fascinating factoids about the ABCP crisis:
1. Asset-backed commercial paper whose current market value is uncertain because of a lack of willing buyers was recently held by at least 60 investment funds tracked by Morningstar Canada, including 23 funds in the Canadian Money Market category and one in the American Money Market category.
2. But most money fund sponsors are unscathed, including the Big Five banks.
How did they (the big guys) know in advance that this stuff was junk???
3. And they would like "immunity from prosecution" as part of their deal.
That is a strange thing for an innocent party to request up front.
this plot just gets thicker and thicker.........or as the post on corporate greed and the pathology suggests, "sicker and sicker".
visit breachoftrust.ca for BREACH OF TRUST film info
E-MAIL us at investoradvocate@shaw.ca
ABCP's of stealing $32 Billion. Case study 2 for inquiry
How to purchase immunity from prosecution, with customer's $
by admin » Fri Mar 28, 2008 7:57 am
Crawford warns of investor losses
Hints At Sweetener
Duncan Mavin, Jim Middlemiss And John Greenwood, Financial Post
Friday, March 28, 2008
As Purdy Crawford gets set to meet face-to-face with retail investors in Canada's asset-backed commercial paper market, he warned they will get little back on their investments unless a proposed restructuring goes through as planned, while also hinting there may be a sweetener for the out-of-pocket investors.
If the plan fails to get the go-ahead, retail investors "get damn little," Mr. Crawford said yesterday. "That's not a threat. It's a reality."
Mr. Crawford is head of a committee that has tabled a restructuring plan for the $32-billion of frozen paper. The success of that plan now rests with hundreds of small investors who have the chance to vote on it at the end of April.
While the plan has the backing of holders of most of the paper by dollar value, many of the smaller investors are thought to be against the plan that will see them take a big haircut on their initial investments.
They will also lose the right to sue the people who sold them the notes in the first place.
Significantly, the retail investors will have the final say in a vote that requires approval by more than 50% of the voting noteholders, which gives the little guys a lot of influence.
"Because of the vote, the retail investors have the possibility of getting more on the table than what this rather good restructuring gets them," Mr. Crawford said in an interview.
He begins a cross-Canada roadshow in Toronto on Monday, when he will meet with small investors in a bid to get a yes vote.
Mr. Crawford expressed sympathy for retail investors and said he was unaware until recently how many ordinary Canadians had bought the tainted paper.
His team, which includes bankers and lawyers, also hinted yesterday that there could be a sweetener in the deal to make sure the vote goes through.
He would not give clear details of what this could mean, although the Crawford team said liquidity was a key issue for small investors, and also said a third party could be involved in the next twist to the saga.
"Keep your eyes and ears open," Mr. Crawford said. "All kinds of things" could be considered to help retail investors out, he added.
A top-up to make small investors whole seems unlikely, though one option could be for companies that sold the paper to make up some of the difference between the par value and the market value of the restructured notes, sources said.
A source close to the restructuring said the Street is expecting some kind of "wrinkle to be put in the plan for small investors." There are a number of scenarios being bandied about. "Purdy doesn't want to tip his hand."
The proposed restructuring, which has put the notes into Companies' Creditors Arrangement Act protection, could be amended to accommodate a change to the terms in favour of retail investors, legal sources said.
"I'm rather confident small investors will be able to take advantage of their bargaining power," Mr. Crawford said.
Hints At Sweetener
Duncan Mavin, Jim Middlemiss And John Greenwood, Financial Post
Friday, March 28, 2008
As Purdy Crawford gets set to meet face-to-face with retail investors in Canada's asset-backed commercial paper market, he warned they will get little back on their investments unless a proposed restructuring goes through as planned, while also hinting there may be a sweetener for the out-of-pocket investors.
If the plan fails to get the go-ahead, retail investors "get damn little," Mr. Crawford said yesterday. "That's not a threat. It's a reality."
Mr. Crawford is head of a committee that has tabled a restructuring plan for the $32-billion of frozen paper. The success of that plan now rests with hundreds of small investors who have the chance to vote on it at the end of April.
While the plan has the backing of holders of most of the paper by dollar value, many of the smaller investors are thought to be against the plan that will see them take a big haircut on their initial investments.
They will also lose the right to sue the people who sold them the notes in the first place.
Significantly, the retail investors will have the final say in a vote that requires approval by more than 50% of the voting noteholders, which gives the little guys a lot of influence.
"Because of the vote, the retail investors have the possibility of getting more on the table than what this rather good restructuring gets them," Mr. Crawford said in an interview.
He begins a cross-Canada roadshow in Toronto on Monday, when he will meet with small investors in a bid to get a yes vote.
Mr. Crawford expressed sympathy for retail investors and said he was unaware until recently how many ordinary Canadians had bought the tainted paper.
His team, which includes bankers and lawyers, also hinted yesterday that there could be a sweetener in the deal to make sure the vote goes through.
He would not give clear details of what this could mean, although the Crawford team said liquidity was a key issue for small investors, and also said a third party could be involved in the next twist to the saga.
"Keep your eyes and ears open," Mr. Crawford said. "All kinds of things" could be considered to help retail investors out, he added.
A top-up to make small investors whole seems unlikely, though one option could be for companies that sold the paper to make up some of the difference between the par value and the market value of the restructured notes, sources said.
A source close to the restructuring said the Street is expecting some kind of "wrinkle to be put in the plan for small investors." There are a number of scenarios being bandied about. "Purdy doesn't want to tip his hand."
The proposed restructuring, which has put the notes into Companies' Creditors Arrangement Act protection, could be amended to accommodate a change to the terms in favour of retail investors, legal sources said.
"I'm rather confident small investors will be able to take advantage of their bargaining power," Mr. Crawford said.
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by admin » Fri Mar 28, 2008 6:49 pm
Listen to March 28, 2008 940 AM Montreal Radio interview of retired logger Gary Carter of Duncan, Vancouver Island and paralegal professional Jill O'Hara of Victoria,Vancouver Island. In this interview, Jim Duff of 940 AM Montreal calls Non Bank ABCP the greatest scam ever perpetrated on the small investor in this country.
(advocate comments...........lets see if I missed anything........the "smartest guys in the room" (which from here forward should be read as "the most pathalogically morally deficient persons in the country") put together some of the lowest quality crap debt the world has seen since Michael Milken...........and they shrewdly package this up and sell it to institutions and to the public. To sell it, they need to be exempt from prospectus, and to do that they need a strong rating......and to do that they need to give it a guarantee that they will back it up in the case of a market disruption....................all pretty much smoke and mirrors done by those smartest richest, most pathalogically deficient folks who climb he money ladder.
Then when this tainted product goes bad............all the guarantees fail in the fine print, those who put them in place refuse to back them.............they leave investors high and dry, they owe no duty to offer even a modicum of quality when it comes to investments........you are on your own...........and to add insult to injury, they ask for full immunity from prosecution for any part they might play in
now helping to "restructure".
It quite likely is one of the largest scams ever perperated on the Canadian public. I can only hope it will bring to light the deficiencies that have always been tolerated in our system. Many others have come before this current crisis and many others have been hurt on other investments.
(advocate comments...........lets see if I missed anything........the "smartest guys in the room" (which from here forward should be read as "the most pathalogically morally deficient persons in the country") put together some of the lowest quality crap debt the world has seen since Michael Milken...........and they shrewdly package this up and sell it to institutions and to the public. To sell it, they need to be exempt from prospectus, and to do that they need a strong rating......and to do that they need to give it a guarantee that they will back it up in the case of a market disruption....................all pretty much smoke and mirrors done by those smartest richest, most pathalogically deficient folks who climb he money ladder.
Then when this tainted product goes bad............all the guarantees fail in the fine print, those who put them in place refuse to back them.............they leave investors high and dry, they owe no duty to offer even a modicum of quality when it comes to investments........you are on your own...........and to add insult to injury, they ask for full immunity from prosecution for any part they might play in
now helping to "restructure".
It quite likely is one of the largest scams ever perperated on the Canadian public. I can only hope it will bring to light the deficiencies that have always been tolerated in our system. Many others have come before this current crisis and many others have been hurt on other investments.
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by admin » Fri Mar 28, 2008 11:57 pm
THE NEW YORK TIMES
March 29, 2008
Treasury’s Plan Would Give Fed Wide New Power
By EDMUND L. ANDREWS
WASHINGTON — The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.
The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades.
Democratic lawmakers are all but certain to say the proposal does not go far enough in restricting the kinds of practices that caused the financial crisis. Many of the proposals, like those that would consolidate regulatory agencies, have nothing to do with the turmoil in financial markets. And some of the proposals could actually reduce regulation.
According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.
Text: Treasury’s Summary of Regulatory Proposal (March 29, 2008)
While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation.
The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings.
The plan would give the Fed some authority over Wall Street firms, but only when an investment bank’s practices threatened the entire financial system.
And the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves and gave many institutions a false sense of security.
Parts of the plan could reduce the power of the Securities and Exchange Commission, which is charged with maintaining orderly stock and bond markets and protecting investors. The plan would merge the S.E.C. with the Commodity Futures Trading Commission, which regulates exchange-traded futures for oil, grains, currencies and the like.
The blueprint also suggests several areas where the S.E.C. should take a lighter approach to its oversight. Among them are allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets.
The proposal began last year as an effort by Henry M. Paulson Jr., secretary of the Treasury, to make American financial markets more competitive against overseas markets by modernizing a creaky regulatory system.
Doug Mills/The New York Times
Henry M. Paulson Jr.
His goal was to streamline the different and sometimes clashing rules for commercial banks, savings and loans and nonbank mortgage lenders.
“I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every 5 to 10 years,” Mr. Paulson will say in a speech on Monday, according to a draft. “I am suggesting that we should and can have a structure that is designed for the world we live in, one that is more flexible.”
Congress would have to approve almost every element of the proposal, and Democratic leaders are already drafting their own bills to impose tougher supervision over Wall Street investment banks, hedge funds and the fast-growing market in derivatives like credit default swaps.
But Mr. Paulson’s proposal for the Fed echoes ideas championed by Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee.
Both see the Fed overseeing risk across the entire financial spectrum, but Mr. Frank is likely to favor a stronger Fed role and to subject investment banks to the same rules that commercial banks now must follow, especially for capital reserves.
The Treasury plan would let Fed officials examine the practices and even the internal bookkeeping of brokerage firms, hedge funds, commodity-trading exchanges and any other institution that might pose a risk to the overall financial system.
That would be a significant expansion of the central bank’s regulatory mission.
When Fed officials agreed this month to rescue Bear Stearns, once the nation’s fifth-largest investment bank, they pointedly noted that the Fed never had the authority to monitor its financial condition or order it to bolster its protections against a collapse.
In two unprecedented moves, the Fed engineered a marriage between JPMorgan Chase and Bear Stearns, lending $29 billion to JPMorgan to prevent a Bear bankruptcy and a chain of defaults that might have felled much of the financial system.
For the first time since the 1930s, the Fed also agreed to let investment banks borrow hundreds of billions of dollars from its discount window, an emergency lending program reserved for commercial banks and other depository institutions.
But Mr. Paulson’s proposal would fall well short of the kind of regulation that Democrats have been proposing. Mr. Frank and other senior Democrats have argued that investment banks and other lightly regulated institutions now compete with commercial banks and should be subject to similar regulation, including examiners who regularly pore over their books and quietly demand changes in their practices.
In a recent interview, Mr. Frank said he realized the need for tighter regulation of Wall Street firms after a meeting with Charles O. Prince III, then chairman of Citigroup.
When Mr. Frank asked why Citigroup had kept billions of dollars in “structured investment vehicles” off the firm’s balance sheet, he recalled, Mr. Prince responded that Citigroup, as a bank holding company, would have been at a disadvantage because investment firms can operate with higher debt and lower capital reserves.
Senator Charles E. Schumer, Democrat of New York, has taken a similar stance.
“Commercial banks continue to be supervised closely, and are subject to a host of rules meant to limit systemic risk,” Mr. Schumer wrote in an op-ed article on Friday in The Wall Street Journal. “But many other financial institutions, including investment banks and hedge funds, are regulated lightly, if at all, even though they act in many ways like banks.”
Mr. Paulson’s proposal is likely to provoke bruising turf battles in Congress among agencies and rival industry groups that benefit from the current regulations.
Administration officials acknowledged on Friday that they did not expect the proposal to become law this year, but said they hoped it would help frame a policy debate that would extend well after the elections in November.
In a nod to the debacle in mortgage lending, the administration proposed a Mortgage Origination Commission to evaluate the effectiveness of state governments in regulating mortgage brokers and protecting consumers.
The bulk of the proposal, however, was developed before soaring mortgage defaults set off a much broader credit crisis, and most of the proposals are geared to streamlining regulation.
This plan would consolidate a large number of regulators into roughly three big new agencies.
Bank supervision, now divided among five federal agencies, would be led by a Prudential Financial Regulator, which could send examiners into any bank or depository institution that is protected by either federal deposit insurance or other federal backstops. It would eliminate the distinction between “banks” and “thrift institutions,” which are already indistinguishable to most consumers, and shut down the Office of Thrift Supervision.
Any effort to merge the Commodity Futures Trading Commission with the S.E.C. is likely to provoke battles.
Yet another proposal would, for the first time, create a national regulator for insurance companies, an industry that state governments now oversee.
Administration officials argue that a national system would eliminate the inefficiencies of having 50 different state regulators, who have jealously guarded their powers and are likely to fight any federal encroachment.
Arthur Levitt, a former S.E.C. chairman who has long pushed for stronger investor protection, said his first impression of the plan was positive. Even though the S.E.C.’s powers might be reduced, Mr. Levitt said, the plan would create a broader agency to regulate business conduct in all financial services.
“It’s a thoughtful document,” he said. “I’m intrigued by the fact that it puts an emphasis on investor protection, and that it establishes an agency specifically for that purpose, which would operate across all markets. I think that’s a very constructive first step.”
March 29, 2008
Treasury’s Plan Would Give Fed Wide New Power
By EDMUND L. ANDREWS
WASHINGTON — The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.
The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades.
Democratic lawmakers are all but certain to say the proposal does not go far enough in restricting the kinds of practices that caused the financial crisis. Many of the proposals, like those that would consolidate regulatory agencies, have nothing to do with the turmoil in financial markets. And some of the proposals could actually reduce regulation.
According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.
Text: Treasury’s Summary of Regulatory Proposal (March 29, 2008)
While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation.
The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings.
The plan would give the Fed some authority over Wall Street firms, but only when an investment bank’s practices threatened the entire financial system.
And the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves and gave many institutions a false sense of security.
Parts of the plan could reduce the power of the Securities and Exchange Commission, which is charged with maintaining orderly stock and bond markets and protecting investors. The plan would merge the S.E.C. with the Commodity Futures Trading Commission, which regulates exchange-traded futures for oil, grains, currencies and the like.
The blueprint also suggests several areas where the S.E.C. should take a lighter approach to its oversight. Among them are allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets.
The proposal began last year as an effort by Henry M. Paulson Jr., secretary of the Treasury, to make American financial markets more competitive against overseas markets by modernizing a creaky regulatory system.
