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Crawford loses his influence

Jim Middlemiss

Friday, December 12, 2008

It is time for Purdy Crawford, voted the person of influence by the Canadian Investment Awards on Dec. 9, to earn his share of the estimated $132-million in fees from investors' money that has been spent on restructuring the third-party asset-backed commercial paper market.

Crawford was feted for developing "a solution to a very challenging ABCP challenge that, when implemented, will benefit both industry and investors alike in a way even the U. S. financial markets have yet to achieve. The impact of this contribution will be felt beyond the financial services industry for many years and Mr. Crawford more than deserves to win the most influential person of the year award," the group overseeing the awards gushed.

The only problem is that the "person of influence" hasn't pulled it off yet, and if media reports are true, then his latest trip to the federal Finance Department with cap in hand, asking for a government bailout of the frozen $32-billion market, smacks more of desperation, than influence.

If the 76-year-old legal icon at Osler Hoskin & Harcourt appeals to anyone for a handout, maybe it should be the Quebec government, since most of the players reside there.

It's been 16 months since the third-party ABCP market froze, and countless deadlines have been missed. The transparency that Crawford promised to bring to the ABCP market last Christmas is as opaque as the Chinese government.

Investors are being told little about what the holdup is. First, it was a lot of documents to sign and not enough time to get them drafted and vetted. Now it appears that declining credit markets have again upended the restructuring life raft. His influence with foreign banks seems waning.

Rather than tell that to investors, the Committee buries it in monitor reports or keeps that information tightly held by the ruling cabal that ordained itself as the official overseers of the ABCP restructuring -- the signatories to the Montreal Accord.

No wonder the investment community named Crawford the person of influence; he has invented the perfect situation for them -- stasis. Good for the financial players involved in this market, bad for the corporate and retail investors that have been denied access to their money for months and the ability to seek redress.

Right now, limbo rules. Nobody can sue to force anyone to negotiate. Since it's in creditor protection, the banks that created the products are safe. The financial investment firms that sold the paper, and apparently face regulatory prosecutions according to the Ontario Securities Commission, are shielded from lawsuits that would expose their role in it.

The pension funds that stand to be embarrassed for losing pensioners' monies are neatly protected. The foreign banks, which would also likely face lawsuits, continue to hang at the table paying lip service to the deal. Why not? The legal protection carrot offered at the end of the day, if everyone sticks around, makes it worthwhile to drag it out, because that's what lawyers do.

And it could be quite a while before this is resolved. Article 11 of the plan of arrangement, which proposes to turn the frozen paper into long-term notes, gives the Pan-Canadian Investors Committee the "exclusive right to amend" the plan prior to the implementation date, provided they get the written consent of the asset providers and the financial institutions providing the margin funding facility. They have to tell the noteholders about any amendment, and the court has to approve the amendment, but there's nothing that says retail investors will have any more say in what happens. This can drag on forever under the current scenario.

Meanwhile, nobody knows what the true value of this paper is worth, and financial institutions holding it continue to carry it on their books at likely inflated prices, further distorting values.

What we do know is that, according to the recent monitor's report, as of Aug. 31, 2008, there is $6-billion in cash on the books and growing. That's about 20% of the value of the market at the time it froze.

Maybe it's time Crawford uses his influence with the community that rewarded him in December and turn his guns on the real culprits, the Canadian institutions that used wonky rules to issue this paper.

Or maybe he should be influencing his pals at Canada's regulators, which have been notably absent in this saga, and get them to exert pressure on the market participants to do the right thing. They should be the ones to take the paper back on their books, pay out the corporate and retail investors suckered into buying it with questionable AAA ratings. Then they can fight it out among themselves for the table scraps through the CCAA process or until they can no longer afford to pay their litigators.

At the time of his award, Crawford said, "managing the ABCP restructuring is an incredible challenge and it is wonderful to be recognized for this effort. At some point in the near future, some 1,850 retail investors -- individuals with less than $1-million at stake-- will see the ABCP deal close.... These retail investors will get their money back, plus some interest."

So how near in the future do retail investors have to wait before they see the efforts of his influence? Ask retail investors and they'll tell you not soon enough.

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