Postings from March-Oct./06

There hasn't been a heck of a lot of news about Crocus for some time now. Every once in a while we hear something about what the receiver is doing, but most Crocus shareholders have become so discouraged that they've generally given up expecting anything tangible to happen. To be sure, the class-action lawsuit filed on behalf of all Crocus shareholders is working its way through the process that lawsuits of this kind take, but shareholders are understandably frustrated over the lack of any good news.

Still, there is an anger out there that is not going to dissipate. Shareholders will be looking for someone to blame for their huge losses, and while there are a host of villains in this story, principally the officers and directors of Crocus that presided over this gigantic sham, most of us know who's going to be lined up in the cross-hairs of Crocus shareholders: The NDP government.
There is a seething anger at the politicians who presided over the Crocus debacle. As a result, the idea to hold a mass rally for Crocus shareholders was put forward recently during a conference call among Crocus shareholders who have volunteered to form a political action committee. There was overwhelming agreement that we Crocus shareholders organize ourselves as a political force.

We've invited the leaders of the NDP, Conservatives, and Liberals to address shareholders. As well, Crocus shareholders will hear from fellow shareholders about the impact that the Crocus disaster has had on their lives. There will also be an update from our lawyers as to the status of the class-action lawsuit.
Let's face it, though - there's an election coming this spring and we want to make sure that Crocus is one of the top issues in the coming campaign. We are going to be pressing politicans of all parties, not just the NDPers, to provide financial relief to Crocus shareholders. The fact is that with 34,000 shareholders, along with family members and friends, the Crocus shareholders will form a potent political group that can very well determine the outcome of the next election. Even union members who may find it very difficult to criticize anyone within this government, but who are also Crocus shareholders, are allowed to cast secret ballots during provincial elections. (Do you think Gary hasn't thought about that?)

We had also invited Darlene Dziewit, president of the Manitoba Federation of Labour, to address the shareholders, seeing as how Darlene has always been so concerned about our plight. Would you believe that Darlene spurned our invitation? Here is what Darlene wrote, in part: "In addition, and perhaps more importantly, I do not believe that the
current status of Crocus is a political issue as much as it is one created by a very few individuals."
Gee, Darlene, does that mean that the Crocus scandal was concocted by a few nasty individuals, and that it has nothing to do with politics?
So, what we want is a really good turnout at this rally. If you happen to read this and are able to spread the news to anyone interested in attending, please do so. We want to send a message to the boys on Broadway that we are about to become a very powerful political action group.

Things seem to have quieted down with Crocus - right? Well, to tell the truth, there's action happening behind the scenes - most of which we're not at liberty to discuss.
Simply because Crocus has fallen off the map doesn't mean that the scandal is forgotten. Remember, there is that class-action lawsuit out there.
As far as our NDP government is concerned, Crocus is a ticking time bomb. New PC wunderkind Hugh McFadyen, who looks fresh and attractive compared with poor old Stuart Murray, hopes to ride the current wave of discontent with the NDP. We're willing to throw our support behind anyone who will help us, regardless of political stripe. Any suggestion that Crocus may be hurting the government's chances of winning a third consecutive term certainly strengthens Crocus shareholders' chances of seeing something tangible in the way of a settlement. Now, if only Gary Doer could do something about that damn receiver, who is stubbornly refusing to let the shareholders vote on the GrowthWorks offer. Isn't it ironic that Deloittes Touche may be doing more to hurt the NDP than anyone else at this moment? If the GrowthWorks deal were to go through, you can bet that Doer would heave a mighty sigh of relief. Why do you think the M.F.L. is absolutely apoplectic about receiver Russ Holmes refusing to give up his Crocus cash cow? Every day longer that Holmes manages to stave off GrowthWorks is more money for Deloittes Touche (out of Crocus shareholders' pockets) and likely more damage to the NDP at the polls.

Posted June 8

Receiver tells everyone to go to hell

Nobody is going to take Crocus away from Deloitte Touche & those fat fees

It's been a while since I've posted anything to this site. People have been asking me: "What's going on with Crocus?"
The short answer is: "A lot of talking among lawyers" - big surprise there.
There are events occurring parallel to one another that sometimes overlap, sometimes not.
As far as the class action lawsuit is concerned, our lead lawyer, David Klein of Vancouver, is burrowing away. He has been in negotiation with a host of different parties.
It is ironic that the same parties that put us into this terrible situation, either through their incompetence or their deliberate intent to mislead shareholders, are now determined to run up huge legal bills in order to avoid paying anything in the way of compensation to shareholders. They would rather see lawyers get rich than Crocus shareholders receive anything back on their investments.

