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Larry's Letter & Canadians Talking

Postby urquhart » Sun Jan 08, 2006 8:42 am

Larry's letter got media coverage on IDA executives being investigated for possible tipping and IDA members for possible illegal insider trading. Public knowledge will put public pressure on the RCMP to do a thorough and high integrity investigation. Also, public outrage might finally lead to one or more of the Federal Parties backing a general investor protection
platform on behalf of small investors.

Shiela Copps of SunMedia refers to Larry's letter in her column today:

January 8, 2006
Is that lifeless body Martin's campaign?
By Sheila Copps
SunMedia

OTTAWA -- The backdrop for the prime minister's health announcement last week said it all. An apparently lifeless patient on a gurney was laid out for a few stethoscope-clad doctors in white coats. The symbolism of that photo-op was not lost on anyone.
The body Paul Martin was viewing (actually a med student posing for the cameras) had nothing to do with health care. It was a symbol of everything that has gone wrong with his campaign. No political organizer worth their salt would put the PM in such a position. Headgear, lifeless bodies and eating in front of cameras should be no-fly zones for politicians. (The Bloc's Gilles Duceppe is still remembered for appearing in a hairnet while touring a cheese factory.)
But more important than the bad photo-op was the impression that Martin was nervously surveying his own demise. Here he was with one of the most important announcements of his post-Christmas relaunch and what we see is a body. What we hear is more talk about the RCMP investigating his government.
In the ongoing police probe of the possible income trust announcement leak (and allegations of insider trading), Martin says he cannot say who knew details of the announcement in advance for fear of breaking his cabinet oath of secrecy. Finance Minister Ralph Goodale, who presumably took the same oath, names ministers John McCallum and Tony Valeri and three PMO staffers as being in the loop. McCallum says he spoke to no one, but two of his staff members were informed. Valeri (my erstwhile rival in Hamilton), cancels a major debate in his riding.
Then Goodale trots out his friend, Greystone Management CEO Don Black of Regina, to do damage control. On national television, Black says he attended a meeting of the Investment Dealers of Canada executive with his friend Ralph the morning of the income trust announcement. He assures the public that nothing of importance was revealed. He also says that he knows Goodale as a personal, not political, friend. He says he has never discussed politics with him.
However, according to Elections Canada records, he was a major contributor to Goodale's 1993 election campaign, and was subsequently appointed head of the Farm Credit Corporation by then-agriculture minister Goodale.
The PM has said he will not talk about trusts. Black characterizes the trust issue as a "tempest in a teapot," but a Dec. 31 New York Times article suggested that in the run-up to the Nov. 23 announcement, "trust units lost $10 to $20 billion Canadian in market value." One-quarter of those unit investments are held in the United States.
In a curt one-paragraph letter, Joseph J. Oliver, president of the Investment Dealers Association, refused to reveal the names of those executive members who attended the Goodale meeting. Oliver had this to say to a request from retired investor Larry Elford, who asked for the names: "The matters you refer to in your letter are under investigation by the RCMP, therefore we cannot comment. However, we can inform you that the IDA is not participating in their investigation regarding income trusts."
Elford is a Lethbridge investor advocate who runs a website (investor advocates.ca) to fight for the little guy, and he's furious with the IDA. "There are two sets of rules, one to protect the public and one to protect the industry," he charged.
As much as the prime minister might like to shut down discussion, there are too many little investors who have been burned in this whole sorry mess to shove this genie back in the bottle. Paul Martin may not want to talk about it. The IDA may not want to talk about it. But they sure do have Canadians talking.

sheila.copps@tor.sunpub.com
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CBC Now Knows the Names of the IDA Execs in Meeting

Postby urquhart » Fri Jan 06, 2006 4:34 pm

Here are the names of the IDA directors and executives who attended the November 23, 2005 meeting with Minister Ralph Goodale. Larry Elford's letter has finally flushed out all the following names into the public realm. I wonder why it is that the IDA was not willing to release these names in their reponse letter to Larry Elford and to the public immediately after it became known that the IDA meeting with the Minister occurred. The IDA is a self-regulator to whom the provincial securities commissions delegate over 99% of individual investor complaints on malfeasance by investment advisors. Can individual investors not expect that their main investor protection agency behaves better than what we have just observed in this income trust scandal.


