ABCP's of stealing $32 Billion. Case study 2 for inquiry

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You just have to laugh: The fallout from the fiasco known as non-bank, asset-backed
commercial paper (ABCP) has hit an unlikely player: Quebec's very own financial services
industry regulator, the agency that is supposed to protect investors from exposure to such toxic
products. The Autorité des marchés financiers (AMF) recently revealed in its annual report
that it has written down. to $16-million, a $33-million ABCP portfolio. The bad investment was
made through pension-fund giant Caisse de dépôt et placement du Québec, which plunged
deeply into the ABCP market. The Caisse has the responsibility for managing the funds of
several provincial agencies, including the surplus from the AMF's deposit insurance fund.


from canadianfundwatch.com

[admin]

November 23, 2009
In inquiries we trust
By Ed Ratushny
From Tuesday's Globe and Mail
They have five important attributes: independence, effectiveness, mandate, investigative powers, transparency

Former senior diplomat Richard Colvin alleges that he warned the government that prisoners turned over to Afghan authorities by Canadian troops were being tortured. The government agency responsible for investigating had been stonewalled and got nowhere. Senior officials and military personnel deny any knowledge. The Minister of Defence trashes the messenger. The opposition and media demand a public inquiry.

Sound familiar? Consider these comparable situations.

A Polish visitor to Canada dies at the Vancouver airport after being restrained and "tasered" by the police. A former prime minister receives secret cash payments from a government lobbyist. Canadian officials are implicated in the detention of a citizen in New York, who is then sent to Syria, imprisoned and tortured. People suddenly become sick and die because of the contamination of a community's public water supply. A teenager is tortured and killed by Canadian troops deployed in Somalia. Air India, sponsorship, wrongful convictions ...

Common to all of these examples is that the Canadian public did not trust ordinary government institutions or processes to tell them how such extraordinary events could happen. What went wrong? Who was responsible? How can this be avoided in future? In each case, a commission of inquiry was established.

But what exactly is a public inquiry? Where does it "fit" in law and government? What do commissions offer that other public institutions can't deliver? Why does the public trust them? Why do governments expose themselves to investigation and criticism?

The commission of inquiry is a "residual institution" in the machinery of government. It is authorized by a statute created by the legislative branch and invoked sporadically by the executive branch, but it operates independently of both. It is a response to public expectations or demands. In the words of former Supreme Court of Canada judge Peter Cory: "One of the primary functions of public inquiries is fact-finding. They are often convened in the wake of public shock, horror, disillusionment and skepticism, in order to find the truth."

They simply find facts and make recommendations, but they have five features that inspire public confidence. Other institutions have some but not all of these features.

A fundamental feature is the independence of the commissioner, who has no vested interest in the outcome and will simply let the chips fall where they may. It is not an internal investigation that could be perceived as trying to protect the people or institutions that are under scrutiny. Nor does a public inquiry have the partisan nature of legislative committee hearings. Often a judge is appointed to enhance the perception of independence, and it is then informally described as a "judicial inquiry."

A second feature is the effectiveness of the commissioner to get to the bottom of the problem. All other professional obligations are set aside and all available energy and time are devoted to the inquiry. Resources and staff are provided to create a team that gives intense and undivided attention to the mission. This is a luxury that other officials and institutions seldom can afford.

The public also will draw confidence from the terms of reference or mandate, which is designed to address the specific issues and questions that cause public concern. This mandate itself will be the subject of media and public scrutiny.

A fourth feature is the broad investigative powers to compel the production of documents and the testimony of witnesses. A trial judge is a passive observer who is bound by the issues between the parties, pleadings or charge. A commissioner can go where the mandate and evidence lead.

The final feature that inspires public confidence is transparency. Hearings are conducted in public, often televised, and now often are available online. They receive extensive media coverage and public comment. In contrast, a criminal investigation is usually conducted in private until a charge is laid.

The decision to establish a public inquiry is inherently political. It may take the heat off a government that is under strong attack, especially when critics demand a full inquiry. Once that demand is met, those critics are bound to wait for the inquiry's report before expecting a further government response. But during the hearings and in the final report, the government loses control of the information made public and how it is expressed. Both the proceedings and findings may reflect badly on the government.

The government must first assess its exposure and alternatives. A resignation may suffice. Does the problem have "legs," or can the government simply repeat its response until the media and public grow tired of the issue? Does it risk being hammered with criticism only to have to succumb anyway? There are many ramifications.

Commissions of inquiry are sometimes criticized for their delay and cost, but that is usually a problem with how they are conducted rather than with the institution itself. They have made an invaluable contribution to Canada since Lord Durham and, inevitably, they will continue to do so in future.

Ed Ratushny is a law professor at the University of Ottawa and author of The Conduct Of Public Inquiries.

[admin]

Boyd Erman
Published on Wednesday, Nov. 25, 2009 12:00AM EST
Last updated on Wednesday, Nov. 25, 2009 9:05AM EST
Almost a year after the completion of the landmark deal to save the $32-billion asset-backed commercial paper sector, one of the key pledges of the deal's creators is coming true: investors stuck with the paper can now get out.

Hedge funds, mostly ones based in Canada, are snapping up notes that were distributed to smaller holders, such as mining companies, Crown corporations and corporate pension plans that were saddled with frozen ABCP, and which are now looking to get some cash or cut losses. The paper held by the Caisse de dépôt et placement du Québec, National Bank of Canada and the other large holders who were responsible for crafting the restructuring deal isn't on the market, traders said.

But the market for the notes has heated up significantly in recent weeks, with traders reporting that lots of paper as big as $40-million are changing hands. Prices have jumped as well, with the highest-quality notes now selling in the 50-cents on the dollar range, which implies about a 10-per-cent annual return if a buyer holds on until the paper matures in six years.

The growing activity in the market is a victory for the Purdy Crawford-led committee that crafted the restructuring of the ABCP market, which was completed in January after more than a year of agonizing negotiations. One of the main goals was to give investors new paper that they could at least sell, even if it wasn't for full value immediately. Because of the way the notes work, the prices should move closer to 100 cents on the dollar as the paper approaches maturity in 2016.

"It is finally trading, so at least you can get out if you want to," said John Rudd, a managing director at Miller Tabak Roberts Securities in New York, which has traded more than $100-million of the paper.

Investors who held frozen ABCP after the market seized in mid-2007 as the credit crunch got rolling were given new paper earlier this year at the end of the Crawford committee's work. For the first few months, very little paper changed hands, even though it was theoretically freely tradable.

Traders attribute the new found interest in ABCP of late to hedge funds that are seeking ways to get double-digit returns, which are getting tougher to find now that stocks and bonds have had huge rallies.

In March and April, there were many fixed-income assets such as corporate bonds that were offering big yields, so investors weren't generally interested in ABCP, given how complex it is. Since then, most other assets have had big runs, and ABCP lagged, so investors began to take a second look to see if there was still money to be made.

"More and more hedge funds, including U.S. hedge funds, are starting to take a look at this," Mr. Rudd said.

Still, the notes are enormously complicated, requiring those interested in buying them to wade through hundreds of pages of documents to understand the underlying assets that determine the value of the notes. That remains a turnoff for some who have considered buying.

"There are easier ways to make 10 per cent," said one hedge fund money manager who has looked at buying the notes and taken a pass.

********

The new ABCs of ABCP

- What's happened ABCP holders were given new paper in January that they were free to sell - but, the market is only heating up now.

- Size of the market: Potentially about $10-billion, but only a fraction has traded hands so far.

- How much does it cost? The best paper on offer is trading for a little more than 50 cents on the dollar.

- Who's buying? Hedge funds looking for double-digit returns and willing to do their homework.

[admin]

Purdy Crawford

PURDY CRAWFORD: DOING IT ALL
Cover Story

By Daryl-Lynn Carlson | Publication Date: November/December 2009
He hails from Five Islands, a small community overlooking the Bay of Fundy on the coast of Nova
Scotia; an idyllic setting where most of the town’s 300 or so residents lead a relatively simple life. Yet
Purdy Crawford, fueled with drive and ambition, early on in his career decidedly ensured his life would
be anything but simple.

After graduating from Mount Allison University and then Dalhousie Law School in 1955, he took his new
bride, Beatrice, to Cambridge, Mass., where he attended Harvard University to get his masters in law.
He was just 24.

At Harvard, Crawford was taken under wing by the late Archibald Cox, who would go on to earn a
reputation as an advocate of the public interest after serving five months as Watergate special
prosecutor — a position from which he was ultimately fired in 1973 by then-president Richard Nixon in
what came to be known as the Saturday Night Massacre.

Following graduation, Crawford opted to launch his career in Toronto. “When we came to Toronto, we didn’t know anybody.” But
that would quickly change. He had articled under the direction of fellow Nova Scotian, Roland Ritchie, who was appointed to the
Supreme Court of Canada in 1959, and landed a job as an associate at what is now Osler Hoskin & Harcourt LLP shortly before
Dalhousie schoolmate Bertha Wilson joined the firm. During his first 10 years at Oslers, he would receive tutelage from head of
the firm — and a descendent of its founding family — Hal Mockridge. “In those days, we didn’t refer to people as mentors but
looking back, it’s obvious he fit that category,” remembers Crawford. “He was not a business lawyer, but just a really good lawyer.
We were generalists then. But he was understanding of my weaknesses and pointed them out to me from time to time and later, I
became the beneficiary of a lot of his clients.”

