Crocus investors reach first deal

Investors in the Crocus Investment Fund have reached a settlement in the first round of a $200 million class action suit over the failed labour-sponsored fund.

A deal has been reached with Chubb Insurance Company of Canada, which represents the former officers and directors of the fund, in which the staff’s names will be dropped from the remainder of the lawsuit in exchange for $3.15 million. Speculation in the press had pegged the settlement as high as $5 million.

With between 33,000 and 34,000 investors involved in the suit, the settlement represents an average of $90 to $95 per investor. The settlement cash will be placed in an account with Crocus’s receiver, Deloitte, until the affair is wrapped up.

“The settlement releases the officers and directors from any further claims by the shareholders,” says Ken Filkow, a lawyer with D’Arcy & Deacon and counsel for several of the directors. “It has no bearing on the claims by the shareholders against the different professional firms that have been sued. What was critical to the directors and officers is that there was no admission of liability.”

In November 2007, Deloitte’s Russ Holmes accused the directors and officers of having “abdicated their responsibilities,” and he recommended to the court that they be given no special protection from the class action.

Filkow says a separate settlement had been reached with the receiver, which had sought to recover legal expenses that Deloitte had paid for the directors, relating to investigations by the Manitoba Auditor General and the Manitoba Securities Commission.

Under this companion settlement, Deloitte has released all claims against the directors regarding legal fees.

The directors and officers are not yet completely off the hook though. They remain the subject of proceedings by the MSC, as well as an RCMP investigation over alleged abuses of travel and expense accounts.

The MSC is itself a defendant in the yet-to-be-certified class action, along with the provincial government; the fund’s auditors, PricewaterhouseCoopers; and Crocus’s investment bankers, BMO Nesbitt Burns and Wellington West Capital.

A Manitoba Court of Appeal stayed the MSC’s proceedings against Crocus’s former directors, pending resolution of the class action, according to Filkow, as both parties were co-defendants in that claim.

“Our argument was that those proceedings could not possibly go forward in a way that appeared to be free of any kind of bias, as they are both co-defendants with possible positions against the other,” Filkow says.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com