Income trust tax leakage fraud
Hmmmm, maybe Stephen Harper isn't such a towering presence after all, but rather a Matryoshka doll?
Friday, May 30, 2008
Posted by Fillibluster at 4:37 PM
Wednesday, May 28, 2008
Monday, May 26, 2008
By: Brent Fullard
Catalyst Asset Management Inc.
specious: adjective, superficially plausible, but actually wrong, misleading in appearance, misleadingly attractive
They are those who argue that the legal issue involving BCE and the Board’s relative obligations to BCE shareholders versus BCE bondholders is a matter that is of national interest that needs to be ruled upon by the Supreme Court of Canada.
Unfortunately the larger issue of the relative obligations of boards of directors to shareholders versus bondholders in the case of BCE is overshadowed by the specifics of the BCE situation. BCE’s Board was never placed in a situation where it had to compromise the outcome for bondholders in order to maximize the outcome for shareholders. No such tradeoff or moral dilemma existed for the BCE Board, since they were presented with the Catalyst Proposal that allowed them to achieve their stated goal of maximizing shareholder value on terms that were superior to those offered by Teachers’ all cash taxable offer of $42.75 (i.e.$42.50 to $52.00, with 70% tax free rollover), and were able to achieve this optimal outcome without imposing an adverse credit rating on existing bondholders.
So where is the Faustian tradeoff or moral dilemma that the BCE Board faced? There wasn’t one. Only by ignoring the Catalyst Proposal did the BCE Board of Directors force itself into a situation where bondholder rights had to be sacrificed for shareholders rights. The larger issue that many say is deserving of a Supreme Court ruling was never at play in the BCE matter. It was only at play because BCE sought the matter out of its own volition. It self-selected this outcome. As such, the Supreme Court should reject this matter out of hand, since BCE created the problem in the first place. The fact pattern, due to the existence of the Catalyst Proposal, means that the company itself had the means to resolve this matter on its own. It is demeaning to the highest court of the land and the other important cases that are before it, that a matter that was within the Board’s power to avert, are being brought to court for adjudication. On an expedited basis no less. The issue is a valid one. Unfortunately the issue was never at play in the case of BCE, except through BCE Board’s own self selection and self infliction.
As such BCE’s so called issue of great national importance is a wholly specious one. It is superficially plausible, but actually wrong. It is misleading attractiive. The issue of bondholders’ rights versus shareholders rights is going to have to wait for that case where the Faustian tradeoff actually existed. It clearly did not in the case of BCE. BCE’s oppression of bondholders was deliberate and premeditated. BCE had a choice, as I attempted to describe in court to Justice Joel Silcoff in February 2008.
Judge Silcoff clearly did not understand the pivotal significance of what I was telling him, which was to the effect: “You sir (BCE Board), had a choice:” As such the larger issue was never at play. As such, this was a matter that the Board could have dealt with. It is not the role of the Supreme Court of Canada to compensate or make amends for the poor business judgment of Boards of Directors or their chosen course of action. BCE brought this upon themselves.
THE COURT (THE HON. JOEL A. SILCOFF, JSC):
Anything else? Yes?
Mr. BRENT FULLARD:
We spoke last night and my name is Brent Fullard. I am with Catalyst Asset Management of Toronto.
You're the gentleman who called me last night at home?
Mr. BRENT FULLARD:
Yes, I am. And you invited me to come here today, and I appreciate the offer.
One matter that could be, being overlooked by the Court, based on testimony that has been reported in the press, testimony given by the Teachers' Pension Plan to the effect that there was no other alternative and all alternatives on the table resulted in a downgrade in the creditworthiness of the outstanding bonds. That is factually incorrect.
Our organization did submit to BCE a proposal, the Catalyst proposal. We discussed it with the special committee, with their advisers. It was published in the press. There were articles written about it. And what you need to know about the proposal that we presented to the company is the fact that, yes, it does achieve the company's goal of maximizing shareholder value, but it does so in a way that's not oppressive to the bondholders. And that was the explicit intent of our proposal from the outset.
There are other stakeholder groups that are here today that are adversely affected by the BCE deal, but I won't get into that.
