March 31, 2008 at 3:03 PM EDT
MONTREAL — Liberal Finance critic John McCallum has decided to hold off asking the House of Commons finance committee to conduct hearings into the sale of third-party asset-backed commercial paper.
Mr. McCallum is expected to tell the finance committee Monday afternoon that, like the Minister of Finance and Governor of the Bank of Canada, he wants to encourage the possibility of achieving a private sector solution to this complex problem.
While he also wants to see that the unique position of small retail investors is recognized and appropriately dealt with, Mr. McCallum believes the meetings that Toronto lawyer Purdy Crawford is holding across the country this week for investors give cause for hope and he does not wish to interfere in that process.
Mr. McCallum still believes the finance committee should hear from Mr. Crawford and various regulators to learn how a similar situation can be prevented in the future.
Mr. Crawford has indicated that he is willing to appear before the committee after a vote on April 25 on the ABCP restructuring plan.
Mr. McCallum, who had planned on asking the finance committee Monday to vote on holding the hearings, now plans to save his request until a later date.
Earlier Monday in Toronto, investors asked tough questions of the committee that has been working to fix Canada's frozen $32-billion commercial paper market.
“The process was not fair,” one man told Mr. Crawford and his associates, who are holding the cross-country investor meetings as they attempt to explain their plan to fix the market.
The man said he did not understand 80 per cent of the presentation that was given on the complicated restructuring plan.
“People like me are completely confused,” he said.
“I need my money. The money needs to be liquid for me because it's pension money.”
Mr. Crawford told the meeting that his committee is very focused on what can be done for individual investors. There are believed to be roughly 1,800 individuals who have been stuck holding the frozen paper since August. The April 25 vote on the committee's restructuring plan requires approval from a majority of those who vote.
Some investors railed against the legal releases that will be given to all of the major players in the third-party ABCP market if the plan passes. Investors are effectively being asked to give up their right to sue by voting for the plan.
“You can't have your cake and eat it, too,” Mr. Crawford said.
“I think this is a typical Canadian process that I'm happy to stand up and defend,” he said, noting that Canada is a country of compromise.
Sandy Currie, an investor who said he holds about $250,000 of third-party ABCP, told Mr. Crawford and his fellow presenters from Goodmans LLP and JPMorgan Securities, a financial adviser to the committee, that the presentation was “interesting but totally incomprehensible.”
“Take it home, show it to your wives, see if they understand it,” he said.
Mr. Currie demanded more information about the interest that the paper has been accruing.
“In my opinion the banks and financial institutions are covering their asses in this whole situation,” he said.
“If they wish to make a deal with me, they have until the day of the vote because if they don't I will vote no,” he said of Canaccord, the brokerage through which he bought the paper.
Another investor, who declined to give his name, told Mr. Crawford that much of the audience, “as lay people,” could not understand many of the concepts being presented.
“A hundred cents on the dollar will certainly buy my support,” he said.
Hy Bloom, whose two holding companies have investments in ABCP, said after the meeting he intends to vote against the plan.
He noted that the committee is unable to say what the paper is worth.
“It would be foolish, in my mind, to accept this proposal in its present state,” said the Montreal resident, who arranged his schedule so that he could attend both investor meetings in Toronto and Montreal on Monday.
Mr. Crawford told investors that it has been a “very tough negotiation process,” involving many groups that have to be brought onside through persuasion or negotiation, including investors and banks.
He called for compromise.
“All of these groups can get concerned about holding their position and as a result we could have a terrible accident when we couldn't, or they couldn't, reach a compromise,” he said. “And I'm not threatening anybody, I'm just saying that that's a matter that makes me a little nervous from time to time. But, having said that, I'm pretty confident we will get there.”
“The restructuring reduces the risk of large losses,” Mr. Crawford told investors at the Toronto meeting, which was heated at times.
“It is in the opinion of many that, absent the restructuring, there would be very little recovery by investors,” Mr. Crawford said, at one point asking a questioner to sit down, saying “you've cross-examined me long enough sir.”
A handful of people were handing out flyers at the door, asking investors to join a group that is being represented by Toronto lawyer Henry Juroveisky.
“The 1,800 innocent victims that purchased these flawed savings products demand receiving 100 per cent of their money back if the committee wants to be assured of their support,” the flyers read. “Retail customers are not multi-million dollar institutions or corporations. They are a cross section of society comprised of everyday Canadians such as teachers, real estate agents, engineers, retirees, pastors and others, many of whom have fallen on hard times as a result of the freeze. The common thread that ties them together is they were all told by their respective investment advisers that their money was safe.”
Another flyer reads: “The Crawford Committee wants us to accept a highly uncertain solution, with no assurance that we will ever see any of our money. And it wants us to release everyone who might possibly have any liability to us for any losses. We have been sold a product that was represented to us as safe and secure. We are entitled to be made whole by those who created and sold this product without disclosure of any of the material risks.”
Goodmans LLP partner Stephen Halperin said, “We didn't set out to limit anybody's right to sue.”
“The reality is we're very focused on what we can do for you people,” Mr. Crawford said at one point.
While individual investors asked many of the questions, the committee also had inquiries from lawyers representing corporations and small financial institutions.