Springing a leak
Kevin Steel - Monday,23 January 2006
Western Standard
It's déjà vu all over again. As news of a possible sponsorship scandal sprouted legs on the eve of the 2000 election, another potential government fiasco stung the Liberals just as the writ was being dropped on the current campaign. After federal Finance Minister Ralph Goodale announced on Nov. 23 that he would not be slapping a new tax on income trusts, word spread that someone in the Finance Ministry had tipped off Bay Street ahead of time. Income trust prices had been slumping for months, ever since Goodale had mused about doubling taxes on the investment vehicles, which are popular with retirees for their monthly, low-tax cash payouts. In the hours before Goodale's supposedly surprise announcement, trading volume in income trust units began to rise inexplicably.
Al Rosen, one of Canada's top forensic accountants and publisher of a pension and mutual fund newsletter, noticed the movement even before the announcement, but was puzzled as to what was driving prices up. He was scheduled to do an interview on the business cable channel ROBTV that afternoon, but couldn't figure out why income trusts were suddenly so active. "I got over there and our program was postponed because we were trying to get news and then we finally had to go on in the last five or six minutes of the program without knowing exactly what was happening," Rosen says. After the finance minister put the final piece in the puzzle that afternoon, Rosen was among the first to call for an investigation into how some investors appeared to have advance knowledge of the Goodale announcement. "It's the principle of, are the markets safe or not?" Rosen says. "So if this is just one where people were caught off base, surely it is happening all over the place. Either we have respectably trading markets or we don't."
Both the Conservative party and the NDP say they're asking the Ontario Securities Commission to probe the matter, though Goodale has repeatedly and confidently denied that any leak was possible, even before investigating the matter. "The Finance Department is very meticulous about these matters," Goodale told reporters. "There was no specific advance notice whatsoever." But rather than stop at that, the scandal has only worsened for the Liberals. Now there's evidence that income trusts with ties to the Liberal party itself may have seen the biggest boost in the hours before Goodale's decision was made public.
On Nov. 22, a full day before Goodale's announcement, shares in Medisys Income Trust jumped an astounding 3,400 per cent, for no apparent reason. Medisys happens to be a trust, operating private health care assets, that is controlled by Sheldon Elman, the personal physician to Prime Minister Paul Martin. Medisys did issue a press release the previous day, announcing an increased cash distribution for unit holders, but Christopher Thomas, who runs Measuredmarkets Inc. in Toronto, a stock monitoring service, says that the market would have accounted for that on Nov. 21. In fact, on Nov. 21, just 5,714 of the trust's shares changed hands. On the day before the finance ruling, more than 200,000 shares were traded, only to return to normal volumes following Goodale's speech. Thomas also notes that there were large blocks of Medisys shares moving on Nov. 22, quite unlike other days. But it wasn't Bay Street that noticed the strange trading patterns in Medisys, but M.K. Braaten, an Edmonton-based Internet blogger, resulting in dozens more bloggers scanning the stock exchange for other firms that had seen the biggest jumps in their prices around the same time. "The bloggers were the ones doing the tedious work, going through stock after stock," says Steve Janke, a Toronto-area electrical engineer who runs his own blog, Angry in the Great White North (Janke also contributes to the Western Standard blog, The Shotgun). Among the trusts exhibiting suspiciously high trading activity is a company called Cargojet Income Fund, involved in the air transport industry. The head of Cargojet is Ajay Virmani, a well-known fundraiser for the federal Liberals. Cargojet owns the plane the Liberals are using during the election campaign (other parties use Air Canada). On Nov. 21, 12,725 units of Cargojet were traded, but on the two days prior to Goodale's decision being made public, volume more than tripled.
Meanwhile, claims by Goodale that there was no advance knowledge collapsed in the face of evidence to the contrary. Internet discussion forums show that rumours of the coming ruling were rampant hours before the announcement. Then came the admission from an executive of a national pensioners' group that he was tipped to the news. Bill Gleberzon, associate executive director of Canada's Association for the Fifty Plus, told CTV that his group had been contacted on Nov. 23 by Goodale's press secretary, John Embury, and told that an announcement was on its way. The group had been a loud critic of the plan to levy extra taxes on the trusts, and Gleberzon said that, while no details were leaked, he was under the impression the coming announcement "would probably be something we'd be happy with." Before CTV aired the interview, Embury called the network and said that Gleberzon was "old and confused" and would retract his statements.
That only added fuel to the fire of a story that's full of the worst sorts of elements. When Goodale began speculating about higher taxes for trusts in September, it was small investors and pensioners who suffered worst when prices plunged. The recovery, meanwhile, appears to have benefited mostly those in the know. The scandal puts the Liberals under a cloud of suspicion that they tipped off their pals. The OSC has not made any public statement about whether it's investigating, though the RCMP says it's looking into the matter.
"Investors are rightly upset about this," says Monte Solberg, Conservative finance critic. "They can look at the jump in trading volumes like anybody. . . And there are a lot of people who won't come forward, but are saying there were lots of people who knew ahead of time what was going on." says Solberg. And with weeks remaining before voters go to the polls on Jan. 23, there's still plenty of time for eager bloggers and reporters to dig up a lot more about the scandal. That has to be making a lot of Liberals very nervous.