And so an esteemed, if controversial, career had begun. With his beginnings in the profession rooted in corporate and business
law, Crawford set out to establish more practical expertise by studying investing and getting into the market. He also would get
involved at a governance level to attain first-hand experience by sitting on numerous corporate boards — even on companies he
represented as a lawyer, which was an acceptable practice 30 years ago.

By 1962, Crawford became a partner at Oslers and in 1970, he achieved senior partnership. He was also a guest lecturer or
instructor at Toronto’s esteemed post-secondary institutions including Osgoode Hall Law School, York University, and the
University of Toronto, and was becoming known to various levels of government, agencies, and organizations for his willingness
to participate on committees responsible for reviewing legislation, such as developing Ontario’s Securities Act in the 1960s.

That experience would eventually lead to his overseeing of the recent restructuring effort of $35 billion worth of asset-backed
commercial paper (ABCP) that froze up on the market in Canada two years ago, leaving thousands of investors, many of them
elderly, empty-handed. Since, he has been commissioned by the federal government to oversee a proposal for establishing a
single securities regulator in Canada, and has been called on by the province of Ontario to head a mandated review of the Ontario
Securities Commission.

But back when he was still making his name, the cumulative number of obligations, from boards of directorships to charitable
organizations to government committees, that Crawford had taken on would likely make many lawyers shudder. At home, he had
six young children to dedicate time to along with his growing list of activities outside of his practice.

In 1985, he made a critical move, initiating a bid to become president and chief operating officer of Imasco Ltd., where he would
inevitably ascend to chief executive officer through succession. Having been on Imasco’s board of directors for 11 years, he knew
the company well, and its CEO at the time, Paul Paré, had plans to retire. “Every lawyer who understands anything about
business would never have left to run an in-house legal department,” says Crawford of his decision. And while he admits it “wasn’t
an easy leave” from Oslers, his responsibilities
mushroomed upon his arrival. In 1986, Imasco acquired Canadian building materials company, Genstar Corp. and its Canada
Trustco Mortgage Co. “Almost immediately I led the acquisition of Genstar to get Canada Trust and right away, we had a lot of
Genstar assets to get rid of,” he says. Under Crawford’s direction, Imasco unloaded Genstar divisions including waste
management, cement, and real estate companies in order to increase the value of Canada Trustco. He also recruited Ed Clark,
who’s now head of the TD bank, to the trust company.

Smoke and mirrors?

The activities of Imasco, at the time of Crawford’s tenure leading the company from 1985 to 1995, would later come under the
scrutiny of federal authorities during investigations of smuggling schemes allegedly orchestrated by Canadian cigarette makers to
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avoid rising sales taxes put in place to deter Canadians from smoking. Imasco, a holding company, owned Imperial Tobacco
Canada.

During the 1990s, cigarette makers in Canada increasingly exported their products to the U.S. and facilitated their re-importation
back into the domestic market. Technically, the practice was illegal and police ultimately arrested former JTI-MacDonald Corp.
(formerly RJR-MacDonald Inc.) president Edward Lang on charges of fraud in the spring of 2007. The charges against Lang and
six other JTI executives were initially dropped but reinstated by the Ontario Superior Court in February 2008. Two former RJR
MacDonald executives, Les Thompson and Stan Smith, pled guilty to smuggling and fraud charges. They are expected to testify
at trial against their former company and president.

No other tobacco executives were charged criminally and ultimately in 2008, Imperial Tobacco Canada and Rothmans Benson &
Hedges collectively agreed to pay $1.15 billion in criminal and civil fines relating to allegations of smuggling between 1991 and
1996.

According to a former Imasco executive, the company was deeply involved in the smuggling of product to ensure it kept its
Canadian smokers inexpensively supplied and also recouping value for shareholders. Paul Finlayson, who has been vocal as a
sort of ‘whistleblower,’ says his role was as a strategic planner within Imasco’s hierarchy, drafting mathematical scenarios of the
cost and profitability to export product to the U.S., pay minimum royalties, then have the bulk of the product smuggled back into
Canada via reserves such as the Akwesasne Mohawk Nation bordering Quebec, Ontario, and the U.S. “Imperial Tobacco
engaged in the distribution of tailor-made cigarettes on a smuggling basis,” Finlayson told Canadian Lawyer. “This filled the hole
in Imperial’s earnings and in 1993, Imperial had a banner year because it shipped unlimited quantities across the border.”

While Crawford is reluctant to discuss any aspect of his dealings with Imperial during his leadership of Imasco, Finlayson says he
met with his CEO regularly during that time to brief him on his projections.

Finlayson still harbours some bitterness about the way he was forced in January 1994 to leave his job at Imasco after 16 years.
During his free time, Finlayson had been instrumental in establishing an addiction centre on the Akwesasne reserve and says the
company asked him to use this access to identify the people involved on the front lines of the reserve’s tobacco smuggling
operations and provide a report on amounts, products, and prices. He refused on principle and was told by the CFO at the time
not to report back to work. He then requested a meeting with Crawford. “A week went by and I didn’t hear anything, so I knew
what the answer was,” says Finlayson.

It wasn’t until the fall of 2004 that the RCMP obtained evidence to initiate a search of Imperial Tobacco’s Montreal office. Police
seized documents related to Imperial’s smuggling activities including a letter written in 1993 by Imperial’s president and CEO Don
Brown, addressed to the managing director of the company’s parent, British American Tobacco. Brown wrote: “Although we
agreed to support the federal government’s effort to reduce smuggling by limiting our exports to the U.S.A., our competitors did
not. Subsequently, we have decided to remove the limits on our exports to regain our share of Canadian smokers. . . . Until the
smuggling issue is resolved, an increasing volume of our domestic sales in Canada will be exported, then smuggled back for sale
here.” Following the release of the court documents that led to the search of Imperial’s headquarters, a spokesperson for Imperial
Tobacco told media that while Imperial knew about the contraband activity, the company did not collaborate with criminals.

The tobacco business is not something that piques Crawford’s interest for discussion. Instead, he recalls the opportunity to learn
the operations of some of Imasco’s holdings he worked hard to diversify, such as Shoppers Drug Mart and Hardee’s fast-food
restaurants. “It was great fun visiting the branches,” he says, “so it was quite an experience.” Imasco’s market capitalization grew
from $131 million in 1970 to $18 billion in 1999, much of its growth attributed to Crawford’s leadership over his 10 years. Crawford
left Imasco in 1995, recruiting fellow Oslers partner, Brian Levitt, who stayed on as CEO until 2000.

An artful compromise

Crawford emerged from the Imasco experience with his reputation unblemished. Most recently, he was called upon to parlay his
expertise as the head of the Pan-Canadian Investors Committee for Third-Party Structured Asset-Backed Commercial Paper,
charged with finding a solution for the thousands of investors in Canada who lost significant money through their purchase of
ABCP.

When the sub-prime market south of the border imploded in 2007, investors here holding $32 billion in ABCP found their
investments frozen. Financial institutions and major market players met for what became known as the Montreal Accord
Agreement, which set out terms and mandated a committee to resolve the gravity of losses. Crawford was selected as its
chairman. He says he was keen to find an expeditious resolution. “I had great disappointment that we didn’t achieve a deal in
December of 2007 or even March of ’08, but the reality is with Lehman Brothers going under and all that had happened after that,
the deal we would have made and the new paper we would have issued would have been under water, it would have blown up,”
he says. “Could we have done a better deal? As I said in my affidavit filed with the court and which the court accepted, doing
these deals is the art of the possible.”

Following the Montreal meeting, the committee embarked on about 80 meetings with investors across the country. “I had not
realized at the beginning that we had so many small investors,” says Crawford. “Some had taken their niece’s money and
invested it, there were school teachers who’d retired. They were upset and angry, and justifiably so.” He acknowledges that
tension was thick during the first few meetings although he finally found a conciliatory voice during an event in British Columbia.
“In Vancouver, I think we did a pretty good job of convincing [investors] that we were there to help them, that we were not the
perpetrators of the problem. I started to respond to their e-mails and sometimes called them,” he says. Most of the investors
invited to the meetings hosted by the committee were those who had lost under $1 million; for a group of retailers who had
invested more than that in ABCP through their businesses, no resolution had yet been considered.

“Basically, the retail public was not informed prior to the filing for bankruptcy protection, so we had 1,800 families who read in the
paper that this paper they were told was a short-term problem was seeking bankruptcy protection in court,” says Diane Urquhart,
an independent investment adviser who represented retail investors at the hearings. She says many of her clients were rocked by
the revelation they might not qualify under the restructuring plan. “We had a number of individuals who were on suicide watch. We
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communicated this to Mr. Crawford and asked him to communicate with the people on suicide watch and eventually he wrote an e
-mail that there was going to be significant impaired value.”

The resolution determined by Crawford’s committee and approved by investors enabled parties affected to exchange short-term
notes for securities that will appreciate over about nine years. In return, investors forfeited their right to sue. Investors were asked
to approve the resolution although many retail investors had either given up or had found private settlements; those who were left
represented only a minority. So while they were unsatisfied with the resolution, they were unable to influence the vote.

One of the investors affected by the problems did follow through and end his life. “They say the linchpin of the success of the deal
was to get the foreign banks to co-operate, but they gave them just about everything that they wanted including immunity,” says
Urquhart. “So there were 36 families who owned more than $1 million who become collateral damage.” Urquhart points out that
Canada is one of the few countries that has allowed investors to shoulder most of the losses related to ABCP. She says of
Crawford, “He didn’t finish the job. Here we are almost two years later and there’s no settlement.”

