The Black Rod

The origin of the Usher of the Black Rod goes back to early fourteenth century England . Today, with no royal duties to perform, the Usher knocks on the doors of the House of Commons with the Black Rod at the start of Parliament to summon the members. The rod is a symbol for the authority of debate in the upper house. We of The Black Rod have adopted the symbol to knock some sense and the right questions into the heads of Legislators, pundits, and other opinion makers.

Name:
Location: Winnipeg, Manitoba, Canada

We are citizen journalists in Winnipeg. When not breaking exclusive stories, we analyze news coverage by the mainstream media and highlight bias, ignorance, incompetence, flawed logic, missed angles and, where warranted, good work. We serve as the only overall news monitors in the province of Manitoba. We do the same with politicians (who require even more monitoring.) EMAIL: black_rod_usher@yahoo.com

Sunday, June 19, 2005

FLAGGING O'LEARYGATE: The 3 Stages of Cover-Up

All the mea culpas from born-again investigative reporters who missed the Crocus story are enough to get Frances Russell to write another anti-Christian column.

And instead of reciting Hail Mary's to get absolution, they've taken to chanting "Red Flags" whenever they interview or write about government officials. Sadly, it's only lip service, since they don't seem to know what the term means.

They certainly don't demonstrate that they would do anything different despite their public declarations of guilt. One only has to look at how the news media treat O'Learygate, the latest scandal under the current government's watch, one which is replete with Red Flags.

O'Learygate is named after Brian O'Leary, the superintendent of the Seven Oaks School Division --- and former NDP campaign manager --- who guided the division's unlawful foray into land development. He said he was only selling surplus land, land which wasn't needed for a new high school once the government decided it was cheaper to renovate West Kildonan Collegiate.

The government would appreciate it if you stopped reading here.

They would like you to believe that their diversionary "Report Respecting a Review of the Financial and Legal Implications of Land Transactions in the Swinford Park Subdivision" is the final word on the subject. The Black Rod has already proven it's not (see our BLACK ROD EXCLUSIVE: Seven Oaks Land Scheme Swimming in Red Ink, June 7, 2005).

We've painstakingly gone through the evidence and uncovered many more Red Flags for our suffering born-again reporters to ponder.

The first, of course, is our discovery that the Seven Oaks School Division fudged their books to show a profit on their land speculation when the true figures proved they had lost between $200,000 and $300,000 so far.

The second is the three stages of the cover-up.

Stage One: Panic

The Seven Oaks School Division was merrily playing real-life Monopoly, building little Marvin Gardens and Baltic Avenues with taxpayers' money when reality slapped them in the face. A real-life taxpayer had caught on to what they were doing and wrote to the Minister of Education in early May, 2004, asking if it was true and if it was legal?

It was true, but it wasn't legal, and that sent the SOSD into a panic.

Before the week was over there was a flurry of activity involving the school division and the Public Schools Finance Board, the putative watchdog of what school trustees do with your money. The two of them colluded to rush through the paperwork to legitimize the sale of serviced lots of land by the SOSD, breaking every rule in the book to do it. Today, nobody can remember who did what - it says so in the report.

The Department of Education did its part in the cover-up.

The Minister assigned an executive member of the PSFB to answer the citizen's letter. That person did his part--- he "did not ask about the validity of the complaint", as the Minister's own report says. Then he drafted a response which was signed by the Peter Bjornson, Minister of Education. The response, which only took three weeks, said, in effect, "Get lost."

(Sounds a lot like what they said to the whistleblower on Crocus, doesn't it?)

Stage Two: The Cover-up Cracks

For six months the cover-up held steady. In that time the PSFB members and staff personally toured the Swinford Park site and saw for themselves the development which was not permitted by law. The school division published a misleading financial statement overstating its revenue on Swinford Park by almost a million dollars. The last public meeting on Swinford was held. And somebody within the administration started asking questions.

Amid the discussions, emails and verbal reports on the land development, the SOSD was still pushing ahead, asking for approval to sell the final 20 lots in the Swinford development. But the questions just wouldn't go away.

(The government hasn't released the questioning emails. Sounds more like Crocus every minute, doesn't it.)

Coincidentally, it was during this time period that the PSFB decided that it was too expensive to renovate West Kildonan Collegiate. A new high school was now needed, and wouldn't you know it, Seven Oaks just happened to have some land in a new development set aside for a new school.

Yeah, what a coincidence.

It was also what attracted the attention of the Opposition which started to ask questions of their own about the new school.

Stage Three: The Gang that Couldn't Get Their Stories Straight

On May 2 the Opposition zeroed in on the Swinford Park Development. The jig was up.

uckily the players had had a year to get ready for this moment.