S. Ross Sherwood, Chair
President, Chief Executive Officer
Odlum Brown Limited

Joseph J. Oliver
President & Chief Executive Officer
Investment Dealers Association of Canada

Donald W. Black, C.M.
Chief Executive Officer
Greystone Managed Investments Inc.

Timothy E. Price
President & Chief Executive Officer
MacDougall, MacDougall & MacTier Inc.

Ian Russell
Senior Vice-President,
Industry Relations & Representations
Investment Dealers Association of Canada

Morag MacGougan
Vice-President,
Industry Relations & Representations
Investment Dealers Association of Canada
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RCMP Investigation

Postby Concerned Investor » Fri Jan 06, 2006 1:44 pm

Not quite certain what hats the IDA wears. It appears to be certain that they are politically active, i.e. declaring themselves as friends of the Liberals.
I have voted for all parties in the past (mostly Liberal by the way), however, I would suggest that there is an element of international reputation.
What do people globally know about Canada? The RCMP for certain and Wayne Gretzky. The Mounties conjure the perception of law and order, synonymous with Canada.
Therefore if someone from the IDA stops short of declaring that the Mounties should find something else to do, don’t they have a horse to ride on, you are playing with the international reputation of Canada.
When your official languages are English and French, the most widely spoken/understood languages globally, living in Canada is like living in a house of glass. With the advent of the Internet, the world reads about Canada. Did you know that the CEO of one of the largest banks globally is under scrutiny in Germany by their Attorney General? I did not think so, language restrictions might have played a role. Did you know that the President of Italy is under scrutiny by their Attorney General? I did not think so, language restrictions might have played a role.
None of that applies to Canada. The world reads and understands what is going on with the Security Commission in Alberta, the IDA, etc., (the IDA apparently displaying contempt, in what the world recognizes as an institution of law and order). I would be careful. This translates into Dollars and Cents. The Chinese, who may be prepared to pay $5 Billion, may only offer $4.5 Billion to compensate for the lack of regulation in Canada.
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Postby admin » Thu Jan 05, 2006 8:26 pm

the IDA, by trying to have it both ways, first by wanting to be an industry trade and lobby group, and second by wanting to be it's own self regulating agency has always forgotten how to deal with this conflict of interest. They talk the talk, but the walk of money always prevails.

There are seemingly two sets of rules in the investment industry; one set of rules written by the industry to supposedly protect client interests, and another set of rules written by the industry to protect the industry interests. My experience is that client protective rules can and do get overlooked when it is convenient to do so. No one in the industry suffers, and if a client complains, the industry is self policing, so they can easily brush it aside. B any rule intended to protect the industry can and will be fully enforced as intended.

For example, when I wrote to the IDA to complain about ethical lapses and what I felt to be violations of the securities act by my employers when I was with RBC, I received a nicely worded letter back saying that they have looked into my allegations and have decided not to initiate formal disciplinary proceedings against me in this matter.

In my letter of complaint I outlined the many violations I was aware of from my position within the firm, and that I had tried to write newspaper articles telling clients how they could save money on mutual funds by not paying commissions. This writing process was banned by RBC at the time, due to the explanation they gave that such fees were too important to some advisors to give up. I responed that if they were true advisors, they would advise clients in the best interest of the client and not in the best interest of fees. I ignored the small industry protective rule in favor of the bigger client protective issue.
In typical IDA fashion, they chose to ignore the ethical and securities act violations (client protective) and instead threaten me (industry protective). I look forward to my day in court here in Alberta to debate the "you first" advertising promises of RBC which I felt were being ignored, and I look forward to the day when so called regulatory officials like the IDA (or provincial securities commissions) are held to the account of the breach of trust standards outlined in Terry Corcoran's Financial Post editorial yesterday. Criminal code violations (section 122) are being made by a self policing industry that wants to have it both ways, and it is nearing the time when this will no longer go un-noticed.
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IDA Letter Confirms It is Under RCMP Investigation

Postby urquhart » Thu Jan 05, 2006 5:47 pm

I interpreted the letter from Joe Oliver, President & C.E.O. of the IDA to be confirmation that the IDA executives attending the meeting with Minister Goodale on the morning of Nov 23rd are now under RCMP investigation. This is something that had not previously been made public by either the IDA or RCMP.