Doug Mills/The New York Times
Henry M. Paulson Jr.
His goal was to streamline the different and sometimes clashing rules for commercial banks, savings and loans and nonbank mortgage lenders.
“I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every 5 to 10 years,” Mr. Paulson will say in a speech on Monday, according to a draft. “I am suggesting that we should and can have a structure that is designed for the world we live in, one that is more flexible.”
Congress would have to approve almost every element of the proposal, and Democratic leaders are already drafting their own bills to impose tougher supervision over Wall Street investment banks, hedge funds and the fast-growing market in derivatives like credit default swaps.
But Mr. Paulson’s proposal for the Fed echoes ideas championed by Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee.
Both see the Fed overseeing risk across the entire financial spectrum, but Mr. Frank is likely to favor a stronger Fed role and to subject investment banks to the same rules that commercial banks now must follow, especially for capital reserves.
The Treasury plan would let Fed officials examine the practices and even the internal bookkeeping of brokerage firms, hedge funds, commodity-trading exchanges and any other institution that might pose a risk to the overall financial system.
That would be a significant expansion of the central bank’s regulatory mission.
When Fed officials agreed this month to rescue Bear Stearns, once the nation’s fifth-largest investment bank, they pointedly noted that the Fed never had the authority to monitor its financial condition or order it to bolster its protections against a collapse.
In two unprecedented moves, the Fed engineered a marriage between JPMorgan Chase and Bear Stearns, lending $29 billion to JPMorgan to prevent a Bear bankruptcy and a chain of defaults that might have felled much of the financial system.
For the first time since the 1930s, the Fed also agreed to let investment banks borrow hundreds of billions of dollars from its discount window, an emergency lending program reserved for commercial banks and other depository institutions.
But Mr. Paulson’s proposal would fall well short of the kind of regulation that Democrats have been proposing. Mr. Frank and other senior Democrats have argued that investment banks and other lightly regulated institutions now compete with commercial banks and should be subject to similar regulation, including examiners who regularly pore over their books and quietly demand changes in their practices.
In a recent interview, Mr. Frank said he realized the need for tighter regulation of Wall Street firms after a meeting with Charles O. Prince III, then chairman of Citigroup.
When Mr. Frank asked why Citigroup had kept billions of dollars in “structured investment vehicles” off the firm’s balance sheet, he recalled, Mr. Prince responded that Citigroup, as a bank holding company, would have been at a disadvantage because investment firms can operate with higher debt and lower capital reserves.
Senator Charles E. Schumer, Democrat of New York, has taken a similar stance.
“Commercial banks continue to be supervised closely, and are subject to a host of rules meant to limit systemic risk,” Mr. Schumer wrote in an op-ed article on Friday in The Wall Street Journal. “But many other financial institutions, including investment banks and hedge funds, are regulated lightly, if at all, even though they act in many ways like banks.”
Mr. Paulson’s proposal is likely to provoke bruising turf battles in Congress among agencies and rival industry groups that benefit from the current regulations.
Administration officials acknowledged on Friday that they did not expect the proposal to become law this year, but said they hoped it would help frame a policy debate that would extend well after the elections in November.
In a nod to the debacle in mortgage lending, the administration proposed a Mortgage Origination Commission to evaluate the effectiveness of state governments in regulating mortgage brokers and protecting consumers.
The bulk of the proposal, however, was developed before soaring mortgage defaults set off a much broader credit crisis, and most of the proposals are geared to streamlining regulation.
This plan would consolidate a large number of regulators into roughly three big new agencies.
Bank supervision, now divided among five federal agencies, would be led by a Prudential Financial Regulator, which could send examiners into any bank or depository institution that is protected by either federal deposit insurance or other federal backstops. It would eliminate the distinction between “banks” and “thrift institutions,” which are already indistinguishable to most consumers, and shut down the Office of Thrift Supervision.
Any effort to merge the Commodity Futures Trading Commission with the S.E.C. is likely to provoke battles.
Yet another proposal would, for the first time, create a national regulator for insurance companies, an industry that state governments now oversee.
Administration officials argue that a national system would eliminate the inefficiencies of having 50 different state regulators, who have jealously guarded their powers and are likely to fight any federal encroachment.
Arthur Levitt, a former S.E.C. chairman who has long pushed for stronger investor protection, said his first impression of the plan was positive. Even though the S.E.C.’s powers might be reduced, Mr. Levitt said, the plan would create a broader agency to regulate business conduct in all financial services.
“It’s a thoughtful document,” he said. “I’m intrigued by the fact that it puts an emphasis on investor protection, and that it establishes an agency specifically for that purpose, which would operate across all markets. I think that’s a very constructive first step.”
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by admin » Thu Apr 10, 2008 9:12 pm
ABCP investors say they were duped, defrauded by financial community
By: The Canadian Press
at 18:08 on April 10, 2008, EDT.
OTTAWA - The breakdown of the $32-billion asset-backed commercial paper system amounted to criminal fraud on "duped" innocent investors 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."
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 a litany of horror stories from investors unwittingly caught up in the secretive, arcane world of high finance.
Speaking in Toronto, Finance Minister Jim Flaherty said the commercial paper fiasco was more evidence that Canada's system of independent provincial and territorial regulators, such as the Ontario Securities Commission, does not work.
"We have 13 securities regulators in Canada, which, quite frankly, makes no sense and makes for a great deal of inefficiency," he said. "This another reason why we need to move forward with a national securities regulator in Canada."
But while several financial analysts at the committee hearings also said a national regulator would help, they cautioned that the new oversight body should be mandated to look after only the interests of investors.
"The current financial regulatory system is broken and offers no protection to Canadian investors," said Diane Urquhart, a Toronto-area independent financial analyst.
Elford said current provincial regulators have a conflict of interest and too close ties with the financial industry.
"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."
Investors who say they have hundreds of thousands of dollars in savings in jeopardy told the legislators they were "duped" by financial institutions that advertised their investment vehicles as safe, and that they have lost faith in the regulatory bodies.
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.
And 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 in thrall for most of the two hours and surprised some, who said they assumed investors knew what they were getting into.
"It's been like a red light going on for us," said Bloc Quebecois MP Paul Crete.
Crete said the finance committee has made the ABCP matter a priority for future hearings, which will begin after investors vote on a plan to settle issue on April 25.
"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, who included investors and investment experts, had no trouble pinpointing the problem.
Even now, they said, the system is protecting itself, citing Tuesday's proposed "relief plan" by Canaccord Capital Inc. (TSX:CCI) 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 investor 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." She said she will reject the offer if she was forced to waive her rights.
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 may be in ABCP.
Liberal finance critic John McCallum, a former chief economist with the Royal Bank, said the allegations need to be investigated, but he was not prepared 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."
By: The Canadian Press
at 18:08 on April 10, 2008, EDT.
OTTAWA - The breakdown of the $32-billion asset-backed commercial paper system amounted to criminal fraud on "duped" innocent investors 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."
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 a litany of horror stories from investors unwittingly caught up in the secretive, arcane world of high finance.
Speaking in Toronto, Finance Minister Jim Flaherty said the commercial paper fiasco was more evidence that Canada's system of independent provincial and territorial regulators, such as the Ontario Securities Commission, does not work.
"We have 13 securities regulators in Canada, which, quite frankly, makes no sense and makes for a great deal of inefficiency," he said. "This another reason why we need to move forward with a national securities regulator in Canada."
But while several financial analysts at the committee hearings also said a national regulator would help, they cautioned that the new oversight body should be mandated to look after only the interests of investors.
"The current financial regulatory system is broken and offers no protection to Canadian investors," said Diane Urquhart, a Toronto-area independent financial analyst.
Elford said current provincial regulators have a conflict of interest and too close ties with the financial industry.
"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."
Investors who say they have hundreds of thousands of dollars in savings in jeopardy told the legislators they were "duped" by financial institutions that advertised their investment vehicles as safe, and that they have lost faith in the regulatory bodies.
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.
And 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 in thrall for most of the two hours and surprised some, who said they assumed investors knew what they were getting into.
"It's been like a red light going on for us," said Bloc Quebecois MP Paul Crete.
Crete said the finance committee has made the ABCP matter a priority for future hearings, which will begin after investors vote on a plan to settle issue on April 25.
"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, who included investors and investment experts, had no trouble pinpointing the problem.
Even now, they said, the system is protecting itself, citing Tuesday's proposed "relief plan" by Canaccord Capital Inc. (TSX:CCI) 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 investor 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." She said she will reject the offer if she was forced to waive her rights.
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 may be in ABCP.
Liberal finance critic John McCallum, a former chief economist with the Royal Bank, said the allegations need to be investigated, but he was not prepared 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."
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by admin » Thu Apr 10, 2008 9:33 pm
How do I love thee ABCP?
Let me count the ways.
Just a few of the things I learned whilst sitting in on ABCP hearings in Ottawa today. I cannot list them all since it has been a busy day, but will add from time to time.
1. The liquidity guarantees provided by the banks were basically "fake". (never intended to work, designed with escape hatch)
2. AAA bond ratings for this product were "purchased" from DBRS for the sum of an annual payment to DBRS of $17 million while two of the other three national rating agencies would not rate it high enough to be sold to the public.
3. tainted debt (sub prime mortgages) were carefully and skillfully blended into the product much like a vineyard owner carefully blends his product........or like the chinese did with tainted pet food.
4. When Scotiabank was informed of problems with the product, rather than recall it, they instead chose to dump their own inventory of it, while still allowing it to be sold to the unsuspecting public.
5. Sold without benefit of a prospectus due to the "generous", AAA bond rating bought and paid for from the DBRS.
Why does it seem that there is never a policeman around when you truly need one.............
Let me count the ways.
Just a few of the things I learned whilst sitting in on ABCP hearings in Ottawa today. I cannot list them all since it has been a busy day, but will add from time to time.
1. The liquidity guarantees provided by the banks were basically "fake". (never intended to work, designed with escape hatch)
2. AAA bond ratings for this product were "purchased" from DBRS for the sum of an annual payment to DBRS of $17 million while two of the other three national rating agencies would not rate it high enough to be sold to the public.
3. tainted debt (sub prime mortgages) were carefully and skillfully blended into the product much like a vineyard owner carefully blends his product........or like the chinese did with tainted pet food.
4. When Scotiabank was informed of problems with the product, rather than recall it, they instead chose to dump their own inventory of it, while still allowing it to be sold to the unsuspecting public.
5. Sold without benefit of a prospectus due to the "generous", AAA bond rating bought and paid for from the DBRS.
Why does it seem that there is never a policeman around when you truly need one.............
- admin
- Site Admin
- Posts: 1504
- Joined: Fri May 06, 2005 9:05 am
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by admin » Sat Apr 12, 2008 9:28 pm
FINANCING THE BANKER’S FUNERAL:
What the ABCP Swindle Means for Working Canadians
by Ken Georgetti
In recent weeks, as US hedge funds and investments bankers have imploded south of the border, working Canadians have been told our economy isn’t “subprimed.”
Sure, the experts say, current problems in global credit markets may mean less cash is available for Canadian companies. It will certainly mean fewer buyers for Canadian exports as US workers face house foreclosures, and higher costs for basic necessities.
But be thankful, the experts reassure, you could be someone else.
You could be one of the two million Americans who recently lost their homes after shady mortgage brokers sold them on crooked contracts.
You could be one of the 14,000 workers at Bear Sterns, some of whom taped $2 to their office windows to symbolize what their employee shares were now worth (down from $68 only days before).
You could be a citizen of several small towns in Norway who, until recently, were unaware that hucksters had exposed them to the subprime market. After her town lost $64 million, one mayor remarked: “because of this, we can’t focus on things that matter, like schools or care for the elderly.”
Dear readers, don’t believe the hype. Working Canadians have suffered enormously from greedy Bay Street bigwigs, but most aren’t aware of it. Their pension funds will take a huge hit after dodgy credit investments (once billed as secure) blew up last Summer. To make matters worse, officials are letting the perpetrators bury the victims in secrecy, while pension funds, average Canadians, and the public purse finance the funeral costs.
Here’s what happened. While many of us enjoyed a deserved break last August, Canada’s economy nearly tanked given a defective investment product called Asset Backed Commercial Paper (ABCP).
Until recently, few experts bothered to ask what ABCP was. But that didn’t stop financial advisors, credit unions, bankers, and bond raters from giving ABCP top marks as a safe and secure investment.
ABCP are short-term debt notes – normally set for terms of 30 or 60 days – that banks and non-bank finance houses created by bundling packages of consumer debt together to sell on the stock market. Think of thousands of individual car loans and credit card debts rolled into super funds. That’s what ABCP represents, and by last Summer, it comprised more than 30% of Canada’s $360 billion short-term debt market.
Until disaster struck, ABCP kingpins were raking it in. Coventree, a non-bank ABCP provider, grew from a small start-up to a firm managing $16 billion in assets. That all flew apart when large institutional investors, like banks and major pension funds, demanded ABCP sellers disclose their exposure to the US subprime mortgages.
ABCP sellers tried to calm large investors by pointing out their minimal exposure to US subprime mortgages. Coventree, for example, insisted that only 4% of their funds had links to these dodgy debts.
That didn’t satisfy the big investors. One by one, they bolted for the exit doors to sell what they once described to pension plan members and investors as a safe, “securitized” product. Banks stood behind their ABCP products, and agreed to make investors whole. Non-bank ABCP sellers like Coventree were a different story. They dug in their heels and refused to yield an inch.
By mid August 2007, the crisis in non-bank ABCP led to a full-blown financial crisis. A small group of bigwigs quickly met in Montreal to establish an industry-brokered deal for non-bank ABCP providers.
On August 16 and 17, the Bank of Canada injected more than $720 million in loans to help finance the arrangement. The ABCP industry (and investments in it) was frozen by federal regulators as the details of the deal were hammered out.
On its own, this closed-door process was scandalous. The so-called Montreal Accord of former ABCP boosters happened without any disclosure to investors. No bond rater, banker, or non-bank ABCP seller has faced charges for selling an asset once stamped as safe and secure.
The Montreal Accord has since won legal approval in the Ontario Superior Court, but with a catch. The Court required that the deal must win 50% support of small and medium sized investors. Every individual ABCP “note holder” is entitled to one vote each.
That’s why finance heavyweight Purdy Crawford has recently travelled to five cities to promote the “Montreal Accord.” Here was Crawford’s pitch: 1) your ABCP assets will remain frozen for five to eight years; 2) you’ll then exchange them for similar investments (after eating an unspecified amount of losses); 3) you must relinquish your right to legal action; and 4) you have no right to know what the big players negotiated for themselves.
Not surprisingly, that line didn’t resonate too well. The Royal Bank estimates the notes have already lost 40% of their value. Crawford was roundly jeered, booed, and told to expect legal action unless the bigwigs make good on 100% of their bad advice.
And rightly so. Purdy Crawford’s friends shouldn’t get court-sanctioned approval to embalm the corpse they are responsible for. They’ve come out of the Bay Street crematorium with the ashes of the corpse, and asked all small-time mourners to agree to a bail out in exchange for essentially no autopsy and no legal liability. Our pension funds and retirement plans shouldn’t cover these dirty deeds.
