Barnicke Fraud

Sceptre Investment Counsel Ltd. (Sceptre) has successfully defended itself in what is expected to be the final chapter of various lawsuits emerging from the embezzlement of funds from JJBarnicke Ltd. and Joseph J. Barnicke by former JJBarnicke CFO, Jim Lake.

On July 27, 2000, Mr. Justice John C. Wilkins of the Ontario Superior Court of Justice handed down his decision dismissing an action against Sceptre Investment Counsel by Welcome Investments Limited (Welcome), a Barnicke investment company, seeking recovery of a portion of the funds embezzled by Lake.

Welcome was a corporate entity controlled by Mr. Barnicke that had investments managed by Sceptre. In March, 1996, Mr. Lake forged Mr. Barnicke’s signature on three occasions to transfer a total of $1.5 million from the Welcome account at Sceptre to JJBarnicke’s corporate account. Following the last of these transfers, an investment counsellor at Sceptre telephoned Barnicke to discuss rebalancing the remaining portfolio, only to find that Barnicke had not authorized the transactions. When Barnicke confronted Lake to demand an explanation for the transfers, Lake excused himself, left the office and committed suicide by jumping in front of a subway train.

Barnicke sued Sceptre for the return of the monies that had been transferred to JJBarnicke’s corporate account when Sceptre acted on the forged instructions. In all the circumstances, Mr. Justice Wilkins found that Sceptre acted properly and without negligence in relying upon the forged signature of Barnicke transmitted by Barnicke’s trusted right-hand man and financial officer. The decision considers at some length the duties and responsibilities of financial advisors in taking instructions from clients.

This action appears to be the last in a series of lawsuit by Barnicke arising from the fraud, including proceedings against the Lake estate and his widow (which was settled), and against the JJBarnicke fidelity insurer (which was dismissed at trial and on appeal).

Timothy Pinos and Michele Wright of Cassels Brock and Blackwell LLP acted for Sceptre. Christopher J. Osborne of Osborne Badley acted for Welcome Investments Limited, Joseph J. Barnicke, and JJBarnicke Ltd.