And so, I think the existence of a contemporaneous deal that was presented to the board, which achieved the stated goal of the company, which was to maximize the shareholders value, while at the same time is not oppressive to the bondholders, is I think, a central issue. Rather than having been an "either or" situation, this can be an "either and" situation
And this is not strictly my assertion that the bondholders' position was preserved, because shortly after we announced our proposal on June twenty-second (22nd) - it was presented to the board in a letter dated June twenty-fifth (25th) - I discussed the matter with one of the members of
the bondholders group, Jacques Prevost of CIBC World Markets, and he ran his analysis of our proposal and he confirmed that the credit rating would in fact remain investment-grade credit.
So, I think... I can give you a lot of details as to how we achieved...
What are you asking now, sir?
Mr. BRENT FULLARD:
I'm asking that the fact that this proposal existed be something of record in resolving the matter before you.
Well, I think, again, because again you... as a question of courtesy, obviously, I'm hearing your representations now, but if you have something to submit to the bondholders, by all means, do so. But certainly if they thought it was relevant, I would imagine they would have put it in evidence prior to the closing of proof.
Mr. BRENT FULLARD:
Well, had they been aware of it, because... the reason perhaps why the bondholders may not be aware of the existence of the Catalyst proposal was because the company failed to disclose it in its Bid Circular of August 7, 2007 .
Posted by Fillibluster at 8:16 AM
Friday, May 23, 2008
Elegant solution given short shrift
Catalyst's plan nixed in favour of high-risk strategy
Friday, May 23, 2008
Almost one year ago, Brent Fullard, president of Catalyst Asset Management Inc., presented a proposal to the special committee of BCE Inc. for the recapitalization of the company.
The proposed transaction was to be completed by way of an exchange offer whereby a newly formed Canadian corporation would offer one stapled security (a common share plus a subordinated debt security) for each common share.
Fullard's proposal -- which he described as "maximizing shareholder value in a tax efficient manner by enhancing the income by 75%" -- didn't get very far within BCE, which was pursuing an alternative strategy. But what has particularly irked Catalyst is that, over the past year, BCE has chosen not to make reference to the proposal.
Given this week's decision of the Quebec Superior Court, BCE must regret not giving the Catalyst plan more than a cursory examination. (When is the last time that a takeover involved seeking leave to appeal to the Supreme Court?) If nothing else, the Catalyst proposal has stood the test of time. In short, the proposal was robust.
"It was formal, it was presented to the board, it was picked up in the press, it explicitly dealt with the fact that the bondholders could be preserved and it was credible. With the Teachers deal, the equity owners are deriving some of their economic value at the expense of the bondholders. There is no robbing Peter to pay Paul with our deal," Fullard said yesterday.
Instead of focusing on Catalyst's elegant proposal, BCE implemented a strategy that was very high-risk, given the number of regulatory, financing and security-holder approvals that were required. On the regulatory front, the group led by the Ontario Teachers' Pension Plan had two problems to overcome: Under the provincial Pension Benefits Act it wasn't allowed to own more than 30% of a company either directly or indirectly, but under CRTC rules it had to end up with majority Canadian ownership. It designed an ownership structure that used Morgan McCague -- a former senior investment executive at Teachers -- to hold the bulk of the voting shares. (Teachers owned non-voting shares.) But McCague wasn't a free agent.
Ultimately the Ontario regulator, the Financial Services Commission, signed off though Konrad von Finckenstein, CRTC chairman, said he was "astounded."
"The interpretation that FSCO puts on these things is not the one that either I as a lawyer or former judge would put on that legislation and regulation. But, be that as it may, it is their position and we are here to judge whether you are in control or not. We just wanted to make sure that what you are doing is in accordance with Ontario pension law, and clearly the Superintendent feels that it is," he said. The CRTC signed off -- even if it was a "conditional approval."
This week two more problems occurred: talk that the bankers want new or better terms before they will provide the debt finance, and the ruling from the Quebec Court of Appeal.
That court didn't hold back. It said the "process [of BCE's board] was flawed" and that "if it was possible to structure an arrangement so that a satisfactory price could be obtained for the shares, while attenuating the adverse effect to the debenture holders, then the Board had a duty to examine it."
In addition, it said "the interests of the debenture holders ... should have been considered by the board."
