The 34,000 Manitobans who invested in the failed Crocus Investment Fund could see some of their money as early as this fall, following a spate of settlements involving defendants in a $200-million class-action lawsuit.

Four of the remaining defendants in the suit — including the Province of Manitoba, the Manitoba Securities Commission and PricewaterhouseCoopers LLP, the labour-sponsored fund’s auditor — announced settlements totalling almost $9 million in late February. That brings the total number of defendants who have settled to five, and leaves only Winnipeg-based Wellington West Capital Inc., the fund’s lead underwriter, as an active defendant.

Following confirmation of the most recent settlements, the fund’s court-appointed receiver, Deloitte & Touche LLP, announced that it would consider recommending a partial distribution of assets to shareholders.

The receiver had previously indicated a reluctance to part with any of the fund’s estimated $88 million in assets under management because of concerns about the class-action suit.

“The recent events are evidence of progress in attempts for a distribution to occur,” Deloitte said in a statement. “However, the receiver is some time away from being able to make the necessary motion. A distribution before the fall, although possible, is not likely.”

The class action may soon be able to negotiate a fifth settlement; Kish Kapoor, president of Wellington West, says the investment dealer is open to such discussions.

He says Wellington West is confident it fulfilled its duties to Crocus and points to extensive reports by the province’s auditor general and Deloitte to back up its claims.

“We are incurring [legal] costs,” Kapoor says, “and think it’s in the best interests of all parties to try to minimize the time, effort and resources in dealing with this complex matter.”

Bernie Bellan, the outspoken Crocus shareholder who spearheaded the class-action suit, says that with his group’s new-found deep pockets, it is hoping to add two more potential defendants to the suit from whom it hopes to reclaim a further $3 million. They are Fillmore Riley, a Winnipeg-based law firm that advised Crocus’s board of directors, and Stafford Swain, a consultant who helped value the companies in the fund’s portfolio.

Crocus ceased trading in December 2004 amid concerns that some of the investments in its portfolio were significantly overvalued. The fund went into receivership in June 2005 after its directors resigned en masse, in large part because of the threat of the class-action suit that had been filed the month before.


To date, the lawyers spearheading the class action, which has yet to be formally certified, have generated $12 million in settlements. Former Crocus officers and directors, whose legal fees were still being paid by the fund, settled for $3.2 million in January. Chubb Insurance Co. of Canada, the fund’s insurance company, covered the settlement. How much of this money will actually be available to shareholders is unknown.

The most recent settlements saw the province agree to pay $2.75 million so that it and the MSC would be dropped as defendants. Manitoba Finance Minister Greg Selinger says there is no admission of liability with the settlement, which was designed to protect taxpayers from having to cover mounting legal bills. Government lawyers had advised the province it could expect to pay out approximately $3 million fighting the suit if it went to trial.

Hugh McFadyen, leader of the opposition Progressive Conservatives, used the settlement to reiterate his long-standing call for an inquiry into Crocus.

“You don’t write a cheque for that amount when you have a strong case,” he says. “You do that when you have a weak case and you’re looking to get out of it.”

PWC, the accounting firm that prepared audited financial statements for the fund, paid out $6 million. BMO Nesbitt Burns Inc. , one of the fund’s underwriters, agreed to a $100,000 settlement.

The legal team handling the class action has, to date, asked the court to set aside only $750,000 of the settlement pool for expenses. David Klein, a Vancouver lawyer who leads the team, says a bill for legal fees will be submitted to the court for approval once all the settlements are in place. Klein would not describe the amount that will be requested, but industry standards usually see lawyers handling class-action cases take at least 25% of total settlements for fees, with expenses charged on top of that amount.

@page_break@Crocus shares are currently valued at slightly more than $6 a share, which is about half of what they were worth when the fund ceased trading. The vast majority of Crocus shareholders held their units in RRSPs.

When unitholders ultimately receive their money, they will have effectively redeemed their shares and their Crocus holdings will be replaced with cash. Provided the funds or resulting investment purchases are kept in their RRSPs, there will not be any income tax implications. The provincial and federal governments had previously decided not to claw back the 30% enhanced tax credit paid out to shareholders when they made their original investments. IE