The same callous attitude toward the interests of the shareholders permeates the actions of receiver Russ Holmes of Deloitte Touche. Holmes has consistently spurned any offer from GrowthWorks to purchase all the assets of Crocus for a very good price. He has treated GrowthWorks with the utmost contempt, either ignoring any offers from GrowthWorks or searching for spurious reasons to reject those offers.
Does it make any sense for the receiver to continue on selling off Crocus assets bit by bit when he could sell the whole thing in one fell swoop to GrowthWorks?
It does, if you're the receiver and you want to exact the maximum amount in fees, as he has been doing.
In this cynical game the receiver has simply dismissed out of hand the application by the Crocus Investors Association and our friends-for-the-moment in the M.F.L. to call a shareholders' meeting to vote on the GrowthWorks offer. The receiver says that he is not answerable to the shareholders, only to Judge McCawley. In the meantime he is determined to sell off as much of Crocus as he can, likely to discourage GrowthWorks from staying in the hunt.
The fact that the GrowthWorks offer is almost certain to put more money into the pockets of Crocus shareholders, and quite a bit faster than what the receiver is doing, matters not a whit to the receiver.
Let's not forget that Deloitte Touche is one of the big five accounting firms that were roundly criticized for their ethics at the time that Enron was imploding in 2001.
These guys have only one goal in mind: Maximize their firms' profits. If that means putting the screws to shareholders, as Arthur Andersen did in the case of Enron, or as Deloitte Touche is doing to Crocus shareholders, then too bad for the shareholders.
Looks like Deloitte Touche could trade notes with Gary Doer when it comes to screwing Crocus shareholders.

Government added as defendant to class-action lawsuit

In what must have come as quite a surprise to our friends in the government, today the Government of Manitoba was added as a defendant to our class-action lawsuit.
The statement of claim was crafted by lawyers David Klein and Doug Lennox of the firm Klein Lyons.
Klein, who has had extensive experience pursuing claims against governments of various stripes over the years, had been systematically developing a statement of claim that he is confident will hold up in court. Anyone wanting to read the statement in its entirety can do so by going to this link:Crocus St of Claim May 8 06.pdf
The statement of claim is written in everyday language that should be understandable by just about anyone. It sets out the grounds by which the government will be held accountable to Crocus shareholders.
One more note: I was asked several times today by various news reporters whether we're trying to bring down the government and whether Manitoba citizens should have to bear the responsibility for the government's actions.
What I told those reporters is that the Crocus Investors Association is non-partisan. This isn't an ideological battle. What we want is monetary compensation for our loss. The fact is that, if the government is found liable in this action, it would be insured for that liability, as would be the case in any other instance of government liability.

Requisitions handed over to receiver

Receiver says: "I'll have to think about this."

Receiver will take 21 days to say: "I thought about it and there's no way I'm giving up this cash cow!"

On Friday, April 28, lawyers representing the Manitoba Federation of Labour and the Crocus Investors Association handed over almost 4,000 requisition forms to lawyers representing Russ Holmes, the receiver for Crocus. The requisitions called upon the receiver to call a special meeting of all Crocus shareholders for the purpose of voting upon the Growthworks proposal to purchase Crocus.
Before anyone gets too excited, let's just remember that this receiver has consistently refused even to consider the possibility of giving up control of what has turned into a pot of gold at the end of the rainbow for Deloitte Touche. With fees amounting approximately to $4,000 a day, Holmes is not going to surrender control of Crocus to Growthworks without a fight. He is bound to take the full 21 days that he is allowed by law before he comes back and says: "I don't care what the law says governing the calling of a meeting...I'm not going to call one and you can take me to court."
Holmes knows full well that by forcing us to go to court he can drag this thing out well into the fall. He's hoping that Growthworks will give up and go away and he can be left to milk the shareholders for as much as he can get. And you know what? He's going to get away with it!
After all, Crocus is "the gift that keeps on giving" to whoever has control of it. First it was Sherman and Umlah, then it was Alfred Black, and now it's Russ Holmes. They can all drive Crocus's value into the ground, but they all earn hefty fees while the shareholders' money gets burned away. (Not to mention all the fees earned by the various legal firms representing officers and directors.)
These guys all want this mess to go on for as long as possible. There's a fat reserve fund that stands at around $24 million that they want to draw upon to keep themselves in the lifestyles to which they're accustomed. Who cares if that's our money they're taking? They're far more important than the petty shareholders, aren't they?