The irony: The matters that BCE/Teachers didn't address were the matters
for which Catalyst had a solution.
Posted by Fillibluster at 7:10 AM
Thursday, May 22, 2008
Yesterday, the Quebec Court of Appeals overturned the ruling of Judge Joel A. Silcoff on the matter of the oppression of the BCE bondholders by the group of private equity firms led by Ontario Teachers' Pension Plan, who proposed to acquire BCE by way of $8 billion of equity and $34 billion in new debt to be assumed by BCE itself.
This debt-ladened leveraged buyout reduced BCE's existing bonds to junk bond status from their prior investment grade status, the financial equivalent of going from HIV negative to HIV positive.
As if they needed to be told, the Quebec Superior Court ruled that the "process [of BCE's Board of Directors] was flawed" and that "“if it was possible to structure an arrangement so that a satisfactory price could be obtained for the shares, while attenuating the adverse effect to the debenture holders, then the Board had a duty to examine it”.
To most people, such advice would be unnecessary, as it is simply a restatement of common courtesy. Meanwhile the notion of a alternative transaction that "attenuated the adverse effect to BCE debenture holders, while at the same time obtaining a satisfactory price for BCE shareholders was something that was a very real and viable prospect that was presented to the board of BCE by Catalyst Asset Management. See letter to board dated June 25, 2007.
This formal proposal to the BCE Board by Catalyst's was beyond the mere hypothetical being posited by the five judges of the Quebec Court of Appeals. It actually was presented. Furthermore It was designed with their hypothetical objective, explicitly in mind.
Meanwhile the Catalyst proposal also achieved the maximization of other benefits not contemplated by the Quebec Court of Appeals, namely an outcome that was optimal to consumers and employees and one that maximized the tax collection on BCE's massive earnings for Ottawa.
The chart above provides a comparison of the Catalyst Proposal with that of the Teachers' proposal. The chart is also available here.
Strange that BCE neglected to disclose the existence of the Catalyst Proposal to its shareholders, as required by securities disclosure laws, in its Bid Circular date August 7, 2007. No doubt there were those within BCE who would rather that the existence of a contemporaneous alternative that was superior to that of the Teachers' proposal remain a mere hypothetical, rather than a tangible alternative, because even the Quebec Court of Appeals was wrong when they wrote in their judgment that "there were three proposals".
Wrong. There were four proposals, including the one from Catalyst.
No doubt this omission in fact will be of interest to Canada's Supreme Court, should BCE foolishly pursue this deal to that ultimate destiny. The Supreme Court judgment need not be based on the mere hypothetical of an alternative that maximized the outcome for both BCE shareholders AND BCE dentureholders, but rather on the hard reality that such an alternative was presented to BCE's Board and summarily concealed.
Posted by Fillibluster at 6:28 AM
Friday, May 9, 2008
These CONs are real Hell’s Angels. They travel in packs. It gives them a sense of power. They steal from unsuspecting seniors. And then they blame the victims. Hopefully they won’t show up in your town. They're also control freaks:
Bernier’s ex-girlfriend ‘wanted to control things’
By ALEXANDER PANETTA The Canadian Press
Fri. May 9 - 11:36 AM
OTTAWA — The cabinet minister’s girlfriend always stood out in the genteel diplomatic crowd that inhabits the foreign affairs building.
Whether smoking cigarettes in an ambassador’s limousine or striding into meetings snapping bubble gum and clad in leather boots and tight jeans, Julie Couillard raised eyebrows.
But government insiders say they were most surprised by the influence she seemed to have on Foreign Affairs Minister Maxime Bernier.
RELATED Bernier and the biker babe
Posted by Fillibluster at 8:25 PM
Terry Corcoran wrote an article in the Financial Post yesterday entitled "Fat cats ignore pension slide" about the gross inequities in Canada's pension system that disproportionately benefit government employees.
This topic of pension inequities that Terry Corcoran has written about only represents the tip of the iceberg. To make things even less equitable, then there’s Stephen Harper's recently introduced rip off known as pension income splitting, and tax free private income trusts for pensions, both of which accrue to government employees and not average Canadians.
Why do the 25% Canadians with pension income (read politicians and civil servants)now get to split their income with their spouses when the 75% of Canadians without pensions do not receive this same profound tax benefit?
