Manitoba regulator sets date for Crocus hearing

The Manitoba Securities Commission will meet to decide the fate of labour fund company Crocus on May 6. Crocus halted trading in December and announced a portfolio review. The MSC alleges that the Crocus board “routinely and consistently” failed to determine the fair value of the common shares of the fund.

Crocus board members were supposed to meet once a week to value the shares, but no meetings took place between April and September of last year, according to the regulator.

“Crocus acted in a manner contrary to the public interest in accepting subscriptions and paying out redemptions for ‘A’ shares using an ‘A’ share price which had not been approved by the board as at each valuation date,” says the statement of allegations.

In addition, Crocus board members were advised of “significant risks” managing the portfolio last September, but took no specific steps to deal with those issues until a special meeting was called in November, the MSC says.

The regulator says it will determine on May 6 whether it is in the public interest that the Crocus fund or its board members pay an administrative penalty.

Representatives from the Crocus board met with the MSC on Monday. At that meeting, the MSC clarified the basis for each of the various allegations, Crocus said in a statement.

“Principal among these clarifications is that the allegations concerning failure to follow signing procedures in setting the fair weekly value of the fund was not an indication by the MSC that Crocus had sold or redeemed shares at an inaccurate price,” said the company. “A further outcome of the briefing meeting was a commitment by the MSC to work collaboratively with Crocus to resolve the allegations and achieve a settlement that is in the best interest of Crocus shareholders as the fund moves forward.”

“It is clear from the report and briefing meeting that the allegations are primarily related to procedural issues and the assessment by the MSC that the Crocus board should have voluntarily ceased trading as early as November 19, 2004, rather than December 10, 2004,” said Alfred Black, interim CEO at Crocus. “Crocus believes it can address these issues in a timely manner in collaboration with the MSC.”

The Crocus board says it will present a formal reply to the allegations “in the coming weeks.”

Crocus began an organizational review when it halted trading and has received a number of recommendations for changes in governance and operational procedures from consultant Deloitte & Touche. “The board received a verbal update from Deloitte today and looks forward to receiving the formal report in the coming days,” said Black. “Recommendations in the final report will provide a sound basis for achieving a settlement with the MSC.”

Meanwhile, the Crocus board has approved a decline of approximately $46 million in the fund’s net asset value as a result of valuation work completed by four accounting firms. “When operating and other expenses incurred by the fund since it voluntarily halted trading on December 10, 2004, are included in the financial calculation, the fund’s share value today would be slightly below $7.00,” Crocus notes. The shares were valued at $10.45 in December.

The Crocus board says the latest valuation price is for information purposes only, since a final share price cannot be set until approval is received from the MSC. The venture capital fund has more than $165 million in assets.

(04/06/05)