In January, the PSFB finally got around to asking for a legal opinion regarding the sale of serviced lots by the Seven Oaks School Division. The report had come back; it said "They can't do that!"

Time to clean house. Ben Zaidman, the director of the PSFB throughout the Swinford Park development, found that he wasn't going to be reappointed. His replacement, Glenn Nicholls, the former superintendent of Seven Oaks School Division, and also a contributor to the NDP party. Plus ca change, plus c'est la meme chose.

(Oh, and the government refuses to let anyone see the legal opinion. It's probably sitting in Gary Doer's office right next to the Crocus emails, which they are also refusing to make public.)

In March, the PSFB authorized the final phase of the Swinford Park development but told the SOSD not to play around with land development again.

And when the Opposition started asking questions, the Minister, Bjornson, played dumb (not such a stretch) and denied knowing anything about Swinford Park. When the letter he received a year ago was produced, he "remembered" it and expressed the proper astonishment that Seven Oaks would be involved in land development.

And that's when the confusion started.

Remember that in November, Bjornson announced that it was cheaper to build a new high school in Seven Oaks than renovate West Kildonan Collegiate. The new school would go in the Swinford Park development while the newer section of WKC would be rebuilt to house a middle school.

On May 3, he repeated the same story in the Legislature.

A secret informant tells The Black Rod that during the same time period Brian O'Leary was saying that the Swinford site was "too small" for the planned new high school.

On May 12, O'Leary told a public meeting the new high school would be built on the east side of Main Street in the proposed River Ridge development.

On May 17, Bjornson told the Legislature the same thing.

But in an interview with Nick Martin of the Winnipeg Free Press published ten days later, O'Leary is back to the original story, saying the new high school is going to the Swinford site, with the middle school still planned for a remodelled WKC.

Barely two weeks later, O'Leary showed up at a community committee meeting saying the new high school was planned for River Ridge (contradicting what Bjornson told the legislature), that Bjornson gave ministerial approval for the new school in River Ridge back in February, and approval was needed ASAP so tenders could go out in November.

Whew. That's confusing. And it doesn't get any better when you look at the figures being tossed around.

The Minister says the PSFB says a new high school, to cost $10 million, is cheaper than renovating West Kildonan Collegiate.

But Brian O'Leary says the site is too small for the planned new high school, even though at 12 acres it is exactly the size of the site at River Ridge.

And building the new high school at River Ridge will cost $12 million. Plus the school division will have to dip into its own funds to buy 4 acres of land because the Minister only approved the cost of 8 acres.

You can give your head a shake. They decided to build a new high school for $12 million because a $10 million high school was cheaper than the cost of renovating WKC. And they admit the new school is going to be too small for the area when its built. And they are still stuck with excess land---the soon to be abandoned WKC site.

This passes as logic in the Department of Education.

But is there another story behind the story? In our last posting we hinted at a Grand Scheme behind O'Learygate. Was there one? Let's see.

What if…

We know the Seven Oaks School Division hired Lombard North Group as consultants for the Swinford Park development. But LNG has and had, then, another iron in the fire. They are representing the developers behind the proposed River Ridge project east of Main.

What if O'Learygate originally involved both projects. The taxpayer who blew the whistle on the Swinford Park project has done more research. He says the planned new high school spans three lots totalling 53 acres. But the school board only needs 12 acres for a school. Were they planning on buying the whole 53 acres and selling the rest as they did in Swinford Park?

Or, what if:

The Swinford project land was originally bought as contingency for a new high school.

When the PSFB scotched that plan in 2001, the school board said they would hold the land for a new middle school. But the Minister kept saying the middle school would go into a renovated section of WKC, even after he approved a new high school.

So why is Brian O'Leary now saying the middle school is going into Swinford Park and the new high school into River Ridge?

Was this all a clever shell game to get two new schools out of a Department of Education which has been reluctant to spend money on building new schools? (And let us not forget, the new high school will have the Randy Bachman performing arts facility; a new ampithaeatre for sports that O'Leary says will allow West K to have, for the first time since Bud Grant coached the Bombers, a football squad - yay team!; and a 79 place daycare, the maximium allowed under law. Oh and ample parking where nature once roamed free.)

And if that doesn't raise enough red flags, lets throw up one more.

O'Learygate is already bleeding red ink, but the official government report suggests the costs will be higher than being admitted.

The report hinted at that when it said the PSFB has ordered the school board to do a ‘special audit’ of its expenses when the Swinford project is complete. The Minister took that further when he told the Legislature he so mistrusts Seven Oaks' accounting that he has taken the matter out of their hands and has ordered an ‘independent audit.’

