Independent prosecutor to review Crocus

By Doug Watt | May 31, 2005 | Last updated on May 31, 2005
3 min read

(May 31, 2005) The Manitoba government has appointed an independent prosecutor to review the Crocus Investment Fund in the wake of a scathing report from the province’s auditor general.

The report, released late Monday, confirms that there were “serious weaknesses” in the Winnipeg-based labour-sponsored fund’s operations, according to auditor general Jon Singleton.

Between September 2004 and April 2005, the fund’s value dropped nearly 50%, Singleton says, outlining a number of factors that contributed to the sharp decline.

The board of directors lacked appropriate oversight and governance, he says, and investment procedures and processes were “significantly flawed.” Crocus also misled investors, Singleton says, and likely overstated the value of the fund’s portfolio.

In addition, the fund abused its own travel and expense policy, approving trips to Berlin, Las Vegas, Cancun and other questionable destinations, for the firm’s former chief investment officer.

“We are disappointed and angered by indications that misleading statements were made to regulators. Trust has been violated,” said Manitoba Finance Minister Greg Selinger. “We agree with the auditor general that it is important to move forward and act immediately on his recommendations.”

The 250-page report recommends that the province investigate Crocus for “possible contravention of the Criminal Code” and other violations. Manitoba has appointed lawyer Graeme Cameron to lead the review.

The report also recommends referring tax concerns about Crocus to the Canada Revenue Agency and introducing new legislation to protect shareholders and address governance issues.

“We are moving to better protect shareholders and investors by ensuring that compensation and expenses such as travel are properly disclosed,” Selinger added, noting that any new legislation would also be accompanied by a legislative review to determine whether further changes are needed.

The province will also ask the Manitoba Securities Commission (MSC) to broaden its review of past filings by the fund to determine whether there were any “material false or misleading statements in the prospectuses, financial statements and other public communications.” The MSC has delayed its Crocus hearing, originally set for this week, to October.

Crocus halted trading in December and announced a portfolio review. The MSC alleges that the Crocus board “routinely and consistently” failed to determine the fair value of the common shares of the fund.

Crocus board members were supposed to meet once a week to value the shares, but no meetings took place between April and September of last year, according to the regulator.

In addition, Crocus board members were advised of “significant risks” managing the portfolio last September, but took no specific steps to deal with those issues until a special meeting was called in November, the MSC alleges.

Despite the problems with Crocus, Singleton stressed in his report that this should not be viewed as an indictment of the entire labour-sponsored investment funds industry. “The Crocus Investment Fund reported creating, saving and maintaining more than 14,000 jobs since its inception,” said Selinger. “And the private sector agrees we need to expand capital funds for the future benefit of our economy. We can play a positive role by improving the framework for these funds.”

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Doug Watt