Former officers and directors of Crocus Invest-ment Fund have reached an out-of-court settlement with the plaintiffs in a $200-million class-action lawsuit launched in the wake of the fund’s collapse in 2004.

Under the terms of the settlement, Chubb Insurance Co. of Canada, a wholly owned subsidiary of New York-based Chubb Corp., has agreed to pay more than $4-million in trust to the fund’s court-appointed receiver, Deloitte & Touche LLP, which has been in control of all Crocus’s assets since the fund went into receivership in June 2005. The fund had a $5-million liability policy with Chubb to indemnify officers and directors against legal liability.

As a result of the settlement, three former Crocus officers — CEO Sherman Kreiner, CIO James Umlah and CFO Jane Hawkins — and 15 former directors of the labour-sponsored venture-capital fund have been dropped as defendants in the class-action lawsuit. The suit was filed in 2005, just prior to the fund being placed into receivership.

An estimated $1 million from the settlement will go to pay the legal costs of defending those directors and officers who, in addition to the class-action suit, are fighting a prosecution by the Manitoba Securities Commission. The legal team representing the plaintiffs in the class action have also asked that approximately $750,000 of the settlement be set aside to cover other legal expenses.

Winnipeg lawyer Jay Prober, part of the legal team representing the shareholder plaintiffs in the class action, says the settlement should pave the way for a distribution of cash to shareholders. It may also prompt the remaining defendants to follow suit and seek out-of-court remedies, he adds.

The plaintiffs are still pursuing the other defendants, including the Province of Manitoba, the MSC, fund auditors PricewaterhouseCoopers LLP, Toronto-based BMO Nesbitt Burns Inc. and Winnipeg-based Wellington West Capital Inc.

Lawyers for the officers and directors welcome the settlement. “My clients are very pleased this is over,” says Patrick Riley, who represented the former officers. “They are pleased that there will probably be a payment of monies to shareholders.”

But Russ Holmes, receiver and a partner in the Winnipeg office of Deloitte, has not made a decision about whether to ask the court to approve a distribution of the proceeds of the settlement to the fund’s 34,000 shareholders because of concerns about other unresolved legal claims against the fund.

In addition to the cash from the settlement, the receiver holds more than $58 million of shareholder money, much of it from the sale of Crocus investments in Manitoba-based companies. When Holmes first asked permission to distribute cash to shareholders in 2006, the Manitoba Court of Queen’s Bench refused, noting there was too much risk from the class-action suit.

The class action has not yet been certified by a Manitoba court. Certification hearings have been delayed to give the other defendants time to study the settlement and, perhaps, seek their own deal with the plaintiffs.

Crocus stunned regulators and investors when it voluntarily ceased trading in December 2004 amid concerns about the valuations of some investments. The fund’s board had intended to revalue those investments and return to market, but that plan was never realized. An investigation by Manitoba’s auditor general, released in 2005, revealed valuation concerns and improper accounting. The provincial auditor turned over some findings to the RCMP, which is still investigating.

Unable to return to market in the wake of the auditor’s report, Crocus’s board of directors walked away in June 2005. The MSC then asked the courts to appoint a receiver.

The recent settlement puts an end to the simmering dispute between Deloitte’s Holmes and the former officers and directors of the fund over continuing support for their legal fees. After a court earlier upheld a Crocus bylaw providing for indemnification of Crocus officers and directors, Deloitte reluctantly paid out almost $1 million to cover the cost of their defence in the class action and in proceedings by the MSC.

In December, Holmes released the results of an investigation that suggest there was evidence that officers and directors had acted in bad faith in managing the fund. He asked the court to consider cutting them off from further support for legal fees, and asked them to repay any money paid to them to date.

The court made no comment on Holmes’ request, and Deloitte did not submit a motion asking for the court to rule on the issue. As part of the settlement, officers and directors will continue to be indemnified by Chubb against any other legal claims or proceedings. IE