The second accomplishment of Larry's letter is that Donald Black identified himself as another IDA Director that attended the meeting with the Minister. He must have been designated as the spokesman for the IDA Directors to convince the public that they did not receive any inside information.

Finally, the third outcome of Larry's letter is that the IDA has agreed its investigators will not be working with the RCMP IMET Team on this investigation. This was confirmed this afternoon by Paul Marsh of the RCMP. Furthermore, while it was unclear in the past, the RCMP is making it clear now that the IDA will not ever have official status as a member of the RCMP IMET Team.
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Postby Scrumshew » Thu Jan 05, 2006 1:16 pm

Congratulations to Larry on getting a response, even if its no comment, from the IDA.
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Postby Donald » Thu Jan 05, 2006 11:25 am

Minister McCallum is the former chief economist of RBC
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Postby admin » Thu Jan 05, 2006 7:53 am

IDA Board member who were interviewed by Margo McDiarmid on tonight's CBC National News. Surprise, there are now two more Ministers who knew, Minister McCallum and Minister Valieri. Also, Black has disclosed his involvement in the IDA meeting with the Finance Minister. but of course they did not discuss the timing or the content of the Minister's decision on income trusts that morning. Mr. Black was somewhat flippant in his review of what took place at the IDA meeting. He was introduced as a good personal friend of Minister Goodale. I doubt that the Canadian public will buy into the stories of Ross Sherwood and Donald Black. Here is the list of other possible participants in the meeting that Joseph Oliver now refuses to publicly disclose. Who are the other attendees? The Bloc thinks that 14 people were in attendance at the IDA meeting with the Minister.


In repsonse to the previous post "who is the IDA".........they are an industry trade association that has (in my opinion) finagled their way into being allowed to self police themselves.........or alternately they have finagled and bamboozled provincial regualtory bodies into believing that they can be trusted to enforce the law against thier own. The record (www.investorvoice.ca) does not suggest that they have walked the walk.

Their credibility, as a result, is next to nil, (again, in my opinion, after twenty years inside the investment industry), the MFDA, for example will not entertain merger with them, thier members have voted to separate (likely for optics) the regulatory function from thier official role as trade association. I still have no answer from anyone at the OSC or IDA on how and why they claim status to enforce provincial securities law. Perhaps now is the time to resubmit. God knows they may even attempt an answer at this time of election and media focus on any part in the potential sharing of government insider info.
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RCMP Investigation

Postby Concerned Investor » Thu Jan 05, 2006 7:37 am

I did not know who the people at the IDA are.
Reading CTV news, they include personal friends of the minister of finance? Some friends. Do they not recognize that they could compromise the integrity of their friend by meeting with him the day of the announcement on income trusts?
And what is this? ‘I hope if they’re ever investigating me, that they announce that publicly, so I can cover my tracks.’
How can someone, especially an official of the IDA, make such a statement.
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The IDA's Response to Larry Elford's Letter

Postby urquhart » Wed Jan 04, 2006 6:03 pm

Joseph Oliver, President and Chief Executive Officer of the Investment Dealers Association (IDA), has written a response letter today to Larry Elford confirming that "the matters referred to in his letter are under investigation by the RCMP, and therefore we cannot comment." Larry Elford's attached January 2, 2006 letter to Joseph Oliver had made the following request:

"The IDA, as a self-regulator of the investment banking industry, should publicly disclose who attended the IDA meeting with Finance Minister Goodale on the morning of November 23rd. Since a subset of IDA Member investment banks were active in the unusually high volume and price up ticking in income trusts and dividend paying common shares that began at about noon that day, it is reasonable to anticipate that the RCMP will be reviewing communications and conducting interviews surrounding this IDA meeting with Honourable Minister Goodale."

