Several wealthy Canadians seeking spiritual enlightenment in the Indian Himalayas have been paid a total $1.5-million in compensation after a reckless financial adviser lost a large chunk of their fortunes in a series of high-risk investments.
The meditation students fell victim to bad investments when an American in their ashram took as much as $4-million of their savings and lost most of it on potash futures, volatile equity options, shares in Loewen Group Inc., the tarnished funeral-homes operator, and other stocks.
The Globe and Mail has learned that the American, Harold Breck, channelled the investments through the Ottawa branch of Midland Walwyn Inc., which was bought by Merrill Lynch Canada Inc. in 1998, after his losses were revealed.
The financial debacle coincides with an emerging sex scandal at the ashram in the mountain town of Kullu, where for nearly 30 years hundreds of Canadians have lived under the guidance of a self-styled god-man, Swami Shyam. In the past two years, a large number have returned to Canada, alleging that the swami has broken the ashram's vow of celibacy by having sex with several of his female devotees.
Mr. Breck, who worked in Ottawa in the 1980s as a yoga teacher, has returned to his native New England and could not be contacted. His mother and several friends said he has changed his telephone number and no longer stays in touch.
"The matter from our side is closed," said Peter Kahnert, a spokesman for Merrill Lynch Canada, which paid an undisclosed amount to several former Midland Walwyn clients who had complained about their losses. He would not say how many people were compensated.
A source involved in the settlement said about $1.5-million had been paid as compensation for the previous brokerage firm's failure to supervise the accounts.
Mr. Kahnert would not reveal the name of the broker who handled the trades, but he said the man resigned from Midland Walwyn before Merrill Lynch bought the company.
When Mr. Breck moved to the ashram, he offered to manage other people's money while they stayed there. Several of his former friends said the investors agreed because they wanted to spend their time pursuing the enlightened state known as pure-bliss-consciousness, which their swami claims to have achieved, rather than managing money.
According to ashram officials and people who were close to Mr. Breck, the American received written authorization from at least 15 devotees to invest their money as he saw fit and opened accounts -- several worth six figures -- at the Ottawa branch of Midland Walwyn.
Even though he was not licensed to offer investment advice, his reputation in the ashram grew when he told friends to move their money out of the stock market before the 1987 crash. He also put people's money in Asian funds before they became popular.
"We made enough from him to build our house here in Florida," said Donna Bello, a former devotee of the swami who used Mr. Breck's advice in the late 1980s and early 1990s. She and her husband, Gary, a yoga instructor, now live in Boynton Beach, Fla.
Mr. Breck apparently ran into trouble in the mid-1990s when he started to put money into riskier investments.
An official at the Investment Dealers Association in Toronto said it is unusual for a brokerage company to allow an unlicensed person like Mr. Breck to manage so many accounts and to put other people's savings in speculative investments without their full knowledge of the risks.
Devotees who were close to Mr. Breck said he was pressured by his friends to make more money so they could afford the rising cost of living in Kullu. "They wanted telephones. They wanted refrigerators," Mrs. Bello said.
One Canadian man who admitted losing several hundred thousand dollars said he assumed Mr. Breck had put his money into safe investments, and was shocked when his wife tried to put their accounts on a computer and found the totals did not balance. Only when she called Midland Walwyn did she discover the size of their losses.
Mr. Breck had previously handled their paperwork.
"He was making all sorts of trades we didn't know about," said the Canadian man, who asked not to be identified.
He said a large part of the losses went to brokerage commissions as Mr. Breck apparently increased the frequency of trades to try to cover the mounting losses.
"It worked well for a long time, but just something -- I guess the market turned or something happened in '97 or '98, which was when a fair bit of the funds were lost," the former client said. "The big problem is he tried to make it back and didn't tell us. That obviously compounded the problem exponentially."
The man said he blames himself rather than Mr. Breck for the losses. "I think he has to live with himself, which is probably the worst thing that will happen to him. Luckily, it was only finances."
Ashram officials do not believe Mr. Breck profited personally from the extensive trading and think he may have lost most of his own savings as well.
Mr. Bello, who stayed in contact with Mr. Breck until last summer, said he was shocked to see the physical condition of his friend when he returned in 1998, just before the scandal was revealed.
"He had gained weight. He had scabies. His eyes were pulled back," Mr. Bello recalled, adding that after the swami's daily satsang (teaching), Mr. Breck, who at the ashram went by the Hindi name Shankar, told him he heard angels singing in his head.