The Manitoba Securities Commission has come to a settlement agreement with eight former directors of the defunct Crocus Investment Fund, a move that many industry-watchers hope will lead to unitholders finally getting their final distributions.
In the agreement, eight of the 10 former directors admit to a series of allegations from the MSC, including failing to determine the labour-sponsored venture-capital fund’s fair market value on specified valuation dates and allowing sales and redemptions to continue even after those directors became aware that a significant devaluation of the fund was imminent.
No fines have been issued as a result of the settlement, but the directors are banned from serving as officers or directors of public or private companies that issue shares for one year. (This is on top of a similar ban to which they’ve been subject since 2005.)
According to the latest quarterly report on Crocus from Deloitte & Touche LLP, the fund’s court-appointed receiver, the remaining assets of the fund have been valued at $30 million. At Crocus’s apex more than a decade ago, the fund was valued at about $200 million. Deloitte had distributed $54.7 million to unitholders two years ago and has proposed making a further distribution of $7.9 million — slightly more than 50¢ per unit.
That proposed distribution — on hold until a settlement between the MSC and the eight directors was reached — can probably now go ahead.
Ken Filkow, the lawyer who represents the eight directors, says his clients are content with the agreement because it allows them to make sure the proper emphasis was placed on the events of the case.
“We were prepared to admit that there was a process contravention, that trading [of shares] continued when [it shouldn’t have],” Filkow says. “But there certainly was no evidence of wrongful intent or dishonesty.”
Doug Brown, director, enforcement, and senior counsel for the MSC, says he and his staff believe the settlement agreement was in the public interest and strikes the right balance with the facts of the case: “It was the proper resolution, based on the facts that were uncovered in the investigation.”
Crocus, once the darling of the LSVC sector in Manitoba, once raised more than $50 million in a single fundraising year. Its shares were pulled from the market in December 2004 amid serious concerns about valuations of a number of companies in its portfolio. A cease-trade order was imposed in the same month, and Crocus was subsequently subjected to a scathing report from the provincial auditor general and a class-action lawsuit from disgruntled unitholders. Crocus was placed into receivership in June 2005.
Brown says it’s possible that the MSC will settle with the remaining two directors but didn’t want to speculate on the details.
“The agreement [with the eight directors] is a framework,” he says.
Tom Kormylo, a lawyer in Winnipeg representing Ron Waugh, one of two former directors in question, says his client’s situation is significantly different from that of the rest of the group: “He was only on the board for a very limited period of time, just 74 days. He was parachuted in there and then issues began to surface. That’s a significant part of why he’s approaching this differently than the other guys who were around for a number of years.”
Even though the case is approaching its seventh anniversary, Kormylo says, it could still have some legs yet.
“There are some legal issues that have to be addressed on a preliminary basis that are important and fundamental and may take some time to iron out before the substantive issues are addressed,” he says. “If this can’t be settled, it will likely [be] a long process. I can’t see it being resolved in less than a year.”
Brown admits that many people involved with the Crocus case are experiencing a “fatigue” factor: “You always want to see things move faster than they did in this matter.” IE