Joseph Oliver's letter further indicates that the IDA is not participating in the RCMP's investigation of income trusts. This statement is not qualified by any conditions such as "not participating at this time" or "would consider participating if asked by the RCMP."
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Letter for IDA to Recuse Itself from RCMP IMET Investigation

Postby urquhart » Tue Jan 03, 2006 7:17 am

Larry Elford

Lethbridge, Alberta,

E-mail: lelford@shaw.ca

January 2, 2006

Joseph J. Oliver
President & Chief Executive Officer
joliver@ida.ca

-and-

Paul Bourke
Senior Vice President, Member Regulation
pbourke@ida.ca

Investment Dealers Association of Canada
Suite 1600, 121 King Street West,
Toronto , Ontario M5H 3T9
Tel:(416) 364-6133
Fax: ( 416) 364-0753
Enforcement Matters Only: Fax (416) 364-2998
enforcement@ida.ca
Dear Joe Oliver and Paul Bourke:
On December 28, 2005, it was publicly announced that an RCMP investigation has begun on the alleged illegal insider trading of income trusts and dividend paying common shares on November 23rd prior to Finance Minister Ralph Goodale’s announcement of no new business tax on income trusts and a reduction in the personal taxes on dividends. RCMP spokeswoman, Nathalie Deschênes, confirmed that the investigation will involve an RCMP Integrated Market Enforcement Team, a specialized unit that includes RCMP officers and securities regulators.
I am writing today as an individual investor and a retired twenty year investment industry veteran to complain about the unusual increases in trading volume and up ticking of prices in income trusts and dividend paying common shares that occurred on the afternoon of November 23rd, where the trades were executed primarily by a subset of Investment Dealer Association (IDA) member investment banks. Also, Eric Beauchesne of CanWest News Service reported in his December 10, 2005 article “Renewed Call for Income Trust Probe” that executives of the IDA met with Finance Minister Goodale on the morning of November 23rd prior to the Goodale tax announcement later that evening. The existence of the IDA meeting and its subject were confirmed by both Honourable Minister Goodale’s office and by Ross Sherwood, Chairman of the IDA as noted in the following quotes from the CanWest News Service article:

“John Embury, Goodale's director of communications, said the members of the self-regulatory organization for the securities industry raised the issue of income trusts at the end of previously scheduled regular meeting.”
``There was a very vague, very general discussion,'' Embury said, adding that it dealt with the association's planned submission on the income trusts issue. ``They left the meeting no wiser than when they came through the door.”
“Ross Sherwood, chairman of the investment dealers association and CEO of Odlum Brown Ltd., said the discussion on income trusts focused exclusively on the association's submission on the issue which wasn't finalized at the time and was only released a week later. The announcement on income trusts early that evening ``came as quite a shock ... we had no idea.”

The IDA, as a self-regulator of the investment banking industry, should publicly disclose who attended the IDA meeting with Finance Minister Goodale on the morning of November 23rd. Since a subset of IDA Member investment banks were active in the unusually high volume and price up ticking in income trusts and dividend paying common shares that began at about noon that day, it is reasonable to anticipate that the RCMP will be reviewing communications and conducting interviews surrounding this IDA meeting with Honourable Minister Goodale.

Barry Critchley, of the National Post, wrote the following in his column on December 9, 2005 entitled “Vague heads-up on Ottawa's plans easy to decipher”:

“For instance, when asked yesterday, "When did you know that an announcement was coming?" an investment banking source said, "About 2:30 p.m." He was then asked how he found out. His reply: "Reliable sources."
That comment confirms the following comment from the chief executive of an income trust. "Our bankers told us the day before that something was happening. They didn't know what it was but they knew that something was underway."

On the IDA website, it says: “The enforcement process is an essential element in assuring investors that the IDA’s Member firms are effectively regulated and that each adheres to the highest standards of conduct.” The IDA Guide for the Subjects of an Investigation indicates that the IDA has jurisdiction for undertaking investigations into the conduct of its Members and their employees, which in this case would cover the IDA executives who attended the November 23rd morning meeting with Finance Minister Goodale and the traders working for the IDA Members who executed the unusually high volume and price up ticking in the income trust and dividend paying common share trades later that day.



