Crocus hit with $200 million lawsuit

(July 12, 2005) A class action has been filed against Manitoba’s Crocus Investment Fund. The statement of claim, which seeks $150 million in damages, plus an additional $50 million in punitive damages, was issued on Tuesday in Winnipeg.

It names 17 former executives and board members of the troubled labour fund, which announced last month it would not be returning to market. The Crocus board resigned on June 29.

“Investors in the Crocus Investment Fund are bringing a class action lawsuit to recover their losses from those found to be responsible,” according to an online statement posted on behalf of Crocus investors. “A leading Winnipeg lawyer, Paul Walsh, and his associate, David Soper, are co-counsel for the plaintiffs together with Ontario class proceedings experts Harvin Pitch and Colin Stevenson.”

The lawsuit — open to anyone who invested in Crocus between October 1, 2000 and December 9, 2004 — also names auditor PricewaterhouseCoopers and the Manitoba Securities Commission, accusing both of negligence; as well as advisors Wellington West and Nesbitt Burns, for including “false and misleading” material in the fund’s prospectus.

The statement of claims alleges that the defendants overstated the fund’s assets and the value of its shares. “The non-disclosure of the true value of the shares and continuation of trading created a real monetary of loss for innocent shareholders,” the suit claims.

While the plaintiff, Bernard Bellan (who owns 350 Crocus common shares), does not allege that the defendants were intentionally dishonest, he argues that their “outrageous and reckless” conduct makes them liable for damages.

“The defendants represented the Crocus fund as a major success story [and] as a business enterprise benefiting Manitoba with the expectation of growth in the future. The picture thus created was a sham.”

The defendants have 20 days to respond to the claim with a statement of defence.

Crocus halted trading in December and announced a portfolio review. The Manitoba Securities Commission alleged that the Crocus board “routinely and consistently” failed to determine the fair value of the common shares of the fund.

It’s believed Crocus shares, which peaked at $15 in 2000, may now be worth as little as $7. Approximately 33,000 investors sank nearly $200 million into the fund. In April, the Manitoba Securities Commission accused 10 present and former Crocus directors of failing to act in the public interest when stating portfolio values.

The following month, Manitoba’s Auditor General released a scathing 245-page report on Crocus, citing “serious weaknesses” in the labour fund’s operations. An independent prosecutor from the Ontario Ministry of the Attorney General has recommended the matter be referred to the RCMP.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com