Crocus investors get money back

Advisors across Manitoba are preparing to call thousands of clients today, and it’s safe to say they’re expecting a more-than-hospitable reception. That’s because for the first time in nearly five years, they’re calling with good news about the Crocus Investment Fund.

Less than six weeks after a Manitoba judge finally approved a $54.7-million distribution to about 34,000 unitholders — they were first teased with rumours about getting at least some of their money back a couple of years ago — cheques have finally been sent out to brokerages across the province.

Charlie Spiring, CEO of Winnipeg-based Wellington West Capital, says his firm received its cheque from Deloitte, the court-appointed receiver for Crocus, on Wednesday and plans to deposit money in client accounts today.

“This is great news for Crocus investors,” he says, noting clients will now be able to allocate these funds near the beginning of what he says is a new bull market.

The news will get better for investors, too, because the receiver is still overseeing a portfolio of 16 Manitoba companies. A number of them—such as Canad Inns, a Winnipeg-based chain of family-themed hotels, and Online Business Systems, a high-end information technology consulting firm—are thriving enterprises. The 16 have a combined book value of $19.6 million, and depending on how Deloitte exits them, insiders say it could result in another $2 to $4 per unit in shareholder accounts.

There is also the matter of doling out the proceeds of the class-action settlement, which is expected to be a further $0.48 per unit. Deloitte is also holding back another $11 million in cash in case of further creditor claims, which is expected to be given back to unitholders at some point, too.

Crocus, once the focal point of Manitoba’s venture capital scene, was put into receivership in June 2005, six months after the trading of its shares was halted amid serious concerns over the valuations of holdings in its portfolio. It has been the subject of a $200-million class-action lawsuit, and its directors and officers were on the receiving end of a scathing report from Manitoba’s Auditor General.

At least one entity has profited from the Crocus debacle, however. Deloitte has charged $4.3 million in fees up to June 30, 2009.

Scott Stewart, an investment executive with ScotiaMcLeod in Winnipeg, says positive news about the one-time darling of Manitoba’s venture capital scene was “a long time coming.”

“It’s a good start. My clients who invested in Crocus have been asking what’s going on with their investments. They’ll be relieved to see access to their capital. It’s an easier phone call (than previous ones about Crocus) to tell there’s been some resolution. They’ll be happy to put it behind them,” he says.

Considering brokerage houses across the province have been carrying Crocus at zero for some time, Stewart says he expects many clients will treat the sudden credit in their RRSP accounts — only a tiny minority of Crocus investors held their shares in non-registered plans — as found money.

“It will be a nice little bonus in light of what’s happened in the last year and a half. I expect they’ll invest conservatively,” he says.

Crocus investors received an immediate tax credit of 30% (split evenly from the federal and Manitoba governments) upon their initial investment, so depending when they bought in, many could be within shouting distance of breaking even, especially once future distributions are sent out. Stewart isn’t breaking out the champagne, however.

“They’ll still be down 10% or 20% by the time it’s said and done. Plus, there’s the opportunity cost of not having that money for five years. [The distribution] is making a bad situation better,” he says.

(10/15/09)