What’s more, it’s high time we acknowledged a double-standard in our criminal justice system. Our federal government vents often about crime in the streets, but never about crime in the suites. Craig Hannaford and Bill Majher, two former RCMP top investigators, recently told Canadian Business magazine that our white collar crime process “is pretty much non-existent.”
Canadians must turn over a new leaf, and demand stronger laws for corporate accountability. Main Street shouldn’t suffer for the duplicity of Bay Street.
The dodgy debt littered through the world financial system is an ongoing problem that needs closer government regulation. As an earlier generation recognized during the Great Depression, our economy can’t be sabotaged by ruthless speculators and pocket-stuffers. Believe it: a more sane economy is possible.
Meanwhile, we need a public inquiry into this mess. We also need government intervention to recover the ill-gotten gains by the invisible billionaires and they should be charged credit card interest rates for all the time they had our money.
Ken Georgetti is president of the Canadian Labour Congress, the largest labour federation in Canada. They represent 3.2 million working women and men who have pension plan investments estimated at over 300 billion dollars.
fh/cope225 ■ H:\Communications\OpEd\2008\04-08KVG-ABCPDebacleEng.wpd
What the ABCP Swindle Means for Working Canadians
by Ken Georgetti
In recent weeks, as US hedge funds and investments bankers have imploded south of the border, working Canadians have been told our economy isn’t “subprimed.”
Sure, the experts say, current problems in global credit markets may mean less cash is available for Canadian companies. It will certainly mean fewer buyers for Canadian exports as US workers face house foreclosures, and higher costs for basic necessities.
But be thankful, the experts reassure, you could be someone else.
You could be one of the two million Americans who recently lost their homes after shady mortgage brokers sold them on crooked contracts.
You could be one of the 14,000 workers at Bear Sterns, some of whom taped $2 to their office windows to symbolize what their employee shares were now worth (down from $68 only days before).
You could be a citizen of several small towns in Norway who, until recently, were unaware that hucksters had exposed them to the subprime market. After her town lost $64 million, one mayor remarked: “because of this, we can’t focus on things that matter, like schools or care for the elderly.”
Dear readers, don’t believe the hype. Working Canadians have suffered enormously from greedy Bay Street bigwigs, but most aren’t aware of it. Their pension funds will take a huge hit after dodgy credit investments (once billed as secure) blew up last Summer. To make matters worse, officials are letting the perpetrators bury the victims in secrecy, while pension funds, average Canadians, and the public purse finance the funeral costs.
Here’s what happened. While many of us enjoyed a deserved break last August, Canada’s economy nearly tanked given a defective investment product called Asset Backed Commercial Paper (ABCP).
Until recently, few experts bothered to ask what ABCP was. But that didn’t stop financial advisors, credit unions, bankers, and bond raters from giving ABCP top marks as a safe and secure investment.
ABCP are short-term debt notes – normally set for terms of 30 or 60 days – that banks and non-bank finance houses created by bundling packages of consumer debt together to sell on the stock market. Think of thousands of individual car loans and credit card debts rolled into super funds. That’s what ABCP represents, and by last Summer, it comprised more than 30% of Canada’s $360 billion short-term debt market.
Until disaster struck, ABCP kingpins were raking it in. Coventree, a non-bank ABCP provider, grew from a small start-up to a firm managing $16 billion in assets. That all flew apart when large institutional investors, like banks and major pension funds, demanded ABCP sellers disclose their exposure to the US subprime mortgages.
ABCP sellers tried to calm large investors by pointing out their minimal exposure to US subprime mortgages. Coventree, for example, insisted that only 4% of their funds had links to these dodgy debts.
That didn’t satisfy the big investors. One by one, they bolted for the exit doors to sell what they once described to pension plan members and investors as a safe, “securitized” product. Banks stood behind their ABCP products, and agreed to make investors whole. Non-bank ABCP sellers like Coventree were a different story. They dug in their heels and refused to yield an inch.
By mid August 2007, the crisis in non-bank ABCP led to a full-blown financial crisis. A small group of bigwigs quickly met in Montreal to establish an industry-brokered deal for non-bank ABCP providers.
On August 16 and 17, the Bank of Canada injected more than $720 million in loans to help finance the arrangement. The ABCP industry (and investments in it) was frozen by federal regulators as the details of the deal were hammered out.
On its own, this closed-door process was scandalous. The so-called Montreal Accord of former ABCP boosters happened without any disclosure to investors. No bond rater, banker, or non-bank ABCP seller has faced charges for selling an asset once stamped as safe and secure.
The Montreal Accord has since won legal approval in the Ontario Superior Court, but with a catch. The Court required that the deal must win 50% support of small and medium sized investors. Every individual ABCP “note holder” is entitled to one vote each.
That’s why finance heavyweight Purdy Crawford has recently travelled to five cities to promote the “Montreal Accord.” Here was Crawford’s pitch: 1) your ABCP assets will remain frozen for five to eight years; 2) you’ll then exchange them for similar investments (after eating an unspecified amount of losses); 3) you must relinquish your right to legal action; and 4) you have no right to know what the big players negotiated for themselves.
Not surprisingly, that line didn’t resonate too well. The Royal Bank estimates the notes have already lost 40% of their value. Crawford was roundly jeered, booed, and told to expect legal action unless the bigwigs make good on 100% of their bad advice.
And rightly so. Purdy Crawford’s friends shouldn’t get court-sanctioned approval to embalm the corpse they are responsible for. They’ve come out of the Bay Street crematorium with the ashes of the corpse, and asked all small-time mourners to agree to a bail out in exchange for essentially no autopsy and no legal liability. Our pension funds and retirement plans shouldn’t cover these dirty deeds.
What’s more, it’s high time we acknowledged a double-standard in our criminal justice system. Our federal government vents often about crime in the streets, but never about crime in the suites. Craig Hannaford and Bill Majher, two former RCMP top investigators, recently told Canadian Business magazine that our white collar crime process “is pretty much non-existent.”
Canadians must turn over a new leaf, and demand stronger laws for corporate accountability. Main Street shouldn’t suffer for the duplicity of Bay Street.
The dodgy debt littered through the world financial system is an ongoing problem that needs closer government regulation. As an earlier generation recognized during the Great Depression, our economy can’t be sabotaged by ruthless speculators and pocket-stuffers. Believe it: a more sane economy is possible.
Meanwhile, we need a public inquiry into this mess. We also need government intervention to recover the ill-gotten gains by the invisible billionaires and they should be charged credit card interest rates for all the time they had our money.
Ken Georgetti is president of the Canadian Labour Congress, the largest labour federation in Canada. They represent 3.2 million working women and men who have pension plan investments estimated at over 300 billion dollars.
fh/cope225 ■ H:\Communications\OpEd\2008\04-08KVG-ABCPDebacleEng.wpd
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by admin » Mon Apr 14, 2008 5:53 pm
Lessons learned from the ABCP Fiasco April, 2008
The made-in-Canada Asset-Backed Commercial Paper (ABCP) fiasco has caused a lot of a pain. It has attracted massive media attention. In fact it’s just one more example of financial assault. We could add the Norshield fund fiasco, the mutual fund market timing scandal. the Portus hedge fund meltdown, Nortel , Bre-X, Income Trust failures and many more. ABCP however was a loud wake up call for the Government.
Where were the so-called provincial securities regulators and the IDA? How could the Office of the Superintendent of Financial Institutions have allowed a gaping loophole that allowed our banks to walk away from providing emergency funds? How could Canada's credit-rating agency, DBRS Ltd., have given a R1 rating to non-bank ABCP? Why were these Notes sold to people when it was clear there was a looming liquidity crisis? Why didn’t the Competition Bureau investigate alleged misrepresentations by the financial services industry? What happened to the complaint system? Why weren’t retail investors at the Crawford bargaining table? Why is Main Street being asked to vote on a proposal that destroys their lives and is fully immunized from legal action?
Much of the current crisis was born by dealers apparently not knowing or not disclosing what exactly was in the Notes but selling them anyways. The lack of transparency led to a refusal to rollover when questions arose regarding the impact of the U.S. sub prime market on Canadian ABCPs. Valuations could not be established and liquidity vanished . The website http://investorvoice.ca/ABCP/ABCP_index.htm provides a complete commentary on the crisis including the House of Commons Standing Committee on Finance Hearings. The impact on retail investors is enormous. Financial distress, emotional stress, marital discord, health problems and likely a lot more serious issues we’ll be hearing about.
Yet a number of misguided articles lay blame on the unsuspecting victims. Claims are made that they were greedy. They knew or should have known what they were being sold. They unquestioningly trusted their advisers.
The reality of the ABCP crisis
According to press reports, victims were not chasing returns. They wanted a safe haven to park short-term money. Most had no history of being even moderate risk takers. Many were seniors and retirees living on fixed income. Advisers told them the Notes were as safe as GIC’s, guaranteed and liquid – a savings product. Some reported unauthorized trading, totally surprised at what was in their account when they pored over their client statements. Others say that the statements continued to show face value even when this was obviously not the case. The toxic character of these ABCP Notes was never revealed to retail investors. A number found out about the crisis only when they needed access to the cash. Complaints were rebuffed or ignored by firms and regulators. In short, the entire investor protection system failed.
The impact
Some of the other ABCP stories are heart breaking. Seniors, pensioners and retirees do not have the luxury of time to rebuild their lost portfolio assets. Indeed, if some of the major banks had not voluntarily decided to bail out their money market mutual funds and retail owners of non-bank ABCP (National Bank capped its cash settlements at $2 billion) the situation would be far worse and would have affected tens of thousands of people. Retirees with RRIF’s face serious portfolio meltdown yet must according to law continue to make minimum annual withdrawals from a reduced asset base. Questions abound as to how sub-prime mortgages found their way into what is generally considered a safe, conservative savings product. Besides the obvious financial impact, there was a horrible human impact.
When a financial loss has occurred the stress is high. When attempts to resolve a complaint under the current dispute resolution system inevitably fail, the stress and frustration is multiplied. Canada’s dysfunctional complaint and dispute resolution system is a well recognized and documented issue. This made a very bad situation even worse.
So what did we learn ?
We learned that regulators like OSFI don’t examine risks closely enough. We learned that Dealers too readily accept Credit Ratings without adequate due diligence. We learned that financial advisers did not understand what they were selling but made unsubstantiated assertions regarding the safety and liquidity of the Notes. We learned that regulators failed to act decisively even in the face of growing , well-publicized complaints. We learned that when bad things happen, the retail investor is left to drown. We leaned that individual investors had to take matters into there own hands or suffer a nasty fate .Thankfully, they did.
The Bottom line
Small investors are increasingly exposed to financial assault with devastating effect to the social fabric of the country and the economy. ABCP is just the latest. A recent IMF report made it clear that Canada is hugely deficient in the white-collar crime enforcement arena. The Government and the Courts must, with uncharacteristic urgency, initiate major reforms. Billions of dollars are unduly lost each year and the trend is unfavourable. ABCP alone is a $350+ million problem (excluding lost interest on the Notes) for retail investors. In the end, the abused investors will be a drain on the social security system if they are not made whole.
We need a well-resourced industry-independent national investor protection Agency with teeth that would help prevent these issues and would actually enforce securities laws.
We also need a new securities crime complaints intake and assessment system to be jointly administered by the RCMP IMET and the regional and municipal police forces that have fraud squads. We need to re-assess the role of SRO’s and the certification and registration of advisers who sell financial products to retail clients. We need a judicial system that treats white collar crimes as serious crimes against citizens.
As to dealing with complaints, an Ombudsman created by Parliament as is the case in the UK, Australia and elsewhere is required to replace industry –funded OBSI and its restrictive rules of engagement. An International Standard such as ISO 10003 Quality Management - Customer satisfaction - Guidelines for dispute resolution external to organizations should be considered for this purpose.
Will the culprits behind this mess be made to account? Will any reforms take place? Who knows ? Perhaps this latest fiasco has enough momentum to get some traction for change. In the meantime, it’s CAVEAT EMPTOR.
Ken Kivenko P.Eng.
Kenmar Associates
kenkiv@sympatico.ca
The made-in-Canada Asset-Backed Commercial Paper (ABCP) fiasco has caused a lot of a pain. It has attracted massive media attention. In fact it’s just one more example of financial assault. We could add the Norshield fund fiasco, the mutual fund market timing scandal. the Portus hedge fund meltdown, Nortel , Bre-X, Income Trust failures and many more. ABCP however was a loud wake up call for the Government.
Where were the so-called provincial securities regulators and the IDA? How could the Office of the Superintendent of Financial Institutions have allowed a gaping loophole that allowed our banks to walk away from providing emergency funds? How could Canada's credit-rating agency, DBRS Ltd., have given a R1 rating to non-bank ABCP? Why were these Notes sold to people when it was clear there was a looming liquidity crisis? Why didn’t the Competition Bureau investigate alleged misrepresentations by the financial services industry? What happened to the complaint system? Why weren’t retail investors at the Crawford bargaining table? Why is Main Street being asked to vote on a proposal that destroys their lives and is fully immunized from legal action?
Much of the current crisis was born by dealers apparently not knowing or not disclosing what exactly was in the Notes but selling them anyways. The lack of transparency led to a refusal to rollover when questions arose regarding the impact of the U.S. sub prime market on Canadian ABCPs. Valuations could not be established and liquidity vanished . The website http://investorvoice.ca/ABCP/ABCP_index.htm provides a complete commentary on the crisis including the House of Commons Standing Committee on Finance Hearings. The impact on retail investors is enormous. Financial distress, emotional stress, marital discord, health problems and likely a lot more serious issues we’ll be hearing about.
Yet a number of misguided articles lay blame on the unsuspecting victims. Claims are made that they were greedy. They knew or should have known what they were being sold. They unquestioningly trusted their advisers.
The reality of the ABCP crisis
According to press reports, victims were not chasing returns. They wanted a safe haven to park short-term money. Most had no history of being even moderate risk takers. Many were seniors and retirees living on fixed income. Advisers told them the Notes were as safe as GIC’s, guaranteed and liquid – a savings product. Some reported unauthorized trading, totally surprised at what was in their account when they pored over their client statements. Others say that the statements continued to show face value even when this was obviously not the case. The toxic character of these ABCP Notes was never revealed to retail investors. A number found out about the crisis only when they needed access to the cash. Complaints were rebuffed or ignored by firms and regulators. In short, the entire investor protection system failed.
The impact
Some of the other ABCP stories are heart breaking. Seniors, pensioners and retirees do not have the luxury of time to rebuild their lost portfolio assets. Indeed, if some of the major banks had not voluntarily decided to bail out their money market mutual funds and retail owners of non-bank ABCP (National Bank capped its cash settlements at $2 billion) the situation would be far worse and would have affected tens of thousands of people. Retirees with RRIF’s face serious portfolio meltdown yet must according to law continue to make minimum annual withdrawals from a reduced asset base. Questions abound as to how sub-prime mortgages found their way into what is generally considered a safe, conservative savings product. Besides the obvious financial impact, there was a horrible human impact.