The retail investors, with Urquhart’s assistance, are continuing to seek an alternative resolution at the federal level along with
accountability from institutions that sold the notes in the first place.

Crawford says he has no regrets. “With so many groups, corporations, pension funds, and banks having different interests, and
with the paper being so complex and integrated into all kinds of institutions, when I look back, to me it was a wonder we got it
done, never mind could we have done it better. I’m rather proud of it to be frank.”

Yet along with the retail investors’ continuing efforts, the fallout continues; the City of Hamilton filed a statement of claim in Ontario
Superior Court in September alleging it was misled by Deutsche Bank about the risk involved in its purchase of $10 million worth
of ABCP. Its purchase of ABCP did not fall under Crawford’s arranged agreement so the city had not waived its right to sue.

Esteem and awards

So after all that excitement in his career, why hasn’t Crawford officially retired? At 78, he continues to go to work at Oslers,
although he’s no longer practising law. He begins his day early; rising before 6 a.m. and often gets to the office around 7 a.m. He
attests he is still in good health and continues to sit on the boards of several large public companies and actively fundraises for
charitable organizations.

Over the course of his career, Crawford has been the recipient of numerous awards, including Officer of the Order of Canada, and
he maintains a high degree of respect amongst fellow lawyers. David Jackson, a partner in the securities group at Blake Cassels
& Graydon LLP, has known Crawford for years. “I remember with particular fondness my first exposure to his kindness and
thoughtfulness. I was a relatively junior lawyer who had been engaged to make an argument before the Ontario Securities
Commission for a new client for whom Blakes had not previously acted. The argument was based on an opinion provided by a
senior partner of another major Toronto law firm that was, to put it kindly, rather sketchy at best. I made the argument as best I
could. Purdy was acting for an interested party who was not totally sympathetic to our new client’s position. He stood up after I
had finished, and gently but thoroughly destroyed the effect of my presentation,” says Jackson. “Some days later, I received a
handwritten note from Purdy, apologizing. He said that he had not known that the argument had been imposed on me by others
and had he been aware, he would never have dealt with it in the way he had. I don’t know which I appreciated more, the
unnecessary apology or the fact that a very senior practitioner had taken the time to write it.”

At Oslers, Crawford serves as a mentor to the next generation of lawyers while also helping to facilitate business for a handful of
government clients and continuing his work for charities. Dale Ponder, managing partner at Oslers’ Toronto office provided the
following statement about Crawford’s current role as counsel at the firm: “We have been very fortunate to draw upon Purdy’s legal
talents and business acumen during periods when he was an Osler partner and leader of the firm — and also during more recent
times when he has filled more of an advisory role to a new generation of our lawyers.

“Mentorship and leadership development have been hallmarks of Purdy’s career and a long list of Osler partners have benefited
from his passion to see succeeding generations successfully rise to leadership.”

Ponder continues: “I personally marvel at Purdy’s continuing commitment and drive to making a difference. He continues to
pursue his business interests, but also makes time for numerous charitable causes of importance to him. Along with this, he is
periodically called upon for special mandates of national significance, such as the recent ABCP crises. He has had a major impact
on the Canadian business scene throughout his career and this is just one recent example.”

Currently, Crawford spends his time helping with the mandate of the Muriel McQueen Fergusson Centre for Family Violence
Research at the University of New Brunswick, and his principal charity is the Mount Allison University where he’s been bestowed
the title of chancellor emeritus. He still accepts speaking engagements, most recently addressing the Montreal Board of Trade
about the value of leadership in the context of risk and corporate governance. “I’m not quite as busy as I used to be,” he says
almost regrettably, but adds, “I do have the luxury of being able to do these things without being paid.”

When he’s not working, he is an avid follower of the sports pursuits of his 15 grandchildren and spending time with his family at
his country home in Caledon, Ont. Will he ever fully retire? “I guess I will when I just can’t do it anymore.” But for the time being he
figures at Oslers, “I think they just like to have my name around.”
Comments Add New Search
Donald G. J. Cormier |2009-11-23

[admin]

A summary of Case Study #2, the case of legal exemptions granted by securities regulators on $32 billion worth of substandard investment paper which needed to be sold by financial institutions in Canada.

I would like an honest answer from our Finance Minister. Why are investment brokers allowed to violate the law?
More than a billion dollars of substandard investments have been sold in Alberta, with the permission of the Alberta Securities Commission. (ASC). In Canada $32 billion has gone missing with bad ABCP commercial paper alone.

The cost of every other crime in the country is approx $40 bil according to Justice Canada, so we are talking about one single financial crime equalling nearly every other crime in canada.
Legal exemptions have allowed substandard investments and advice to be sold by the thousands to Canadians, without notice being sent to the investors.

Examples include Concrete Equities, ABCP, house brand mutual funds, Limited partnerships, Income Trusts, I stopped reading names when I got to over 1000 legal exemptions since 2006. Ponzi schemes appear to be the only dealer in Canada which has not yet received permission to violate our laws. Banks and mutual funds pay a fee and get “permission” to break our laws. Does the public know any of this? Should they be told this information?

The questions still unanswered by Iris Evans after five requests:

-What public interest is served by allowing financial laws to be violated by certain people?
-Why are back-room deals done to violate our laws without public input and without public notice?
-Where is the public process, the transparency?
-Why is our Alberta Finance Minister suppressing this matter, rather than protecting the citizens of Alberta?

Here is the only answer received to date from the Alberta Finance Ministry:

“In this particular situation (ABCP) it appears the commissions carefully considered the situation and acted properly in granting the exemptions.”

Here is the official reason given for the exemptions by the ASC:

“Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.”

A public inquiry will show a damaging incestuous relationship between the financial services industry and our government securities regulators. Our Minister of Finance should be moving forcefully towards honest accountability. She is not.
I ask for a commission of public inquiry. A public inquiry specifically to investigate these questions.
In the event that this is not possible from our Finance Minister, then I must respectfully ask that she resign the position as Finance Minister.

These matters have caused billions of dollars to be siphoned out of our economy by legal tricks assisted by 13 securities commissions. They will continue to do so for years unless corrective action is taken. Our province can no longer afford the type of help that is coming from this Ministry. Contact the writer at lelford@shaw.ca if you would like to add your name in support of this.
Larry Elford

[admin]

*To:* Thomas Mulcair <mailto:Mulclair.T@parl.gc.ca> ; Joe Comartin <mailto:comartin.j@parl.gc.ca>
*Sent:* Monday, April 07, 2008 11:29 AM
*Subject:* Request for Assistance: Adverse affects of restructuring Asset Backed Commercial Paper on small Canadian retail note holders


Dear Mr. Comartin et M. Mulcair,

Veuillez excuser notre manque de Francais.

I am writing on behalf of approximately 1800 Canadians who have had
their savings frozen as a result of the collapse of Canadian non-bank
asset backed commercial paper (ABCP). As you may have read, this
"savings product" was sold to retail clients of Canaccord Capital,
Credential Securities, Scotia Capital (wholesaler), National Bank
Financial and others. Some of us were sold this product without our
knowledge or consent; others were assured it was as trustworthy as
Government of Canada T-bills, it was supposedly backed by a bank
sponsored liquidity agreement (like a bank guarantee) and it paid
comparable interest rates to a GIC or T-bill. This was reputed to be
the type of secure product in which Canadians could place their money
for periods of 30 to 60 days in the course of carrying out activities
such as paying for their retirement or temporarily storing money in the
period between selling one house and purchasing another.

This lengthy email tries to explain the national, and potentially
international, significance of the ABCP crisis and how the proposed
restructuring arrangement will improperly affect the rights of
individual Canadians owning ABCP. The NDP missed an opportunity last
week to be seen to be sponsoring the proposed Federal Finance Committee
(FINA) investigations into the Canadian ABCP fiasco. However, there is
still an opportunity to bring this issue to the attention of the House
of Commons in question period. We request that the NDP Party demand of
the Government that either the accumulated savings of small retail note
holders be returned or that other actions be taken to protect their
legitimate rights to recourse under Canadian law. The following URL
provides an April 6, 2008 newspaper article which does a good job of
explaining the predicament of the small investor in the ABCP fiasco
(http://investorvoice.ca/ABCP/ABCP_TStar_06Apr08.htm).

The ABCP market collapsed in mid-August last summer as concerns over
exposure to American sub-prime mortgages spread into Canada and new
clients could not be found for ABCP. The (frequently foreign) banks
which had been paid to provide assistance in this type of situation
refused to provide liquidity and our savings have been frozen ever
since. Retail savings total around $350 M and are less than 1 percent
of the total $32 B of commercial paper which is affected. It is
important to note that much of the ABCP paper is leveraged (i.e. 1000
dollars of paper have been used to secure an asset value of $12,600); hence unwinding the entire ABCP structure could involve something like
$230B; this is large enough to disrupt both the Canadian and world
economies!

A committee of large Canadian institutional investors was formed in
August to find a solution to this crisis. Over the last 8 months this
"Pan-Canadian Committee" has developed a restructuring plan which would
convert the short term ABCP into long term notes such that institutional
creditors can hope to eventually get their money back. The details of
this plan are very complicated but the implications for small retail
customers are substantial. The proposed deal could allow us to receive
10% of our money back in 2013 and the remaining amount (there is no
guarantee on what this is) in 2016. This may be a good strategy for a
large institution but small, frequently elderly, retail customers cannot
wait this long. The retail customer's group had money in short term
"deposits" because we needed it to pay bills, finance our children's
education, buy a house or undertake the other needs of daily living. As
there were no "retail" investors on the Pan Canadian Committee, these
requirements were overlooked by the people developing the restructuring
plan.