Receiver responds to GrowthWorks proposal with typical arrogance

Government introduces legislation hoping to mollify Crocus shareholders

An e-mail from GrowthWorks CEO David Levi sent to me yesterday gave a clear indication that receiver Russ Holmes is not going to relinquish control of Crocus without a fight. In his e-mail Levi indicated that Holmes, through lawyer Don Douglas (oh no - not another lawyer!) is willing to sell Crocus's assets to GrowthWorks, but only after the receiver has disposed of 70% of the assets.
Levi was clearly disappointed with this response. Here, in part, is what he had to say: " the main point is that the Receiver has disclosed that it wishes to sell as quickly as possible a substantial portion of the assets, which may be done simply to cause GrowthWorks to walk away. In summary it is very disappointing."
Clearly, what Holmes is attempting to do is make the prospect of acquiring Crocus so unattractive for GrowthWorks that Levi will simply give up. In this entire chess match, however, the receiver has lost sight of one overwhelming fact: Crocus is not his personal property. He is acting for the shareholders in place of the board of directors, which had resigned prior to his appointment. Every one of his decisions has to be approved by the court. He cannot sell off anything without Judge McCawley's consent.
Where does all this leave the shareholders? We have not yet handed to the receiver the over 4,000 requisitions that have been gathered by both us and our new friends at the Manitoba Federation of Labour Those requisitions call upon the receiver to call a special general meeting of the shareholders for the purpose of voting on the GrowthWorks offer. Our strategy had been to wait to see how the receiver would react to the GrowthWorks proposal.
By his slap in the face to GrowthWorks, the receiver has laid down the gauntlet, not only to GrowthWorks, but to the shareholders as a group, as well.
Simply put, the receiver is running up huge fees - close to $4,000 a day; he is not providing any management expertise for Crocus's investee companies; and, finally, he appears to be ready to engage in a "fire sale" of 70% of Crocus's assets.
We are going to do everything possible to remove Mr. Holmes.
In the meantime, let's just hope that David Levi is willing to hang on a little bit longer.
There is going to be an important meeting next week at which lawyers for our side will decide how to respond to the receiver's move. It appears more and more likely that we are going to have to force the general meeting of shareholders in order to cut the receiver off at the knees. That meeting will be costly to convene, however, and simply delays the inevitable; however, if that's what it will take to bring Holmes to heel, then that's what we'll have to do. His days should be numbered.

Government passes legislation that guarantees no claw-back of tax credits from Crocus shareholders

The NDP government finally introduced amendments to the Labour Sponsored Investment Fund Act and the Crocus Fund Act that put into law a promise that was made last June. i.e. There will be no "clawback" of tax credits if Crocus shareholders receive any money back on their investments. Simply put, what this means is that, under the GrowthWorks proposal, for instance, we could receive something in the order of $5.93 in the form of cash and shares in the GrowthWorks Canadian Fund, all at one time. Ordinarily, any early redemption of shares in an l.s.i.f. would trigger a requirement for a shareholder to pay back the tax credits that were given at the time that the shares were originally purchased. Naturally, in almost all cases, having to pay back those tax credits would amount to shareholders having to pay back somewhere between $3-$4 - obviously a ridiculous situation where you're only realizing slightly more than that from the sale of shares.
Now, Mr. Doer, here's where you can redeem your government even further: Let's say the GrowthWorks deal does go through. Any Crocus shareholder would be free to do with the money received from GrowthWorks what he or she might like. What is likely to happen is that most shareholders are not going to want to keep that money in the GrowthWorks Canadian Fund, no matter how well it may have done over the past three years.
What I would suggest, then, is that the government offer a one-time incentive to Crocus shareholders to keep their money in an l.s.i.f by increasing the provincial tax credit available from 15% to 20%. That, combined with the federal tax credit of 15%, would put an additional $2.10 into shareholders' pockets (based on a share value of $5.93 for Crocus shares, which is the value that GrowthWorks says a share would have if the receiver's valuation of Crocus is correct.) Ontario offers a 20% tax credit for shareholders investing in science oriented l.s.i.f.'s, so the precedent for a tax credit greater than 15% is there.
Further, if a Crocus shareholder wanted to invest his or her money in Ensis, instead of GrowthWorks, the same incentive would be available.
By doing this, the government would incentivize shareholders to keep their money in Manitoba venture capital - after all, that was the goal behind the creation of Crocus in the first place. At the same time, it would benefit a company like Ensis, which has taken a huge hit as a result of the Crocus fallout.
Now, all that we need to do is move ahead with the GrowthWorks proposal. If only the receiver would stop thinking about those fat fees he's been earning, and start thinking about doing something for Crocus shareholders instead, maybe we'd finally be able to get some resolution to this catastrophe. Then again, Crocus has turned into a cottage industry, not only for accountants from Deloitte Touche, but for loads of lawyers, as well. Don't expect any of them to give up this money pot without a huge fight. Shareholders may not see a dime from all this for a very long time, but many lawyers and accountants have expenses, such as winter homes in the Caribbean, to worry about. Whose priorities do you think take precedence?