When a financial loss has occurred the stress is high. When attempts to resolve a complaint under the current dispute resolution system inevitably fail, the stress and frustration is multiplied. Canada’s dysfunctional complaint and dispute resolution system is a well recognized and documented issue. This made a very bad situation even worse.
So what did we learn ?
We learned that regulators like OSFI don’t examine risks closely enough. We learned that Dealers too readily accept Credit Ratings without adequate due diligence. We learned that financial advisers did not understand what they were selling but made unsubstantiated assertions regarding the safety and liquidity of the Notes. We learned that regulators failed to act decisively even in the face of growing , well-publicized complaints. We learned that when bad things happen, the retail investor is left to drown. We leaned that individual investors had to take matters into there own hands or suffer a nasty fate .Thankfully, they did.
The Bottom line
Small investors are increasingly exposed to financial assault with devastating effect to the social fabric of the country and the economy. ABCP is just the latest. A recent IMF report made it clear that Canada is hugely deficient in the white-collar crime enforcement arena. The Government and the Courts must, with uncharacteristic urgency, initiate major reforms. Billions of dollars are unduly lost each year and the trend is unfavourable. ABCP alone is a $350+ million problem (excluding lost interest on the Notes) for retail investors. In the end, the abused investors will be a drain on the social security system if they are not made whole.
We need a well-resourced industry-independent national investor protection Agency with teeth that would help prevent these issues and would actually enforce securities laws.
We also need a new securities crime complaints intake and assessment system to be jointly administered by the RCMP IMET and the regional and municipal police forces that have fraud squads. We need to re-assess the role of SRO’s and the certification and registration of advisers who sell financial products to retail clients. We need a judicial system that treats white collar crimes as serious crimes against citizens.
As to dealing with complaints, an Ombudsman created by Parliament as is the case in the UK, Australia and elsewhere is required to replace industry –funded OBSI and its restrictive rules of engagement. An International Standard such as ISO 10003 Quality Management - Customer satisfaction - Guidelines for dispute resolution external to organizations should be considered for this purpose.
Will the culprits behind this mess be made to account? Will any reforms take place? Who knows ? Perhaps this latest fiasco has enough momentum to get some traction for change. In the meantime, it’s CAVEAT EMPTOR.
Ken Kivenko P.Eng.
Kenmar Associates
kenkiv@sympatico.ca
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by admin » Fri Apr 18, 2008 7:08 pm
http://www.fundlibrary.com/features/col ... p?id=12326
Ken Kivenko’s column is all about investor protection. Ken fights for investors’ rights and exposes violations and malpractices. He also runs an advisory business, Portfolio Analytics, assisting investors obtain restitution due to sales or broker abuses.
Examine risks closely
By Ken Kivenko | Thursday, April 17, 2008
Lessons learned from the ABCP Fiasco.
The made-in-Canada Asset-Backed Commercial Paper (ABCP) fiasco has caused a lot of a pain. It has attracted massive media attention. In fact it’s just one more example of financial assault. We could add the Norshield fund fiasco, the mutual fund market timing scandal. the Portus hedge fund meltdown, Nortel , Bre-X, Income Trust failures and many more. ABCP however was a loud wake up call for the Government.
Where were the so-called provincial securities regulators and the IDA? How could the Office of the Superintendent of Financial Institutions have allowed a gaping loophole that allowed our banks to walk away from providing emergency funds? How could Canada’s credit-rating agency, DBRS Ltd., have given a R1 rating to non-bank ABCP? Why were these Notes sold to people when it was clear there was a looming liquidity crisis? Why didn’t the Competition Bureau investigate alleged misrepresentations by the financial services industry? What happened to the complaint system? Why weren’t retail investors at the Crawford bargaining table? Why is Main Street being asked to vote on a proposal that destroys their lives and is fully immunized from legal action?
Much of the current crisis was born by dealers apparently not knowing or not disclosing what exactly was in the Notes but selling them anyways. The lack of transparency led to a refusal to rollover when questions arose regarding the impact of the U.S. sub prime market on Canadian ABCPs. Valuations could not be established and liquidity vanished. The website http://investorvoice.ca/ABCP/ABCP_index.htm provides a complete commentary on the crisis including the House of Commons Standing Committee on Finance Hearings. The impact on retail investors is enormous. Financial distress, emotional stress, marital discord, health problems and likely a lot more serious issues we’ll be hearing about.
Yet a number of misguided articles lay blame on the unsuspecting victims. Claims are made that they were greedy. They knew or should have known what they were being sold. They unquestioningly trusted their advisers.
The reality of the ABCP crisis
According to press reports, victims were not chasing returns. They wanted a safe haven to park short-term money. Most had no history of being even moderate risk takers. Many were seniors and retirees living on fixed income. Advisers told them the Notes were as safe as GIC’s, guaranteed and liquid—a savings product. Some reported unauthorized trading, totally surprised at what was in their account when they pored over their client statements. Others say that the statements continued to show face value even when this was obviously not the case. The toxic character of these ABCP Notes was never revealed to retail investors. A number found out about the crisis only when they needed access to the cash. Complaints were rebuffed or ignored by firms and regulators. In short, the entire investor protection system failed.
The impact
Some of the other ABCP stories are heart breaking. Seniors, pensioners and retirees do not have the luxury of time to rebuild their lost portfolio assets. Indeed, if some of the major banks had not voluntarily decided to bail out their money market mutual funds and retail owners of non-bank ABCP (National Bank capped its cash settlements at $2 billion) the situation would be far worse and would have affected tens of thousands of people. Retirees with RRIF’s face serious portfolio meltdown yet must according to law continue to make minimum annual withdrawals from a reduced asset base. Questions abound as to how sub-prime mortgages found their way into what is generally considered a safe, conservative savings product. Besides the obvious financial impact, there was a horrible human impact.
When a financial loss has occurred the stress is high. When attempts to resolve a complaint under the current dispute resolution system inevitably fail, the stress and frustration is multiplied. Canada’s dysfunctional complaint and dispute resolution system is a well recognized and documented issue. This made a very bad situation even worse.
So what did we learn ?
We learned that regulators like OSFI don’t examine risks closely enough. We learned that Dealers too readily accept Credit Ratings without adequate due diligence. We learned that financial advisers did not understand what they were selling but made unsubstantiated assertions regarding the safety and liquidity of the Notes. We learned that regulators failed to act decisively even in the face of growing, well-publicized complaints. We learned that when bad things happen, the retail investor is left to drown. We leaned that individual investors had to take matters into there own hands or suffer a nasty fate .Thankfully, they did.
The Bottom line
Small investors are increasingly exposed to financial assault with devastating effect to the social fabric of the country and the economy. ABCP is just the latest. A recent IMF report made it clear that Canada is hugely deficient in the white-collar crime enforcement arena. The Government and the Courts must, with uncharacteristic urgency, initiate major reforms. Billions of dollars are unduly lost each year and the trend is unfavourable. ABCP alone is a $350+ million problem (excluding lost interest on the Notes) for retail investors. In the end, the abused investors will be a drain on the social security system if they are not made whole.
We need a well-resourced industry-independent national investor protection Agency with teeth that would help prevent these issues and would actually enforce securities laws.
We also need a new securities crime complaints intake and assessment system to be jointly administered by the RCMP IMET and the regional and municipal police forces that have fraud squads. We need to re-assess the role of SROs and the certification and registration of advisers who sell financial products to retail clients. We need a judicial system that treats white collar crimes as serious crimes against citizens.
As to dealing with complaints, an Ombudsman created by Parliament as is the case in the UK and elsewhere is required to replace industry—funded OBSI and its restrictive rules of engagement. An International Standard such as ISO 10003 Quality Management - Customer satisfaction—Guidelines for dispute resolution external to organizations should be considered for this purpose.
Will the culprits behind this mess be made to account? Will any reforms take place? Who knows? Perhaps this latest fiasco has enough momentum to get some traction for change. In the meantime, it’s CAVEAT EMPTOR.
Ken Kivenko P.Eng.
Kenmar Associates
kenkiv@sympatico.ca
Ken Kivenko’s column is all about investor protection. Ken fights for investors’ rights and exposes violations and malpractices. He also runs an advisory business, Portfolio Analytics, assisting investors obtain restitution due to sales or broker abuses.
Examine risks closely
By Ken Kivenko | Thursday, April 17, 2008
Lessons learned from the ABCP Fiasco.
The made-in-Canada Asset-Backed Commercial Paper (ABCP) fiasco has caused a lot of a pain. It has attracted massive media attention. In fact it’s just one more example of financial assault. We could add the Norshield fund fiasco, the mutual fund market timing scandal. the Portus hedge fund meltdown, Nortel , Bre-X, Income Trust failures and many more. ABCP however was a loud wake up call for the Government.
Where were the so-called provincial securities regulators and the IDA? How could the Office of the Superintendent of Financial Institutions have allowed a gaping loophole that allowed our banks to walk away from providing emergency funds? How could Canada’s credit-rating agency, DBRS Ltd., have given a R1 rating to non-bank ABCP? Why were these Notes sold to people when it was clear there was a looming liquidity crisis? Why didn’t the Competition Bureau investigate alleged misrepresentations by the financial services industry? What happened to the complaint system? Why weren’t retail investors at the Crawford bargaining table? Why is Main Street being asked to vote on a proposal that destroys their lives and is fully immunized from legal action?
Much of the current crisis was born by dealers apparently not knowing or not disclosing what exactly was in the Notes but selling them anyways. The lack of transparency led to a refusal to rollover when questions arose regarding the impact of the U.S. sub prime market on Canadian ABCPs. Valuations could not be established and liquidity vanished. The website http://investorvoice.ca/ABCP/ABCP_index.htm provides a complete commentary on the crisis including the House of Commons Standing Committee on Finance Hearings. The impact on retail investors is enormous. Financial distress, emotional stress, marital discord, health problems and likely a lot more serious issues we’ll be hearing about.
Yet a number of misguided articles lay blame on the unsuspecting victims. Claims are made that they were greedy. They knew or should have known what they were being sold. They unquestioningly trusted their advisers.
The reality of the ABCP crisis
According to press reports, victims were not chasing returns. They wanted a safe haven to park short-term money. Most had no history of being even moderate risk takers. Many were seniors and retirees living on fixed income. Advisers told them the Notes were as safe as GIC’s, guaranteed and liquid—a savings product. Some reported unauthorized trading, totally surprised at what was in their account when they pored over their client statements. Others say that the statements continued to show face value even when this was obviously not the case. The toxic character of these ABCP Notes was never revealed to retail investors. A number found out about the crisis only when they needed access to the cash. Complaints were rebuffed or ignored by firms and regulators. In short, the entire investor protection system failed.
The impact
Some of the other ABCP stories are heart breaking. Seniors, pensioners and retirees do not have the luxury of time to rebuild their lost portfolio assets. Indeed, if some of the major banks had not voluntarily decided to bail out their money market mutual funds and retail owners of non-bank ABCP (National Bank capped its cash settlements at $2 billion) the situation would be far worse and would have affected tens of thousands of people. Retirees with RRIF’s face serious portfolio meltdown yet must according to law continue to make minimum annual withdrawals from a reduced asset base. Questions abound as to how sub-prime mortgages found their way into what is generally considered a safe, conservative savings product. Besides the obvious financial impact, there was a horrible human impact.
When a financial loss has occurred the stress is high. When attempts to resolve a complaint under the current dispute resolution system inevitably fail, the stress and frustration is multiplied. Canada’s dysfunctional complaint and dispute resolution system is a well recognized and documented issue. This made a very bad situation even worse.
So what did we learn ?
We learned that regulators like OSFI don’t examine risks closely enough. We learned that Dealers too readily accept Credit Ratings without adequate due diligence. We learned that financial advisers did not understand what they were selling but made unsubstantiated assertions regarding the safety and liquidity of the Notes. We learned that regulators failed to act decisively even in the face of growing, well-publicized complaints. We learned that when bad things happen, the retail investor is left to drown. We leaned that individual investors had to take matters into there own hands or suffer a nasty fate .Thankfully, they did.
The Bottom line
Small investors are increasingly exposed to financial assault with devastating effect to the social fabric of the country and the economy. ABCP is just the latest. A recent IMF report made it clear that Canada is hugely deficient in the white-collar crime enforcement arena. The Government and the Courts must, with uncharacteristic urgency, initiate major reforms. Billions of dollars are unduly lost each year and the trend is unfavourable. ABCP alone is a $350+ million problem (excluding lost interest on the Notes) for retail investors. In the end, the abused investors will be a drain on the social security system if they are not made whole.
We need a well-resourced industry-independent national investor protection Agency with teeth that would help prevent these issues and would actually enforce securities laws.
We also need a new securities crime complaints intake and assessment system to be jointly administered by the RCMP IMET and the regional and municipal police forces that have fraud squads. We need to re-assess the role of SROs and the certification and registration of advisers who sell financial products to retail clients. We need a judicial system that treats white collar crimes as serious crimes against citizens.
As to dealing with complaints, an Ombudsman created by Parliament as is the case in the UK and elsewhere is required to replace industry—funded OBSI and its restrictive rules of engagement. An International Standard such as ISO 10003 Quality Management - Customer satisfaction—Guidelines for dispute resolution external to organizations should be considered for this purpose.
Will the culprits behind this mess be made to account? Will any reforms take place? Who knows? Perhaps this latest fiasco has enough momentum to get some traction for change. In the meantime, it’s CAVEAT EMPTOR.
Ken Kivenko P.Eng.
Kenmar Associates
kenkiv@sympatico.ca
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by admin » Thu Apr 24, 2008 12:43 pm
Believe I have located provincial role in ABCP Fiasco.
The ABCP notes were sold with a waiver from prospectus which kept people from understanding what it was they held, most thought it was a T-Bill type product guaranteed by banks. Turned out be be a derivative based product with flawed liquidity provisions, guaranteed by no one. ABCP was rated AAA R1 by the DBRS, an approved rating agency in Canada. No other rating agencies approved this paper as they believed liquidity provisions were flawed. This was seen to be factual at the end of the day.
The Canadian Securities Administrator CSA, in a national body whose members are the securities regulators from all the provinces and territories. They created a guideline called National Instrument 45-106 (see attached). The prospectus for ABCP was waived based on sections 2.35 and 1.4 of NI45-106 as the paper was
a)maturing in less than 1 year as per 2.35 (1)
b)had an 'approved credit rating from an approved credit rating agency as per 2.35 (1)(b)
Short-term debt
This provision will not be cited in any Appendix of NI 45-102 Resale of Securities.
These securities will be free trading.
2.35 (1) The dealer registration requirement does not apply in respect of a trade in a
negotiable promissory note or commercial paper maturing not more than one year from
the date of issue, if the note or commercial paper traded
(a) is not convertible or exchangeable into or accompanied by a right to
purchase another security other than a security described in this section,
and
(b) has an approved credit rating from an approved credit rating organization.
(2) The prospectus requirement does not apply to a distribution of a security in the
circumstances referred to in subsection (1).
Registration requirement
1.4 (1) An exemption from the dealer registration requirement or from the prospectus
requirement that refers to a registered dealer is only available for a trade in a security if
the dealer is registered in a category that permits the trade described in the exemption.