The Pan-Canadian Committee petitioned the Ontario courts for bankruptcy
protection on March 17, 2008 using provisions of the Companies Creditors
Arrangement Act (CCAA). All owners of this paper are to vote on the
proposed restructuring on April 25, 2008.

In the last 8 months there has been much speculation on how this
unfortunate circumstance arose. It is my understanding that the
Liberals and the Bloc Quebecois voted for FINA to open an investigation
into this matter in the next few weeks (the NDP was not present for the
vote, but my understanding is that it supports the hearing too). What
is known is that the American credit rating agencies, such as Standard
and Poors, refused to rate Canadian ABCP because they felt the liquidity
agreements with the banks could not be relied upon. Despite this
assessment (which was made in 2002 and was recently proven to be
accurate), the Canadian Dominion Bond Rating Service or DBRS agreed to
"rate" the Canadian ABCP and gave it their highest standard, equivalent
to Government of Canada T-bills. The Provincial Governments of Canada
did not stop the ABCP sponsors from putting the paper onto the market
without a "prospectus," which is a document that would have explained to
consumers what the underlying assets were. In most of the retail
customer group, the ABCP was wholesaled by Scotia Capital, who sold it
to retail outlets, such as Canaccord or Credential Securities. It has
been widely reported that Scotia Capital received a letter from the
sponsor (a company called Coventree) that Canadian ABCP was in trouble
on July 24., 2007. Substantial quantities of this paper were
subsequently sold into the Canadian market to retail clients who were
told it was "just like a T-bill or GIC", or were not informed before
their existing T-bill like savings products were rolled over into ABCP. It is alleged that by the time the paper was frozen on August 13, 2007
Scotia Capital had managed to unload $140 M of ABCP onto the retail
market and had reduced their own exposure to about $200 million. Canaccord, National Bank and Credential, have taken very substantial
criticism for misrepresenting this product to their customers. According to the April 6, 2008 Toronto Star article "Little Guy
Blameless in This Mess," written by Doug Peters and Arthur Donner, many
financial organizations had their finger in this ABCP product and many
failed to undertake their responsibilities, despite being paid to
perform this service.

The proposed restructuring deal includes an all encompassing legal
release which will ensure that none of the following can be sued by
anyone for any action whatsoever: bank asset providers and liquidity
agreement providers; trust companies acting as trustees; DBRS; sponsors;
wholesale and retail distributors; their auditors, financial advisors
and lawyers; and, even members of the Pan Canadian Committee that are
institutional investors The retail customer group never had a seat at
the Montreal Accord table and so this group is not covered by the legal
release in terms of the large financial organizations being free to sue
retail customers who might complain too vociferously.

If the restructuring agreement is passed, the legal release stops the
retail customers (even those who voted against the restructuring) from
taking any action to claim for any damages in any manner and at any
forum. This intends to stop all judicial, arbitral, administrative or
other forums available to ABCP owners to obtain remedy for their
damages. The court causes of actions being denied include breach of
fiduciary duty, breach of trust, failure in duty of care,
misrepresentation, product defect and liability, return of goods taken
in the course of unlawful conduct or criminal fraud.

The Pan Canadian Committee advised small retail investors last week to
accept the restructuring agreement. However, many people cannot wait 5
to 9 years to see what, if anything, is left at the end of the
restructuring deal. They will not be able to recover their savings in
the shorter term as the new notes are expected to trade at a substantial
discount. We have been told that if this deal fails, we will be left
with little or nothing! However, if we accept the restructuring, we
will not be able to sue the responsible parties for any short fall or
for damages, which in some cases are very substantial. We have also
been provided with no information on what the value of the restructured
notes will be nor have we been provided with any guarantee of what
percentage of our savings might be eventually recovered. This amounts
to a gross miscarriage of justice and is possibly an infringement under
the Charter of Rights and Freedoms.

It is our position that the CCAA should not be used to shelter unlawful,
or potential criminal behavior, or to restrict victims from seeking
justifiable remedies for damages caused by the CCAA parties who were
involved in this flawed savings product. The present restructuring
process was developed between large organizations principally for their
mutual benefit. The legitimate needs of the small retail owners, who
thought they had a safe place to park their savings (and did not receive
any higher interest rate appropriate for a risky product that would give
them reason for suspicion of risk) are being trampled on. Most of us
simply want our money back and for this whole mess to go away. The
proposed restructuring deal does not do this, and it severely limits our
legal rights to pursue other courses of actions under Canadian law.

A group of affected Canadians has joined together to fight this issue. A
representative number of us from across Canada have put our names to
this letter. We have used a web site to exchange information and to
provide mutual support in this fight against the large financial
institutions in Canada. You might be interested in seeing how this
grass roots organization has managed to pull people together from all
across Canada (go to http://www.facebook.com/ search for ABCP, request
permission to log in from the administrator Brian Hunter). The
following web site provides a comprehensive list of articles on the ABCP
issue (http://investorvoice.ca/ABCP/ABCP_index.htm).

We would be pleased to discuss this issue with you at your convenience
or to provide any additional details which you might require.

Merci pour votre attention.

Respectfully,

[admin]

HOW TO LEGALLY STEAL BILLIONS OF DOLLARS IN CANADIAN FINANCE, presented in seven minutes to a Justice and Human Rights Committee in Ottawa December 9th, 2009, by Larry Elford, investment industry whistleblower and twenty year veteran of the indsutry.

I am here to tell you how to commit the perfect crime, with the help of C-52.

If I were to rob a financial institution in Canada, I am subject the the penalties of the Criminal Code of Canada.

If a financial institution, however, robs Canadians using any one of a thousand methods I witnessed while working for them, they are not even subject to the penalties of this proposed bill.

They are more likely to fall under the protection of securities commissions in thirteen provinces and territories than be prosecuted. Most of the time independent police agencies are not even notified. Not invited to act and not welcome.

I worked in the financial industry for twenty years. I found it nearly impossible to hold a discussion about ethics and honest treatment of customers, so strong was the culture and addiction to sales, commissions and bonus’s.

Most Canadians however, are of a mistaken impression that our financial institutions are so trustworthy as to be “above examination”.

I would like to challenge this dangerous conventional wisdom and go so far as to call it a form of collective insanity.

Most Canadians have also been sold a story that our Canadian financial institutions are the worlds strongest. While that may in fact be true, It ignores the possibility that they may be the world’s strongest because they are legally allowed to be predatory and they are protected from real competition and true examination in Canada.

It ignores millions of dollars that I watched being skimmed from Canadians investment returns by predatory sales practices, dressed up as investment advice. Damage that cuts the retirement of the average Canadian investor by half.

(www.investoradvocates.ca see forum topic “Double Dipping, DSC, and other methods to extra bill clients”)

It ignores billions of dollars in damages every year from having a system designed to place the interests of financial institutions ahead of their customers. A system we do not speak of, but exists in actual practice.

It ignores investment frauds that are penalized by authorities in the United States, while here in Canada similar abuses are considered “standard industry practice” and continue to harm Canadians daily.

It ignores hundreds of billions in damages by companies like Nortel, Global Crossing, Enron, Eatons and a thousand others that were used in some way to fatten investment bankers, lawyers or CEO’s at the expense of your financial security.

See a forum topic titled “Financial crime more than every other crime combined” at www.investoradvocates.ca

Financial abuse by the institutions that we trust is costing Canadians more money each year than the cost of every other crime in the country combined. Source www.breachoftrust.ca
And yet we act like good Canadians, and praise our financial institutions for being among the strongest in the world. That is like praising the schoolyard bully for being so well fed after he has stolen everyones lunch.

Let me reveal just four simple ingredients I found in our financial system, that allow billions of dollars of financial abuse and corruption.

The first ingredient in making crime pay is having the ability to ....self regulate, to have our own “in house” policing system and to use this system to often bypass real criminal investigation and prosecution. Part of this includes Securities commissions and thirteen of them across the country act more and more like the corrupt sheriff in every Smokey and the Bandit movie I have ever seen. “They feel they are above examination”


The second ingredient is that the financial industry pays the salaries of the regulatory force, rather than the taxpayer. This means that clever financiers get to choose who to hire to regulate financiers. Imagine if you were a criminal mind and you had the ability to “choose” who you wanted to “police” you?

3. The third ingredient in making financial crime pay is to pay them about triple what they would earn in the same job elsewhere.

The head of the SEC in the USA has a salary that is capped at $162,900.
The thirteen securities commission heads in Canada, are paid as much as four times this amount. I am told that there once were 90 staff members at the Ontario Commission alone who were each paid more than the top man in the entire United States.

Over paying makes regulators highly “compliant”, conflicted, and more willing to say “yes” to the financial industry. The Canadian public does not pay their salary, and members of the public are not usually even allowed in the front door of any securities commission in Canada. They are instead sent to non government industry groups where they are spun around by an industry-run kangaroo court process. The public will generally not be helped, but simply abused a second time. Please, don’t take my word on this. Ask any abused investor.

Last but not least if you were shopping for a list of ingredients required to make financial crime pay.............. is the ability to buy permission to violate the law. 13 securities commissions, acting in concert will allow any financial institution in the country to violate our laws, simply by filing an application to do so. I have in my hand a list of several thousand such legal permissions that have been granted without informing the public about a single one. This is the greatest gift you could possibly ask for as a criminally minded financier, to be able to break any law you wished in pursuit of profits.


