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Legal action still possible if ABCP deal approved: Crawford

John Greenwood

Monday, April 14, 2008

The head of a committee that is spearheading the restructuring of $32-billion of frozen asset-backed commercial paper says there is a contingency plan in case blanket immunity deals granted to participants of the workout may not hold up in some situations.

Speaking on a conference call with investors on Monday, Purdy Crawford conceded there is a possibility that cases alleging fraud could be allowed to proceed even if the restructuring wins court approval.

"We have that under consideration," Mr. Crawford said, adding his committee is looking at separating firms involved in such cases as a way to minimise the impact on the broader restructuring.

He declined to comment further on the matter.

Mr. Crawford also predicted that Credential Financial Inc. will likely announce a bail-out offer for its retail clients sometime this week.

"Credential is working on a similar proposal [to Canaccord Capital Inc.] and we are reasonably optimistic it will be announced within the next few days," he said.

Canaccord last week offered to buy back stalled ABCP from more than 1,400 retail clients, promising to pay par value plus interest.

Mr. Crawford said he expects the roughly 335 Credential individual investors to get all their money back as well.

"The sun will come up one day this week, don't worry," he told an anxious noteholder from Alberta.

Observers say that the restructuring will likely go ahead if retail investors, who are the majority of noteholders, are made whole.

Still, there are many investors who remain unhappy about the process. Some corporate noteholders are particularly angry.

Speaking on the conference call, Tony Giardini, chief financial officer of Ivanhoe Mines Ltd., complained that the right to sue that would be taken away by the restructuring could be worth more than the value of the new notes.

"I would rather have my legal rights," he said.

Observers estimate there are about 200 companies with as much as $4-billion of stalled ABCP. But the size of the group relative to the retail investors and the big institutional holders means that they will likely not have much clout when noteholders vote on the restructuring on April 25.

So the corporate investors are planning to make their voices heard by challenging the restructuring in court. Some argue that the restructuring is unfair because it pits corporate investors against retail and institutional investors. Others suggest that the blanket immunity called for by the restructuring might not be protection against allegations of fraud.

"Does the court even have the jurisdiction to release parties from fraud?" asked one caller.

Mr. Crawford said he has been asked to appear before the House of Commons Finance Committee to talk about possible changes to regulations that might prevent problems like the freeze-up of the ABCP market ever happening again.

"When [the restructuring] is completed, I will appear before the committee and put forward some proposals," he said.

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