We wonder whether the reason for this lies in the school board meeting of April 11. That day the trustees suspended regular business to pass a bylaw to let them borrow money to cover current operating costs.

We wonder whether that has anything to do with the reference in the government report to "timing differences" which caused Seven Oaks to tie up about $900,000 in operating funds at times.

If they are related, then shouldn't the interest on the money borrowed for operating costs be added to the expenses for Swinford Park?

(And doesn’t the cute reference to "timing differences" sound a lot like the "pacing issues" the government was warned about in the Crocus scandal?)

And while we're raising red flags, The Black Rod still wants to know:
* WHO was responsible for the misleading financial statement in October, 2004, that overstated revenues from lot sales by almost one million dollars

* WHO discovered the error

* WHEN was it caught, and

* WHY did it take eight months to make it public?

And is it a red flag when one scandal begins to look exactly like the previous scandal?

Tuesday, June 14, 2005

CROCUS COLLAPSE: The Revolution Is Over

Buried deep, deep, deep in the Winnipeg Free Press story about the Crocus Fund Scandal this weekend was a comment from John Doyle, the spokesman for the Manitoba Federation of Labour.

Doyle was a little bit testy, to say the least. We imagine he's been hearing from a lot of union brothers and sisters who stand to lose a good chunk of their pension savings with the demise of Crocus.

Anyway, Doyle wanted it clear that the MFL "strenuously denies any responsibility for misleading investors", as the paper put it. "I feel badly for these people. But there is no responsibility for the MFL in this," was the way Doyle put it.

We beg to differ, John.

The Crocus Fund is sponsored by the MFL. The majority of the board of directors is appointed by the MFL. The MFL hired, or at least approved wholeheartedly of, the management. The MFL seconded people to sell Crocus shares. And the direction of the Crocus Investment Fund was set by the MFL.

And that's really why John Doyle of the MFL is in a snappy mood these days---the Revolution is over. And labour lost.

While shareholders agonize over their lost investment, very little is being spoken about how they were used a footsoldiers in the battle over capitalism. Just as the 1919 Winnipeg General Strike was a challenge to the unfettered capitalism of its day, so too the Crocus Investment Fund was a challenge to the capitalism of today.

The MFL never hid that fact. Except during RRSP season.

Rob Hilliard, President of the MFL, had this to say when he appeared before a committee of the Manitoba Legislature in 2000.

Mr. Hilliard: ... I chair the Board of Directors of the Crocus Fund... I had the opportunity last fall to visit perhaps the mecca of employee ownership in this world in the Mondragon area of Spain. If we had a system that was like that all over this world, certainly in this province, we would have a much fairer, much better system.In Mondragon, the workers vote on who their supervisors are. They elect them. They vote on every single significant decision that goes on in their enterprise. They share in the equity. They share in everything on an equal basis. The manager, the top manager in their operation cannot make more than six times the lowest-paid worker in that plant. That is a fair system, and I would support ...any legislation that promotes anything like that.

The Black Rod has written about Sherman Kreiner's devotion to the Mondragon ideal throughout his tenure as CEO of Crocus. But we bet few Manitobans realize how thoroughly he turned the Crocus Fund into labour's wet dream. Not only did he promote employee ownership in investee companies as the Eleventh Commandment, but he transformed Crocus itself into the epitome of the labour movement's vision for society.
Here's how he described his masterpiece:

"The Fund has also raised the profile of corporate social responsibility. Internal business practices entrench pay equity and family-friendly workplace practices, embed a living wage policy and establish salary ratios between the highest and lowest-paid employees."

Except that the secretaries didn't have to take those onerous free trips all around the world like James Umlah and waste valuable family time at Disneyland, Avril Lavigne concerts, Las Vegas spas, and at $1400 lunches.

"Ahh, Sherman, do I have to...? I just got back from Banff. I don't wanna go to Berlin. I hate driving those Jaguars. And my tennis elbow is killing me."

"Yes, James, you must. As Chief Investment Officer it's your job to take free trips all around the world and play lots of tennis. You knew how hard the job was when you took it. So stop complaining."

For Sherman Kreiner, Crocus was more than just a tool to make money for investors. In fact, that's exactly what he told shareholders in 1997.

"But as we have said over and over again, the Crocus Fund was not created solely to generate numbers. When you invest in the Crocus Fund, you are taking a stand for all Manitobans against the effects of globalization."