Why can the Public Sector Pension Plan own Thunder Energy Trust as a tax free income trust when average Canadians have to pay a rapacious 31.5% tax. Ditto for OMERs, Caisse, Teachers' and the whole lot of them who are opportunistically acquiring undervalued public trusts? Undervalued by the governments' own very actions? The governments after all are the plan sponsors. Meanwhile the politicians and civil servants who concocted this scheme are the plan beneficiaries.
Talk about an exercise in self dealing to the extreme!
Why can the Public Sector Pension Plan act in a predatory way to exploit average Canadians who held it as a public trust and faced growth restrictions and an onerous 31.5% tax , when as a private trust held for federal government employees it pays no tax and is subject to no growth constraints.
Perhaps this exercise in tax fraud has everything to do with the fact that the very people who introduced these grossly inequitable tax measures are the very target group who benefit: POLITICIANS and BUREAUCRATS with government pension plans
Please look up the meaning of the term tax arbitrage and the word inequity. While you're at it, look up the term arbitrary tax arbitrage and arbitrary inequity. Where is the outrage? Where is the governance? Certainly not in government, as they feather their already cushy nests. Time for civil unrest, before we get to old to take it to the streets.
Even Terry Corcoran is starting to figure it out:
May 08, 2008
Fat cats ignore pension slide
Hot over carbon taxes
In the big wide world of Canadian government --federal, provincial, municipal -- nobody looses any sleep over pensions. All's well. Politicians and bureaucrats, teachers and garbage workers, have equipped themselves with the most lavish defined-benefit cash dispensers, guaranteeing life-long retirement payouts that often exceed the average salary of working Canadians. What could be the problem with Canada's pension system?
Bloated self-satisfaction at the government level is likely one reason the non-government pension sector is a shambles. While they await the benefits from their tax-supported pensions, there's little incentive to respond to perils facing the private pension system. The number of Canadians covered by defined-benefit pensions has fallen by 20% to 30% in recent years, with professional actuaries warning that the whole private side of the industry could eventually disappear, leaving only government employees with guaranteed pension incomes -- paid for by taxpayers who are denied the same options.
Defined-benefit plans pay employees a guaranteed benefit. The emerging alternatives in the private sector include definedcontribution plans, in which money goes in and is invested, with the pension benefit limited by the amount of money in the fund after investment returns; nothing is guaranteed. Group RRSPs also offer no guarantees.
But a new report from the Association of Canadian Pension Management yesterday warns that the alternatives to definedbenefit plans -- defined-contribution plans and group RRSPs -- are hamstrung by a host of laws and regulations. They face limits on contributions, unnecessarily complex regulation, balkanized provincial legislation, and continuing risks that plan sponsors will be liable for losses even when they follow prudent investment practices.
In short, all sectors of the private pension market suffer from neglect by the politicians and bureacrats who make the policies. Certainly no significant reforms have come out of Ottawa or most of the provinces (with a few exceptions) in recent years.
Experts in the field -- from C. D. Howe Institute president William Robson to members of the ACPM -- warn that Canadians who don't work for the public sector are at risk of ending up with inadequate post-retirement savings and incomes.
One simple fix to part of the problem would be to increase the amount of money Canadians can annually contribute to their pension plans. The limit is now set at 18% of income, up to certain maximum levels. That 18% limit compares with the effective contribution level in the fattest fat-cat taxpayer-supported government employee pension plan, the fully indexed plan Ottawa runs for the federal public service.
Mr. Robson, in an interview, said the latest Chief Actuary's report on the civil servant pension system shows that, under current defined-benefit payouts and rates of return, the implied
contribution level is greater than 32% of an employee's income, compared with the 18% set by regulation for private plans.
Getting employers and individuals to put more money into pension plan savings, by relaxing unnecessary curbs, is one way to begin reversing the decline in private pensions. Mr. Robson and Robin Banerjee highlight one such limit, an old rule that prevents companies from adding money to their defined-benefit pension funds when fund assets exceed 10% of liabilities (see article at top right). Supposedly imposed to prevent companies from using pensions to avoid taxes, the real effect is to limit corporate contributions to pensions at optimum times.