1. Investigatory Powers of the Association
Pursuant to By-law 19, Enforcement staff of the IDA may undertake investigations into the conduct, business or affairs of its Members and their employees. Investigations may be undertaken on the basis of:
• a complaint received from a member of the public;
• a directive from the IDA’s Board of Directors;
• a request from a securities commission; or
• any information obtained or received by the IDA.
I would like to officially request that the IDA have no role as an investigator in the investigation by the RCMP IMET Unit into the alleged illegal insider trading of income trusts and dividend paying common shares due to the existence of the IDA executives’ meeting with Finance Minister Goodale in the morning of November 23rd and due to the possible subset of IDA Members who executed the unusually high volume and price up ticking in the income trust and dividend paying common share trades later that day.

My request for IDA enforcement personnel to recuse themselves from the RCMP IMET investigation on the alleged illegal insider trading of income trusts and dividend paying common shares is a request for them to break from their normal role as IDA investigators with official status in the RCMP Integrated Market Enforcement Team. The IDA’s normal role in RCMP IMET investigations is well defined in the RCMP IMET press release of January 2, 2005 on the laying of charges against an HSBC Securities (Canada) Inc. employee for theft of securities:

“’This is a good example of the seamless cooperation between securities regulators and IMET in investigations of capital markets fraud," commented Tom Atkinson, president of Market Regulation Services Inc. (RS). "RS, in conjunction with the Investment Dealers Association of Canada (IDA), fully assisted IMET in its work to bring this investigation to a successful close."
The objective of the IMET is to maintain investor confidence in Canada's capital markets by deterring market fraud and theft through enhanced enforcement and prosecution of serious market fraud and theft offences in Canada. The investigative work of the IMET complements the work of the financial markets' regulatory organizations such as the provincial securities commissions, Investment Dealers Association of Canada and Market Regulation Services Inc.
The Greater Toronto Area IMET brings together specialized investigative skills from the RCMP and participating agencies. It is currently supported by the Ontario Securities Commission, Investment Dealers Association of Canada, Market Regulation Services Inc. and the Mutual Fund Dealers Association of Canada.”

As we know, the IDA has recently realized that they simply cannot continue in the conflicting roles of representing themselves to be a self regulatory group, while also being registered in Ottawa as an industry lobby group for investment dealers. As a result, they are now in the process of splitting apart these conflicted roles as both a self-regulatory and lobby organization.

I appreciate your attention to the need for the IDA to recuse itself as an investigator assisting the RCMP IMET investigation on the alleged illegal insider trading of income trusts and dividend common shares, where IDA executives and IDA Member employees will be amongst the investigated. Those being investigated must provide their full co-operation to the RCMP IMET Unit, which must act independently on this matter.


Yours sincerely,



Larry Elford
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Postby admin » Mon Jan 02, 2006 12:19 am

Sheila Copps
Sun, January 1, 2006

Finance springs a leak

By SHEILA COPPS


HAMILTON -- There is no way that Finance Minister Ralph Goodale can remain in his job without delivering a body blow to the re-election aspirations of the Paul Martin Liberal Party. After last week's announcement of an RCMP criminal investigation into possible leaks of the government's income trust policy, the minister is duty bound to step aside.

But so closely are his fortunes tied to those of his boss, Goodale's demise would be viewed as a precursor to the departure of the Prime Minister. As Martin demonstrated in his vigorous defence of his minister, neither has any intention of leaving anytime soon.

To those who know the inside workings of the department of finance, rumours surrounding the leaks were not surprising. Since Martin's arrival as the minister in 1993, finance had become known as one of the leakiest departments in government. The big surprise is that the RCMP would launch a criminal investigation in the middle of an election campaign. Kudos to Commissioner Giuliano Zaccardelli for pursuing the investigation, irrespective of political agendas.

Kudos, too, to NDP finance critic Judy Wasylycia-Leis for doing her job. And to the blogosphere. If anyone wants to know why the RCMP decided to the pursue the matter, check out a few political blogs for this twisted tale of trusts.

'Senior moment'

First, the finance minister said neither he, nor his office, had met with anyone prior to the Nov. 23 announcement that he would not be imposing a tax on income trusts. When a seniors' group opposed to trust taxes revealed they had been contacted by the minister's office a few hours before the announcement, their spokesperson was essentially accused of suffering a "senior moment" of memory lapse.

Former finance employee Don Drummond -- now senior vice-president and chief economist of the TD Bank Financial Group -- repeatedly said the activity did not appear to be insider trading but rather the result of smart investors putting two and two together and coming up with millions.