And that wasn't the best of it. No, Kreiner saw the Crocus Fund as nothing less than the vanguard for Democracy itself:

"But if you can change the workplace, and are able to do that on a large scale, you create a lot of pressure to change the institutions which prepare people for the workplace. So a more democratic workplace results in a more democratic educational system which results in a more democratic family. All those things promote, in a very meaningful way, democracy in our society. Democratic workplaces increase the prospects that authoritarian or totalitarian governments couldn't come in with the kind of results that have existed in the Western world, even in this century."

Whew.

Of course, this was easier to say before Crocus became a basket case. In the roaring Nineties, Crocus was touting good returns for its shareholders, and they had the luxury of thinking the team of Kreiner and Umlah could change the world and earn some coin at the same time.

Alas, it was not to be. All you needed to make money in the Nineties was a copy of the Financial Post, a monkey and a dartboard. When the internet bubble burst in 2000, Crocus began its slide to hell, Mondragon and all.

But what the shareholders didn't know was that it didn't matter to Kreiner, to Umlah, to the MFL gang, and, most importantly, to the NDP who were ostensibly the watchdogs of the fund.

NDP MLA Tim Sale (of the Hydra House scandal) said as much when Crocus was still riding high four years after its inception:

"The unit value of shares has increased by an amount of approximately 15 percent since inception. While not a particularly sterling record of increase in investment value, that was never the purpose of labour-sponsored funds. Labour-sponsored funds were to stabilize employment, to offer new employment opportunities, and to work, as I have said, at community economic development."

He went on: "They look at how the proposed investment would affect our environment...They look for employment policies that comtain employment equity...They look for workers councils or for workers seats on boards of directors. In other words, they follow what might broadly be called a European model of economic development, rather than a North American model...Those are the kinds of criteria a good labour-sponsored fund employs in making its investment decisions."

Of course the European model of economic development has left Germany with 12 percent unemployment and no growth and France marginally better with 10 percent unemployment and growth measured in slivers.
********************
But even as things were going sour with Crocus, Kreiner et al were working overtime on their social revolution.

They created a nonprofit organization, Community Ownership Solutions, to renovate homes in the Inner City and create "quality jobs". That's non-profit, like in no return to shareholders.
They sponsored a program with the University of Manitoba to teach participative management.
In 2003 the Fund joined others in creating a Centre of Employee Ownership in the university's business school.

And then there was the "investment" in the Manitoba Centre for Labour Capital, along with the MFL (them again), and other Manitoba unions. Here's how one union website described it:

MCLC is a non-profit corporation aimed at building knowledge and skills for union pension trustees, leadership, and activists so that working people will be assured of having well-governed pension plans with well thought out investment strategies that benefit pension plan members.

There's that word again, non-profit.

And, who's that? Why, it's former MFL president, former Crocus Fund president Rob Hilliard gone to work at the MCLC. (Not to be confused with the MLCC, which more Manitoban's support).

Rob? What were you teaching these past few years? Ponzi Year One and Ponzi Year Two? Did your time at Crocus come in handy?

There was a lesson to be learned, though--- If you want a pension, keep your labour rep's hands off your money. And --- it helps to have friends in high places.

Two years ago, Crocus officials got wind that Tory MLA John Loewen was about to ask questions. They went ballistic. You would think Loewen was accusing Michael Jackson of being a child molestor. Crocus managment, hello Mr. Kreiner, threatened to sue Loewen, the Conservative Party, and anyone else who showed any interest in questioning the valuations of their portfolio. Then, to rub his nose into it, they forced Loewen to buy shares in Crocus. Ha ha. How they must have laughed about that in the board room later.

And then came the famous ad by Crocus investees.

SETTING THE RECORD STRAIGHT.
Winnipeg Free Press
Saturday, February 23, 2002
As members of the Crocus Group of investee companies we found it particularly offensive that any member of a political party would choose to attack the credibility of our investment partner without undertaking proper due diligence.

It was signed by the owners of a dozen companies which had gotten money from Crocus. Among the signatories---Sam Katz, President and CEO of Winnipeg Goldeyes Baseball Club Inc. Katz and the rest sang the praises of Crocus like good corporate citizens should. Then, reading the minds of Manitobans, they added:

THIS AD WAS DEVELOPED WITHOUT THE PRIOR KNOWLEDGE AND APPROVAL OF THE CROCUS INVESTMENT FUND AND PAID FOR BY THE ABOVE NOTED COMPANIES
Not that anyone believed them then. Or now.

But when it comes to friends in high places, you can't beat the government, the watchdog that not only doesn't bark, but which wags its tail, licks your face and rolls over for a tummyrub when it sees you.

