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Investors pin hopes on a vote

Mar 25, 2008 04:30 AM

James Daw

A few hundred retail investors now have the power – if they get organized – to demand better treatment from a $32 billion financial rescue plan.

So, Brian Hunter is shopping for a Toronto lawyer, and pressing advisers of Canaccord Capital Corp. of Vancouver to help enlist their clients' support.

"My starting position is: We want our cash, plus interest and damages," says the Calgary engineer who began to gather a core of supporters using the social networking website Facebook.

He has about $650,000 in retirement savings riding on the success of his efforts, and needs to find about 1,000 investors who together have less than $300 million at stake to exert the maximum pressure for full compensation.

Small investors have been mere bystanders while a high-powered committee headed by Toronto lawyer Purdy Crawford cobbled together a deal to salvage maximum value from $32 billion worth of commercial paper floated by non-bank financial institutions.

But now the deal to convert the short-term paper into long-term notes requires court approval, and the votes of a majority of about 1,800 investors at a meeting on April 25.

Most who will be eligible to vote are small investors like Hunter, who says he thought the commercial paper he bought was to pay less than a percentage point more interest than government treasury bills.

Major pension plans like Caisse de dépôt et placement du Québec have the most to lose if restructuring does not succeed.

About 1,400 retail clients bought the commercial paper from Canaccord, which claims it cannot afford to reimburse those clients the way some larger securities dealers have done for their clients.

Canaccord alleges in a lawsuit that Scotia Capital, the wholesaler of the commercial paper its representatives sold, withheld material information about the low quality of assets backing up some of the paper.

Freelance financial analyst Diane Urquhart of Mississauga disputes Canaccord's claim it cannot afford to reimburse clients. She argues the retail investors deserve special treatment from the securities industry that created the mess.

She says the market value of the commercial paper may be down by 40 to 60 per cent, but reimbursing clients would only cost Canaccord between 17 per cent and 26 per cent of its shareholders' equity after tax write-offs.

Ted McFeely, president of a small energy company in Calgary, says retail investors like him "have some pretty good leverage," if not with Canaccord then with other holders of the commercial paper.

"You don't rustle our cattle and think you can get away with it," he vows in a telephone interview. "They have just ignored us like an ant they want to squash. But it looks like (the voting process) gives us the power to stop (the deal) if they don't deal with us."

David Weiner, a spokesperson for Crawford's Pan-Canadian Investors Committee for Third-Party Asset-backed Commercial Paper, says the deal on the table is intended to give all investors maximum value.

Those who want to vote on the deal have to agree to relinquish their right to sue anyone over the commercial paper. Litigation could drag out a resolution for years, and be extremely costly.

Hunter agrees: "I don't think it's in anyone's interest to slay this," but says he is still determined to see if a better deal is available for small investors.


James Daw, CFP, appears Tuesday, Thursday and Saturday. He can be reached at Business, 1 Yonge St., Toronto M5E 1E6; at 416-945-8633; 416-865-3630 by fax; or at jdaw@thestar.ca

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