Others begged to differ, including forensic financial experts tracking irregular trading, but were generally marginalized.

Nonetheless, the bloggers kept at it. A couple of weeks later, it became known that Goodale had a meeting with key financial players just hours before the announcement. The previously undisclosed meeting with the executive of the Investment Dealers Association of Canada reinforced suspicions that millions in profit-taking were perhaps not simply just due to savvy investors, but possibly due to insider information from a department reputed to be so leaky that budget secrecy might as well have been thrown out long ago.

During Martin's tenure, advance budget details were commonly leaked to massage media messaging. Friendly reporters were provided with news nuggets with the expectation of favourable coverage of the minister and his message. Unfavourable news was leaked to discredit foes -- "money-grabbing" ministers in other departments (present company included).

It is high time somebody got to the bottom of the leaking. It is also not unreasonable to wonder how ordinary Canadian investors are protected against insider deals. Ordinary investors need to know their governments and regulatory bodies are in their court.

Thank goodness the RCMP will get to the bottom of this whole sorry mess (they have not specified who they are investigating, but did say there is no evidence of wrongdoing by Goodale or his department). Perhaps after that, we will see a return to the day when budget secrecy actually meant something. But I wouldn't hold my breath.
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New York Times Article on Problems With Canadian Trusts

Postby urquhart » Sun Jan 01, 2006 2:59 pm

The following is a Saturday, December 31, 2005 New York Times story on the RCMP investigation of the income trust trading scandal in Canada and on the Accountability Research Corporation Report findings that in the majority of business income trusts cash distributions exceed actual net income and income trust units are overpriced as a consequence.