Court session Wednesday ends without any clear indication what's going to happen next

Apparently the court session on Wednesday ended sooner than most observers were expecting. Judge Deborah McCawley reserved judgement on the receiver's request to distribute $14.2 million to shareholders.

So, what happens now?

Receiver Russ Holmes is under extreme pressure either to agree to sell Crocus's assets to GrowthWorks or, at the very least, call a meeting of shareholders for the purpose of voting on the GrowthWorks proposal. As Judge McCawley indicated, decisions will have to be taken quickly - a clear reference to the huge response to the requisition drive.
According to David Levi of GrowthWorks, Holmes is now far more amenable to the idea of a GrowthWorks takeover of Crocus. Levi says that Holmes has asked him to clarify certain points, since Holmes admits that he has no experience in the area of labour sponsored investment funds. Levi says he is much more optimistic that a deal can be struck with the receiver to sell Crocus to GrowthWorks without having to call a special meeting of the shareholders.

What about the $14.2 million that the receiver
says he would like to distribute to shareholders?

It is not going to happen. The judge is going to turn down the receiver's request to distribute the funds that he says are surplus to Crocus's needs. The lawyers for the officers and directors of Crocus opposed the receiver's proposal and, without their consent, the judge will not allow a distribution to take place. If the GrowthWorks proposal were not out there, this would indeed be a setback for shareholders.
However, under the GrowthWorks proposal, shareholders will receive the $14.2 million along with an additional $10 million in cash. Thus, the situation for shareholders is that we will have to wait a little longer to start seeing a distribution of proceeds from Crocus, but when we do receive something, it's going to be quite a bit more than what the receiver is proposing to give us.
The ones who are starting to worry about getting money more than anyone else are the lawyers for the officers and directors of Crocus. They haven't been paid for any of their work since the receiver took over on June 30, 2005 and the shareholders (through the Crocus Investors Association) are going to oppose any payment to those lawyers.
Again, the matter will be up to Judge McCawley to decide but, in the meantime, all those poor lawyers for the defendants to our lawsuit are going to have to sit and wait.

Doer sitting on pins and needles waiting to be
named as a defendant to our class-action lawsuit

By the way, David Klein, who is steering our lawsuit, yesterday gave the clearest indication yet that the province is about to be named as a defendant when our lawsuit is refiled in the near future. Everyone who was at our shareholders' meeting on March 8 heard for themselves that the loudest ovation of the evening came when Klein announced that he was going to add the province as a defendant.
Can you imagine what a field day the media will have with that story when it finally happens? I can imagine some NDP insiders wanting to jump from the Salisbury House on the Esplanade Riel (Don't jump Eugene...we want to hear you tell how you kept meeting with Sherman all those times to keep Crocus propped up).
Also, did you see that Crocus is now the largest single shareholder in the Sals chain because of the collapse of Maple Leaf Distilleries? This story just keeps getting crazier and crazier.

What's going to happen in court on Wednesday?