Finally, we come to the helpful effects of Bill C-52. Marlene Jennings is be be thanked for spotting yet another legal gift given to the financial markets industry. The bill specifically excludes public markets fraudsters anywhere that I can see in this bill, even though they are in the criminal code.
What a wonderful gift the writers of this bill have given, yet again, the financial markets of Canada. We can continue to hide our crimes inside our private regulatory system, with no outside oversight or interference.


We can continue to pay their salaries while picking and choosing who and why we hire each and every one of them. We get to hand pick our securities police.

We can continue to pay them triple or more, what they could earn in any similar position elsewhere, making them completely beholden to us, the people they are supposed to regulate.

We can continue to count on them to allow us permission to violate Canada's securities laws, any time we need to, for any reason, without ever having to explain this to the Canadian public.

And now, as a final parting gift, some legal friends of the system have given public markets, virtually every investment crime committed in Canada, a compete free ride around the punitive effects of this bill.

As professor Bill Black at the University of Kansas correctly points out, “our financial servants have become financial predators”. And Bill C52 as it is written gives us just one more example of how wide reaching is the influence of financial predators in Canada.

End

Primary research for this presentation comes from the collective experience of hundreds of industry professionals, and can be found in three major sites:

www.investoradvocates.ca

www.breachoftrust.ca

www.investorvoice.ca

Larry Elford, Lethbridge Alberta l

Enclosures in support of this testimony:

Case study #1, Request for Commission of Inquiry into legal exemptions and regulatory failure in the case of commission kickback exemptions granted to Assante mutual funds.

Case study #2 Request for the RESIGNATION OF ALBERTA FINANCE MINISTER and a Commission of Inquiry into legal exemptions granted to allow sale of toxic Asset Backed Commercial Paper. Some background is found at www.investoradvocates.ca under the forum topic “The ABCP’s of how to steal $32 billion”

[admin]

ABCP investors say they were duped by financial community
Last Updated: Thursday, April 10, 2008 | 5:22 PM ET Comments0Recommend10
The Canadian Press
The breakdown of the $32-billion asset backed commercial
paper (ABCP) system amounted to criminal fraud that no one in Canada appears prepared to investigate or prosecute, a House of Commons committee was told Thursday.

"It's a free ride in Canada for financial crime," said Larry
Elford, a former Alberta financial adviser who now heads an
investment advocacy group.

"The law simply does not apply to the financial industry."

'The current financial regulatory system is broken and offers no
protection to Canadian investors'
—Financial analyst Diane Urquhart
In the first public hearing on the financial markets crisis that
unfolded from the U.S. subprime meltdown last summer, the House
finance committee heard horror stories from three independent investors unwittingly caught up in the secretive, arcane world of
high finance.

One Victoria investor, Wynne Miles, 58, who described herself as self-employed and with no pension, had placed her life savings in what she supposed were government treasury bills, only to find out in July they had been transferred into non-bank ABCP without her knowledge.

Retired Alberta farmer Murray Candlish told a similar story
about how his $350,000 in savings was invested in a triple-A rated trust he was assured was as secure as the Canadian banking system.

"Now our dreams are slowly disappearing as the value of our
investment erodes," Candlish told the committee.

The first-person testimonials held MPs from all four parties
spellbound for most of the two hours and surprised some, who said they were under the assumption investors knew what they were getting into.

"It's been like a red light going on for us," said Bloc Québécois MP Paul Crete, who at the end of the hearing proposed that the asset-backed commercial paper affair become a priority for the committee, after passage of the budget.

"We have to have people from banks, regulators, others who can tell us why this crisis is there and what are the solutions to this problem."

Thursday's witnesses, including investors and investment
experts, had no trouble pinpointing the problem.

They said financial institutions they trusted duped investors
into putting their money into ABCP with assurances the investments were rock solid, when they were in fact tied up in the U.S. subprime mess. And when the house of cards came tumbling down last summer, Canada's entire structure of oversight agencies was more interested in saving the system from exposure and collapse than in protecting innocent investors.

Even now, the system is protecting itself, they added.

While cautiously welcoming Tuesday's proposed "relief plan" by Canaccord Capital Inc. to repurchase up to $138 million of
the debt held by 1,430 of its individual clients holding less than $1 million in the investment, Miles points out that acceptance comes with strings.

"The requirement that we waive our rights to sue is unacceptable," she said. "I feel as if I am being offered an ultimatum and that makes me very angry. We have been wronged."

Regulators criticized

Most witnesses were very critical of provincial and federal
regulating bodies like the Ontario Securities Commission and the Office of the Superintendent of Financial Institutions for looking the other way while suspect and likely illegal practices were being carried out, failing to investigate abuses, and for often granting legal exemptions to financial institutions.

"The current financial regulatory system is broken and offers no protection to Canadian investors," said Diane Urquhart, a
Toronto-area independent financial analyst.

"They have violated provincial securities acts and the Ontario
Securities Commission has done nothing and stood by blindly."

Both Elford and Urquhart said the only solution is the creation of a national securities commissioner with the sole mandate to protect investors and no connections to the financial sector.

Part of the current problem, added Elford, is that the current
provincial regulators have a conflict of interest and too close ties with the financial houses.

"They not only fail to protect consumers, but they give
Canadians a false sense of security," said Elford. "We are sitting ducks. If one finds a law being broken, there is simply no police agency to call that does not have a conflict of interest."

Some of the witnesses said that the system is so broken that
eight months after the commercial paper was frozen, some Canadians still don't know that part of their investments are in ABCP.

Liberal finance critic John McCallum, a former vice-president of the Royal Bank, said the allegations are serious and need to be investigated, but he was not prepared to apportion blame at this time.

"I can't stand here today and say who's to blame, but we have heard disturbing allegations about regulators who may be in the pockets of the regulated," he said. "We need to find out what went wrong in this particular disaster and what we can do to make sure that future crises are less likely to happen."

© The Canadian Press, 2008

[admin]

When Chinese manufacturers were blending water and chalk together and selling it worldwide as “infant formula”, here in Canada trusted financial institutions were blending sub prime mortgages into investment pools and selling them as “top rated”. They continued even after learning that the investments were imploding. The big difference between countries seems to be in how the government helped the scam in Canada.

Government regulators (all thirteen Securities Commissions) gave permission to violate our laws to sell toxic products. (they have actually granted thousands of legal exemptions) I see this as indicative of a corrupted securities regulatory system. Iris Evans, my minister in charge of the Alberta Securities Commission refuses to talk. My request is for her to explain these matters or resign. Each Securities Commission and responsible Minister in every province could be asked to resign for violating the public trust.

Unanswered by Minister Evans: (seventh request)

-What public interest is served by allowing laws to be violated by people who sell investments?
-Why are legal exemptions allowed without public input or public notice?
-Where is the open transparency on several thousand such legal tricks?
-Why is a public Minister suppressing this matter? Is protecting financial corporations more important than protecting the public?

The sellers of the failed investments obtained immunity from civil action. They also sought immunity from criminal action. This speaks volumes about our misplaced trust in bankers. It is also sad to see how our civil servants worked to hide and cover their own miss-steps in this dance.

Resignations are needed for public servants acting contrary to the public interest. An inquiry should be held. It is the largest investment failure in recent history. Class action (against regulators) and criminal investigation into negligence or breach of the public trust may also be warranted. Iris Evans again, please come clean or resign.

Discussions in Lethbridge, Calgary, Edmonton and Ottawa have ensued to consider civil or legal means of holding public servants to account. If you wish to participate in a “public accountability action” project contact lelford@shaw.ca

Larry Elford

Lethbridge AB

Larry Elford is a former member of the financial industry who is now speaking out and blowing the whistle on customer abusive practices by those who call themselves financial professionals.
He earned the designations CFP, CIM, FCSI, Associate Portfolio Manager while working and maintains free investor protection sites outlining the tricks of the trade at:
http://www.breachoftrust.ca
And
http://www.investoradvocates.ca

[admin]

From Monday's Globe and Mail
Published on Monday, Dec. 21, 2009 12:00AM EST
Last updated on Monday, Dec. 21, 2009 2:50AM EST
The gap that permitted asset-backed commercial paper to be marketed and sold to unsophisticated investors has not yet been closed, but the settlements that will presumably be approved this week at regulatory hearings show that Canada's investment system has at any rate not allowed firms and institutions (which should have known better) to make a safe exit, with impunity, from the ABCP mess.
(fines of less than one penny on each dollar gone missing, makes it pretty damn profitable though) (advocate)
The ABCP meltdown proved that Canada, in spite of its stable banking laws, is not simply immune to the financial foolishness in the United States that led to an international credit crisis. Many Canadians with modest savings bought extremely complex interests that were indeed backed by assets, but many of these turned out to be among the toxic assets that became world-famous in the fall of 2008.

If Canada's securities laws had been consistent with their own principles, ABCP could not have been sold without prospectuses, or at least without offering memorandums approved by the regulators, to explain these investments and their risks. Not only the proverbial widows and orphans need to be protected; so do all non-experts who are saving for retirement. For that matter, the regulators' investigations have apparently found that some firms that sold these interests did not make sure their own salespeople understood ABCP well enough to explain it to the buyers.