(2) An exemption from the dealer registration requirement is deemed to be an
exemption from the underwriter registration requirement.
For purposes of NI45-106 the following applies definitions apply re approved credit rating and approved credit rating agency:(extracted from NI45-106)
“approved credit rating” has the same meaning as in National Instrument 81-
102 Mutual Funds;
“approved credit rating organization” has the same meaning as in National
Instrument 81-102 Mutual Funds;
From NI 81-102 the following definitions are provided for approved credit rating and approved credit rating agency:(extracted from NI81-102)
"approved credit rating" means, for a security or instrument, a rating at or above one
of the following rating categories issued by an approved credit rating organization for
that security or instrument or a category that replaces one of the following rating
categories if
(a) there has been no announcement by the approved credit rating organization of
which the mutual fund or its manager is or ought to be aware that the rating of
the security or instrument to which the approved credit rating was given may be
down-graded to a rating category that would not be an approved credit rating,
and
(b) no approved credit rating organization has rated the security or instrument in a
rating category that is not an approved credit rating:
Approved Credit Rating Commercial Long Term
Organization Paper/ Debt
Short Term Debt
CBRS Inc. A-1 A
Dominion Bond Rating Service Limited R-1-L A
Duff & Phelps Credit Rating Co. D-1 A
Fitch IBCA, Inc. A-1 A
Moody's Investors Service, Inc. P-1 A2
Standard & Poor's Corporation A-1 A
Thomson BankWatch, Inc. TBW-2 A
"approved credit rating organization" means each of CBRS Inc., Dominion Bond
Rating Service Limited, Duff & Phelps Credit Rating Co., Fitch IBCA, Inc., Moody's
The flawed liquidity provision was based on the Federal Finance department section Office of Superintendent of Banking Institutions (OSFI) regulation B5 section 2.3 (see extract below) which vaguely suggests that a 'General Market Disruption" is required prior to liquidity funding. The liquidity provider banks used this clause to deny funding based on the assertion that some commercial paper that the banks sponsored was still rolling, this is somewhat questionable but regardless was the case. OSFI claims no responsibility as it was supposedly not the banks that set up the 'Non-Bank' paper market and was mostly foreign banks providing liquidity and assets (not all foreign I note). This argument is disengenious as the canadian Banks were very much involed as Trustees, asset providers and liquidity providers in 'Non-Bank' ABCP they just used middle men called conduits (Coventree etc) to provide apperance of distance from involvement. I like to note that the 2 oxymorons one can observe regarding 'Non-Bank' Asset Backed Commercial Paper (ABCP is
1) It was the Banks
2) there were few real assets, over 80% of 'assets' are synthetic derivative paper with NO real assets.
The paper should more appropriately been called BANK 'Non-Asset' Commercial Paper
2.3 Liquidity support
Liquidity support is a commitment to lend to, or purchase assets of, an SPE in order to provide investors with assurance of timely payment of principal and interest. Liquidity support may include a general market disruption clause. A general market disruption can be defined as a disruption in the Canadian commercial paper market resulting in the inability of Canadian commercial paper issuers, including the SPE, to issue any commercial paper, and where the inability does not result from a diminution in the creditworthiness of the SPE or any originator or from a deterioration in the performance of the assets of the SPE.
Anyway responsibility lies both provincially and federally in this mess. Provinces allowed, through week securities regulatio,n a flawed product to be sold without prospectus which kept unsuspecting buyers from understanding what they owned. Federally, OSFI regulations encouraged liquidity provisions that were useless when needed.
Hope this is of assistance in improving the system so it is more difficult to fool us next time.....
Brian Hunter
The ABCP notes were sold with a waiver from prospectus which kept people from understanding what it was they held, most thought it was a T-Bill type product guaranteed by banks. Turned out be be a derivative based product with flawed liquidity provisions, guaranteed by no one. ABCP was rated AAA R1 by the DBRS, an approved rating agency in Canada. No other rating agencies approved this paper as they believed liquidity provisions were flawed. This was seen to be factual at the end of the day.
The Canadian Securities Administrator CSA, in a national body whose members are the securities regulators from all the provinces and territories. They created a guideline called National Instrument 45-106 (see attached). The prospectus for ABCP was waived based on sections 2.35 and 1.4 of NI45-106 as the paper was
a)maturing in less than 1 year as per 2.35 (1)
b)had an 'approved credit rating from an approved credit rating agency as per 2.35 (1)(b)
Short-term debt
This provision will not be cited in any Appendix of NI 45-102 Resale of Securities.
These securities will be free trading.
2.35 (1) The dealer registration requirement does not apply in respect of a trade in a
negotiable promissory note or commercial paper maturing not more than one year from
the date of issue, if the note or commercial paper traded
(a) is not convertible or exchangeable into or accompanied by a right to
purchase another security other than a security described in this section,
and
(b) has an approved credit rating from an approved credit rating organization.
(2) The prospectus requirement does not apply to a distribution of a security in the
circumstances referred to in subsection (1).
Registration requirement
1.4 (1) An exemption from the dealer registration requirement or from the prospectus
requirement that refers to a registered dealer is only available for a trade in a security if
the dealer is registered in a category that permits the trade described in the exemption.
(2) An exemption from the dealer registration requirement is deemed to be an
exemption from the underwriter registration requirement.
For purposes of NI45-106 the following applies definitions apply re approved credit rating and approved credit rating agency:(extracted from NI45-106)
“approved credit rating” has the same meaning as in National Instrument 81-
102 Mutual Funds;
“approved credit rating organization” has the same meaning as in National
Instrument 81-102 Mutual Funds;
From NI 81-102 the following definitions are provided for approved credit rating and approved credit rating agency:(extracted from NI81-102)
"approved credit rating" means, for a security or instrument, a rating at or above one
of the following rating categories issued by an approved credit rating organization for
that security or instrument or a category that replaces one of the following rating
categories if
(a) there has been no announcement by the approved credit rating organization of
which the mutual fund or its manager is or ought to be aware that the rating of
the security or instrument to which the approved credit rating was given may be
down-graded to a rating category that would not be an approved credit rating,
and
(b) no approved credit rating organization has rated the security or instrument in a
rating category that is not an approved credit rating:
Approved Credit Rating Commercial Long Term
Organization Paper/ Debt
Short Term Debt
CBRS Inc. A-1 A
Dominion Bond Rating Service Limited R-1-L A
Duff & Phelps Credit Rating Co. D-1 A
Fitch IBCA, Inc. A-1 A
Moody's Investors Service, Inc. P-1 A2
Standard & Poor's Corporation A-1 A
Thomson BankWatch, Inc. TBW-2 A
"approved credit rating organization" means each of CBRS Inc., Dominion Bond
Rating Service Limited, Duff & Phelps Credit Rating Co., Fitch IBCA, Inc., Moody's
The flawed liquidity provision was based on the Federal Finance department section Office of Superintendent of Banking Institutions (OSFI) regulation B5 section 2.3 (see extract below) which vaguely suggests that a 'General Market Disruption" is required prior to liquidity funding. The liquidity provider banks used this clause to deny funding based on the assertion that some commercial paper that the banks sponsored was still rolling, this is somewhat questionable but regardless was the case. OSFI claims no responsibility as it was supposedly not the banks that set up the 'Non-Bank' paper market and was mostly foreign banks providing liquidity and assets (not all foreign I note). This argument is disengenious as the canadian Banks were very much involed as Trustees, asset providers and liquidity providers in 'Non-Bank' ABCP they just used middle men called conduits (Coventree etc) to provide apperance of distance from involvement. I like to note that the 2 oxymorons one can observe regarding 'Non-Bank' Asset Backed Commercial Paper (ABCP is
1) It was the Banks
2) there were few real assets, over 80% of 'assets' are synthetic derivative paper with NO real assets.
The paper should more appropriately been called BANK 'Non-Asset' Commercial Paper
2.3 Liquidity support
Liquidity support is a commitment to lend to, or purchase assets of, an SPE in order to provide investors with assurance of timely payment of principal and interest. Liquidity support may include a general market disruption clause. A general market disruption can be defined as a disruption in the Canadian commercial paper market resulting in the inability of Canadian commercial paper issuers, including the SPE, to issue any commercial paper, and where the inability does not result from a diminution in the creditworthiness of the SPE or any originator or from a deterioration in the performance of the assets of the SPE.
Anyway responsibility lies both provincially and federally in this mess. Provinces allowed, through week securities regulatio,n a flawed product to be sold without prospectus which kept unsuspecting buyers from understanding what they owned. Federally, OSFI regulations encouraged liquidity provisions that were useless when needed.
Hope this is of assistance in improving the system so it is more difficult to fool us next time.....
Brian Hunter
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by admin » Sat Apr 26, 2008 11:51 pm
for the short, sweet and humorous take on ABCP go to this site and learn 90% of everthing you need to know in about seven minutes. Funny and enjoyable.
http://www.youtube.com/watch?v=br8mOmH9frE
My thoughts that come to me this evening, after watching the CTV W5 episode on financial abuse of investors by professionals in the financial industry (predatory financial services)..........are this:
Now that Canada has started to look rather "hollowed out" corporately speaking...............the primary game left for those who seek to "gather investment fees" has become one of creating synthetic, and often imcomprehensible investments in much the same manner that synthetic drugs are cooked up in meth labs across the country..............and to misrepresent them as much as possible to get an ususpecting public to purchase them.
It is almost like watching the entire industry credibility drown while they desperately cling on to life by holding others under the water.
It hurt a great deal at the time, and it was not my choice, but I am today very grateful for my "opportuntiy" to walk away from this industry while I still had something left inside of myself.
http://www.youtube.com/watch?v=br8mOmH9frE
My thoughts that come to me this evening, after watching the CTV W5 episode on financial abuse of investors by professionals in the financial industry (predatory financial services)..........are this:
Now that Canada has started to look rather "hollowed out" corporately speaking...............the primary game left for those who seek to "gather investment fees" has become one of creating synthetic, and often imcomprehensible investments in much the same manner that synthetic drugs are cooked up in meth labs across the country..............and to misrepresent them as much as possible to get an ususpecting public to purchase them.
It is almost like watching the entire industry credibility drown while they desperately cling on to life by holding others under the water.
It hurt a great deal at the time, and it was not my choice, but I am today very grateful for my "opportuntiy" to walk away from this industry while I still had something left inside of myself.
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knowingly tainted Canadian made investments? Yes.
by admin » Fri May 16, 2008 7:32 pm
An ABCP legal conundrum
Jim Middlemiss, Financial Post Published: Friday, May 16, 2008
Adecision on Canada's biggest restructuring could come as early as today, and it could set a nasty precedent for the civil justice system.
Mr. Justice Colin Campbell faces an all-or-nothing proposition. If he rejects the plan in the $32-billion non-bank asset-backed commercial-paper restructuring, it puts investors' money at risk and could lead to financial anarchy as banks scramble to collect on their security.
Back the deal and he blesses broad legal releases that bar investors from suing for breach of fiduciary, breach of contract, negligence, bad faith and fraud.
Barring fraud claims would prevent civil lawsuits for injuries from a criminal act and that's bothersome -- as is barring lawsuits in general. It's a basic right of citizens in a democracy to sue. That's why we have courts.
Granted, there's no proven evidence of fraud. Yet, it's plausible that a police or regulatory investigation could unearth fraud. (Where the hell is the RCMP??? JFR)
So parties involved in the ABCP fiasco could face criminal penalties, but not civil, if the deal is passed and that's not justice.
It's no wonder, then, Judge Campbell was clearly pained during the fairness hearing into the plan. He is painted into a corner. Just like noteholders who held their nose and voted 96% in favour of the restructuring, he will probably do the same for the sake of the financial markets and the money at stake. But that doesn't make it good judicial policy or a good precedent.
Judge Campbell is sitting over a Companies' Creditors Arrangement Act hearing. It's flexible legislation that allows businesses to address insolvency issues short of bankruptcy. Call it a Court of Compromise.
That works in business failures, such as Stelco and Air Canada, where ailing businesses and jobs were saved. Releases are common in such workouts, but the encompassing nature of the ABCP releases -- which even required a clarification so they would not prevent regulators from doing their job--go too far.
Purdy Crawford, the lawyer tapped to oversee the committee of investors that negotiated this settlement, was adamant: "There can be no plan unless these releases are included."
The foreign banks and counter-parties, sponsors, asset providers, liquidity providers and bond rating agencies agree. They are worried about the cascading effect of lawsuits. The ABCP parties are so intricately woven together that a lawsuit against one leads to claims against all. Therefore, they argue, the releases are needed to quell the prospect of endless litigation.
Who wouldn't want a free pass from litigation? However, fraud is very difficult to prove, and claims for negligence and breach of fiduciary duty are no slam dunk either.
That raises the question: What are the financial institutions really worried about? If they've done nothing wrong in creating this market and selling billions of dollars in notes and earning millions of dollars in fees, they have nothing to fear. Lawsuits are the cost of business. There are ways to efficiently manage litigation involving multiple parties and multiple claims.
So are the releases simply a cover-up designed to protect the ABCP players from their own or ineptitude [OR WORSE] and liability in running this market? Are they necessary risk management to effect a hard-fought workout? Or is the demand for releases simply legal bluster and a bluff? If Judge Campbell calls them on it, will the parties walk away from this restructuring? That's for him to ponder.
There's an old judicial aphorism: "Justice must not only be done; it must also be seen to be done." Letting anyone off the hook for the sake of a settlement doesn't seem to pass that sight test, at least for the 4% of investors who voted against it. There were errors made in this market and someone other than investors who bought this paper should share the pain. For the good of the justice system, Judge Campbell should call their bluff.
Jim Middlemiss, Financial Post Published: Friday, May 16, 2008
Adecision on Canada's biggest restructuring could come as early as today, and it could set a nasty precedent for the civil justice system.
Mr. Justice Colin Campbell faces an all-or-nothing proposition. If he rejects the plan in the $32-billion non-bank asset-backed commercial-paper restructuring, it puts investors' money at risk and could lead to financial anarchy as banks scramble to collect on their security.
Back the deal and he blesses broad legal releases that bar investors from suing for breach of fiduciary, breach of contract, negligence, bad faith and fraud.
Barring fraud claims would prevent civil lawsuits for injuries from a criminal act and that's bothersome -- as is barring lawsuits in general. It's a basic right of citizens in a democracy to sue. That's why we have courts.
Granted, there's no proven evidence of fraud. Yet, it's plausible that a police or regulatory investigation could unearth fraud. (Where the hell is the RCMP??? JFR)
So parties involved in the ABCP fiasco could face criminal penalties, but not civil, if the deal is passed and that's not justice.
It's no wonder, then, Judge Campbell was clearly pained during the fairness hearing into the plan. He is painted into a corner. Just like noteholders who held their nose and voted 96% in favour of the restructuring, he will probably do the same for the sake of the financial markets and the money at stake. But that doesn't make it good judicial policy or a good precedent.
Judge Campbell is sitting over a Companies' Creditors Arrangement Act hearing. It's flexible legislation that allows businesses to address insolvency issues short of bankruptcy. Call it a Court of Compromise.
