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January 2016

Why did Brookfield Asset Management file Billionaire James Pattison's 13G with the SEC?

. . . and cut him a sweetheart deal?

What was the sweetheart deal?

On November 27th 2008, one day after Brookfield created the Hammerstone Corp, Brookfield offered billionaire Pattison 30% of Birch Mountain's $1.6B asset ---- before PWC even had time to market or sell the asset. How can Brookfield make a deal with an asset that's in receivership and they didn't yet own? You can view the sweetheart deal here:

Remember this?

"In court documents, the plaintiffs also single out Vancouver billionaire Jim Pattison, a Brookfield director. He is not named as a defendant, but the plaintiffs allege that he not only held a Birch Mountain debenture of his own, but also signed an option agreement allowing him to take a 30-per-cent stake in Brookfield’s new owner of the limestone quarry, known as Hammerstone Corp. The shareholders allege in court documents that this “preferential treatment” given to an insider like Mr. Pattison, which was never disclosed to the receivership judge, could have violated disclosure or insider-trading rules. Mr. Pattison could not be reached for comment Tuesday." (Jeff Gray - The Globe and Mail Squeezed-Out Birch Mountain shareholders take on Brookfield)

Why did Brookfield file James Pattison's share disclosure after shareholders voted?

It seems billionaire James Pattison was on the board of Brookfield Asset Manangement. It seems (according to his SEC filing) that he owned a control block of shares of Birch Mountain but never got around to disclosing those shares in Canada or the US in a timely manner. So, none of the Birch shareholders knew that an insider at Brookfield already held a control block of Birch shares when they voted for the debenture in May of 2008. It was only after Brookfield served notice of an Event of Default to Birch and then filed their Early Warning Report that we also find out about Pattison's shares. 

In the US we call a situation that looks similar - securities fraud. When Ivan Boesky was implicated as buying and holding stocks for Michael Milken until Milken needed them for a takeover - it was called stock parking. I think Milken went to jail over that and other securities violations.

Stock Parking
"Stock parking represents collusion and artificial manipulation of the market. As is often the case with SEC regulations, the severity of the punishment for colluding to park shares largely depends on the severity of the infraction; the number of shares traded, the amount of taxable income unregistered and the scale of the conspiracy." Read more: Parking Definition | Investopedia

Oh, right.  And the stock price had been plummeting, remember?

So, I guess the question is - was Brookfield engaging in Stock Parking with one of their directors, Pattison?