GETTY FIRES A CONTROVERSIAL MINISTER AND OFFERS MILLIONS TO AGGRIEVED INVESTORS
A PRINCIPAL TOLL
GETTY FIRES A CONTROVERSIAL MINISTER AND OFFERS MILLIONS TO AGGRIEVED INVESTORS
A mild tornado had swept through the streets of Edmonton several hours before Premier Donald Getty rose to speak in the Alberta legislature last week. But within moments, the lanky ex-football star had touched off the political equivalent of the lightning strikes and lashing rain that had assaulted the city the previous night. After waiting 10 days to respond to provincially appointed lawyer William Code’s scathing report on the Principal Group Ltd. failure, a sombre, pinstriped Getty announced on July 28 that he was retiring the popular Constance (Connie) Osterman from his cabinet for having mishandled the affair while she had been minister of consumer and corporate affairs. Then Getty said that his government had decided to offer investors in two Principal subsidiaries as much as $85 million in compensation for their losses. “This is not an admission of fault in a legal sense,” Getty told the legislature, “but the Code report provides compelling reasons to believe the government has some moral responsibility for at least a portion of the investors’ losses.”
Getty’s Tories accepted the essence of the Code report, which blamed both the provincial government and Principal founder Donald Cormie for the collapse of the $ 1.2-billion financial empire. The failure left the savings of 67,000 investors in limbo. Now, Alberta is offering investors a package that is designed, along with money previously guaranteed, to result in the repayment of 75 per cent of the $492 million that they had sunk into investment contracts with First Investors Corp. and Associated Investors of Canada, the two cornerstones of the Principal empire, when the government closed them down in 1987.
Speaking to reporters last week, Getty called the offer “fair and final.” But FIC and AIC investors seemed far from satisfied. Only hours
after hearing reports of the offer, many said that they were already planning to step up pressure for greater compensation from Alberta—and from other western and Atlantic provinces whose governments had allowed Principal to operate. Yet those complaints were tame compared to the outcry from the 750 investors who hold Principal promissory notes rather
than investment contracts. Although they held $87 million in Principal notes that became void when Principal went under, they will not receive a cent under Alberta’s plan. Back in Edmonton, meanwhile, political insiders were already wondering whether other Tory heads would roll over the Principal affair.
Actually, Getty had little choice but to act. From the beginning, the Alberta premier had promised that he would compensate investors if Code’s inquiry into the causes of the Principal failure found the government negligent. When released on July 18, Code’s blunt report said that evidence indicated that the 67-year-old, Harvard-educated Cormie had acted fraudulently and dishonestly while running the empire. Last week, in fact, Cormie, his son John, former Principal senior vice-president Kenneth Marlin and Christa Petracca—a Principal vice-president and close friend of Connie’s— appeared in an Edmonton courtroom on charges of misleading investors under the fed-
eral Competition Act. The group reserved their pleas. When it came to the provincial government, the 619-page report was equally harsh. Code condemned Osterman and a number of other provincial government ministers and officials for allowing Principal to stay in business even though, he said, they knew that the company was in trouble as early as 1984.
Getty’s hand forced, he agreed to give people with money invested in AIC another 15 cents on the dollar to go with the total of 60 cents on the dollar they have already received or been promised from the sale of Principal assets. As well, people with investments in FIC—who have already received or been promised 57 cents on each dollar—are guaranteed a further 18 cents on the dollar. The end result: once the remaining Principal Group assets are sold, AIC and FIC investors will end up recovering 75 cents on the dollar.
Still, the plan seems likely to win few supporters. Alberta taxpayers had deluged newspapers with letters decrying the use of public money to bail out Principal inves“ tors even before Getty made his I announcement. But Robert White, S senior counsel for the Principal 5 investors, recommended that they accept the package—simply because fighting for further compensation in the courts would be too expensive and would take too long.
Across Canada, representatives for many of the 67,000 investors said that they would not rest until they received all their money back. John Rodden, president of the Principal Investors Protection Association of Alberta, called the package “too little, too late.” He told Macleans: “They did a poor job of governing. Now they are doing a poorer job of dealing with their responsibilities.” In Saskatchewan, Lome Senko, a spokesman for 500 investors in his province, said that he plans to file suit against the Alberta and Saskatchewan governments to get 100-per-cent compensation for losses. And Charles Mason, who represents 5,750 Principal investors in Nova Scotia, said that Getty had not lived up to his promise. Added Mason: “He told us in so many words that if the Code report said the Alberta government was responsible in any way, we would be fully reimbursed.”
Still, the FIC and Aie investors seem destined to do better than the Principal promissory noteholders. Said Logan Tait, a Lethbridge, Alta., accountant and inspector for the noteholders overseeing the Principal Group bankruptcy: “I don’t understand how the government protects one group of investors and not the other.” The feeling of betrayal seems particularly strong in the 22 Alberta Hutterite
colonies, which hold nearly $30 million in apparently worthless Principal notes. “We are extremely disappointed,” said Jacob Kleinsasser, manager of the Big Bend Hutterian Brethren, located about 230 km south of Calgary, which invested $1.5 million in Principal. “We expected to get back what we had invested. Now we have nothing.”
With the firing of Connie Osterman—once hailed as a possible provincial party leadership contender—the Alberta Tories have clearly suffered a major loss of their own. The 53-year-old blacksmith’s daughter has represented the central Alberta rural riding of Three Hills since 1979 and has been a cabinet member since 1982. And throughout her 10-year political career, she has built a reputation as a tough combatant who believes in solving her own problems without the help of others. Ultimately, her strong, independent streak may have been her undoing. In 1982, when then-Premier Peter Lougheed appointed Osterman consumer and corporate affairs minister, she inherited what most considered one of the junior cabinet portfolios. That changed in 1985, when Alberta’s Canadian Commercial and Northland banks collapsed. In fact, the list of failures could have included FIC if Osterman had followed assistant deputy minister James Darwish’s briefing urging her to close the company down in 1984. But Osterman ignored her adviser, instead suggesting that he take early retirement, which he did.
By the time Principal collapsed in 1987, Osterman had been shifted to the province’s social services ministry. When she appeared before the Code inquiry last September, she expressed no regrets about the way she had handled the Principal companies. But in his report, Code said that her decisions concerning Principal were “neglectful, misguided or even reckless.” Last week, Getty defended her tenure in his cabinet as a “fine performance.” However, he said that he could not allow her to remain in the junior career development and employment portfolio—which she had assumed in April—in light of what he called the “conflicting assessment” of the Code report. Speaking with reporters after Getty announced her ouster, Osterman—who said that she plans to stay on as a backbencher— would only add that she was “obviously sad” about being forced to leave the cabinet. Principal investors, however, are not likely to soon forget her role in the financial disaster.
JOHN DeMONT with JOHN HOWSE _ in Calgary, PAUL RODGERS in Edmon5 ton and JOHN DALY in Toronto
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