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September 2014

The "Thieves of Bay Street" and "Legalized Thieft"

The "Thieves of Bay Street" by Bruce Livesey

"The logjam over who would control Stelco and bring it out of CCAA was broken in the fall of 2005 when the leadership of the steelworkers' union formed an alliance with three investment pools: Brookfield/Tricap, Bay Stree's Sunrise Partners LP and the American  hedge fund Appaloosa Management LP."

"The a loan of $150 million from the Ontario government, Brookfield invested $55 of equity and offered up bridge financing of $375 million to buy the company in conjunction with Appaloosa and Sunrise. However, this sale meant wiping out the value of all the shares held by Stelco's original shareholders - a total of $167 million. The got it for a song," says Pollitt, of the investment house Pollitt & Co., Inc. And Gerstenberger, who broke with the union's leadership and refused to negotiate with the Bay Street firms, call it "legalized theft."

"In late 2007, Brookfield and its partners unloaded Stelco - a mere twenty months after buying it - to U.S. Steel for US $1.1 billion. At that time, Stelco's new shares were selling at $38.5. For its investment Brookfield/Tricap made more than $330 million in profit, while Appaloosa and Sunrise cashed in more than $180 million - which was more than seven times their original equity investment, plus profit from interest, fees and debt."

If you read Bruce Livesey's book and then you read the Statement of Claim on the official web site for the class action lawsuit against Brookfield you will see that the modus operandi for the "Thieves of Bay Street" carries the same characteristic fingerprints in dealing with Birch Mountain.

  • $1.67 Billion dollar asset "acquired" by Brookfield/Tricap for less than $50 Million.
  • An equity investment of less than ~$35 Million. ~$16 Million of that 35 Million was used to pay Brookfield Bridge Lending leaving ~$11M for Birch after deducting usurious fees for the financing.
  • Within approximately 11 months Brookfield/Tricap owned the Birch assets and wiped out shareholders.

If you want to know more about Brookfield Asset Management and how they operate, SIFMA has done some very good work:

"In response to a U.S. Securities and Enforcement Commission comment, Brookfield recently came close to acknowledging that it has a pyramidal control structure in the “Risk Factors” section of a prelaunch filing for its Brookfield Property Partners unit: “The company at the top of the chain may control the company at the bottom of the chain even if its effective equity position in the bottom company is less than such controlling interest,” the document states."

Bruce Livesey continues in a Huffington Post Q&A article:

(excerpts)

"Because the laws are so weak, they can steal, they can misrepresent themselves, they can [promote] an investment product when in fact they know it’s going to go bad, and they don’t go to jail. They don’t get charged. That’s what I began to find, and it was just very new to me."

"Yes. It’s sort of astonishing. There [are] a few organizations or investors’ groups which have been banging the drum as best they can over these issues for years, and when I've asked if they can produce a victim for me to talk to, it’s always a struggle. Because people are enormously embarrassed that they’ve lost all their money.

Most of them, especially if they’ve accrued a good amount of savings, chances are they’re middle class, they’re college educated, they’re professionals, and they’re shocked that they somehow managed to lose their money. They feel like they should have somehow prevented it from happening."

"The regulatory issue is huge. If you removed the police force from Toronto, you would see a lot of shit happen. The same thing basically exists in the financial industry, where you don’t have a police force, so they do a lot of evil as a result. In Canada, we have one of the most, if not the most, abysmal regulatory system in the developed world.

We need a national securities regulator. That’s long overdue. We should have tougher penalties on investment fraud, we should be sending more people to jail and make it more of a criminal thing. Because in Canada we have this tendency -- we hit people with securities violations, which are clearly cases of fraud, but we don’t criminally prosecute them."

And according to a review in MacLeans:

"Why is Canada so prone to fraud? Bay Street’s clubby culture is one factor. CEOs live in the same tony Toronto neighbourhoods as their boards of directors, corporate lawyers and accountants, and send their children to the same schools. Canadian regulators are criticized for being toothless and seemingly incapable of putting anyone in jail."