays flugelhorn in the Army’s Corner Brook Temple band, told Maclean’s: “I have done nothing wrong.” He added:

“There have been no charges laid. I do not even know who my accusers are.”

A series of lawsuits, police investigations and frantic financial manoeuvrings have beset the Corner Brook investment agent for more than a year. Documents obtained by Maclean’s show that as long ago as October,

1985, several private clients of George Rideout and Associates had accused Rideout of failing to invest their funds as agreed. Some clients who threatened to inform the police if Rideout did not reimburse them did get their money back, but in some cases only after Rideout wrote several cheques that were later returned for lack of funds. And some of

Rideout’s clients say that they are still missing tens of thousands of dollars—representing, in some cases, their life savings.

The RCMP investigation of Rideout’s financial affairs started after the Halifax office of Toronto-based broker McLeod Young Weir, which had dealings with Rideout, conducted its own private investigation earlier this year. The company’s inquiries began after Donald Ripley, McLeod’s regional vice-president, received a series of telephone calls at his Halifax home starting in June. The woman caller, who spoke with a Newfoundland accent, refused to identify herself. She told Ripley that she had information about a dispute that McLeod had with a company operating out of Corner Brook. The woman called Ripley several times over a period of six weeks, providing him with additional details, and Ripley confirmed some of the information. Then he contacted Calvin Hill, president of Intertel (Canada) Ltd., a Toronto security company. Said Ripley last week: “I was instructed [by head office] to get Mr. Hill to go to Corner Brook.”

Hill flew into the Newfoundland community on Aug. 24. He was unable to locate Ripley’s anonymous caller, but his inquiries led him late that day to the home of Corner Brook

surgeon Dr. Robert Butt and his wife, Connie. The couple told Hill that they had given Rideout and Associates four cheques totalling $100,000 between January, 1977, and November, 1982, and instructed him to purchase tax-deferred annuities from Maritime Life Assurance Co. of Halifax. And until January of this year, the couple said, they never asked Rideout for proof that the annuities had actually been purchased. As for the improbable delay, Connie Butt told Maclean's, “We trusted him.” Finally, Butt’s accountant wrote to

Maritime Life and learned, last April, that no annuities had been issued in their name. For the next three months the distraught doctor and his wife pressed Rideout for repayment, threatening to go to the RCMP if their account was not settled. Recalled Connie Butt: “I called him every three days. The idea was not to expose him, not to embarrass him, just get your money back.” Late in June Rideout repaid the Butts a total of $181,000, representing their initial investment plus interest.

For his part, Hill said that when he

heard the Butts’ story, he quickly realized that he was not dealing with a civil case. Said Hill: “It really was a criminal investigation.” On Aug. 26, he reported his suspicions to the RCMP’s Corner Brook detachment, which assigned a uniformed officer to join him to interview another of Rideout’s clients, Eugene Manion and his wife, Nina. A retired businessman and investor who lived in Steady Brook, near Corner Brook, Manion said that in 1981 he had given $250,000 to Rideout and Associates to invest in a Maritime Life annuity. But in October, 1985, Manion discovered that the annuity had not been purchased. Manion, who threatened to report Rideout to the police, demanded repayment of the original sum, plus $222,979 in interest. Rideout finally repaid the entire amount of $472,979 in March, 1986—partly in gold bullion—but only after several cheques had bounced.

After talking to Manion, Hill delivered a seven-page handwritten statement to the RCMP. And on Aug. 27, three days after the private investigator’s arrival in Corner Brook, the Newfoundland department of justice approved a request from the RCMP commercial crime unit in St. John’s to open an investigation into the affairs of Rideout and his companies.

Maclean's has also learned that Maritime Life did not renew its sponsorship of Rideout’s Newfoundland licence to operate as an insurance agent last Dec. 31 after he failed to provide audited financial statements for his operating companies. Said Maritime Life senior vice-president William Black: “We didn’t like the way he was doing business. We were dissatisfied with the clarity with which he kept the books of his various companies separate.” In fact, the licence from Maritime was the only professional certification held by Rideout, who identified himself as an “estate planning specialist,” an unregulated sector of the financial market in Newfoundland.

For Rideout, events quickly turned for the worse after Hill’s August visit to Corner Brook. On Sept. 10, RCMP officers raided his home and offices, removing 26 boxes of files. For his part, Rideout launched a court action in late September seeking to overturn the warrants that the RCMP had used and to have the Mounties return his documents.

At the same time, the Salvation Army became concerned about the status of its health plans. Rideout was paid an administrative fee to operate the health benefit plan for the Army’s 2,000 officers. In the case of the Army’s health plan for its 2,000 em-

ployees, Rideout acted as an agent, transferring health plan payment cheques from Army accounts to Maritime Life. Then, on Sept. 1, 1986, the Army switched insurance companies, appointing Constellation Assurance of Toronto in place of Maritime Life. In order to cover its plan costs during the transition period, the Army made an advance payment of three months’ premiums to Counsel Ltd., one of Rideout’s companies.

But on Oct. 7, the Salvation Army ordered an internal audit of its health plan funds. Then, on Oct. 21 the Army appointed the financial firm of Marsh and McLennan Group Associates of Toronto to replace Rideout as an administrator and transfer agent for its two health plans.

Two weeks ago, on Oct. 24, Rideout and Associates closed and locked its offices, located on the upper floor of a two-storey building owned by Rideout on Corner Brook’s Park Street. Then, four days later the Salvation Army moved to order Rideout and Associates and Counsel Ltd., the building’s only other tenant, into bankruptcy, claiming that the two companies owed it more than $505,000. Said Col. Edward Reid, the Army’s general secretary: “We don’t know what is recoverable. It seems pretty murky.”

Although the Butts, Eugene Manion and some of Rideout’s other clients have recovered their money, other individuals may not be so fortunate. Brian Wentzell, a Corner Brook lawyer acting for several other Rideout clients, said that Elizabeth Hegedus, for one, a Corner Brook native who now lives in Ohio, won an uncontested judgment against Rideout on Oct. 24 in the Supreme Court of Newfoundland. Hegedus stated that Rideout had failed to return $90,912.10 plus interest that he had accepted in 1982 for an annuity that was never purchased. In all, according to RCMP investigators contacted by Maclean's, between $1 million and $3 million appears to be missing from the two Rideout companies.

Last week George Rideout spoke to Maclean's in the sunroom of his newly redecorated three-storey home, which was once used by executives of the local paper mill. Declared Rideout: “I was lily-white, clean and pure until last February. Now I have been destroyed.” But Rideout refused to comment on the details of the Butts’ or Manion’s extraordinary statements. And moments later, he excused himself to hand over the keys of his antique Chev to the local sheriff.

CATHY WHITE

—CHRIS WOOD in Corner Brook with CATHY WHITE in St. John’s