NEW YORK TIMES

December 31, 2005
Popular Canadian Investment Runs Into Politics and Hints of Scandal
By IAN AUSTEN
OTTAWA, Dec. 30 - Income trusts, the delight of many Canadian investors and a source of concern to corporate governance experts, became yet another thing this week: the heart of a political scandal.
Little known outside of Canada, the trusts have been booming here, offering a way to tap directly into a company's earnings, even for the smallest investors. The trusts also pay virtually no taxes, spurring a stampede of corporate conversions from ordinary stock into trusts.
But late Wednesday the Royal Canadian Mounted Police confirmed that it was investigating whether possible leaks from the Department of Finance on planned tax changes to the trusts may have benefited some investors. The statement comes amid a campaign for federal elections on Jan. 23, with the now disbanded Liberal government in a very tight race.
Canada's opposition parties, which were already campaigning on allegations of Liberal Party corruption, were quick to capitalize on the inquiry. But there was considerable skepticism in the investment community about the police ever laying charges.
"My gut feel is that by the time the smoke clears and a lot of money's wasted, I don't think you're going to find any clear villains," Thomas S. Caldwell, the chairman of Caldwell Securities, told The Globe and Mail of Toronto.
The criminal investigation is major news in Canada. While investors have flocked to the trusts, which now make up almost 10 percent of the Toronto Stock Exchange's capitalization, analysts have questioned the amounts the trusts distribute and the inflated valuations of their units.
Canada's finance minister, Ralph Goodale, has brought up other qualms. In September, Mr. Goodale noted that in paying out most of their income, many trusts were not retaining cash for expansion or to respond to future market changes. "You could be embedding a kind of sluggishness in the economy," he said at the time.
Adding in estimates that trusts were costing the government 300 million Canadian dollars in lost taxes, Mr. Goodale went further: he froze trust conversions while the government studied their future.
An investor outcry produced a series of events leading to Wednesday's investigation. In the ensuing weeks, trust units lost 10 billion to 20 billion Canadian dollars in market value; the investment community swiftly mounted a campaign against the freeze in conversions, prominently featuring the impact on retirees.
With the governing Liberal Party already severely weakened, Mr. Goodale reversed course, and ended the review of the trusts and the freeze on conversions in late November, and instead introduced cuts to dividend taxes to make traditional stocks more attractive. The government nonetheless lost a vote of confidence on other issues at the end of the month.
But in the hours leading up to Mr. Goodale's announcement, trading volume in trust units spiked about 50 percent and the sector rallied 2 percent.
That unlikely trading pattern prompted Judy Wasylycia-Leis, a member of Parliament from the left-leaning New Democratic Party, to ask the mounted police, Ontario's securities regulator and the Securities and Exchange Commission to investigate the possibility of insider trading.
The income trusts began to take off about four years ago in oil and gas companies in Alberta. Since then, they have expanded to involve nearly every sector of Canada's economy, from a sardine canner to the country's largest newspaper chain. While there are no statistics on who owns the trusts, it is believed that individual investors are the largest single group, with about a million Canadians holding part of a trust.
"After the tech bubble burst, many Canadian investors were afraid of stocks; bonds were anemic," said Lewis Johnson, a professor of finance at Queen's University in Kingston, Ontario. "And people started hearing about income trusts."
What they heard was appealing. Like leveraged buyouts, income trusts provide a way for investors to get part of a company's earnings, paid out in regular, usually monthly, distributions. Unlike leveraged buyouts, income trusts let even the smallest investor in on the action.
Since trusts pay little or no corporate income tax and retain only enough earnings to cover depreciation, they are able to offer returns generally in the range of 7 percent to 8 percent, with some hitting double digits. At a time when traditional income-generating investments are offering Canadians returns of only 1 percent to 4 percent, trusts swiftly became the investment of choice for retirees and others on fixed incomes.
As a result, Canadian companies with lagging share prices or low dividend payments now find themselves under shareholder pressure to become trusts.
The conversion process is relatively straightforward. A corporation delists its traditional equity and transforms itself into a partnership held by the previous stockholders. An initial public offering relists the company's partnership units on the Toronto Stock Exchange. A crucial factor in pricing those units is the company's estimate of its profit distributions.
But it is how those cash distributions are set and how the units are priced that worry some critics. Some argue that trust holders may see their investment diminished, or even wiped out, by a long-term decline in the value of overpriced trust units.
In a study released last month of Canada's 50 largest trusts, the Accountability Research Corporation based in Toronto concluded that many trusts units are overvalued at the outset.
One method of inflating the unit value, Accountability Research argues, is to offer cash distributions that exceed a company's actual net income. According to the study, three quarters of the largest trusts are paying out more than their net income. One common technique is to underestimate the amount of profit that must be held back to cover depreciation and future investment.
In a separate report, Accountability Research noted that when ACE Aviation Holdings, the parent company of Air Canada, first looked at spinning off its Aeroplan points rewards program in 2004, the operation was given an assessed market value of 532 million Canadian dollars. Today, as a trust, the Aeroplan Income Fund has a market capitalization of about 2.5 billion Canadian dollars. In an e-mail message, a spokeswoman for Aeroplan declined to comment.
In a telephone interview, Ms. Wasylycia-Leis said that she had no specific evidence of a leak and that the police have not uncovered anything either.
While Mr. Goodale's change of heart was sudden, it was not without hints. The day before his announcement, Mr. Goodale told reporters he would be clarifying his position on trusts before any election. And Canadian newspapers and investor Web sites were filled with speculation that the government was unlikely to impose taxes or otherwise limit the trusts with an election looming.
"It may be that they can't find anything specific," Ms. Wasylycia-Leis said of the police inquiry. "The pattern may be the result of general speculation and the fact that the government did this in such a hurry. But we have to know if in this country some people were able to take advantage of government information."
Unfortunately for Mr. Goodale, the police say it is unlikely those answers will come before election day.
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Postby admin » Sun Jan 01, 2006 2:34 pm

Dear RCMP,
\
The following information slowly coming out of the Finance Department might (just might) provide some clues for you to investigate on where the inside information on income trusts and dividend tax credit announcements came from.

see article below:

canada, canadian search engine, free email, canada news

Saturday » December
10 » 2005


Renewed call for income-trust probe

Eric Beauchesne

CanWest News Service

Saturday, December 10, 2005


CREDIT: CP File Photo

Finance Minister Ralph Goodale

OTTAWA - Finance Minister Ralph
Goodale had an hour-long meeting
with senior representatives of
Canada's investment community at
which the issue of income trusts
were discussed only hours before his
decision on the issue was
announced, CanWest News Service
has learned.