The successful drive to collect 1700 requisitions will no doubt have a major impact on what happens in court tomorrow.
Originally the purpose of the court session was to have Judge McCawley give her approval to what is known as "Receiver's Report #6". The most important component of that report was a request by the receiver to distribute $14.2 million to Crocus shareholders, or $1 per share.
Opposing the motion to distribute the $14.2 million will be lawyers for the officers and directors of Crocus, who are arguing that no monies should be distributed from Crocus since their clients are entitled to be indemnified by Crocus for costs that may arise, not only from our class action suit, but from the Manitoba Securities Commission hearings and possibly the RCMP investigation, as well. These lawyers don't want a cent to leave Crocus until they are satisfied that their clients won't have to cough up one measly dollar to pay for their gross negligence in running Crocus into the ground and keeping the truth about Crocus hidden for as long as they could. That's how the game is played: Screw the shareholders of a company, then make the shareholders pay for the sins of the offenders.
So, what we are going to see is a series of lawyers all speaking against the receiver's proposal to disburse the $14.2 million.
The inevitable result will be that Judge McCawley will adjourn without granting the receiver approval of his request. In the meantime, lawyers for both the M.F.L. and the C.I.A. are crafting the motion that will call upon the receiver to order a special shareholders' meeting. It is not certain when that motion will be filed, but it will be very soon.

Expect hours of pontificating from high priced lawyers for the officers and directors of Crocus, along with lawyers for the receiver, all of whom are expecting to be paid out of our pockets. Remember, these guys charge by the hour (as much as $850 per hour in some cases) and the more they can drag out proceedings, the more they expect to make.

M.F.L. and Crocus Investors Association to submit requisitions together

Class action lawsuit to be amended to include all shareholders

Receiver's expenses really taking a bite out of shareholders' pockets

By trudging through various reports issued by Crocus receiver Russ Holmes, one of our most intrepid Crocus watchers has come up with some fascinating information. Here are the results of his analysis:

Last week Green Gates bit the dust, with $610,000 of Crocus shareholders dollars.
Yesterday, Maple Leaf distillers filed for bankruptcy, taking another $2,000,000 in Crocus bucks.
The Dec 31/05 Receiver report on line highlighted a fact that over $2,368,000 had been taken in by their professional handling of the portfolio's assets disposal program.
They overlooked mentioning that the assets they disposed of for $2.3 M were bought and paid for by Crocus for $10.8 Million, for another loss of $8.4 M
Nice work, Russ, if you can get it.
Speaking of nice work, the receiver is paying himself
$ 3,876.70 per day, every day,
including Sat and Sunday since they started thru to 31/12/05
Lawyers got $ 2,360.58 per day
Staff still there got $ 2,670.81 per day
For the full text of the message, go to "Receiver Asleep or what" on the message board.

We also received an interesting phone call from a former Crocus employee today who suggested that of the six Crocus employees who were retained by the receiver when he took over, only three are doing any real work. This ex-employee went through each employee by name and detailed what each of them was doing. In the cases of two computer programmers, she said that they weren't doing anything at all. She did cite three employees for recognition of the hard work that they are doing, so we might as well mention them here: Brad Peacock, Catherine Simpson, and Sarah Federley. (By the way, if any former Crocus employees are reading this, I encourage you to contact me. Any information that you may have will be treated in total confidentiality.)
This employee also voiced the opinion that Crocus's downfall could have been avoided and was precipitated by John Penton and Laurie Goldberg - a view which has been expressed by others. Maybe some day we're going to find out what really happened at Crocus; unfortunately, that day is likely a long way off.
Is it any wonder that Russ Holmes is burning money at a prodigious rate? At the rate he's going we'll be lucky to have anything at all left to distribute to the shareholders.

Crocus shareholders to hold mass rally on steps of legislature Wednesday, November 1st, 12:30 pm

Receiver tells everyone to go to hell

Nobody is going to take Crocus away from Deloitte Touche & those fat fees

Government added as defendant to class-action lawsuit

Requisitions handed over to receiver

Receiver says: "I'll have to think about this."

Receiver will take 21 days to say: "I thought about it and there's no way I'm giving up this cash cow!"

Receiver responds to GrowthWorks proposal with typical arrogance

Government introduces legislation hoping to mollify Crocus shareholders

Government passes legislation that guarantees no claw-back of tax credits from Crocus shareholders

Court session Wednesday ends without any clear indication what's going to happen next

What's going to happen in court on Wednesday?

M.F.L. and Crocus Investors Association to submit requisitions together

Class action lawsuit to be amended to include all shareholders

Receiver's expenses really taking a bite out of shareholders' pockets