With all the tantalizing complexity of a John le Carré spy thriller, Canada’s Great Trust Affair has entered inexorably on an even more labyrinthine course. In the Ontario legislature last week the Conservative government was attempting to rush through an extraordinary bill. The legislation would empower the province to sell off most of the assets of Crown Trust Co., a firm that it seized on Jan. 7 with two other trust companies, which provided third mortgages in the $500-million sale and resale of 11,000 Toronto apartment units last fall. Then, William Player, the entrepreneur who arranged the final sale of the apartments to unknown investors, made his long-awaited appearance.
The controversial legislation was introduced by Consumer and Corporate Relations Minister Robert Elgie. The minister contended that selling Crown was the only alternative to liquidating the company, a step that would result in “substantial losses to depositors.” If the bill passes, Crown would be left with
about $130 million worth of “soft” mortgages that investigators say are not adequately secured. All other assets would be sold, and the buyer would receive a cash injection of as much as $200 million from the Canadian Deposit Insurance Corp. to cover all but an estimated $110 million of depositors’ funds. Elgie’s warning to opposition MPPs: pass the bill quickly or the depositors will suffer and hold the legislators responsible.
Critics raged that the bill should not be pushed through before any charges have been laid against its owner,
Leonard Rosenberg,or for that matter before Elgie had even made public the entire findings of the investigation into Crown. And opposition leaders dug their heels in. For one thing, they demanded fuller disclosure of the firm’s alleged illegal activities. But even more significant is
their condemnation of a clause in the bill that would remove the right of Crown’s owners to challenge the government’s action in court. Said Liberal Leader David Peterson: “This is a very dangerous kind of law.” Then, calling for a public inquiry into the whole affair, Peterson warned, “Everything they [the government] do now will be designed to prove that they were right” in taking actions against the seized companies. In committee hearings this week, the opposition will increase the pressure for more information about the affair and for amendments to the bill.
Even more doubts were cast on the government’s tactics after Player talked openly about the deal on Toronto TV station CFTO. After Leonard Rosenberg bought the apartments from Cadillac Fairview for $270 million, Player moved in to purchase them for $312 million. Then he resold them to unknown investors for $500 million. Now, a key mystery troubling investigators is the identity of those investors. Last week Player reiterated that the buyers were Saudi Arabians. He could not reveal their identity, he said. But he confirmed that they had made a $109-million down payment that was deposited in a bank in the Cayman Islands. Player added that he would reveal the identity of the bank to investigators only if they promised to keep it secret.
Whether or not the government will agree to Player’s terms is unclear. But the existence of the down payment led to increased criticism concerning the government’s allegations that the third mortgages which were involved in the deal were financially unsound. Player said that, as manager of the properties under a 10-year leaseback arrangement with the owners, he could likely convince them to let him use the funds to make the mortgage payments. As Wallis King, who represents Crown’s preferred shareholders, put it, “How soft are the assets if Player has proof that there is $109 million in a Grand Cayman bank?”
For his part, Elgie was unimpressed by Player’s disclosure. Said Elgie: “We have known all along that the money was supposed to be out there somewhere. That does not alter things at all.” Nor did Player’s statement solve other riddles in the affair. In a meeting with Peterson last week, Jack Biddell, an accountant investí tigating Crown and ö the other two seized
firms—Greymac Trust Co., also owned by Rosenberg, and Seaway Trust Co., owned by Andrew Markle—revealed that $72.5 million is not accounted for in the three firms’ books. Not only that, but a report by the accounting firm Woods Gordon revealed that Crown had not received mortgage payments from Player that were due on Dec. 10 and Jan. 10. Most puzzling of all was the fact that the actual owners of the properties are still unknown, although Player did confirm rumors that he arranged the deal with Adeeb Hassan Qutub, a resident of Saudi Arabia who represents the investors.
If Player’s statements did not allay the government’s worries about the financial condition of the seized companies, they did underline the need for fuller government disclosure of its own findings. Otherwise, opposition politicians are unlikely to agree to passage of the controversial bill. As well, some critics charge that the government should quickly lay charges against the principals if it intends to do so.
One reason for laying criminal charges against Rosenberg could arise if he violated a sworn declaration, made to the Ontario Securities Commission, that he was not acting for a Toronto lawyer named Joseph Burnett when Rosenberg purchased 54 per cent of Crown’s shares from CanWest Capital Corp. last fall. Burnett had been blocked in his attempt to purchase a major interest in Crown by an OSC cease-trading order on Sept. 9, when it was learned that he was under investigation for income tax evasion by federal authorities. Then, when Rosenberg appeared on the scene as a suitor for Crown’s shares, the OSC dropped the case involving Burnett after Rosenberg signed the declaration. There has been no evidence that Rosenberg has in any way violated that pledge. Still, at an OSC hearing last week into allegations that Burnett had continued his attempts to purchase Crown shares despite the cease-trading order, some troubling testimony was recorded. Not only did CanWest Chairman Izzy Asper testify that Burnett had indeed pressured him unsuccessfully to sell his Crown shares, but another former holder of Crown stock, Reuben Cohen, stated under oath that Burnett told him that he was expecting to make a profit from the Cadillac Fairview transaction although he had advanced no money for the deal. Burnett said that he was acting for his brother, Theodore—who owns BN A Realty—when he approached Asper. At the same time, he heatedly denied Cohen’s statement. The conflicting testimony only increased the prospect that the suspicion surrounding one of Canada’s largest-ever real estate deals will deepen even more in weeks ahead.
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