The word "loophole" suggest conscious evasion of rules. But the regulatory gap that led to the freeze-up of the ABCP market in the summer of 2007 (and the subsequent insolvency proceedings) resulted from thoughtlessness of various kinds: thresholds for "sophisticated investors" that were too low; undue faith in investments that are rated by rating agencies; and the sale of investments by chartered banks, whose activities securities commissions do not usually need to worry about.

In spite of these exemptions, a few sweeping, general rules have been effective in the end, causing major expense and embarrassment to several financial entities. The rules of the Investment Industry Regulatory Organization of Canada, the self-regulating guild of investment dealers, include this: "Each dealer member shall use due diligence to learn and remain informed of the essential facts relative to every customer and to every order or account accepted." That, for example, is the basis for the hearings today in Vancouver about Canaccord Financial Ltd. and Credential Securities Inc.

Similarly, the settlements with the Ontario Securities Commission seem to be based on companies' duties to disclose new information that materially affects their businesses.

Though the existing regime has thus been able to attach consequences to the marketing of ABCP, new rules are still missing, 2½ years after the ABCP disaster. They should not have to wait for the next perverse financial ingenuity to implode.

[admin]

Sunny Freeman
Toronto — The Canadian Press
Published on Monday, Dec. 21, 2009 5:28PM EST
Last updated on Monday, Dec. 21, 2009 7:25PM EST
Several of Canada's largest financial institutions will dole out $138.8-million for their role in the asset-backed commercial paper meltdown in settlements approved Monday.

National Bank (NB-T) will pay the majority with its share totalling $75-million in penalties and investigation costs.

Several other major players, including CIBC (CM-T) , HSBC and Laurentian Bank (LB-T) will make up the rest.

“National Bank Financial Group's actions reflect its commitment to work constructively with regulatory authorities and its clients,” the Quebec-based bank said in a statement.

The Canadian ABCP market ground to a halt in August 2007 amid fears the assets behind the notes included U.S. subprime mortgages and other high-risk loans.

The Ontario Securities Commission, Quebec's Autorite des marches financiers and the Investment Industry Regulatory Organization of Canada reviewed and approved seven different settlements over improper handling of the investments at some of Canada's biggest financial institutions.

The hearings were held in camera, meaning no members of the public were able to attend.

In the U.S., several recent high-profile cases involving securities violations have subjected those accused to intense media and public scrutiny.

Still, Alfred Apps, an insolvency lawyer with Fasken Martineau DuMoulin, said the settlements Monday represent a successful conclusion for all parties involved and will be beneficial for consumers and for the markets.

“It's a good day for financial regulation in Canada,” he said. “This is not a nominal amount and as a consequence of that, the industry is going to be changing its diligence and compliance practices to respond to what is happening in this case.”

He said the case is a wake-up call for the banks, which have already contributed money for the restructuring of the complex financial instruments.

“Everybody, including the regulators have learned a lesson from this experience, and to suggest that what has occurred is going to mean business as usual for everybody is just dead wrong.”

CIBC World Markets (CM-T) will pay a penalty of $21.7-million, plus $300,000 for the cost of the investigation, while HSBC Bank Canada will pay $5.925-million, plus another $75,000 in investigation costs.

CIBC and HSBC, which sold the papers to institutional clients, also admitted to “conduct contrary to the public interest by failing to adequately respond to emerging issues in the third-party ABCP market insofar as it continued to sell third-party ABCP...”

Scotia Capital Inc. (BNS-T) , which agreed to pay nearly $29.3-million to cover penalties and its share of the investigation, made a similar admission to IIROC, said Alex Popovic, the body's vice-president of enforcement.

The dollar amounts were based on the culpability of each institution, how many ABCP they sold and the specific allegations against them.

Those institutions, as well as National Bank and Laurentian allegedly did not disclose an e-mail outlining the subprime exposure of each ABCP to their mainly institutional clients.

Laurentian Bank agreed to pay $3.2-million for its role in the debacle.

Meanwhile, Vancouver-based Canaccord Financial Ltd. (CCI-T) will pay a total of $3.1-million and Credential Securities Inc. will pay $200,000.

They had been accused of failing to take adequate steps to ensure that retail clients understood the complexities of the third party ABCP.

A restructuring of Canadian ABCP was completed earlier this year, and most of the individual investors have received their principal back, but pensions and businesses were given notes that will mature over the coming years, although the notes can also be sold prior to maturity.

ABCPs are short-term investments with maturities of 30 to 180 days. They are backed by a pool of underlying assets and offer a slightly better yield than those offered on short-term government debt.

Aside from individuals, investors who lost money in the risky investments include Silver Standard Resources Inc. Jean Coutu, Quebec pension fund manager Caisse de depot et placement du Quebec and the City of Hamilton.

Michael Miles, 60, is a self-employed investor in Victoria, B.C., who put his retirement plans on hold after his account was frozen when the ABCP market collapsed. He said he did not even know he owned ABCP until after he could no longer withdraw money.

His account was frozen for about 18 months before he was able to negotiate a settlement to reimburse his losses in exchange for agreeing to support the restructuring.

“If you're self employed, which my wife and I are, and you have no assurity that your retirement savings will ever be returned to you, it's a huge emotional hit.”

He said Monday he was not happy with the financial settlements because no one was held personally responsible for the misdealings, criminal charges were not pursued, and no one had their right to practice withdrawn.

“We want to know who the heck is personally responsible and those people need to be investigated for criminal fraud.”

advocate comments:
*Hallelujah!!*

$32 Billion worth of investments disappear (Asset Backed Commercial Paper)

$200 million worth of fines levied
Less than one penny in fines for every dollar missing from the Canadian economy.

God bless the gift of financial self regulation!

Merry Christmas to all.

[admin]

Canada’s securities regulators have put a price tag on incompetence. For $138.8-million and the cost of hiring a consultant, you, too, can bring down a $32-billion market by selling faulty products that you didn’t understand to unsuspecting investors, costing them millions of dollars in losses. It doesn’t even amount to chump change for multi-billion-dollar operations like National Bank, Canadian Imperial Bank of Commerce, and Scotia Capital, three of the noted ABCP players.

If regulators wanted to be meaningful, then fine them a year’s profit and shareholders would make sure it didn’t happen again by kicking out executives and boards on whose watch this happened.

The financial institutions in this country that manufactured, sold and distributed third-party asset backed commercial paper should get on their knees and kiss Justice Colin Campbell’s ring this Christmas. If it wasn’t for him agreeing to controversial legal releases in the ABCP restructuring, which granted financial institutions immunity from everything but fraud, they likely would have been litigated if not out of existence, then certainly to a poorer place than they were sent by our market regulators.

Yes, $138.8-million is a ton of dough, but not near as much as the hundreds of millions of dollars that companies and government agencies (nee, taxpayers) wrote off for buying what they thought was safe paper. We must wait a decade to find out the true harm these financial institutions inflicted on investors. That’s when the restructured ABCP notes mature and the real price tag will be known. It won’t be pretty.

In fairness to Justice Campbell, he had an ABCP gun to his head. If he didn’t agree to the releases he screwed over retail investors who stood to lose everything, and be tied up for years in court, so he elected the safe and prudent route. The legal releases set bad public policy and precedent, which is like a crack in the dam. It undermines the foundation and eventually leads to a flood. Already some courts have been asked to consider immunity releases. In fact, it’s probably malpractice for a lawyer not to ask for one.

The deterrence aspect of siccing the class action lawyers and litigation hounds on wrongdoers would have had a far greater impact than the inconsequential fines imposed by regulators. Instead, the penalties were kind of like grounding your kid for coming home late. Yeah, it hurts for a day or so, but then all is forgotten.

Going through a full-blown discovery stage and trial where corporate executives are called on the carpet — red-faced and forced to explain their actions — would have optically had more compelling consequences than fines. Sure, Coventree, the pointman in the third-party ABCP business, was destroyed, but it was the financial tadpole in this investing swamp. Few executives of any note lost their jobs. Most probably earned bonuses this year. There was no public damnation of those individuals who perpetrated this mess, nor contrition on their part.

If this is the extent of Canada’s capital market oversight — too little, too late, no teeth — then maybe investors should be cashing their RRSPs, abandoning our capital markets and putting hard-earned money into safer products like GICs and cash accounts. No, wait a minute, that’s how this problem started, investors wanted a safe haven and some of our top financial institutions let them down.

If Canadian regulators and the self-policing capital markets can’t properly oversee the most basic of investments, how can Canadians trust they are properly overseeing more complex equity markets? ABCP was a stain on Canada’s capital markets that we’ll wear for years to come. As a Canadian investor, I’m embarassed, even if the financial institutions aren’t.

jmiddlemiss@nationalpost.com

[admin]

"Canadian Banks the World's Strongest Because they are Allowed To Financially Abuse Canadians" (advocate)



ABCP investors blast settlement, regulators
Mark Noble / December 22, 2009
Advisor.ca


While the majority of retail asset backed commercial paper investors got 100% of their principal investment back, many believe the firms that sold ABCP have received little more than a slap on the wrist in their settlement with securities regulators.

Members of the ABCP Retail Owners Committee argue the $138.8 million in penalties were far too small in comparison to the scope of the ABCP market, which was estimated at $32 billion.

"The first thing that hit me is that they only have to pay $138 million out of 32 billion dollars, which as a settlement represents roughly .04 cents on the dollar," says Layne Arthur, an Alberta-based investor who had the proceeds from the sale of his family farm locked up in what he thought was a safe investment. "Everybody involved in this settlement got immunity. They do not lose their right to practice at any of the banks or in the investment community at large."