As Crocus humiliated Loewen, Premier Gary Doer couldn't hide his glee. He bit his tongue for a few months, but finally could stand it no more. In a response to Tory leader Stu Murray, the Premier said what he believed:

Hon. Gary Doer (Premier): Mr. Speaker, this is a Leader of the Opposition who has a Finance critic who attacks the Crocus Fund, which was one of the engines for employee ownership across Manitoba. So let him not feign this new-found interest for employee ownership. They tried to kill employee ownership with their unwarranted attack on the Crocus Fund.

Now remember, this was after the government had been warned internally that there were problems with Crocus. This was after a prudent government would have asked questions about valuations--just to be sure.

But the NDP did not want anyone asking questions, just like the MFL did not want anyone asking questions, and Crocus did not want anyone asking questions.

The NDP has spent the past six months ducking questions. They appointed a director to sit on the board of Crocus, then bragged that he told them nothing. His only responsibility was to shareholders, at least 40 percent of whom are union members.

Never mind that we, the public, are all shareholders thanks to the $2 million seed money put into Crocus.

There's another, more famous family, which also practices the code of Omerta.
And they, too, have attracted the attention of legal authorities.

The NDP can't hide behind their appointed member of the board anymore. He quit. Without ever reporting a thing to the shareholders to whom, according to the man who appointed him, he owed his sole allegiance.

The NDP tried, with a straight face, to turn this into a positive but announcing that they would change the law so that the public could select someone to sit on the board of Crocus instead of having the government appoint a person.
* Did they know when they made that public announcement that there would soon be no point, that Crocus was about to be wound up?
* Did they know that the decision to kill the Crocus Fund was being made with no shareholder member sitting on the board?
* That the investors who the NDP claimed to be worried about all these months, are totally shut out of the decision-making process?

* That all the decisions are being made by the non-public board members, the majority of which are appointed by the NDP's long-time political ally, the MFL?

These are just a few of the questions left unanswered in the entire Crocus scandal. And these are a few of the reasons why a public inquiry is needed more than ever.

We must have a public inquiry to discover

- when the Crocus board realized the fund was in trouble,
- who was told,
- who made the secret loan from the Quebec Fond,
- was the Fond part of the conspiracy to lie about the loan,
- which board members knew the truth and approved misleading the public about the purpose of the loan,
- what discussions were held about taking money from Manitobans who were being misled about the health of the fund, and
- what the government--and the public's-- representative on the board knew, when he knew it, and what he told his political masters
.

The government is counting the days until the current session of the Legislature is over. They hope they can spend the summer hiding, to let the heat die down.

Could they hide from a rally of thousands of Crocus investors and Manitoba taxpayers on the Legislature grounds ?

Could they hear us then ?

Tuesday, June 07, 2005

BLACK ROD EXCLUSIVE: Seven Oaks Land Scheme Swimming in Red Ink


The provincial government's report on O'Learygate is packed with bombshells, blackguards and bamboozlers.


The Seven Oaks School Division lost in the range of $200-300,000 on the Swinford Park land development, according to the report tabled by the Education Minister. Like true gamblers, the board is doubling up, hoping to recoup the loss and make some profit on the third and final phase of the project.


But the Division's numbers have been so far off the mark that the Public Schools Finance Board, which oversees school board spending, is having coniptions, and is hinting that the public should brace itself for a sea of red ink when all the accounting is done.

The report containing these details was released late last Thursday and reads like a reprise of the Crocus Fund audit: a runaway administration, unlawful activities, a total failure of oversight, inflated valuations, and a whistleblower dismised by a Cabinet Minister.

And then, there is the shadowy NDP connections to the principles of O'Learygate - - Brian O'Leary (SOSD), the former NDP campaign manager; Ben Zaidman (PSFB), an NDP campaign contributor; and even the development planner, who opposition members have called "certainly a very good friend of the NDP".

These connections bring down accusations of favoritism and tolerating an absurd level of skirting the rules.

There is even a cover-up, which has it's beginning in the Minister's office, and which, after a circuitous route, returns there.

And the news media, which has been accusing the NDP all week of missing the red flags of the Crocus scandal, had a mass attack of colour blindness and hasn't yet recognized what is right under it's collective schnozz.
****************************

The story starts in 2001 when the SOSD bought land north of the sewage treatment plant on Main Street. They got a deal on the land which they figured on using to build a new high school to replace the aging West Kildonan Collegiate.

But in January 2002, the PSFB refused permission to build that new school. They said they planned to expand WKC instead. Seven Oaks decided to keep a parcel of land for a new K-5 or K-8 school, and sell the rest. ( Here, to assist the non-conspiratorial, we will identify and highlight the RED FLAGS of O'Learygate.)