An official in Goodale's office
confirmed Friday that the previously
undisclosed meeting with the executive committee of the Investment Dealers
Association of Canada took place but said those who attended left the
morning meeting ``no wiser'' about the decision that was announced later that
day after markets closed.

A spike in trading volumes and prices for income trusts and dividend rich
stocks just hours before Goodale revealed the government would cut the tax
on dividends and not impose a new tax on income trusts has raised highly
publicized suspicions that some investors may have acted on advance
knowledge of the decision.

John Embury, Goodale's director of communications, said the members of the
self-regulatory organization for the securities industry raised the issue of
income trusts at the end of previously scheduled regular meeting.

``There was a very vague, very general discussion,'' Embury said, adding that
it dealt with the association's planned submission on the income trusts issue.
``They left the meeting no wiser than when they came through the door.''

Although there was media speculation that morning that Goodale was
planning to make an early decision on the controversial issue, Embury said
there was no discussion about the timing of the decision or what it might be.



Ross Sherwood, chairman of the investment dealers association and CEO of
Odlum Brown Ltd., said the discussion on income trusts focused exclusively
on the association's submission on the issue which wasn't finalized at the time
and was only released a week later.

The announcement on income trusts early that evening ``came as quite a
shock ... we had no idea.''

``If you met Mr. Goodale, if you talk to him, the guy's not giving anything
away,'' Sherwood added in an interview.

However, the revelation of the meeting reinforced opposition demands for an
investigation into whether there was a leak of information on the decision.

Conservative finance critic Monte Solberg expressed surprise when told of the
meeting.

``The minister should be completely candid and release a list of all the people
he had meetings with that week on the income trust issue,'' Solberg said.
``One of the things that I find frustrating is that it's only after information
drifts out that they admit that they met with this group or that group, or that
somebody got some kind of a phone call.

``This doesn't do anything to instil confidence in the minister or the minister's
office,'' Solberg said, adding that his party will continue to ``push'' for an
investigation into the issue by the Ontario Securities Commission or the
RCMP into the issue.

Meanwhile, NDP finance critic Judy Wasylycia-Leis called on the securities
commission to investigate the suspicions raised by the spike in trading that
day, and to make its investigation public.

``The Ontario Securities Commission has a mandate to investigate such
matters and, in this case, make such investigations public and I'm writing to
ask you to do exactly that, as soon as possible,'' she said in a letter sent to the
securities regulator Friday.

The commission has so far refused to reveal whether it is conducting an
investigation into the issue.

The RCMP, which she has also asked to conduct an investigation, will only
say it is reviewing her request.

``There is enough suspicion to warrant an investigation,'' she said in an
interview.




Earlier this week, it was revealed that Goodale's office on the day of the
announcement had tipped off a group representing retirees that an early
announcement on the issue was coming. Many seniors had been concerned
that the government was planning to levy a new tax on income trusts, in
which many invest because they generate a steady flow of income.

Goodale, however, has dismissed the surge in trading and prices that preceded
his announcement as market speculation based on his comments a day earlier
that he was planning an early decision.

The minister had planned to accept submissions on what it should do about
income trusts, which are not taxed, but which distribute income to investors
who are, until Dec. 31. Fearing it was losing an estimated $300 million a year
in tax revenues to what had been a stream of conversions into income trusts
Goodale had effectively put a stop to further conversions in September by
announcing that Canada Revenue Agency would no longer give advance
rulings on their tax treatment.

The Finance Department had been considering the imposition of a five per
cent tax on income trust distributions.

With an election call looming, Goodale moved up the timing of his decision,
and also abandoned the plan to impose a new tax on trusts, which Embury
said was only one of several options it had been looking at.

Instead, it cut the tax on dividends to level the playing field between trusts
and corporations.

© CanWest News Service 2005
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Postby Donald » Sat Dec 31, 2005 8:47 am

"It was a crazy year," said Chris Rankin, a business trust analyst at Canaccord Capital Corp. But as far as distribution cuts go, "they're not even done yet," he says. Another trust analyst, speaking on condition of anonymity, says: "The investor backlash is going to be really bad. Unfortunately, we don't have many good ones coming to the market." (G&M)
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