Somebody play the theme from Bonanza. There's gold in them thar e-mails.
We've spent the past couple of days parsing what government bureaucrats said about the failing fortunes of the Crocus Fund in e-mails to each other in the fall of 2000.
We can sum it up in one word: Eureka.
The e-mails, leaked late last week, reveal a much different reality than what the NDP has been telling Manitobans for the past year. We learned:
· the real reason why Crocus had to turn into a Ponzi scheme
· how government officials tried to keep important information OUT of the Crocus prospectus
· that the Department of Finance had "serious concerns" about the performance of Crocus as early as 2000 but Crocus had too much power with government for anyone to challenge them
· the likely identity of the "higher authorities" that Crocus officials claimed had given them the okay for their 10-year-plan when civil servants in mid-2001 were slow to give their approval
That's Couldn't, With a C
Finance Minister Greg Selinger addessed the NDP cabinet on Nov. 27, 2000 and told them the Crocus Fund was in financial trouble. The fund wanted two changes to the law to help them out.
In a briefing note he said:
"Crocus management advise that they only recently realized the potential for a liquidity crisis. Most such funds expect to sell some of their holdings at a profit after five to ten years. The proceeds from such sales can be used to pay for share redemptions.
In fact, the Crocus prospectus states: ''To the extent it is permitted, the Fund intends to arrange its investment portfolio so that funds are made available through liquidation of its investments and securities, for the fulfillment of requests for Permitted Redemptions."
However, Crocus management are now advising us that the typical hold period for their investments will be ten to 14 years. This means that they do not expect to be able to sell assets in order to meet redemptions over the next few years."
The secret e-mails tell a different story, which raises the question who was misleading whom.
The day before Selinger went to Cabinet, Stephen Watson, an official in the taxation analysis branch of the Department of Finance, wrote to the Deputy Finance Minister Patrick Gannon and to a colleague, Ewald Boschmann (who would later become deputy Minister of Finance himself).
"I think there is good reason to believe that we can make several changes that will help Crocus."
He listed a couple, then added:
"I also think their mandate should be focused solely on getting a good return for investors ---let's nix the employee ownership mandate because that is a key reason why they haven't been able to liquidate their investments."
Ka-boom. That's some bombshell.
Crocus needed government approval to use money from new shareholders to pay off old shareholders because they couldn't, not wouldn't, liquidate their investments.
Here's the reason why Crocus could never get out of its financial bind, and the first hint that the valuations of the Crocus Fund's assets were overstated.
One of the "many bottom-lines" that Crocus CEO Sherman Kreiner had for the company was the spread of employee ownership. In fact, the Act that created Crocus required the fund to "use its best efforts to ensure that a majority of its investments directly or indirectly promote employee ownership or employee participation in corporate governance and management."
As Doug Davison, Senior Vice-President, Crocus said in an address to a Parliamentary committee in Nov. 2001:
"We have a style of operation with our fund that is focused significantly on the concept of employee ownership within our investee companies. It is not a precondition of our investment, but it is an aspect of what we are doing with respect to the approach that we are taking to value adding services, productivity issues and profitability within our portfolio. There are more than 2,500 people who are now employee owners within these approximately 60 companies. That number of people represents about 26 per cent of the employee population within our investee companies."
What was it, then? Crocus couldn't sell off companies with employee-ownership programs because that would put them in breach of the Crocus Fund Act? Or Crocus couldn't sell the companies because nobody wanted to buy them with employee-ownership programs attached?
Either way, they couldn't be sold. And if they couldn't be sold, their value on the market was - well - zero. And zero was a heck of a lot less than they were being carried on the books.
One high government official who didn't seem to care one way or another was Premier Gary Doer who used the employee-ownership stick to beat the Opposition when the first public questions about the validity of Crocus share valuations were raised.
From Hansard:
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.
Don't Ask, Don't Tell
On November 30, 2000, some top civil servants in the finance department exchanged e-mails over a letter sent to Sherman Kreiner.
The letter informed him of Cabinet's decision on his request for two changes to the law to help him dodge the pending liquidity crisis at Crocus. Cabinet decided to turn a blind eye if Crocus sold more than $30 million in shares as allowed by law.
