Saturday, April 4, 2009

Ontario Teachers’: Oppresses and exploits small shareholders

Good grief. Derek DeCloet had some convoluted and nonsensical article in today’s Globe, that attempts to construe one the Globe's owners, Ontario Teachers’ as a force of good for small shareholders. Nothing could be further from the truth. But what else do you expect from the Globe and/or Derek DeCloet, especially when it comes to one of the Globe’s owners or an issue that’s close to their hearts/wallets?

No, the truth is quite different, as Ontario Teachers’ has a clear record of exploiting and oppressing small shareholders. There are several prime example. Ontario Teachers’ lobbying efforts on the income trust issue and their conduct on the BCE deal, particularly insofar as suspending the dividend and transferring $1 billion of wealth from average shareholders into their own pockets, without shareholder approval to do so.

As for income trusts and Teachers’ exploitation of small shareholders, you have to go back to 2005. Back during what I call the “Goodale round” Ontario Teachers’ was one of the most vocal and rabid opponents of moves that would have seen their ability to invest in income trusts hampered. The solution to the run away success of income trusts in the minds of the clowns in the Department of Finance under Finance Minister Goodale, whose role in life is apparently to quell success, was to preclude the pension funds from owning excessive amounts of this investment vehicle, despite the fact that its attributes are perfectly suited to producing retirement income streams, the investment goal of all retirees. This ham handed solution by the bright lights such as Carnival Mark Carney, evoked a very strong response from Teachers’, and rightly so. In fact, so much so that Teachers’ inveigled many hundreds of their retired plan beneficiaries to meet in groups of three, four or five at their local MPs offices. This was rather cunning on the part of Teachers’ to USE their plan members, even though these plan members were completely economically unaffected by such a contemplated change. Teachers’ also thought their position could be enhanced if they wrapped themselves around the small investor and proclaimed far and wide that no investors should be discriminated against vis-à-vis another.

This was one of Teachers’ (supposed) great principles upon which good corporate governance should be based. It would prove to be a mirage. A mere artifice of convenience. A flower that only blossoms, when called upon to cast its beauty, only on Teachers’

Well, principles mean nothing if they aren’t upheld and adhered to over time and circumstance, especially by those who invoke them. Failure to do so, means that these “principles” are only intended to serve as excuses, and all the better if they are lofty excuses, invoking concepts like fairness.

This is where Teachers’ proved itself to be a totally hypocritical organization under Lamoureux, Leech and Bertram, since their plan at invoking the rights of all shareholders, big and small, worked incredibly well. So well that when the same bad actors in the Department of Finance (read Mark Carney) decided there was an opportunity to kill income trusts upon learning of the news of Telus’ conversion, that they were scared silly about confronting the wrath of Ontario Teachers’ that they had incurred a year earlier

So what did these enterprising and morally corrupt bureaucrats do? They cut a deal with the pension funds that would confer upon them unique benefits. On the surface it would appear as if all shareholders, big and large, would be treated in the same fashion, in that they would all pay the 31.5% tax, but in reality that’s where the similarities ended. Imbedded in this ostensibly “fair” tax was an enormously rich tax arbitrage deal for Ontario Teachers’ and their ilk. That’s because the 31.5% tax only applies to “publicly listed” trusts and not all other trusts. The mere act of taking private a “public” trust would mean exemption from this draconian tax. Therefore, in essence, the small investor who can only own public trusts is at a distinct disadvantage to the pension funds who are free to take these trusts, “private”, as the means to avoid the tax. This is a classic example of tax arbitrage. It is also a classic example of highway robbery. The pension funds wasted no time in exploiting this tax arb, with the first one out of the gate being the Public Sector Pension Fund (PSP) acquiring Thunder Energy Trusts, in January 2007. PSP just happens to be the pension fund of Canada’s RCMP and the other 380,000 federal civil servants, including Mark Carney who designed and personally benefits from this “carve out” scheme of his own corrupt design.

The other thing that Ontario Teachers’ were able to extract from the deceitful and gutless Jim Flaherty in return for their vocal support of his trust tax was “pension income splitting”, which uniquely benefits those with “pension income”, namely 100% of the plan members of Teachers’ and PSP, but only 25% of the larger Canadian population. This from a policy that held itself out to be the Tax “Fairness” Plan?

So here is the hypocrisy of Ontario Teachers’ in a nutshell and how it is they have no problem in exploiting the small shareholder as a foil to achieve Teachers’ gain:

In Round One of the small shareholder knock out fight, we have Teachers’ up in arms over the matter of policies that discriminate against one class of shareholder versus another. They put their arms around the small shareholder to make this point even more “populist” in nature. In Round Two, they win the battle and the government goes away, tail between its legs. In Round Three, all the boogey men are back in play in the minds of the easily frightened bureaucrats, when Telus announces its conversion. In Round Four the frightened bureaucrats come up with a plan. They will have BCE announce its conversion to raise the perceived stakes and create a faux crisis in the minds of the easily beguiled public. The media such as the Globe will fan the flames of heightened paranoia, with nonsensical talk of tax leakage from quacks like Jack Mintz and others, using fabricated numbers, the back up for which is never disclosed. Known pockets of resistance from the Goodale round will be silenced and quelled. The Executive Director of CAIF will be appointed to the National Research Council by Maxine Bernier on November 2, 2006, despite any scientific qualifications. The CEO of Canaccord will be appointed to the Vancouver Olympic Committee (November 2, 2006) and the pension funds will all be given a tax arbitrage gift and pension income splitting for their plan members. In exchange, these pension funds will all be asked to make supportive comments about this new tax, even though its effects will cost small shareholders to lose $35 billion of their retirement assets and become victims in the days to come of the Pensions’ tax arbitrage and the predatory acquisitions that will ensue by the pensions.

Ontario Teachers’ performs its end of that Faustian bargain and, in so doing, reveals their contempt for small shareholders and utter hypocrisy and lack of regard for fairness, by issuing this press release. Judas couldn’t have said it better himself:

Teachers' response to new federal income trust policy –November 1, 2006

The Ontario Teachers’ Pension Plan has advocated for a taxation policy on income trusts that does not discriminate against pension funds, and we are pleased to see that this is the case with the government’s announcement yesterday (October 31, 2006).

The reality is that, in a protracted period of low interest rates, it is important to find alternate investments with yields that help make up the difference. Income trusts have allowed us to do that in recent years. The challenge will be to find the investment vehicles that will replace the income and cash flow that income trusts have represented to us, but we are confident that our investment team will find them. The four-year implementation period for this new policy will enable us to gradually make any necessary adjustments to our portfolio.

There is good news for pensioners and other seniors over age 65 in this new policy, which will help take the sting out of the new tax policy on income trusts for them: the age exemption tax credit will be increased by $1,000 and income splitting will be permitted.


Deborah Allan
Director, Communications and Media Relations
Ontario Teachers' Pension Plan
(416) 730-5347

1 comment:

Dr Mike said...

Now doesn`t this just leave the little guy burned-off enough to spit--inhumanely trampled to death under the full weight of the combined efforts of the gov`t , it`s bureaucrats , & the lame-ass folks at various pension funds.

This is such a complex story that it certainly makes sense.

It`s a wonder that Flaherty could hold it together without spilling the mix before it hit the oven.

Certainly explains the need for blacked-out pages & their recall as the number of c(r)ooks in the kitchen was nearly prohibitive to keeping the story intact.

As I said before , it`s tits-up for the little guy as usual while the fat at the top get fatter.


Dr Mike Popovich