In April 2003, the trustees of Seven Oaks notified PSFB they would sell the residential lots on their land through public tender. But they wanted to shorten the public tender to 30 days or less (RF). The PSFB approved this unusual request the very next day. (RF)

Barely 3 weeks after the close of the public tender, SOSD was submitting plans to the City for a new subdivision. Not being in the business of land development, this seems to us to be a rather short time to prepare and evaluate a plan. (RF)

At the time SOSD indicated they expected to sell the lots for $1.8 million and spend $670,000 providing services, for a profit of $1.2 million. Sweet.

The school board continued to acquire parcels of land throughout 2003, to add to their holdings. Then on Thursday April 29, 2004, their lawyer wrote to PSFB asking for approval of lot sale agreements that had already been submitted to the Winnipeg Land Titles Office. The legal terminology for that, we believe, is "fait accompli, sign here." (RF)

Three days later, on Sunday May 2, O'Learygate began to unravel.

A concerned citizen sent an email to the Minister, Peter Bjornson, pointing out that the school division was spending large sums of money to install roads sewers and other services and was acting as a land developer. He asked what mandate they had to do this.

The email would have been read the next day, on Monday, after which 2 things happened.

First, there was a flurry of panicky activity on the parts of SOSD and PSFB (RF), while Education Department officials doddled and dragged their feet on addressing the complaint.

Then, the report states, everyone developed collective amnesia. (RF)

The report says standard operating procedure was not followed at any step, and the entire handling of the matter was "highly unusual". (RF)


Let's rewind and watch the events in slow motion to appreciate the cover-up at work.

* The email was, we believe, read on the Monday. That very day, SOSD sent signed lot sale agreements to PSFB by courier. The PSFB had directed the board to return proposed unsigned lot sale agreements. (RF)
* On Wednesday, the documents were approved by PSFB after they 'showed up' at a regular meeting. They were not listed as an agenda item but were, to quote the report, "walked in at the very end of the meeting". (RF)
* No one recalls who brought the documents to the board meeting or how the issue was presented. (RF)
* Standard practice called for the PSFB to get a written analysis of the documents with recommendations, but their staff (which had the documents for 2 days) had done no analysis. (RF)
* In fact, the PSFB Project Leader says he never saw the documents (RF) nor did he read them after the meeting. (RF)
* Normally matters requiring some kind of analysis are deferred to the next meeting but not in this case. (RF)
* Policy requires a meeting between PSFB and a school division before surplus land is sold. There was no meeting with SOSD. (RF)
* The PSFB didn't wait until the next board meeting to ratify the sales as is normally done. They called SOSD with the news the very next day.
(RF)

A reasonable person looking at this evidence could conclude that there was a leak from the Minister's office about the whistle being blown, prompting the School Board and the Finance Board to rush around to dot the i's, cross the t's, and rubber stamp everything in sight - regardless of how many rules were bent or broken, rules which were designed to act as checks and balances on improper behavior.

The report mentions 2 explanations for how this happened.

The PSFB says they were never explicitely told SOSD was developing the lots. The trustees maintained it was "sufficiently clear" what they were planning and doing.

So you have a choice.

If you believe PSFB, then the School Division was pulling a fast one on everybody; if you believe the School Division, there was a conspiracy by both public bodies, to sidestep the law preventing school divisions from becoming land developers.


************************************
But what about that complaint?
It was received Sunday May 2, but only ten days later was it forwarded to the PSFB Executive Director for a response. And it took another 2 weeks before the Minister wrote to the citizen that nothing was wrong, and that he should take his concerns about community development to the school division !

The report finds the footprints of the cover-up lead the complaint away from his office and bring it right back to Bjornson's desk.
* the PSFB Project Leader says he didn't read the complaint (RF)
* the PSFB Executive Director spoke with the SOSD Secretary-Treasurer about how to respond to the complaint but did not ask if the division was acting as a land developer. (RF)
* Seven Oaks, faced with the question in the complaint, did not offer any explanation of it's activities. (RF)
* There was no investigation of the complaint by examining existing documents (RF)
* the PSFB Executive Director says his response was reviewed by the Chairman, Ben Zaidman, who does not recall seeing a draft response. (RF)

The new motto of the Seven Oaks School Division appears to be "nobody knows nuttin', see? nyaah."

The official report determined that the Minister's letter to the whistleblower was "INCORRECT AND INAPPROPRIATE".

In black and white, the cover-up was exposed. Not that you'd know by relying on the news media in this town.

Even more inappropriate, was the June 30th, 2004 audited financial statement produced by the School Division. They overstated it's revenue from the sale of the lots, by almost ONE MILLION DOLLARS. The report doesn't say who is responsible for this misleading information.