Arthur fought for 18 months to get his money back.

"Everybody is walking around with smiles pretending this is all behind them. I think this is still a case of fraud. I would like to see a criminal investigation as to who knew what," Arthur says. "Luckily, I was one of the guys with less than a million dollars invested, so I got paid out. I just got my last cheque a month ago. I've wasted a whole year on this thing, and it was so frustrating. The lingering problem is this is going to happen again. People will be able to put together some fraudulent garbage and pass it off as a savings program."

The ABCP Retail Owners Committee says it has been unable to get criminal action taken against firms.

"Our representative's appeals for assistance from the RCMP's Integrated Market Enforcement Team were referred to the self regulatory bodies. 'Small folks' like ourselves were simply left to 'duke it out' with some of the largest financial organizations in the country," a release from the committee says.

Arthur expressed frustration at being passed around by enforcement agencies when the committee lodged its complaint.

"The system is broken. You cannot have the fox guarding the hen house. You need a totally independent police force that we can go to. I think there are 32 different arms of investigators at different levels, and all of them just referred us to the next outfit," he says.

Independent financial analyst and well-known investor advocate, Diane Urquhart, worked closely with the group in getting their money back. She says this last chapter in the ABCP proceedings highlights serious deficiencies in Canada's capital markets and banking structure.

"I am pleased to see that the securities regulators have finally brought seven securities dealers into settlement agreements as penalty for their sale of toxic ABCP into the public markets," she says. "The public announcement of these securities regulatory settlements demonstrates to the world that the Canadian banks were significant players in the international structured credit crisis, albeit indirectly through their wholly owned investment banks."

Urquhart believes the restructuring process allowed banks to skirt their responsibilities since they were not required to buy the ABCP back from investors.

"No Canadian banks required a government bailout because they had sold the toxic asset backed commercial paper from their inventories to their customers and because they were not forced to buy this bad paper back like the other banks of the world were required to do," she says. "Also, unlike in other countries, the Canadian bankruptcy courts gave full immunity from lawsuits by the ABCP owners against the Canadian banks and investment bank distributors of this toxic product. So, it was not the Canadian banks that took massive writedowns, but the customers of the Canadian banks and investment banks."

Urquhart believes the penalties that were handed out do little to deter or reform the type of sales practices amongst Canada's investment dealers that led to the ABCP crisis.

"With banks making billions of dollars in profit each year, miniscule monetary penalties such as this one, will not have any deterrence on the sale of toxic investments like ABCP in the future," she says. "Deterrence only comes when the well-paid managers and experts in the banks lose their jobs, lose their right to move to another investment firm or receive jail sentences in the cases of intent to defraud the investing public."

Sent By:

Diane A. Urquhart
Independent Financial Analyst
Mississauga, Ontario

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"This works out to something like 0.5 cents on the dollar. This is a pittance. It's nothing "- Michael Miles, 60, the Victoria, B.C.-based chairman of the Retail ABCP Owners Committee commenting on the modest $138.8 million in fines negotiated with 7 firms involved with the $32 billion non-bank ABCP scandal


Small penalties paid for $32 Billion non-bank ABCP fiasco
Seven financial services firms have agreed to pay a modest $138.8 million in penalties and costs in connection with the investigations into the non-bank asset-backed commercial paper (ABCP) market. Settlements were reached behind closed doors between the Autorité des marchés financiers (AMF), the Ontario Securities Commission (OSC) and the Investment Industry Regulatory Organization of Canada (IIROC) and seven institutions involved in the Canadian third party ABCP market. The Canadian $32 billion ABCP market ground to a halt in August 2007 amid fears that the assets behind the notes included U.S. subprime mortgages and other high-risk loans. Thousands of Canadians suffered, some brutally, from the aftershock. National Bank Financial Inc.’s settlement totals $75 million, including an administrative penalty of $70 million, $4 million to fund an investor education campaign, and $1 million in investigation costs. The OSC reached 2 settlements: one with CIBC and CIBC World Markets Inc. and the other with HSBC Bank Canada. IIROC reached 3 settlements, with Scotia Capital Inc., Canaccord Financial Ltd. and Credential Securities Inc. The AMF reached two settlements, one with National Bank Financial, and the other with Laurentian Bank Securities Inc. The administrative penalties and investigation costs ( not identified) to be paid by the firms is as follows:
• National Bank Financial Inc. (TSX:NA), $75 million
• Scotia Capital Inc. (TSX:BNS), $29.27 million [ includes $320K costs]
• CIBC and CIBC World Markets Inc. (TSX:CM), $22 million
• HSBC Bank Canada, $6 million
• Laurentian Bank Securities Inc. (TSX:LB), $3.2 million
• Canaccord Financial Ltd. (TSX:CCI), $3.1 million
• Credential Securities Inc., $0.2 million
“With regard to financial penalties imposed, a fair and appropriate use for the sanction monies will be determined in accordance with applicable laws, court orders and in the public interest,” the regulators said in a joint release. The settlements work out to just $430 per million dollars of grief unleashed on investors . The penalties amount to less than the fees advisors, lawyers and accountants took home* to restructure the toxic ABCP into long-term notes, most of which still aren't tradable. None of the regulators assisted retail investors in their 2-year successful battle for recovery of assets with the huge institutions. * According to documents filed in connection with the proposed $32-billion restructuring, lawyers for the investors committee, their financial advisors JP Morgan and others had been paid or submitted invoices for $199.1-million as of Dec. 8, 2008.The lion's share of that money - $87-million – went to JPMorgan, the New York financial advisor contracted by the investor committee to figure out how to convert the $32-billion of frozen paper into long- term notes.


http://www.financialpost.com/story-prin ... id=2371360

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A New York Times view of how things got started in the United States, before being let into Canada by our industry paid securities commissions.

December 24, 2009
Banks Bundled Bad Debt, Bet Against It and Won

By GRETCHEN MORGENSON and LOUISE STORY
In late October 2007, as the financial markets were starting to come unglued, a Goldman Sachs trader, Jonathan M. Egol, received very good news. At 37, he was named a managing director at the firm.

Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.

Goldman’s own clients who bought them, however, were less fortunate.

Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.

Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc., an investment company whose parent firm was overseen by Lewis A. Sachs, who this year became a special counselor to Treasury Secretary Timothy F. Geithner.

How these disastrously performing securities were devised is now the subject of scrutiny by investigators in Congress, at the Securities and Exchange Commission and at the Financial Industry Regulatory Authority, Wall Street’s self-regulatory organization, according to people briefed on the investigations. Those involved with the inquiries declined to comment.

While the investigations are in the early phases, authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them, people briefed on the matter say.

One focus of the inquiry is whether the firms creating the securities purposely helped to select especially risky mortgage-linked assets that would be most likely to crater, setting their clients up to lose billions of dollars if the housing market imploded.

Some securities packaged by Goldman and Tricadia ended up being so vulnerable that they soured within months of being created.

Goldman and other Wall Street firms maintain there is nothing improper about synthetic C.D.O.’s, saying that they typically employ many trading techniques to hedge investments and protect against losses. They add that many prudent investors often do the same. Goldman used these securities initially to offset any potential losses stemming from its positive bets on mortgage securities.

But Goldman and other firms eventually used the C.D.O.’s to place unusually large negative bets that were not mainly for hedging purposes, and investors and industry experts say that put the firms at odds with their own clients’ interests.

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

Investment banks were not alone in reaping rich rewards by placing trades against synthetic C.D.O.’s. Some hedge funds also benefited, including Paulson & Company, according to former Goldman workers and people at other banks familiar with that firm’s trading.

Michael DuVally, a Goldman Sachs spokesman, declined to make Mr. Egol available for comment. But Mr. DuVally said many of the C.D.O.’s created by Wall Street were made to satisfy client demand for such products, which the clients thought would produce profits because they had an optimistic view of the housing market. In addition, he said that clients knew Goldman might be betting against mortgages linked to the securities, and that the buyers of synthetic mortgage C.D.O.’s were large, sophisticated investors, he said.

The creation and sale of synthetic C.D.O.’s helped make the financial crisis worse than it might otherwise have been, effectively multiplying losses by providing more securities to bet against. Some $8 billion in these securities remain on the books at American International Group, the giant insurer rescued by the government in September 2008.

From 2005 through 2007, at least $108 billion in these securities was issued, according to Dealogic, a financial data firm. And the actual volume was much higher because synthetic C.D.O.’s and other customized trades are unregulated and often not reported to any financial exchange or market.

Goldman Saw It Coming

Before the financial crisis, many investors — large American and European banks, pension funds, insurance companies and even some hedge funds — failed to recognize that overextended borrowers would default on their mortgages, and they kept increasing their investments in mortgage-related securities. As the mortgage market collapsed, they suffered steep losses.

A handful of investors and Wall Street traders, however, anticipated the crisis. In 2006, Wall Street had introduced a new index, called the ABX, that became a way to invest in the direction of mortgage securities. The index allowed traders to bet on or against pools of mortgages with different risk characteristics, just as stock indexes enable traders to bet on whether the overall stock market, or technology stocks or bank stocks, will go up or down.

Goldman, among others on Wall Street, has said since the collapse that it made big money by using the ABX to bet against the housing market. Worried about a housing bubble, top Goldman executives decided in December 2006 to change the firm’s overall stance on the mortgage market, from positive to negative, though it did not disclose that publicly.