That works in business failures, such as Stelco and Air Canada, where ailing businesses and jobs were saved. Releases are common in such workouts, but the encompassing nature of the ABCP releases -- which even required a clarification so they would not prevent regulators from doing their job--go too far.
Purdy Crawford, the lawyer tapped to oversee the committee of investors that negotiated this settlement, was adamant: "There can be no plan unless these releases are included."
The foreign banks and counter-parties, sponsors, asset providers, liquidity providers and bond rating agencies agree. They are worried about the cascading effect of lawsuits. The ABCP parties are so intricately woven together that a lawsuit against one leads to claims against all. Therefore, they argue, the releases are needed to quell the prospect of endless litigation.
Who wouldn't want a free pass from litigation? However, fraud is very difficult to prove, and claims for negligence and breach of fiduciary duty are no slam dunk either.
That raises the question: What are the financial institutions really worried about? If they've done nothing wrong in creating this market and selling billions of dollars in notes and earning millions of dollars in fees, they have nothing to fear. Lawsuits are the cost of business. There are ways to efficiently manage litigation involving multiple parties and multiple claims.
So are the releases simply a cover-up designed to protect the ABCP players from their own or ineptitude [OR WORSE] and liability in running this market? Are they necessary risk management to effect a hard-fought workout? Or is the demand for releases simply legal bluster and a bluff? If Judge Campbell calls them on it, will the parties walk away from this restructuring? That's for him to ponder.
There's an old judicial aphorism: "Justice must not only be done; it must also be seen to be done." Letting anyone off the hook for the sake of a settlement doesn't seem to pass that sight test, at least for the 4% of investors who voted against it. There were errors made in this market and someone other than investors who bought this paper should share the pain. For the good of the justice system, Judge Campbell should call their bluff.
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by admin » Fri May 16, 2008 7:33 pm
ABCP: Hunter and the hunted
Thomas Watson
From the Summer 2008 issue of Canadian Business magazine
Canada’s business elite won’t soon forget Brian Hunter.... We’re talking about Cowtown’s notable Brian Hunter, the oil industry engineer who forced Bay Street to stop ignoring the average folks who collectively and unwittingly dumped hundreds of millions of dollars into the now frozen market for asset-backed commercial paper (ABCP).
These retail investors expected to make a decent rate of return on what were supposed to be safe, short-term investments. But after the market for non-bank ABCP turned to ice last August, they quickly learned to expect nothing, except perhaps to get royally screwed. Today, thanks to a revolt organized by Hunter, almost 100% of the little guys and gals — among them retirees, widows and orphans — exposed to this financial fiasco have a fairly decent shot at getting their money back, maybe even with interest. [At what cost to others? Not that I blame them - but the cynicism of buying their votes to try to push Purdy's deal through makes me ill!]
To Toronto lawyer Henry Juroviesky, who signed on to represent these rebel investors, Hunter is a “man of determination and vision.” To his faithful followers, the 53-year-old is nothing less than a main street hero. But Hunter doesn’t see it that way. He has the confidence of a born leader. He looks likes an officer with the right stuff to command respect from the Calgary Highlanders deployed in Kandahar. But the potty-mouthed engineer is more Rambo than Patton.
Hunter isn’t an activist or an organizer by nature, and he has little patience for folks with limited intellect. He’s a lone wolf more attracted to cross-country skiing and mountain climbing than social work or team building. “I’m not the kind of guy who ran for student council as a kid,” says the married father of three. “I am just a guy who saw people seriously fucking with his wallet. I’m more project manager than revolutionary.”
Hunter has a simple philosophy of life: have fun, make money — in that order. As a partner in Montane Resources, a five-man oil and gas engineering firm that does everything from land acquisition to drilling management, he works hard to play hard.
But that’s not the only reason he was mad as hell when more than half-a-million-dollars’ worth of his life savings became potentially worthless last August. Feeling misled by his investment advisers at Canaccord Capital, he requested a refund. But the Vancouver brokerage responded with a nice letter explaining that it had no legal obligation to reimburse Hunter or anyone else. Nobody, insisted executive vice-president Bruce Maranda, could have foreseen the unexpected and widespread liquidity crisis that threatened Hunter’s financial security.
“Canaccord relied upon the DBRS credit rating given to ABCP,” Maranda wrote. “At the time of purchase, there was no indication that the R-1 (high) rating was inaccurate or that the market might experience a disruption that could impact upon the repayment of such highly rated ABCP.”
A few months later, Canaccord — the largest pusher of ABCP to retail investors in 2007, a year in which its CEO Paul Reynolds was paid $11.2 million — changed its tune. Defending itself against two investor lawsuits, the securities dealer alleged Scotia Capital had aggressively pushed ABCP on Canaccord after a controversial market update — selectively distributed by a major non-bank issuer of ABCP — generated fears over the exposure to sub prime U.S. mortgages. Scotiabank denied any wrongdoing, insisting the information it got was “incomplete.”
That was last December. And by then Hunter no longer cared what Street people had to say. He had no desire to trust that something called the Pan Canadian Investors Committee of Third-Party Structured Asset-Backed Commercial Paper would serve his interests. After all, despite being led by respected corporate lawyer Purdy Crawford, the market restructuring committee in question was put together to find a solution acceptable to institutional investors and the financial community, including the power brokers who built the ABCP house of cards in the first place....
The retail investor’s initial attempts to organize a grassroots rebellion were relatively fruitless. “I was looking to make connections with other Canaccord clients stuck with ABCP for a number of months,” Hunter says. He even tried approaching the media with his tale of woe, but reporters just yawned. That attitude changed as soon as he started to use Facebook....
He created in mid-February an ABCP Facebook page, posting a couple of newspaper articles and starting a few discussions. When he mentioned the Internet campaign the next time he approached reporters, he had limited expectations. “I was still crying and whining, but I also noted I was starting this Facebook thing and suggested that could be worth a mention.” The novelty of using social networking to fight Bay Street generated more than just a mention. English-Canadian newspaper hits generated French-language coverage; television and radio reporters got in the game. Hunter’s army started raising itself. In a matter of weeks, it was more than 100 strong.
But this story isn’t about social networking. It’s a cautionary tale for investors, albeit one that might just have a happy ending because of Hunter. For perhaps the first time in the history of major corporate restructurings, retail investors haven’t been rendered expendable for the greater corporate good. This time, Joe and Jane Average were not thrown overboard — they took over the ship.
The pin-striped crowd shouldn’t have been taken off guard. After all, they put together a toxic product and sold it as a safe haven for short-term money. Canaccord and other dealers continued to compare ABCP to GICs even after the controversial July market update — the one that Scotiabank called inconclusive — led RBC Capital Markets to shun non-bank commercial paper. In some cases, ABCP was said to be even safer than GICs. For instance, on August 1 a Canaccord sales pitch described a block of AAA paper the firm had secured as a product offering better returns and better liquidity than GICs, which are “non-redeemable” and “only insured up to $100,000.” At least one commission-based Canaccord broker sold ABCP as a “no worries” product that was “fully secured.” And all of that cannot be blamed on credit ratings.
Dominion Bond Rating Service (DBRS), which Hunter thinks should go the way of Enron’s accounting firm,[so do I and again, where the hell is the RCMP???] (it) will probably always have a hard time justifying its rating of non-bank ABCP. But most of the underlying assets remain relatively solid and DBRS did outline the risks related to the product’s leveraged structure, which should have stopped any broker from comparing ABCP to GICs. [Then there ought to have been a different Rating - no?]
Retail investors were never told that the commercial paper market was a complex game of financial engineering. Income from a wide range of debt (car loans, credit cards, mortgages, etc.) was packaged together in a banker’s version of musical chairs. Whenever any ABCP matured, an equal amount had to be sold to pay back the last crop of investors. To keep the music playing, liquidity pacts with major banks were struck to keep the money rolling during market failures.
As DBRS pointed out, the liquidity agreements were not up to global standards. [but got top rating anyway???] According to other credit agencies, loose wording made them potentially worthless. This loose wording, of course, is what allowed some bank executives to claim with a straight face that a $32-billion crisis wasn’t big enough to force a bailout. And since a few financial institutions played multiple roles in the market, some of the banks that were paid to back ABCP now stand to actually make money from its failure.
As far as Hunter is concerned, insult after insult was added to his initial injury. The most vulnerable holders of frozen ABCP were not at the table when well-heeled institutional investors gathered behind closed doors to discuss ways of limiting the damage to their balance sheets. Nobody sought input from retail investors when the Crawford committee was set up. And nobody asked them what they thought in March when ABCP trusts were transformed into corporations in order to restructure the market under the Companies’ Creditors Arrangement Act (CCAA).
Simply put, retail investors were left out in the cold with their frozen assets, where they spent this past winter riding a financial and emotional roller coaster. Belts were tightened. Vacations cancelled. Planning for the future became impossible. Daily life became a living hell. The restructuring experts, meanwhile, started racking up what is expected to be a $100-million-plus legal tab for developing a solution.
In April, the Crawford committee released details of a plan to convert the frozen short-term notes into long-term bonds, some with maturity dates almost a decade away. The proposal required all concerned to sign away their rights to sue, protecting ABCP bankers and dealers from having to answer charges of ethical misconduct, not to mention criminal wrongdoing.
Retail investors were stunned. Unlike the Caisse de dépôt et placement du Québec, the largest holder of frozen ABCP, they didn’t help create the dysfunctional Canadian ABCP market. They saw no need to offer immunity to anyone. They also didn’t like the idea of being paid back with long-term bonds. Retirees, widows and orphans have short-term needs, and they believed that unloading restructured ABCP on the secondary market before maturity would be a sucker’s bet.
In stressed-out homes across the country, fear quickly turned to outrage.
Hunter’s mad-as-hell army grew stronger....their collective screaming eventually scared the daylights out of the Street, which suddenly realized that CCAA voting rules gave each and every one of the estimated 2,000 average Canadians caught up in this mess as much say in approving any restructuring as any institutional investor with billions of dollars at stake. Acting as one, the Facebook camp suddenly had the power to veto the immunity to lawsuits that Canada’s financial community so desperately wants.
....Critics insist anybody who invested in something as complex as ABCP, even if a professional broker said it was safe, got exactly what they deserved. According to National Post business editor Terence Corcoran, Hunter’s rebellion has made a mockery of restructuring laws, using the power of the Internet, combined with threats of class-action lawsuits, a little “steamy rhetoric” and the good ol’ “cat food claim” to turn CCAA into a “form of deposit insurance for investors.”
Hunter finds such haughty statements funny. “Maybe,” he says, “some people are upset that things are going our way because the small investor is supposed to get screwed all the time, especially in CCAA.” But he points out CCAA laws were not put in place to provide a blanket of immunity to professionals who cross the line. “We’re not greedy bastards,” he adds. “We are conservative investors who were sold a savings vehicle. Most of us have never bought anything but a GIC before in our lives.”
ABCP wasn’t paying an interest rate that raised any suspicion, says Hunter, and retail investors had to trust professional advice because the paper was allowed to be issued without a prospectus. “We didn’t miss the small print,” the engineer says. “It is not like buying Talisman instead of Imperial Oil because you can compare the assets. You could not know what this shit was.”
Still, Hunter admits he was keenly aware of the power at his disposal as soon as the ABCP trusts applied for court protection. “I’m no lawyer,” he says. “And I’ve never been involved in a CCAA as an investor or bondholder. But when they went that route, I immediately realized the power available to retail investors speaking as one camp.”
And by this time, he adds, “we had some strength in numbers; outspoken, intelligent and interesting characters from all walks of life.” The retail camp wanted nothing less than a full refund, so they threatened to veto the Crawford plan when it was put on an investor road show. They confronted ABCP dealers at their head offices and demanded answers from banking executives at annual meetings. And they bombarded politicians and market watchdogs with complaints.
To let Bay Street know it had a real fight on its hands, Hunter personally sent Scotiabank CEO Rick Waugh a YouTube clip. To increase pressure on institutional players, he started talking to hedge funds interested in buying the retail camp’s votes in order to hijack the CCAA process and shake a profitable deal out of large creditors. [And that is what made Purdy fold his cards - trust me!]
On April 9, the financial community blinked. With financial backing from secret sources — who are not interested in taking credit for bailing out retail investors — Canaccord decided to do what it previously claimed it wouldn’t, couldn’t and had no obligation to do. It announced a $138-million relief program to buy back ABCP at 100% on the dollar (plus interest) from clients who have $1 million or less invested in the toxic paper. The program has since been matched by Credential Securities Inc., the second-largest seller of ABCP to the general public.
....Crawford’s CCAA plan won support from a majority of affected creditors on April 25.
The sudden move to appease retail investors has angered corporate ABCP holders that still stand to take a significant loss if they try to unload any restructured ABCP in the short term. This group ranges from Transat A.T. Inc. and The Jean Coutu Group (PJC) Inc. to Peter Munk’s business empire (which apparently didn’t stop making doomed investments after the Clairtone stereo misadventure) [Munk now has a secret "one of" settlement with Purdy].
At press time, the corporate players were still fighting to have the courts declare them a separate class of investors, which would empower them to kill the CCAA proposal along with the retail investor relief program.
Hunter has sympathy for corporate investors who were also duped, but says he approached this camp and offered to sell them the retail camp’s votes. They declined the offer.
Ironically, Purdy Crawford — whose face greeted visitors to Hunter’s Facebook site — thinks the corporate investors were outplayed because they had sophisticated and expensive lawyers like himself. “They’re good,” he says, but slow moving and they don’t network over the Internet.
That said, Crawford insists he created the best workable solution he could get with the cards he had, which were dealt by other players at the table. What the Hunter campaign did, he adds, was make the game more fair. “I’ve come to know and trust Brian Hunter. He was helpful to the outcome. To what extent Canaccord might have acted without pressure from the Facebook group and my committee, I wouldn’t want to say.”
The Bay Street lawyer freely admits he left a big gun on the table for retail investors to pick up. “I was quite conscious that we were giving clout to retail investors by going into CCAA. I was not entirely conscious of the numbers.” Believe it or not, Crawford says he “had no idea until late in the game” that Canaccord and Credential had sold ABCP to so many average Canadians. After meeting the retail investors face to face, and hearing their stories during the CCAA road show, he concluded many of these people were clearly distraught. “Gosh, you’d have to be cruel not to want to help them.”
According to Crawford, running a CCAA restructuring is a lot like playing a game of chicken in a Mexican standoff. And, he says, Hunter and his army of retail investors did nothing that hasn’t been repeatedly done by investment bankers, bondholders and hedge funds during other CCAAs, such as the restructuring of Hamilton steelmaker Stelco, where self-serving parties threatened the future of thousands of workers in order to turn a profit after buying voting power from scared creditors.
The ABCP fiasco will not be over until the big-city fat cats sing. But Crawford thinks his CCAA plan, with most of its current warts and wrinkles, will eventually get court approval, paving the way for the Facebook gang to get their money back.
