Wellington West settles Crocus claim

Wellington West Capital has agreed to a $500,000 out-of-court settlement with unitholders of the now defunct Crocus Investment Fund, in exchange for being dropped as a defendant in a $200-million class action suit.

The agreement removed a “major impediment” to asking the court’s permission to give money back to about 34,000 shareholders, according to Russ Holmes, the Deloitte partner handling the receivership of the former labour-sponsored fund.

“If everything falls into place, we would like to be in a position to make a distribution to the Crocus shareholders by late fall,” he says.

It’s all got Bernie Bellan, the outspoken investor who spearheaded the lawsuit three years ago, breathing a sign of relief.

“I’m happy as a shareholder,” he says. “I haven’t done anything on my website for a long time; I don’t look at e-mails anymore. I’ve just been waiting for the lawsuit to work its way through.”

Sales of Crocus shares were halted in December 2004 amid growing concern about the valuations of the companies in its portfolio. Deloitte has been in the process of winding down what used to be the driving force of Manitoba’s venture capital scene for the last three years.

Late Wednesday, the RCMP announced that it had found no evidence of criminal wrong-doing in the activities at the fund before it was shut down. The RCMP’s Integrated Market Enforcement Team had been investigating the fund since the May 2005 Auditor General’s report.

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The Manitoba Securities Commission is currently working on an investigation of its own into the actions of the fund’s directors, particularly when it came to valuing the companies in the fund’s portfolio.

Bellan says after negotiating more than $12 million in proposed settlements with the Province of Manitoba, the MSC, BMO Nesbitt Burns, PricewaterhouseCoopers and the fund’s directors and officers, the class action’s legal bill will top $4 million.

He dismissed accusations the class action settled for far less money than it could have had it played hard ball with the defendants.

“How much could you realistically expect to get? It was a question of litigation (costs) and time,” he says.

According to Deloitte’s most recent quarterly report, Crocus’s cash, accounts receivable and assets were valued at $89.5 million. When trading was halted, the fund’s net asset value was about $155 million.

Kish Kapoor, president of Wellington West, says his firm remains extremely confident it would have been successful had the lawsuit ever seen the inside of a court room. Even if the firm had been completely cleared, the defence costs would have been in the millions of dollars.

“We found what we feel is a practical solution to assist the shareholders in getting their money back,” he says, noting separate investigations by both the auditor general and the receiver failed to find the company at fault in any way.

Renée Alexander is a freelance financial journalist based in Winnipeg.

(07/16/08)