But a request to waive a cooling-off period, and let shareholders roll over their investments in Crocus and collect a second immediate tax benefit, was on hold pending a review of its effect on policy goals.
Ewald Boschmann wrote to Stephen Watson with a CC to deputy minister Patrick Gannon:
"Why would we want to tell them - in writing - at this point that we'll relax the cap in any event. Surely that would make a nice "quotation" in the prospectus---and do we really want that?"
Watson replied, with a CC to Gannon:
"Pat made the point that it might be quoted in a prospectus and suggested the softer wording. The relevant passage in the second draft reads: "In considering the possibility that Crocus might exceed the $30 million level again in the current fiscal year, we would prefer to address this issue on a similar basis to preceeding years without imposing additional conditons on directed investments." I think that is too cryptic to make it into a prospectus."
Double Whammy
Boschmann replied to Watson:
"Stephen, in my view this will be viewed by Crocus as a "very good news indeed" letter (given that they're doubtless aware that we have some serious concerns with their performance.)
It tells Crocus that Cabinet has instructed us to keep them afloat, basically unconditionally. It tells them the (sic) "the cap is off-unconditionally-only we don't want to say so now"
And if they learn that Pat, or anyone from our Department, in the course of the review is getting tough with them, they will wave this letter under our noses, and then the Ministers', if we don't desist."
Boom. Boom. Two bombshells at once.
Here we learn that the Finance Department has "serious concerns" about the performance of the Crocus Fund in 2000.
Not liquidity. Performance.
Performance which affects valuations.
We've already seen how officials within government softened language, then made it as obtuse as possible to keep important information out of the prospectus and away from investors.
But here for the first time we're given a clue to why civil servants backed down when Crocus official cited "higher authorities" for their long-term growth plan, as cited in the Auditor General's report.
"And if they learn that Pat, or anyone from our Department, is getting tough with them, they will wave this letter under our noses, and then the Ministers', if we don't desist," predicted Ewald Boschmann.
Isn't that exactly what happened six or so months later when Crocus officials stared down their supposed overseers in the department of Industry and Economic Development?
When Auditor Jon Singleton wrote that Crocus told the government reps that their plans "had already been cleared by those in higher authority" was he quoting literally or being cryptic? Was this his way of referring to Cabinet without naming any government officials, something he was forbidden to do by his mandate
"they will wave this letter under our noses, and then the Ministers', if we don't desist."
It's hard to imagine today how fearsome the Crocus machine was six years ago. The Crocus juggernaut rolled over everyone standing in its way---civilians, politicians, and civil servants alike.
Here were some of the top bureaucrats in the province and they knew they didn't stand a chance in any faceoff against Crocus.
Boschmann to Watson, November 30, 2000:
"I don't see either a red or even a "flashing amber" light in that letter on any of Crocus' practices. I think with that letter we've signalled to Crocus that we've caved.
only possible way out that I can see is a completely independent third party review---and the letter even assures them that won't happen unless we can interpret their influence ending once the reviewer has been selected. Even that would probably enough (sic) to preclude a an unbiased assessment.
think they will even be happy that Pat sent the letter rather than the Minister because they will read that as Cabinet having called off the bureaucratic dogs."
The secret leaked e-mails do more than just contradict the official NDP government line on Crocus (we didn't interfere, we were neutral on valuations, it's Gary Filmon's fault.)
They point the way for further investigation.
* The public needs to see internal government communications for June, 2001, when the non-public review of Crocus by the Department of Industry was completed.
* We need to see all memos and e-mails for February, 2002, when Crocus launched its counter-offensive against Bernie Bellan and John Loewen, and the NDP stood silent all the while knowing Bellan and Loewen were 100% correct.
* And all communications in the summer and fall of 2002 which might refer to the phony $10 million "investment" in Crocus by their Quebec counterpart.
If even one analyst used the word "loan", then we can expect to see some Cabinet members in prison stripes.
* Finally, we need to examine all government communications in 2004, starting about September, when the wheels began to fall off the Crocus Fund and it began its slow crash and burn. How desperately did Crocus higher-ups reach out to their government protectors?