The Calgary engineer knows how to focus his troops until the job is done. “We are at or very near the summit of a climb,” he recently told his Facebook followers. “We have worked hard and are exhilarated by apparent success, yet we are tired from the effort.” Descents, he warned, are generally more difficult and sketchy. “There may be a rockfall and a rappel or two that lie between us and the cold beer and high fives in the tavern. Patience and steady hands are mandatory in this part of the journey.”
But whatever the future holds for Hunter, he has learned a lesson. “Don’t let anyone else perform your due diligence on any business transaction,” he says, and if you can’t properly perform it, then “run.” Even with a prospectus, however, you can bet Hunter won’t be holding any more ABCP, which he now unaffectionately calls “asshole-backed commercial paper.”
What about Crawford? Did he add any commercial paper to his portfolio this past RRSP season. “Oh God, no,” he says.
Thomas Watson
From the Summer 2008 issue of Canadian Business magazine
Canada’s business elite won’t soon forget Brian Hunter.... We’re talking about Cowtown’s notable Brian Hunter, the oil industry engineer who forced Bay Street to stop ignoring the average folks who collectively and unwittingly dumped hundreds of millions of dollars into the now frozen market for asset-backed commercial paper (ABCP).
These retail investors expected to make a decent rate of return on what were supposed to be safe, short-term investments. But after the market for non-bank ABCP turned to ice last August, they quickly learned to expect nothing, except perhaps to get royally screwed. Today, thanks to a revolt organized by Hunter, almost 100% of the little guys and gals — among them retirees, widows and orphans — exposed to this financial fiasco have a fairly decent shot at getting their money back, maybe even with interest. [At what cost to others? Not that I blame them - but the cynicism of buying their votes to try to push Purdy's deal through makes me ill!]
To Toronto lawyer Henry Juroviesky, who signed on to represent these rebel investors, Hunter is a “man of determination and vision.” To his faithful followers, the 53-year-old is nothing less than a main street hero. But Hunter doesn’t see it that way. He has the confidence of a born leader. He looks likes an officer with the right stuff to command respect from the Calgary Highlanders deployed in Kandahar. But the potty-mouthed engineer is more Rambo than Patton.
Hunter isn’t an activist or an organizer by nature, and he has little patience for folks with limited intellect. He’s a lone wolf more attracted to cross-country skiing and mountain climbing than social work or team building. “I’m not the kind of guy who ran for student council as a kid,” says the married father of three. “I am just a guy who saw people seriously fucking with his wallet. I’m more project manager than revolutionary.”
Hunter has a simple philosophy of life: have fun, make money — in that order. As a partner in Montane Resources, a five-man oil and gas engineering firm that does everything from land acquisition to drilling management, he works hard to play hard.
But that’s not the only reason he was mad as hell when more than half-a-million-dollars’ worth of his life savings became potentially worthless last August. Feeling misled by his investment advisers at Canaccord Capital, he requested a refund. But the Vancouver brokerage responded with a nice letter explaining that it had no legal obligation to reimburse Hunter or anyone else. Nobody, insisted executive vice-president Bruce Maranda, could have foreseen the unexpected and widespread liquidity crisis that threatened Hunter’s financial security.
“Canaccord relied upon the DBRS credit rating given to ABCP,” Maranda wrote. “At the time of purchase, there was no indication that the R-1 (high) rating was inaccurate or that the market might experience a disruption that could impact upon the repayment of such highly rated ABCP.”
A few months later, Canaccord — the largest pusher of ABCP to retail investors in 2007, a year in which its CEO Paul Reynolds was paid $11.2 million — changed its tune. Defending itself against two investor lawsuits, the securities dealer alleged Scotia Capital had aggressively pushed ABCP on Canaccord after a controversial market update — selectively distributed by a major non-bank issuer of ABCP — generated fears over the exposure to sub prime U.S. mortgages. Scotiabank denied any wrongdoing, insisting the information it got was “incomplete.”
That was last December. And by then Hunter no longer cared what Street people had to say. He had no desire to trust that something called the Pan Canadian Investors Committee of Third-Party Structured Asset-Backed Commercial Paper would serve his interests. After all, despite being led by respected corporate lawyer Purdy Crawford, the market restructuring committee in question was put together to find a solution acceptable to institutional investors and the financial community, including the power brokers who built the ABCP house of cards in the first place....
The retail investor’s initial attempts to organize a grassroots rebellion were relatively fruitless. “I was looking to make connections with other Canaccord clients stuck with ABCP for a number of months,” Hunter says. He even tried approaching the media with his tale of woe, but reporters just yawned. That attitude changed as soon as he started to use Facebook....
He created in mid-February an ABCP Facebook page, posting a couple of newspaper articles and starting a few discussions. When he mentioned the Internet campaign the next time he approached reporters, he had limited expectations. “I was still crying and whining, but I also noted I was starting this Facebook thing and suggested that could be worth a mention.” The novelty of using social networking to fight Bay Street generated more than just a mention. English-Canadian newspaper hits generated French-language coverage; television and radio reporters got in the game. Hunter’s army started raising itself. In a matter of weeks, it was more than 100 strong.
But this story isn’t about social networking. It’s a cautionary tale for investors, albeit one that might just have a happy ending because of Hunter. For perhaps the first time in the history of major corporate restructurings, retail investors haven’t been rendered expendable for the greater corporate good. This time, Joe and Jane Average were not thrown overboard — they took over the ship.
The pin-striped crowd shouldn’t have been taken off guard. After all, they put together a toxic product and sold it as a safe haven for short-term money. Canaccord and other dealers continued to compare ABCP to GICs even after the controversial July market update — the one that Scotiabank called inconclusive — led RBC Capital Markets to shun non-bank commercial paper. In some cases, ABCP was said to be even safer than GICs. For instance, on August 1 a Canaccord sales pitch described a block of AAA paper the firm had secured as a product offering better returns and better liquidity than GICs, which are “non-redeemable” and “only insured up to $100,000.” At least one commission-based Canaccord broker sold ABCP as a “no worries” product that was “fully secured.” And all of that cannot be blamed on credit ratings.
Dominion Bond Rating Service (DBRS), which Hunter thinks should go the way of Enron’s accounting firm,[so do I and again, where the hell is the RCMP???] (it) will probably always have a hard time justifying its rating of non-bank ABCP. But most of the underlying assets remain relatively solid and DBRS did outline the risks related to the product’s leveraged structure, which should have stopped any broker from comparing ABCP to GICs. [Then there ought to have been a different Rating - no?]
Retail investors were never told that the commercial paper market was a complex game of financial engineering. Income from a wide range of debt (car loans, credit cards, mortgages, etc.) was packaged together in a banker’s version of musical chairs. Whenever any ABCP matured, an equal amount had to be sold to pay back the last crop of investors. To keep the music playing, liquidity pacts with major banks were struck to keep the money rolling during market failures.
As DBRS pointed out, the liquidity agreements were not up to global standards. [but got top rating anyway???] According to other credit agencies, loose wording made them potentially worthless. This loose wording, of course, is what allowed some bank executives to claim with a straight face that a $32-billion crisis wasn’t big enough to force a bailout. And since a few financial institutions played multiple roles in the market, some of the banks that were paid to back ABCP now stand to actually make money from its failure.
As far as Hunter is concerned, insult after insult was added to his initial injury. The most vulnerable holders of frozen ABCP were not at the table when well-heeled institutional investors gathered behind closed doors to discuss ways of limiting the damage to their balance sheets. Nobody sought input from retail investors when the Crawford committee was set up. And nobody asked them what they thought in March when ABCP trusts were transformed into corporations in order to restructure the market under the Companies’ Creditors Arrangement Act (CCAA).
Simply put, retail investors were left out in the cold with their frozen assets, where they spent this past winter riding a financial and emotional roller coaster. Belts were tightened. Vacations cancelled. Planning for the future became impossible. Daily life became a living hell. The restructuring experts, meanwhile, started racking up what is expected to be a $100-million-plus legal tab for developing a solution.
In April, the Crawford committee released details of a plan to convert the frozen short-term notes into long-term bonds, some with maturity dates almost a decade away. The proposal required all concerned to sign away their rights to sue, protecting ABCP bankers and dealers from having to answer charges of ethical misconduct, not to mention criminal wrongdoing.
Retail investors were stunned. Unlike the Caisse de dépôt et placement du Québec, the largest holder of frozen ABCP, they didn’t help create the dysfunctional Canadian ABCP market. They saw no need to offer immunity to anyone. They also didn’t like the idea of being paid back with long-term bonds. Retirees, widows and orphans have short-term needs, and they believed that unloading restructured ABCP on the secondary market before maturity would be a sucker’s bet.
In stressed-out homes across the country, fear quickly turned to outrage.
Hunter’s mad-as-hell army grew stronger....their collective screaming eventually scared the daylights out of the Street, which suddenly realized that CCAA voting rules gave each and every one of the estimated 2,000 average Canadians caught up in this mess as much say in approving any restructuring as any institutional investor with billions of dollars at stake. Acting as one, the Facebook camp suddenly had the power to veto the immunity to lawsuits that Canada’s financial community so desperately wants.
....Critics insist anybody who invested in something as complex as ABCP, even if a professional broker said it was safe, got exactly what they deserved. According to National Post business editor Terence Corcoran, Hunter’s rebellion has made a mockery of restructuring laws, using the power of the Internet, combined with threats of class-action lawsuits, a little “steamy rhetoric” and the good ol’ “cat food claim” to turn CCAA into a “form of deposit insurance for investors.”
Hunter finds such haughty statements funny. “Maybe,” he says, “some people are upset that things are going our way because the small investor is supposed to get screwed all the time, especially in CCAA.” But he points out CCAA laws were not put in place to provide a blanket of immunity to professionals who cross the line. “We’re not greedy bastards,” he adds. “We are conservative investors who were sold a savings vehicle. Most of us have never bought anything but a GIC before in our lives.”
ABCP wasn’t paying an interest rate that raised any suspicion, says Hunter, and retail investors had to trust professional advice because the paper was allowed to be issued without a prospectus. “We didn’t miss the small print,” the engineer says. “It is not like buying Talisman instead of Imperial Oil because you can compare the assets. You could not know what this shit was.”
Still, Hunter admits he was keenly aware of the power at his disposal as soon as the ABCP trusts applied for court protection. “I’m no lawyer,” he says. “And I’ve never been involved in a CCAA as an investor or bondholder. But when they went that route, I immediately realized the power available to retail investors speaking as one camp.”
And by this time, he adds, “we had some strength in numbers; outspoken, intelligent and interesting characters from all walks of life.” The retail camp wanted nothing less than a full refund, so they threatened to veto the Crawford plan when it was put on an investor road show. They confronted ABCP dealers at their head offices and demanded answers from banking executives at annual meetings. And they bombarded politicians and market watchdogs with complaints.
To let Bay Street know it had a real fight on its hands, Hunter personally sent Scotiabank CEO Rick Waugh a YouTube clip. To increase pressure on institutional players, he started talking to hedge funds interested in buying the retail camp’s votes in order to hijack the CCAA process and shake a profitable deal out of large creditors. [And that is what made Purdy fold his cards - trust me!]
On April 9, the financial community blinked. With financial backing from secret sources — who are not interested in taking credit for bailing out retail investors — Canaccord decided to do what it previously claimed it wouldn’t, couldn’t and had no obligation to do. It announced a $138-million relief program to buy back ABCP at 100% on the dollar (plus interest) from clients who have $1 million or less invested in the toxic paper. The program has since been matched by Credential Securities Inc., the second-largest seller of ABCP to the general public.
....Crawford’s CCAA plan won support from a majority of affected creditors on April 25.
The sudden move to appease retail investors has angered corporate ABCP holders that still stand to take a significant loss if they try to unload any restructured ABCP in the short term. This group ranges from Transat A.T. Inc. and The Jean Coutu Group (PJC) Inc. to Peter Munk’s business empire (which apparently didn’t stop making doomed investments after the Clairtone stereo misadventure) [Munk now has a secret "one of" settlement with Purdy].
At press time, the corporate players were still fighting to have the courts declare them a separate class of investors, which would empower them to kill the CCAA proposal along with the retail investor relief program.
Hunter has sympathy for corporate investors who were also duped, but says he approached this camp and offered to sell them the retail camp’s votes. They declined the offer.
Ironically, Purdy Crawford — whose face greeted visitors to Hunter’s Facebook site — thinks the corporate investors were outplayed because they had sophisticated and expensive lawyers like himself. “They’re good,” he says, but slow moving and they don’t network over the Internet.
That said, Crawford insists he created the best workable solution he could get with the cards he had, which were dealt by other players at the table. What the Hunter campaign did, he adds, was make the game more fair. “I’ve come to know and trust Brian Hunter. He was helpful to the outcome. To what extent Canaccord might have acted without pressure from the Facebook group and my committee, I wouldn’t want to say.”
The Bay Street lawyer freely admits he left a big gun on the table for retail investors to pick up. “I was quite conscious that we were giving clout to retail investors by going into CCAA. I was not entirely conscious of the numbers.” Believe it or not, Crawford says he “had no idea until late in the game” that Canaccord and Credential had sold ABCP to so many average Canadians. After meeting the retail investors face to face, and hearing their stories during the CCAA road show, he concluded many of these people were clearly distraught. “Gosh, you’d have to be cruel not to want to help them.”
According to Crawford, running a CCAA restructuring is a lot like playing a game of chicken in a Mexican standoff. And, he says, Hunter and his army of retail investors did nothing that hasn’t been repeatedly done by investment bankers, bondholders and hedge funds during other CCAAs, such as the restructuring of Hamilton steelmaker Stelco, where self-serving parties threatened the future of thousands of workers in order to turn a profit after buying voting power from scared creditors.
The ABCP fiasco will not be over until the big-city fat cats sing. But Crawford thinks his CCAA plan, with most of its current warts and wrinkles, will eventually get court approval, paving the way for the Facebook gang to get their money back.
The Calgary engineer knows how to focus his troops until the job is done. “We are at or very near the summit of a climb,” he recently told his Facebook followers. “We have worked hard and are exhilarated by apparent success, yet we are tired from the effort.” Descents, he warned, are generally more difficult and sketchy. “There may be a rockfall and a rappel or two that lie between us and the cold beer and high fives in the tavern. Patience and steady hands are mandatory in this part of the journey.”
But whatever the future holds for Hunter, he has learned a lesson. “Don’t let anyone else perform your due diligence on any business transaction,” he says, and if you can’t properly perform it, then “run.” Even with a prospectus, however, you can bet Hunter won’t be holding any more ABCP, which he now unaffectionately calls “asshole-backed commercial paper.”
What about Crawford? Did he add any commercial paper to his portfolio this past RRSP season. “Oh God, no,” he says.
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by admin » Fri May 16, 2008 7:34 pm
Judge to rule soon on frozen ABCP
May 14, 2008 04:30 AM
REUTERS NEWS AGENCY
The judge overseeing a massive restructuring plan for Canada's nonbank asset-backed commercial paper says he will try to rule quickly on whether the plan should go ahead without changes.
"I will try to do my part in a relatively short period of time," Ontario Superior Court Judge Colin Campbell said yesterday at the end of two-day hearing on the fairness of the plan.