Kevin Steel - Monday,23 January 2006
Western Standard
It's déjà vu all over again. As news of a possible sponsorship scandal sprouted legs on the eve of the 2000 election, another potential government fiasco stung the Liberals just as the writ was being dropped on the current campaign. After federal Finance Minister Ralph Goodale announced on Nov. 23 that he would not be slapping a new tax on income trusts, word spread that someone in the Finance Ministry had tipped off Bay Street ahead of time. Income trust prices had been slumping for months, ever since Goodale had mused about doubling taxes on the investment vehicles, which are popular with retirees for their monthly, low-tax cash payouts. In the hours before Goodale's supposedly surprise announcement, trading volume in income trust units began to rise inexplicably.
Al Rosen, one of Canada's top forensic accountants and publisher of a pension and mutual fund newsletter, noticed the movement even before the announcement, but was puzzled as to what was driving prices up. He was scheduled to do an interview on the business cable channel ROBTV that afternoon, but couldn't figure out why income trusts were suddenly so active. "I got over there and our program was postponed because we were trying to get news and then we finally had to go on in the last five or six minutes of the program without knowing exactly what was happening," Rosen says. After the finance minister put the final piece in the puzzle that afternoon, Rosen was among the first to call for an investigation into how some investors appeared to have advance knowledge of the Goodale announcement. "It's the principle of, are the markets safe or not?" Rosen says. "So if this is just one where people were caught off base, surely it is happening all over the place. Either we have respectably trading markets or we don't."
Both the Conservative party and the NDP say they're asking the Ontario Securities Commission to probe the matter, though Goodale has repeatedly and confidently denied that any leak was possible, even before investigating the matter. "The Finance Department is very meticulous about these matters," Goodale told reporters. "There was no specific advance notice whatsoever." But rather than stop at that, the scandal has only worsened for the Liberals. Now there's evidence that income trusts with ties to the Liberal party itself may have seen the biggest boost in the hours before Goodale's decision was made public.
On Nov. 22, a full day before Goodale's announcement, shares in Medisys Income Trust jumped an astounding 3,400 per cent, for no apparent reason. Medisys happens to be a trust, operating private health care assets, that is controlled by Sheldon Elman, the personal physician to Prime Minister Paul Martin. Medisys did issue a press release the previous day, announcing an increased cash distribution for unit holders, but Christopher Thomas, who runs Measuredmarkets Inc. in Toronto, a stock monitoring service, says that the market would have accounted for that on Nov. 21. In fact, on Nov. 21, just 5,714 of the trust's shares changed hands. On the day before the finance ruling, more than 200,000 shares were traded, only to return to normal volumes following Goodale's speech. Thomas also notes that there were large blocks of Medisys shares moving on Nov. 22, quite unlike other days. But it wasn't Bay Street that noticed the strange trading patterns in Medisys, but M.K. Braaten, an Edmonton-based Internet blogger, resulting in dozens more bloggers scanning the stock exchange for other firms that had seen the biggest jumps in their prices around the same time. "The bloggers were the ones doing the tedious work, going through stock after stock," says Steve Janke, a Toronto-area electrical engineer who runs his own blog, Angry in the Great White North (Janke also contributes to the Western Standard blog, The Shotgun). Among the trusts exhibiting suspiciously high trading activity is a company called Cargojet Income Fund, involved in the air transport industry. The head of Cargojet is Ajay Virmani, a well-known fundraiser for the federal Liberals. Cargojet owns the plane the Liberals are using during the election campaign (other parties use Air Canada). On Nov. 21, 12,725 units of Cargojet were traded, but on the two days prior to Goodale's decision being made public, volume more than tripled.
Meanwhile, claims by Goodale that there was no advance knowledge collapsed in the face of evidence to the contrary. Internet discussion forums show that rumours of the coming ruling were rampant hours before the announcement. Then came the admission from an executive of a national pensioners' group that he was tipped to the news. Bill Gleberzon, associate executive director of Canada's Association for the Fifty Plus, told CTV that his group had been contacted on Nov. 23 by Goodale's press secretary, John Embury, and told that an announcement was on its way. The group had been a loud critic of the plan to levy extra taxes on the trusts, and Gleberzon said that, while no details were leaked, he was under the impression the coming announcement "would probably be something we'd be happy with." Before CTV aired the interview, Embury called the network and said that Gleberzon was "old and confused" and would retract his statements.
That only added fuel to the fire of a story that's full of the worst sorts of elements. When Goodale began speculating about higher taxes for trusts in September, it was small investors and pensioners who suffered worst when prices plunged. The recovery, meanwhile, appears to have benefited mostly those in the know. The scandal puts the Liberals under a cloud of suspicion that they tipped off their pals. The OSC has not made any public statement about whether it's investigating, though the RCMP says it's looking into the matter.
"Investors are rightly upset about this," says Monte Solberg, Conservative finance critic. "They can look at the jump in trading volumes like anybody. . . And there are a lot of people who won't come forward, but are saying there were lots of people who knew ahead of time what was going on." says Solberg. And with weeks remaining before voters go to the polls on Jan. 23, there's still plenty of time for eager bloggers and reporters to dig up a lot more about the scandal. That has to be making a lot of Liberals very nervous.
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