We've spent the past couple of days parsing what government bureaucrats said about the failing fortunes of the Crocus Fund in e-mails to each other in the fall of 2000.
We can sum it up in one word: Eureka.
The e-mails, leaked late last week, reveal a much different reality than what the NDP has been telling Manitobans for the past year. We learned:
· the real reason why Crocus had to turn into a Ponzi scheme
· how government officials tried to keep important information OUT of the Crocus prospectus
· that the Department of Finance had "serious concerns" about the performance of Crocus as early as 2000 but Crocus had too much power with government for anyone to challenge them
· the likely identity of the "higher authorities" that Crocus officials claimed had given them the okay for their 10-year-plan when civil servants in mid-2001 were slow to give their approval
That's Couldn't, With a C
Finance Minister Greg Selinger addessed the NDP cabinet on Nov. 27, 2000 and told them the Crocus Fund was in financial trouble. The fund wanted two changes to the law to help them out.
In a briefing note he said:
"Crocus management advise that they only recently realized the potential for a liquidity crisis. Most such funds expect to sell some of their holdings at a profit after five to ten years. The proceeds from such sales can be used to pay for share redemptions.
In fact, the Crocus prospectus states: ''To the extent it is permitted, the Fund intends to arrange its investment portfolio so that funds are made available through liquidation of its investments and securities, for the fulfillment of requests for Permitted Redemptions."
However, Crocus management are now advising us that the typical hold period for their investments will be ten to 14 years. This means that they do not expect to be able to sell assets in order to meet redemptions over the next few years."
The secret e-mails tell a different story, which raises the question who was misleading whom.
The day before Selinger went to Cabinet, Stephen Watson, an official in the taxation analysis branch of the Department of Finance, wrote to the Deputy Finance Minister Patrick Gannon and to a colleague, Ewald Boschmann (who would later become deputy Minister of Finance himself).
"I think there is good reason to believe that we can make several changes that will help Crocus."
He listed a couple, then added:
"I also think their mandate should be focused solely on getting a good return for investors ---let's nix the employee ownership mandate because that is a key reason why they haven't been able to liquidate their investments."
Ka-boom. That's some bombshell.
Crocus needed government approval to use money from new shareholders to pay off old shareholders because they couldn't, not wouldn't, liquidate their investments.
Here's the reason why Crocus could never get out of its financial bind, and the first hint that the valuations of the Crocus Fund's assets were overstated.
One of the "many bottom-lines" that Crocus CEO Sherman Kreiner had for the company was the spread of employee ownership. In fact, the Act that created Crocus required the fund to "use its best efforts to ensure that a majority of its investments directly or indirectly promote employee ownership or employee participation in corporate governance and management."
As Doug Davison, Senior Vice-President, Crocus said in an address to a Parliamentary committee in Nov. 2001:
"We have a style of operation with our fund that is focused significantly on the concept of employee ownership within our investee companies. It is not a precondition of our investment, but it is an aspect of what we are doing with respect to the approach that we are taking to value adding services, productivity issues and profitability within our portfolio. There are more than 2,500 people who are now employee owners within these approximately 60 companies. That number of people represents about 26 per cent of the employee population within our investee companies."
What was it, then? Crocus couldn't sell off companies with employee-ownership programs because that would put them in breach of the Crocus Fund Act? Or Crocus couldn't sell the companies because nobody wanted to buy them with employee-ownership programs attached?
Either way, they couldn't be sold. And if they couldn't be sold, their value on the market was - well - zero. And zero was a heck of a lot less than they were being carried on the books.
One high government official who didn't seem to care one way or another was Premier Gary Doer who used the employee-ownership stick to beat the Opposition when the first public questions about the validity of Crocus share valuations were raised.
From Hansard:
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.
Don't Ask, Don't Tell
On November 30, 2000, some top civil servants in the finance department exchanged e-mails over a letter sent to Sherman Kreiner.
The letter informed him of Cabinet's decision on his request for two changes to the law to help him dodge the pending liquidity crisis at Crocus. Cabinet decided to turn a blind eye if Crocus sold more than $30 million in shares as allowed by law.