Even before then, however, pockets of the investment bank had also started using C.D.O.’s to place bets against mortgage securities, in some cases to hedge the firm’s mortgage investments, as protection against a fall in housing prices and an increase in defaults.

Mr. Egol was a prime mover behind these securities. Beginning in 2004, with housing prices soaring and the mortgage mania in full swing, Mr. Egol began creating the deals known as Abacus. From 2004 to 2008, Goldman issued 25 Abacus deals, according to Bloomberg, with a total value of $10.9 billion.

Abacus allowed investors to bet for or against the mortgage securities that were linked to the deal. The C.D.O.’s didn’t contain actual mortgages. Instead, they consisted of credit-default swaps, a type of insurance that pays out when a borrower defaults. These swaps made it much easier to place large bets on mortgage failures.

Rather than persuading his customers to make negative bets on Abacus, Mr. Egol kept most of these wagers for his firm, said five former Goldman employees who spoke on the condition of anonymity. On occasion, he allowed some hedge funds to take some of the short trades.

Mr. Egol and Fabrice Tourre, a French trader at Goldman, were aggressive from the start in trying to make the assets in Abacus deals look better than they were, according to notes taken by a Wall Street investor during a phone call with Mr. Tourre and another Goldman employee in May 2005.

On the call, the two traders noted that they were trying to persuade analysts at Moody’s Investors Service, a credit rating agency, to assign a higher rating to one part of an Abacus C.D.O. but were having trouble, according to the investor’s notes, which were provided by a colleague who asked for anonymity because he was not authorized to release them. Goldman declined to discuss the selection of the assets in the C.D.O.’s, but a spokesman said investors could have rejected the C.D.O. if they did not like the assets.

Goldman’s bets against the performances of the Abacus C.D.O.’s were not worth much in 2005 and 2006, but they soared in value in 2007 and 2008 when the mortgage market collapsed. The trades gave Mr. Egol a higher profile at the bank, and he was among a group promoted to managing director on Oct. 24, 2007.

“Egol and Fabrice were way ahead of their time,” said one of the former Goldman workers. “They saw the writing on the wall in this market as early as 2005.” By creating the Abacus C.D.O.’s, they helped protect Goldman against losses that others would suffer.

As early as the summer of 2006, Goldman’s sales desk began marketing short bets using the ABX index to hedge funds like Paulson & Company, Magnetar and Soros Fund Management, which invests for the billionaire George Soros. John Paulson, the founder of Paulson & Company, also would later take some of the shorts from the Abacus deals, helping him profit when mortgage bonds collapsed. He declined to comment.

A Deal Gone Bad, for Some

The woeful performance of some C.D.O.’s issued by Goldman made them ideal for betting against. As of September 2007, for example, just five months after Goldman had sold a new Abacus C.D.O., the ratings on 84 percent of the mortgages underlying it had been downgraded, indicating growing concerns about borrowers’ ability to repay the loans, according to research from UBS, the big Swiss bank. Of more than 500 C.D.O.’s analyzed by UBS, only two were worse than the Abacus deal.

Goldman created other mortgage-linked C.D.O.’s that performed poorly, too. One, in October 2006, was a $800 million C.D.O. known as Hudson Mezzanine. It included credit insurance on mortgage and subprime mortgage bonds that were in the ABX index; Hudson buyers would make money if the housing market stayed healthy — but lose money if it collapsed. Goldman kept a significant amount of the financial bets against securities in Hudson, so it would profit if they failed, according to three of the former Goldman employees.

A Goldman salesman involved in Hudson said the deal was one of the earliest in which outside investors raised questions about Goldman’s incentives. “Here we are selling this, but we think the market is going the other way,” he said.

A hedge fund investor in Hudson, who spoke on the condition of anonymity, said that because Goldman was betting against the deal, he wondered whether the bank built Hudson with “bonds they really think are going to get into trouble.”

Indeed, Hudson investors suffered large losses. In March 2008, just 18 months after Goldman created that C.D.O., so many borrowers had defaulted that holders of the security paid out about $310 million to Goldman and others who had bet against it, according to correspondence sent to Hudson investors.

The Goldman salesman said that C.D.O. buyers were not misled because they were advised that Goldman was placing large bets against the securities. “We were very open with all the risks that we thought we sold. When you’re facing a tidal wave of people who want to invest, it’s hard to stop them,” he said. The salesman added that investors could have placed bets against Abacus and similar C.D.O.’s if they had wanted to.

A Goldman spokesman said the firm’s negative bets didn’t keep it from suffering losses on its mortgage assets, taking $1.7 billion in write-downs on them in 2008; but he would not say how much the bank had since earned on its short positions, which former Goldman workers say will be far more lucrative over time. For instance, Goldman profited to the tune of $1.5 billion from one series of mortgage-related trades by Mr. Egol with Wall Street rival Morgan Stanley, which had to book a steep loss, according to people at both firms.

Tetsuya Ishikawa, a salesman on several Abacus and Hudson deals, left Goldman and later published a novel, “How I Caused the Credit Crunch.” In it, he wrote that bankers deserted their clients who had bought mortgage bonds when that market collapsed: “We had moved on to hurting others in our quest for self-preservation.” Mr. Ishikawa, who now works for another financial firm in London, declined to comment on his work at Goldman.

Profits From a Collapse

Just as synthetic C.D.O.’s began growing rapidly, some Wall Street banks pushed for technical modifications governing how they worked in ways that made it possible for C.D.O.’s to expand even faster, and also tilted the playing field in favor of banks and hedge funds that bet against C.D.O.’s, according to investors.

In early 2005, a group of prominent traders met at Deutsche Bank’s office in New York and drew up a new system, called Pay as You Go. This meant the insurance for those betting against mortgages would pay out more quickly. The traders then went to the International Swaps and Derivatives Association, the group that governs trading in derivatives like C.D.O.’s. The new system was presented as a fait accompli, and adopted.

Other changes also increased the likelihood that investors would suffer losses if the mortgage market tanked. Previously, investors took losses only in certain dire “credit events,” as when the mortgages associated with the C.D.O. defaulted or their issuers went bankrupt.

But the new rules meant that C.D.O. holders would have to make payments to short sellers under less onerous outcomes, or “triggers,” like a ratings downgrade on a bond. This meant that anyone who bet against a C.D.O. could collect on the bet more easily.

“In the early deals you see none of these triggers,” said one investor who asked for anonymity to preserve relationships. “These things were built in to provide the dealers with a big payoff when something bad happened.”

Banks also set up ever more complex deals that favored those betting against C.D.O.’s. Morgan Stanley established a series of C.D.O.’s named after United States presidents (Buchanan and Jackson) with an unusual feature: short-sellers could lock in very cheap bets against mortgages, even beyond the life of the mortgage bonds. It was akin to allowing someone paying a low insurance premium for coverage on one automobile to pay the same on another one even if premiums over all had increased because of high accident rates.

At Goldman, Mr. Egol structured some Abacus deals in a way that enabled those betting on a mortgage-market collapse to multiply the value of their bets, to as much as six or seven times the face value of those C.D.O.’s. When the mortgage market tumbled, this meant bigger profits for Goldman and other short sellers — and bigger losses for other investors.

Selling Bad Debt

Other Wall Street firms also created risky mortgage-related securities that they bet against.

At Deutsche Bank, the point man on betting against the mortgage market was Greg Lippmann, a trader. Mr. Lippmann made his pitch to select hedge fund clients, arguing they should short the mortgage market. He sometimes distributed a T-shirt that read “I’m Short Your House!!!” in black and red letters.

Deutsche, which declined to comment, at the same time was selling synthetic C.D.O.’s to its clients, and those deals created more short-selling opportunities for traders like Mr. Lippmann.

Among the most aggressive C.D.O. creators was Tricadia, a management company that was a unit of Mariner Investment Group. Until he became a senior adviser to the Treasury secretary early this year, Lewis Sachs was Mariner’s vice chairman. Mr. Sachs oversaw about 20 portfolios there, including Tricadia, and its documents also show that Mr. Sachs sat atop the firm’s C.D.O. management committee.

From 2003 to 2007, Tricadia issued 14 mortgage-linked C.D.O.’s, which it called TABS. Even when the market was starting to implode, Tricadia continued to create TABS deals in early 2007 to sell to investors. The deal documents referring to conflicts of interest stated that affiliates and clients of Tricadia might place bets against the types of securities in the TABS deal.

Even so, the sales material also boasted that the mortgages linked to C.D.O.’s had historically low default rates, citing a “recently completed” study by Standard & Poor’s ratings agency — though fine print indicated that the date of the study was September 2002, almost five years earlier.

At a financial symposium in New York in September 2006, Michael Barnes, the co-head of Tricadia, described how a hedge fund could put on a negative mortgage bet by shorting assets to C.D.O. investors, according to his presentation, which was reviewed by The New York Times.

Mr. Barnes declined to comment. James E. McKee, general counsel at Tricadia, said, “Tricadia has never shorted assets into the TABS deals, and Tricadia has always acted in the best interests of its clients and investors.”

Mr. Sachs, through a spokesman at the Treasury Department, declined to comment.

Like investors in some of Goldman’s Abacus deals, buyers of some TABS experienced heavy losses. By the end of 2007, UBS research showed that two TABS deals were the eighth- and ninth-worst performing C.D.O.’s. Both had been downgraded on at least 75 percent of their associated assets within a year of being issued.

Tricadia’s hedge fund did far better, earning roughly a 50 percent return in 2007 and similar profits in 2008, in part from the short bets.