Thursday, December 6, 2007

Scotia Capital / Canaccord ABCP Lawsuit - Article and Comment

By: Ross Hendin, Hendin Consultants

Tara Perkins and Jacquie McNish wrote an article in today's Globe and Mail: Scotia Capital named in ABCP lawsuits

I think it's an article worth reading because it goes into a lot of the details that will become important as litigation continues to unfold in the case and after the Accord is voted on.
For readers of the Globe, I have already made a comment about the article.

But for the readers of the Clarity blog, I want point out a few other things:

1) The first and last paragraphs of this article are really the heart of the issue here. Scotia Capital may have known the market was heading for turmoil. They may have not just ignored this, but may have gone a step further by reducing the amount of paper they held while promoting the paper to clients. Now, as I often tell clients, there are two places that corporate legal cases are fought: the court of law and the court of public opinion. Even if Scotia Capital wins in court, they are going to have a challenge winning this one in the court of public opinion. This is a legal fight that should be in the public eye, and it seems very likely to me from a PR strategy perspective that Canaccord probably launched the suit in advance of the Montreal Accord deadline for the very purpose of getting advance media attention and trying to get the message out there that at least one group may have known about the ABCP meltdown before hand and did nothing about it. IF this is what they are trying to do, I commend them on the strategy and just hope now that they can get the message out more effectively. Scotia Capital also has a chance to use the spotlight to its advantage if it can figure out how to harness this action in its best interests. I think it can be done.

2) Branding, and the way you present yourself as a company, is critical at all times. Before anyone launches a litigation or an accusation, PLEASE for the love of your shareholders consider if your arguments or assertions in your legal filings (that go on the public recorded and may be exposed) are in line with what you hold yourself out to be. For example, click here to see the Canaccord Capital website. Beside the logo are the words "Independent Thinking". Their case is totally premised on the fact that they were told what to do and what to think by Scotia, they DIDN'T think independently, and they are suing because of it. More and more over the last number of years, companies have been realizing that the market and their clients are becoming more observant. Many of the most forward-thinking companies now make it a rule to hire a PR person to work with their lawyers (litigation communication) to translate between English and Legalese, and to make sure mistakes like this one just don't happen. There is a very famous PR case study called the 'McLibel' trial that comes to mind: McDonald's actually sued two people from Greenpeace. Even if they won the case, it doesn't matter - it was a PR disaster.

Ross Hendin is CEO of Hendin Consultants, and is a Senior Advisor to a leading multi-national PR firm. With strategic communication experience in more than 20 countries around the world, Ross specializes in litigation, financial and political strategic communication. He has advised companies in the ABCP niche since 2006. Hendin Consultants has offices in Toronto and London, UK.

Hendin Consultants is on the web at http://www.hendinconsultants.com/.
Email Ross at ross@hendinconsultants.com.

3 comments:

G Weiler said...

As a relatively small but concerned player in the whole ABCP mess, I feel compelled to submit comments. We entrusted our money to Canaccord Capital with the premise that it was being deposited (not invested) into a completley safe vehicle with a triple A rating and backed by a major Canadian bank. We were told that it was like a GIC and that the only risk was that our money would be locked in for the stated term. It was to provide a small, but reasonable fixed rate of return which is what we would expect from a no-risk investment.

The funds represented a significant portion of our life savings that were to be used to fund our retirement. We do not have a big company or government pension to fall back on, and this is our primary means to survive the next 20 or 30 years.

I don't completely fault Canaccord on this since they appear to have been duped by Scotia Capital as well. Canaccord could have been more diligent in checking it out, but the bottom line is that Scotia Capital knew that things were going bad, but still continued to dump these ABCP certificates onto unsuspecting lenders like ourselves. As a result, they had a responsibility to cover for their mistakes, but when push came to shove, they have ducked for cover.

We have also been told that the underlying value of these ABCP certificates have not deteriorated here in Canada, only the liquidity. That said, we need some kind of positive assurance now that we will not only get our money back as promised, but that there will also be a reasonable rate of return attached to it. Most of us can tolerate a payback period of a year or two, providing there is adequate assurance that we don't lose anything. Any suggestion that we have to settle for 80 cents on the dollar or even less is not acceptable, and there are enough of us out there that the term "Class Action" should should make make even the toughest corporate lawter squirm uncomfortably.

Is there anyone else out there that feels the same as I do?

J. Carswell said...

Mr. Weiler, I am completely sympathetic to your situation. My Canaccord broker invested the proceeds of sale of my home in ABCP for the mere six week period until my house purchase was to complete. I found out that my money would not be available less than 48 hours prior to completion. Without the extraordinary assistance of my employers, who arranged secondary financing through their own bankers, I would have not been able to complete the purchase, been sued, and perhaps lost everything. As it is, I am hemorrhaging $750 a month on top of my already sizeable mortgage (newly divorced middle-aged woman), and just about to run out of savings.

However, unlike you, I DO fault Canaccord for putting my funds into a complex, highly sophisticated investment when it was clear that funds were required for a house purchase within six weeks. So far, they have refused to buy back enough of the investment to pay out the secondary financing. I may have no option but to sell my home and if that becomes necessary, I will likely sue Canaccord.
J Carswell

windyfield said...

I also had my 'cash' placed in this bogus paper by Canaccord.... they have hid behind DBRS ratings since August refusing to take responsibility for their incompetence. There was no 'independent thinking', there was no thinking at all. They did NO due diligence on this paper. However the issue and responsibility is much larger than Canaccord it goes through the entire financial system. The greed of the banks pushing for ever higher earnings (and executive bonus's) created this mess. DUH lets package up risk and pretend there is no risk and we can sell it ....brilliant. They set up this paper through 3rd party vehicles like Coventree to pretend that it was off their balance sheets. The DBRS was instrumental in creating the situation by taking the OSFI liquidity guidelines for chartered bank paper and applying it to this paper. NO other bond rating service would touch this stuff. The Bank of Canada even took chartered Bank paper at the overnight window in August,which is outside their mandate, and still refused to declare a market disruption that would have forced the liquidity providers to provide the liquidity for the paper. And the precipitating catalyst was the Caisse (Quebec's government pension vehicle) dumping large quantities of the paper into the market in August knowing nobody was going to buy it. Best of all even though dubbed asset backed commercial paper ABCP there are very few assets behind any of it, almost all the paper is based on synthetic portfolios with no real connection to physical assets! The securities commissions have also been conspicuous by their silence and allowed Purdy Crawford, E&Y and the National Bank folks to keep the ABCP market frozen while they tried to think up how to hide this under the carpet. Of course that was 6 months ago and now the situation is far worse due to the further deterioration of financial markets. Worse yet our beloved federal finance minister has encouraged them. A big mess that sits at the feet of the entire corrupt financial system. Incompetent regulation by government. Take a look at Canaccord's most recent financial report Feb 07 2008(page 22) this is a quote "the Company has also concluded that the most probable outcome is that the ABCP will not be realized within a year and has accordingly reclassified the ABCP from securities owned to long-term investments." Clearly they think the paper has no short term value.....not very comforting....
So at the end of the day litigation will commence shortly and carry on for years... and no doubt lawyers will do well and Canaccord will likely go out of Business (share price is 50% of 9 months ago) as their clients exit and lick their wounds...