But a request to waive a cooling-off period, and let shareholders roll over their investments in Crocus and collect a second immediate tax benefit, was on hold pending a review of its effect on policy goals.
Ewald Boschmann wrote to Stephen Watson with a CC to deputy minister Patrick Gannon:
"Why would we want to tell them - in writing - at this point that we'll relax the cap in any event. Surely that would make a nice "quotation" in the prospectus---and do we really want that?"
Watson replied, with a CC to Gannon:
"Pat made the point that it might be quoted in a prospectus and suggested the softer wording. The relevant passage in the second draft reads: "In considering the possibility that Crocus might exceed the $30 million level again in the current fiscal year, we would prefer to address this issue on a similar basis to preceeding years without imposing additional conditons on directed investments." I think that is too cryptic to make it into a prospectus."
Double Whammy
Boschmann replied to Watson:
"Stephen, in my view this will be viewed by Crocus as a "very good news indeed" letter (given that they're doubtless aware that we have some serious concerns with their performance.)
It tells Crocus that Cabinet has instructed us to keep them afloat, basically unconditionally. It tells them the (sic) "the cap is off-unconditionally-only we don't want to say so now"
And if they learn that Pat, or anyone from our Department, in the course of the review is getting tough with them, they will wave this letter under our noses, and then the Ministers', if we don't desist."
Boom. Boom. Two bombshells at once.
Here we learn that the Finance Department has "serious concerns" about the performance of the Crocus Fund in 2000.
Not liquidity. Performance.
Performance which affects valuations.
We've already seen how officials within government softened language, then made it as obtuse as possible to keep important information out of the prospectus and away from investors.
But here for the first time we're given a clue to why civil servants backed down when Crocus official cited "higher authorities" for their long-term growth plan, as cited in the Auditor General's report.
"And if they learn that Pat, or anyone from our Department, is getting tough with them, they will wave this letter under our noses, and then the Ministers', if we don't desist," predicted Ewald Boschmann.
Isn't that exactly what happened six or so months later when Crocus officials stared down their supposed overseers in the department of Industry and Economic Development?
When Auditor Jon Singleton wrote that Crocus told the government reps that their plans "had already been cleared by those in higher authority" was he quoting literally or being cryptic? Was this his way of referring to Cabinet without naming any government officials, something he was forbidden to do by his mandate
"they will wave this letter under our noses, and then the Ministers', if we don't desist."
It's hard to imagine today how fearsome the Crocus machine was six years ago. The Crocus juggernaut rolled over everyone standing in its way---civilians, politicians, and civil servants alike.
Here were some of the top bureaucrats in the province and they knew they didn't stand a chance in any faceoff against Crocus.
Boschmann to Watson, November 30, 2000:
"I don't see either a red or even a "flashing amber" light in that letter on any of Crocus' practices. I think with that letter we've signalled to Crocus that we've caved.
only possible way out that I can see is a completely independent third party review---and the letter even assures them that won't happen unless we can interpret their influence ending once the reviewer has been selected. Even that would probably enough (sic) to preclude a an unbiased assessment.
think they will even be happy that Pat sent the letter rather than the Minister because they will read that as Cabinet having called off the bureaucratic dogs."
The secret leaked e-mails do more than just contradict the official NDP government line on Crocus (we didn't interfere, we were neutral on valuations, it's Gary Filmon's fault.)
They point the way for further investigation.
* The public needs to see internal government communications for June, 2001, when the non-public review of Crocus by the Department of Industry was completed.
* We need to see all memos and e-mails for February, 2002, when Crocus launched its counter-offensive against Bernie Bellan and John Loewen, and the NDP stood silent all the while knowing Bellan and Loewen were 100% correct.
* And all communications in the summer and fall of 2002 which might refer to the phony $10 million "investment" in Crocus by their Quebec counterpart.
If even one analyst used the word "loan", then we can expect to see some Cabinet members in prison stripes.
* Finally, we need to examine all government communications in 2004, starting about September, when the wheels began to fall off the Crocus Fund and it began its slow crash and burn. How desperately did Crocus higher-ups reach out to their government protectors?