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Flaherty points finger at provincial regulators

‘MAKES NO SENSE’

 

John Greenwood

Friday, April 11, 2008

 

OTTAWA • Part of the blame for the meltdown in asset backed commercial paper should go to the provincial regulators, according to Jim Flaherty, the federal Finance Minister.

CHRIS WATTIE / REUTERS FILE PHOTO

Jim Flaherty, the Finance Minister, says part of the blame for the ABCP meltdown belongs to provincial regulators.

“The primary responsibility in this situation has been that of provincial regulators because most of these entities that were selling the product were subject to provincial regulation through the securities commission,” Mr. Flaherty said.

Since the $35-billion market for ABCP fell apart eight months ago, Canada’s patchwork of securities cops have been playing dodgeball with the issue, all insisting that neither the product itself nor the entities that created it are part of their jurisdiction.

“We have 13 securities regulators in Canada which quite frankly makes no sense and makes for a great deal of inefficiency in terms of regulation,” Mr. Flaherty told reporters following a speech to business leaders in Toronto yesterday.

He said he plans to discuss the credit crunch and its impact with his counterparts from other G7 countries at meetings at the IMF World Bank scheduled for today.

Meanwhile, some retail holders of the stalled notes say they are not satisfied by an offer from

to pay them back with interest. Canaccord offered the rescue to 1,400 clients with investments of up to $1-million, but there are still an estimated 400 individuals, mostly clients of other brokers, that are yet to be compensated.

“We will not be happy until all the the other guys get paid. too,” said Wynn Miles, a selfemployed Victoria woman with most of her net worth tied up in illiquid notes.

Ms. Miles made the comments at a special House of Commons committee hearing into the ABCP debacle.

Brian Hunter, a Calgarybased oil-and-gas engineer with about $658,000 tied up in illiquid ABCP, has said he will continue to press the backers of the restructuring.

“It is my understanding that there are plenty of customers of the chartered banks that hold this paper, too,” said Mr. Hunter, who set up a Facebook site to help organize retail noteholders. “We have to look at how these guys can he helped, too.”

Last month, Mr. Hunter’s group threatened to block a proposed restructuring of the ABCP market unless they are made whole.

In total there are about 2,000 noteholders. Most are retail investors but about 200 are companies and institutions, which together hold the lion’s share of the illiquid notes by value.

The restructuring must be approved by a majority of noteholders if it is to go ahead. By simple math, that means retail investors will cast the deciding vote.

Canaccord’s offer is contingent on a successful restructuring. Observers say Canaccord clients will be strongly motivated to approve the deal despite their frustration that some retail investors are being left out.

An official at Juroviesky and Ricci LLP, a law firm representing individual noteholders, said the next step may be a court action. Even if the plan wins approval, there are questions around the legality of using the bankruptcy-protection process, the official said.

Another group threatening to make waves is the corporate noteholders. They range from junior miners such as Redcorp Ventures Ltd. to autoparts giant Magna International Inc.

Many are furious that they are not being offered the same deal as the retail investors and some are looking at legal strategies to get their money back.

No one wants this restructuring to fall apart but this is not fair,” said a senior company official.

Among those giving testimony before the House of Commons finance committee yesterday was Larry Elford, a former financial advisor from Lethbridge, Alta.. Mr. Elford said the ABCP crisis should be wakeup call for lawmakers.

Echoing Mr. Flaherty, he noted that Canadian investors must rely on a patchwork of watchdogs and regulators who have not done a good job, he said. “There simply is no agency to call that doesn’t have a conflict of interest,” he said.
 

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