However the report notes that subsequently the SOSD auditor advised the division that the financial statement should have said they would make $1.8 million and not $2.8 million.
Keep in mind that O'Leary told the media, that they would make a profit of $700,000 and have a fully serviced site for a new school to show for their efforts as well.

The Black Rod notes that the corrected revenue, means that the Seven Oaks School Division has actually lost $196,859 on the illicit venture.

And that's not all.

SOSD says they sold 54 lots. But they only owned 51 lots. That means at least 3 of those lots were held in trust for other owners and so, the money from the sales goes not to the division but to the private landholders.

That decreases the revenue to SOSD by an estimated $102,000, bringing the total loss to about $300,000.

The Department of Education report notes great concern about the School Division's accounting, and has directed the preparation of new financial statements to be "in accordance with generally accepted accounting principles (GAPP)." They have also ordered a special audit when the Swinford Park project is complete, "that provides a full and transparent accounting of all revenues and expenses." The Department also found that SOSD tied up almost $900,00 of their operating funds when they expected to only use $400,000.

The Department is very worried about the possibility of a deficit and states in the report "this situation need to be carefully monitored."

Lost in all these details, is the fact that the Department of Education has scrapped the plan to refurbish the West Kildonan Collegiate and instead plans to build an entirely new high school.

Now O'Leary has shown up at community meetings urging the construction of the school in River Ridge along with a new housing development. He says if the housing is not built taxpayers will be on the hook for another $2 million, to service the new school site.

This is New Democonomics at its' best: the school board will spend $2 million dollars, twice over, for the same school.

In our next look at O'Learygate, we tell of our visit to the scene of yet another land development project, in search of the answer to the question: was the whistle blown before Seven Oaks could pull off their master plan?

Wednesday, June 01, 2005

Crocus Disguised $10M Loan, MSM Ignored Story

It was February, 2002, the dead of winter, and officials of the Crocus Investment Fund got wind of an unhappy investor who was talking to Opposition members of the Legislature.They did what the Crocus Manual on Disgruntled Investors called for---they threatened him with lawyers to shut him up. Then they paid a visit to the Opposition members with the same message.

It's now late spring, 2005, and the recipients of these "friendly visits" are talking about them for the first time. The threat of Crocus officials going all Sopranos on them is over. These days the only attorneys the former Crocus directors and managers are talking about, are criminal defence lawyers.

After the scorching report on Crocus management practices by Auditor General Jon Singleton, the province has announced it is bringing in a special prosecutor from Ontario to examine the details and determine whether any ex-Crocus alumni will be making the perp walk soon.

The Black Rod is big on justice, so we are providing the special prosecutor with Exhibit A.

* We have a special publication (distributed as a newspaper insert) from the opening of the MTS Centre, dated November 13, 2004. Mark that date.

* The 30 page booklet carries a full page ad from the Crocus Fund offering "Switch and Save". No money down. Switch from a safe, guaranteed RRSP into Crocus and take advantage of the tax break.

* Except that by November, 2004, the Crocus board knew full well the fund was in deep doo doo, and more importantly, knew that anyone who transferred their money from another institution was guaranteed to lose a huge chunk of their "investment" almost immediately. Yet they used the opening of the MTS Center to try to lure new investors. If that isn't criminal, then we have to stop watching Law and Order.

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One thing we have been watching this week is how the news of the Crocus audit is being covered. We take note especially of Gordon Sinclair's mea culpa in Monday's Free Press. He writes how he and the rest of the reporting staff should have been more aggressive in pursuing the Crocus story.

But Gord, it's not your fault. Remember where you work. You work at a newspaper where:

* hard news stories are hidden in the Obituary pages

* the revelations of the worst political scandal in generations are not considered newsworthy and certainly not worth bumping Polar Bear statues off the front page

* Bob Silver, the paper's owner, read the revelation in The Black Rod-- four months ago -- that the $10 million that went to the Crocus Fund from the Fond Solidarite du Quebec was a disguised loan for some important but unidentified purpose and yet he didn't think it important enough to assign anyone to the story.

So don't blame yourself, Gord. You're simply a product of your environment.

Unfortunately we can't say the same about CJOB's Richard Cloutier, their "investigative reporter".

These days he's all "hard hitting journalist" as he interviews the principals in the Crocus scandal. But he, too, had The Black Rod's story on the Fond loan on his computer four months ago, and he did nothing. He did what most Winnipeg "investigative journalists" do --- he waited for the news conference. The first time he uttered the word "Fond" was after the Auditor did.

CBC Television has been devoting a lot of their scarce news time to the Crocus scandal, but its with a heavy sense of what-might-have-been.