Campbell has to decide whether to approve the $32 billion plan as presented or whether he will make changes that would allow lawsuits.
Earlier, a lawyer told the judge that the court does not have the jurisdiction to give banks immunity from lawsuits.
A key sticking point in the restructuring plan is that it would prevent corporate noteholders from suing the banks and brokerages that sold the now-frozen asset-backed commercial paper.
Canadian banks have agreed to fund the restructuring plan as long as they are not sued.
Opponents, however, have said the legal releases in the plan are too broad and could rule out fraud claims.
May 14, 2008 04:30 AM
REUTERS NEWS AGENCY
The judge overseeing a massive restructuring plan for Canada's nonbank asset-backed commercial paper says he will try to rule quickly on whether the plan should go ahead without changes.
"I will try to do my part in a relatively short period of time," Ontario Superior Court Judge Colin Campbell said yesterday at the end of two-day hearing on the fairness of the plan.
Campbell has to decide whether to approve the $32 billion plan as presented or whether he will make changes that would allow lawsuits.
Earlier, a lawyer told the judge that the court does not have the jurisdiction to give banks immunity from lawsuits.
A key sticking point in the restructuring plan is that it would prevent corporate noteholders from suing the banks and brokerages that sold the now-frozen asset-backed commercial paper.
Canadian banks have agreed to fund the restructuring plan as long as they are not sued.
Opponents, however, have said the legal releases in the plan are too broad and could rule out fraud claims.
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- Site Admin
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by admin » Tue May 20, 2008 7:33 pm
Don raises some great questions.
Can a bankruptcy proceeding have a higher precedence than securities,civil or criminal law?
“… it is not merely of some importance but is of fundamental importance, that justice should not only be done, but should manifestly and undoubtedly be seen to be done.” ( R v Sussex Justices; Ex parte McCarthy [1924] 1 KB 256 at 259.)
Justice Colin Campbell is wrestling with the general legal release that the perpetrators of the ABCP crisis insist upon. A problem arises if the release is limited to fraud- what is fraud? Does it include a breach of fiduciary duty, gross negligence amounting to fraud, breaches of the advertising provisions of the Canada Competition Act, breach of contract or abusive , knowingly misleading disclosure , lying for financial gain? When is a crime not a crime? What message does this send to Board Directors of the institutions involved and what will be the impact on corporate governance? At least we are told the IDA is albeit belatedly , investigating but will they be able to impose fines and sanctions and will they publicly disclose their findings?
And why is the CSA/OSC not investigating how ABCP ended up in retail mutual funds, why no prospectus was required ,why the IDA didn't disclose the issue as soon as investor complaints came poring in last fall and taking a public position on its right to regulate in Canada's biggest financial debacle.They should also be investigating regulatory changes to clarify their role in cases like this.
Retail victim complaints include but are not limited to unauthorized trading, product misrepresentation , misleading /inaccurate client statements, false claims intended to induce sale, unsuitable investments , multiple breaches of IDA rules such as fair dealing with clients and deficient complaint handling procedures including not advising clients that complaints can be taken to OBSI. Are these separately or cumulatively evidence of fraud? And what about internal compliance oversight, internal controls, KYC compatibility, risk disclosure etc.? If all these issues are not worthy of transparent resolution, then Canada is in real trouble. $32 billion will seem like chump change when the long term impact is finally computed.
Depending on the final wording , if these complaints are unresolved/swept under the carpet and this horrific wrongdoing holds no one accountable , why did our parents and grandparents fight wars for a free and just society? Why are we in Afghanistan? Simply agreeing to give the retail investors their own money back after an emotional roller coaster ride is not justice .This would be a terrible precedent we will all live to regret and makes a mockery of investor protection in Canada. Maybe Regulators should close up shop .The silence , detachment and inaction of the CSA is astonishing given that this is Canada's biggest financial debacle and the horrific pain and suffering of 1800 retail investors is fully documented. White collar crime is just as devastating as street crime as is well known from an analysis of victim impact statements. It can lead to emotional distress , deterioration of physical health and even death. In the case of seniors, financial ruin and a nervous breakdown. This has been a truly life altering event for Canadian citizens and their families .
Justice is the basic requirement for any human being and his/her society. It provides the required motivation to work, to succeed, to prosper, to develop, and to excel. Whenever the right and honor of man is encroached upon, there exists some unrest in the society. No matter how small the affected segment is, the consequences can have a major impact on the entire society. If unheeded, it may lead to a rebellion; and should rightly do so. A society that becomes prone to injustice and corruption simply cannot advance or excel, as backwardness and failure becomes its fate. To quote Benjamin Franklin:
“In some countries, the course of the courts is so tedious, and the expenses so high, that the remedy, justice, is worse than the disease, injustice.”
If the judges' suggested compromise is accepted we could see the CSA and IDA neutered even if there was misrepresentation, defective client statements, unsuitable investments and abusive complaint procedures. If so, Main Street is not protected at all. A very dangerous precedent for the short and long-term.
Ken Kivenko
Kenmar Associates
416 244 5803
The OSC in inaction –investor protection in the real world
"From our point of view, we are going to wait and see how it [ the ABCP crisis] unfolds. The OSC is also wary of disrupting the much larger commercial-paper market by any hasty moves. We have to be very careful as regulators." - Jim Turner, vice-chairman of the OSC . Source: John Greenwood, OSC takes tentative steps into probe of frozen investments ,Canwest News Service , Friday, May 16, 2008 http://www.canada.com/vancouversun/news ... 23&k=48928 [ reminds one of how FEMA handled the Katrina crisis, no?]
http://www.canada.com/montrealgazette/n ... 31ecdf25a9
Why were investors left holding bag?
DON MACDONALD, The Gazette
Published: Monday, May 19
In the first confusing days after the asset-back commercial paper market seized up last summer, the easy explanation was that the worldwide credit crisis had suddenly come to Canada.
The statement was true as far as it went. But as the months passed, questions began to surface about how the non-bank ABCP market had failed so spectacularly. Why had the crisis unfolded in the way it did, leaving investors holding $32 billion in illiquid securities?
Were investors properly informed about the risks of these short-term investments and were they warned about storm clouds gathering over the market? Did banks and investment dealers save their own skins by selling paper to clients when it was clear the market was melting down?
The ABCP debacle is the worst market failure in Canadian history and there is a vital public interest in finding out all that went on leading up to it.
An Ontario judge has been considering a plan to restructure the market. He has had to referee a debate over whether market participants, including banks, brokerage firms and the rating agency DBRS Inc., should receive sweeping immunity from lawsuits as part of the plan.
On one side of the debate is the committee of investors that negotiated the restructuring plan. It insists the deal will fall apart if immunity is stripped out, exposing investors to massive losses. On the other side is a group of companies that wants to preserve their right to sue the financial institutions that sold them ABCP.
On Friday, the judge said he's not yet ready to rule on the issue. He did indicate he was willing to allow immunity to claims of negligence, but is looking for a negotiated deal that will allow investors to make claims for serious fraud.
For the public, there is a more important issue before the judge. That's the right of the country's financial regulators to investigate the ABCP crisis and penalize firms and individuals for misconduct.
Incredibly, it appears participants in the restructuring committee, including large ABCP vendors such as the National Bank of Canada and Canaccord Capital, had wanted to grant themselves immunity from regulatory investigation in the restructuring plan. Whether or not that is even possible is a complex legal question, according to lawyers I spoke to on Friday.
It's an issue that hopefully won't have to be tested in court.
Last week, the parties to the restructuring plan agreed to an amendment that would allow for regulatory investigation and sanctions, although regulators would not be allowed to order the payment of compensation or damages to aggrieved parties. In his statement on Friday, the judge made no mention of that proposed amendment, but presumably he will accept it.
The Financial Post reported last week the Investment Dealers Association has opened an investigation into the ABCP crisis in response to complaints from retail investors. The Ontario Securities Commission also is "focused" on ABCP, but is allowing the IDA to do the investigative work.
A spokesperson for the Autorité des marchés financiers declined to comment on whether the AMF is investigating the market failure.
I've argued companies should be allowed to sue vendors of ABCP for its losses; let the courts decide if their claims have merit.
But it doesn't seem like that's going to happen.
And that makes it even more important that regulators conduct a thorough investigation into what happened in this fiasco and impose penalties if wrongdoing is uncovered.
dmacdonald@thegazette.canwest.com
© The Gazette (Montreal) 2008
Can a bankruptcy proceeding have a higher precedence than securities,civil or criminal law?
“… it is not merely of some importance but is of fundamental importance, that justice should not only be done, but should manifestly and undoubtedly be seen to be done.” ( R v Sussex Justices; Ex parte McCarthy [1924] 1 KB 256 at 259.)
Justice Colin Campbell is wrestling with the general legal release that the perpetrators of the ABCP crisis insist upon. A problem arises if the release is limited to fraud- what is fraud? Does it include a breach of fiduciary duty, gross negligence amounting to fraud, breaches of the advertising provisions of the Canada Competition Act, breach of contract or abusive , knowingly misleading disclosure , lying for financial gain? When is a crime not a crime? What message does this send to Board Directors of the institutions involved and what will be the impact on corporate governance? At least we are told the IDA is albeit belatedly , investigating but will they be able to impose fines and sanctions and will they publicly disclose their findings?
And why is the CSA/OSC not investigating how ABCP ended up in retail mutual funds, why no prospectus was required ,why the IDA didn't disclose the issue as soon as investor complaints came poring in last fall and taking a public position on its right to regulate in Canada's biggest financial debacle.They should also be investigating regulatory changes to clarify their role in cases like this.
Retail victim complaints include but are not limited to unauthorized trading, product misrepresentation , misleading /inaccurate client statements, false claims intended to induce sale, unsuitable investments , multiple breaches of IDA rules such as fair dealing with clients and deficient complaint handling procedures including not advising clients that complaints can be taken to OBSI. Are these separately or cumulatively evidence of fraud? And what about internal compliance oversight, internal controls, KYC compatibility, risk disclosure etc.? If all these issues are not worthy of transparent resolution, then Canada is in real trouble. $32 billion will seem like chump change when the long term impact is finally computed.
Depending on the final wording , if these complaints are unresolved/swept under the carpet and this horrific wrongdoing holds no one accountable , why did our parents and grandparents fight wars for a free and just society? Why are we in Afghanistan? Simply agreeing to give the retail investors their own money back after an emotional roller coaster ride is not justice .This would be a terrible precedent we will all live to regret and makes a mockery of investor protection in Canada. Maybe Regulators should close up shop .The silence , detachment and inaction of the CSA is astonishing given that this is Canada's biggest financial debacle and the horrific pain and suffering of 1800 retail investors is fully documented. White collar crime is just as devastating as street crime as is well known from an analysis of victim impact statements. It can lead to emotional distress , deterioration of physical health and even death. In the case of seniors, financial ruin and a nervous breakdown. This has been a truly life altering event for Canadian citizens and their families .
Justice is the basic requirement for any human being and his/her society. It provides the required motivation to work, to succeed, to prosper, to develop, and to excel. Whenever the right and honor of man is encroached upon, there exists some unrest in the society. No matter how small the affected segment is, the consequences can have a major impact on the entire society. If unheeded, it may lead to a rebellion; and should rightly do so. A society that becomes prone to injustice and corruption simply cannot advance or excel, as backwardness and failure becomes its fate. To quote Benjamin Franklin:
“In some countries, the course of the courts is so tedious, and the expenses so high, that the remedy, justice, is worse than the disease, injustice.”
If the judges' suggested compromise is accepted we could see the CSA and IDA neutered even if there was misrepresentation, defective client statements, unsuitable investments and abusive complaint procedures. If so, Main Street is not protected at all. A very dangerous precedent for the short and long-term.
Ken Kivenko
Kenmar Associates
416 244 5803
The OSC in inaction –investor protection in the real world
"From our point of view, we are going to wait and see how it [ the ABCP crisis] unfolds. The OSC is also wary of disrupting the much larger commercial-paper market by any hasty moves. We have to be very careful as regulators." - Jim Turner, vice-chairman of the OSC . Source: John Greenwood, OSC takes tentative steps into probe of frozen investments ,Canwest News Service , Friday, May 16, 2008 http://www.canada.com/vancouversun/news ... 23&k=48928 [ reminds one of how FEMA handled the Katrina crisis, no?]
http://www.canada.com/montrealgazette/n ... 31ecdf25a9
Why were investors left holding bag?
DON MACDONALD, The Gazette
Published: Monday, May 19
In the first confusing days after the asset-back commercial paper market seized up last summer, the easy explanation was that the worldwide credit crisis had suddenly come to Canada.
The statement was true as far as it went. But as the months passed, questions began to surface about how the non-bank ABCP market had failed so spectacularly. Why had the crisis unfolded in the way it did, leaving investors holding $32 billion in illiquid securities?
Were investors properly informed about the risks of these short-term investments and were they warned about storm clouds gathering over the market? Did banks and investment dealers save their own skins by selling paper to clients when it was clear the market was melting down?
The ABCP debacle is the worst market failure in Canadian history and there is a vital public interest in finding out all that went on leading up to it.
An Ontario judge has been considering a plan to restructure the market. He has had to referee a debate over whether market participants, including banks, brokerage firms and the rating agency DBRS Inc., should receive sweeping immunity from lawsuits as part of the plan.
On one side of the debate is the committee of investors that negotiated the restructuring plan. It insists the deal will fall apart if immunity is stripped out, exposing investors to massive losses. On the other side is a group of companies that wants to preserve their right to sue the financial institutions that sold them ABCP.
On Friday, the judge said he's not yet ready to rule on the issue. He did indicate he was willing to allow immunity to claims of negligence, but is looking for a negotiated deal that will allow investors to make claims for serious fraud.
For the public, there is a more important issue before the judge. That's the right of the country's financial regulators to investigate the ABCP crisis and penalize firms and individuals for misconduct.
Incredibly, it appears participants in the restructuring committee, including large ABCP vendors such as the National Bank of Canada and Canaccord Capital, had wanted to grant themselves immunity from regulatory investigation in the restructuring plan. Whether or not that is even possible is a complex legal question, according to lawyers I spoke to on Friday.
It's an issue that hopefully won't have to be tested in court.
Last week, the parties to the restructuring plan agreed to an amendment that would allow for regulatory investigation and sanctions, although regulators would not be allowed to order the payment of compensation or damages to aggrieved parties. In his statement on Friday, the judge made no mention of that proposed amendment, but presumably he will accept it.
The Financial Post reported last week the Investment Dealers Association has opened an investigation into the ABCP crisis in response to complaints from retail investors. The Ontario Securities Commission also is "focused" on ABCP, but is allowing the IDA to do the investigative work.
A spokesperson for the Autorité des marchés financiers declined to comment on whether the AMF is investigating the market failure.
I've argued companies should be allowed to sue vendors of ABCP for its losses; let the courts decide if their claims have merit.
But it doesn't seem like that's going to happen.
And that makes it even more important that regulators conduct a thorough investigation into what happened in this fiasco and impose penalties if wrongdoing is uncovered.
dmacdonald@thegazette.canwest.com
© The Gazette (Montreal) 2008
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