The biggest cloud over defined-benefit plans is the court-determined rule that pension surpluses belong to the pension plan and its members rather than the corporation. As with other reforms of pension law and regulation, nothing is happening on the surplus issue. Another deterrent to private pension expansion is the risk corporations face if the plan they provide -- no matter what its form -- fails to deliver exactly as promised -- or as hoped. Mr. Robson calls it "fear of litigation," and it can act as a deterrent to corporations thinking of introducing definedcontribution or group RRSP plans. The solution is to provide legal "safe harbours" that would protect corporations.
The safe-harbour issue was also raised by the pension association yesterday. If a pension fund manager invests in a balanced mutual fund as the main vehicle for a defined-contribution fund, but that balanced fund loses money, the plan should not be held liable for the losses. So far, however, there have been no signs of support for such protection from government.
Government pension plans are not without troubles, although they are usually marginal, even when the numbers look big. The Ontario Teachers' Pension Plan is said to be running a $12.7-billion shortfall. But no teachers loose sleep over their pensions. After the government employer kicks in part of the funding shortfall, some benefits might fall, but no crisis looms.
For more and more Canadians, the growing reality is that there might be no benefits at all, or benefits that are dramatically below the levels in the public sector. As Catherine Swift of the Canadian Federation of Independent Business put it last year, "those of us who work in the private sector will not have the same means to retire as our counterparts in the public sector, and to add insult to injury, we are subsidizing their retirement lifestyles."
Posted by Fillibluster at 6:42 AM
Wednesday, May 7, 2008
Peter Munk on Jim Flaherty:
"Hell, I expect politicians to do what they think is right for their country and not do it for the sake of gaining two more points in the popularity contest. For me, and for some people I know, they give him credit for that," says Peter Munk, chairman of Barrick Gold Corp. "Some people take a selfish view, and if you run a big fund and you have been heavily involved in income trusts and, without warning, you lose 8%...you hate the son of a bitch. But to me, that's not the measure you take a finance minister by. You take him by what he does for the country” [ Editor’s note: Or his friends in high places who aren’t prepared to accept the risk inherent in their own actions” see Globe artice below entitled “Flaherty wades into Barrick's CIBC feud” ]
Warren Buffett on schmuck insurance for subprime lenders (like Barrick Gold):
Dumb subprime lenders and investors should not get help: Warren Buffett
May 06, 2008, by Jonathan Ratner
At the Berkshire Hathaway annual general meeting, company CEO and chairman Warren Buffett said he had enormous respect for a few [investment banks], but that some of the big investment and commercial banks are almost too big to manage. It is harder to see the risk and they’re very hard to manage, he noted.
Mr. Buffett and vice chairman Charlie Munger agreed that not every business or investment bank should be rescued, because failure is an important part of capitalism.
“Capitalism without failure is like Christianity without hell,” Mr. Buffett said. He added that “lenders and investors who were dumb enough to deal in subprime mortgages should not receive any special help,” but if homeowners were deceived about the terms of an adjustable mortgage, they should be helped.
Jim Flaherty extends schmuck insurance to Peter Munk:
Flaherty wades into Barrick's CIBC feud
Dustup threatens to delay ABCP restructuring
Globe and Mail
May 6, 2008
Finance Minister Jim Flaherty has taken the unusual step of intervening in a sideshow spat in the ABCP drama, applying direct pressure on Canadian Imperial Bank of Commerce to settle up with Barrick Gold Corp.
Sources say Mr. Flaherty's phone call to senior CIBC executives last week succeeded in bringing the bank to the table in a festering dispute with its gold miner client.
Posted by Fillibluster at 9:14 AM
Sunday, May 4, 2008
The following statemnet appears on Garth Turner's blog of today entitled: The ballot question
"Dion stands for lower income taxes, justice for income trust investors, a drop in corporate taxes, a climate change strategy with guts, tax-shifting to reduce the burden on families, balanced budgets and technological innovation. At the same time, he stands against Mr. Harper’s runaway government spending, state censorship, handcuffing regulators, cheating on elections, vote-buying, betraying promises, punishing scientists and standing idly by while the environment and species are at risk."
Posted by Fillibluster at 9:50 AM
Saturday, May 3, 2008
After all, Canada’s existing Access to Information regime only netted us 18 pages of blacked out information on the government’s unproven assertion that income trusts cause tax leakage.