Shortly after The Black Rod broke the Fond story, the Opposition raised it in the Legislature; CBC picked up on it and filed a story. Then, to their eternal regret, both the Opposition and TV station dropped the ball and let the issue die. CBC, of course, did not pass it along to their vaunted I-Team.

The biggest financial scandal in the province is not important enough for the I-Team's time. They have to devote their resources to other cutting-edge stories, like, well, what was the last I-Team story? Oh yeah. "Moss grows on the north side of trees; south side demands compensation". Wasn't that it?

The news media's sleepwalking has been matched only by the NDP.

Question Period has become a surrealist's dream. It's hard to say what is more bizarre---watching Finance Minister Greg Selinger's hair turn whiter by the day or listening to Premier Gary Doer, believe it or not, try to take credit for uncovering the Crocus scandal.

We know that for the last month or so Doer has been claiming credit for knowing nothing about what Crocus was doing and bragging that his government appointed a director to the fund with strict orders never, ever, ever, to tell the government what he knew, but to represent shareholders by never, ever, ever, ever telling them anything either - regardless how much they ask. (Hey, we said it was surreal.)

Now Doer wants credit for changing the law to let the Auditor General investigate the Crocus Fund, even though, in the years since he changed the law, the government never, ever, ever saw a reason why the Auditor General should investigate Crocus because they refused to see and hear every single warning about Crocus that fell into their laps. (Mr. Dali. Paging Mr. Dali)

Monday, Doer even went so far as to demand that the Opposition apologize to the government's appointed director Ron Waugh. For what? Apparently for asking what the government appointee to the board told the government about the board's decisions. The NDP feels the Opposition should know that the government appointee never, ever, ever tells anyone about anything and so earns every cent of his monthly honorarium.

And, needless to say, Doer never offered to apologize to the only person who deserves an apology, Tory MLA John Loewen, who tried to raise questions about the valuations of Crocus investments three years ago but was assured by Gary Doer, Greg Selinger and Industry Minister Drew Caldwell that Crocus was in excellent shape, thank you.

The government position post-Singleton is--- aww, you knew it already --- blame Gary Filmon. Doer never fails to point out that the Act setting up the Crocus Fund, passed by the Filmon government, puts all investment decisions in the hands of the Crocus Board with no interference permitted by government.

But Gary, this ain't the carny where the motto is "There's a sucker born ever minute." What part of Crocus's business plan of "let's trick more suckers into giving us money" do you and your appointee on the board consider normal investment decision making?

The ball's now in the Securities Commission court. Not that they've shown much initiative in the whole, sad story. They rejected every one of Bellan's complaints.

The Auditor found that they should have picked up on important clues from the minutes of Crocus meetings that the Fund was in trouble ie- valuations being defered from one financial quarter to the next and "additional scrutiny of the valuation processes and their application to a sample of companies was in order."

But no, the Manitoba Securities Commission didn't think for an instant, that 33,000 shareholders were at risk and needed to be protected. That millions of dollars were at risk as Bellan had warned.

No, they had bigger fish to fry.

Such as Shirleena Manchur de Escobar, a 58 year old repatriated Manitoban who ran a small classified ad in October 2003, looking for backers to support her quest to develop screenplays. With years of experience in the Hollywood scene and in Mexico as an actress and talent manager, she believed there would be demand for her May-December romance scripts and hey - unlike Crocus, she had actually done some due diligence, to prove agents were willing to help shop her scripts around Tinseltown and that she had a chance to bring Hollywood film companies to Manitoba to film her stories.

Not one person put money up in response to her ad. No one lost a dime.

But the MSC pursued Shirleena with

* clandestine phone recordings. The Black Rod has heard the tapes and the MSC investigator, who was trying to pretend to be an interested backer, was badly in need of acting lessons himself.

* a sting operation. The investigator convinced Shirleena to drive from her mother's farm through a blinding snowstorm to meet him in Dauphin, so he could surprise her by revealing his true identity and serve her with charges of violating the regulations.

* charges for not filing a prospectus. Even though they refused to put the wiretaps into evidence, call the one person who had responded to her ad as a witness, or produce a single person who had been fleeced by the former starlet, they took her to trial.

That sure was a lot of effort and time in court. Sure was important to teach her a lesson and protect the public.

Sure was worth $350, which is all the judge could bring himself to fine her.

With priorities like that, it is no wonder the Securities Commission couldn't be bothered to do their job and look into Bellan's warnings. That might have involved doing their job.

Which is why Exhibit B, that the Fond co-operated with Crocus in misleading the shareholders about their loan (at loanshark interest rates), should now also be looked into by the Securities Commission.

And if they are too busy maybe they can pass it on to the Special Prosecutor.