When the government demanded those 18 pages be returned, the press weren't even aroused from their complacent slumber, apart from notable exceptions. The press prefers to believe in the phantasmagorical concept called tax leakage any way, all known facts and empirical evidence to the contrary.
For example the Deloitte study of December 2007 entitled: “Income trust buyouts: Lots of activity, little tax revenue”.
In the absence of access to information, fraud is seldom uncovered. Just ask Jim Flaherty. Not being caught is the objective, after all. Just ask Steve. The man of a thousand promises. None of them kept.
Remember that quaint Conservative election promise about a more open and transparent government? That was so 2006. Welcome to 2008 and Steve's world:
Tories kill access to information database
Last Updated: Friday, May 2, 2008 | 9:19 PM ET
Posted by Fillibluster at 8:49 AM
Friday, May 2, 2008
Liberals want probe into Flaherty's private-school tax breaks
My understanding, although unconfirmed, is that the Wasdell Center for Innovative Learning (owned by the Flaherty’s?) is housed in a former school that was deemed redundant by Ontario under Mike Harris government when Flaherty was in Cabinet.
The school was purchased by Flaherty’s wife. The own of Whitby, strangely, had no interest.
One year later the Flaherty’s carved out the property from the building, and sold the property to the very same town of Whitby for a price equal to what the Flaherty’s paid, leaving them with the building for free. Land registry records could verify if this is true. Perhaps the Globe might want to check that one out, since it is only unconfirmed folk lore.
Inquiring minds need to know. See also The self benevolent tax policies of Jim Flaherty or Jim Flaherty: Corruption’s constant cohort
Liberals want probe into Flaherty's private-school tax breaks
Globe and Mail
May 2, 2008
OTTAWA — The Liberals are launching another attack on Finance Minister Jim Flaherty, asking for an investigation into a tax break awarded to private schools in his 2007 budget.
The Liberals are raising questions because Mr. Flaherty is a mortgagee of a private school called the Wasdell Centre for Innovative Learning, in Ajax, Ont.
In last year's budget, Mr. Flaherty announced that bursaries awarded by primary and secondary institutions would no longer be taxed. Given that public schools do not traditionally hand out bursaries, the Liberals are asking the Ethics Commissioner to investigate whether Mr. Flaherty was in a conflict when he made the change to the tax system in favour of private schools.
"Since Mr. Flaherty seldom gives a straight answer to a question in the House of Commons, it is important that independent officers such as the Ethics Commissioner take a close look at any possible conflicts of interest," Liberal MP John McCallum said in a statement to The Globe and Mail last night. But a spokesman for Mr. Flaherty said the Wasdell Centre does not hand out bursaries, and Mr. Flaherty has no ownership stake in the school.
"There is no problem, there is not conflict," spokesman Chisholm Pothier said.
Mr. Pothier said that Mr. Flaherty's son, who has special needs, attended a school operated by the owners of the Wasdell Centre and that Mr. Flaherty made a $250,000 loan to help the school expand into its current location in a former public school.
Mr. Pothier said most of the money has been paid back, and that the Liberal request is "irrelevant."
"This is a pretty low smear attack, which is what we have come to expect from the Liberals," Mr. Pothier said last night.
During Question Period, Mr. McCallum slammed Mr. Flaherty for a number of budget initiatives that favoured the Finance Minister's riding.
"The Finance Minister offers a veritable smorgasbord of ethical clouds: An illegal contract now under investigation by the Ethics Commissioner; an uneconomic train chugging through his riding; millions of taxpayers' dollars wending their way to an organization extremely close to his wife. Can he at least guarantee to this House that today is the end of his ethical breaches?" Mr. McCallum said.
Mr. Flaherty refused to comment on the matter in the House, saying the question was defamatory.
As The Globe recently reported , Mr. Flaherty's office ignored the warnings of bureaucrats who said there was no "reasonable rationale" to direct a $122,000 contract to a Conservative speechwriter without going to tender last year. In an e-mail, a senior Finance Department bureaucrat told Mr. Flaherty's office that federal rules call for a competitive process to hire a communications firm to work on the 2007 budget.
Posted by Fillibluster at 8:21 AM