Workers Betrayed by Pension Gurus
Will Regulators Betray Them Next?
Their betrayal of their members' interests is breathtaking.
According to a recent report by the Financial Services Commission of Ontario, the employer and union trustees of UFCW Canada's Canadian Commercial Workers Industry Pension Plan (known as CCWIPP - or "quip") have poured millions of their members' pension dollars into high risk real estate and other ventures without due diligence, without regard to the creditworthiness of the borrowers, without proper valuations of the properties involved and with no process for reviewing their investments or tracking the performance of the pension plan's investment committee.
In some cases, large sums were invested in businesses in which pension trustees were directors and held stock options.
In some cases the money was invested in businesses controlled by CCWIPP advisors and other associates.
In some cases loans from the pension plan exceeded the value of the properties they were used to purchase.
In some cases millions were poured into businesses that were either bankrupt or on their way there.
In some cases loans went unpaid and their accrued interest was recorded as an additional investment.
By far the most significant amounts (over one hundred million) were invested in the ventures of a former Catholic priest and ten-times convicted pedophile named Ronald Hubert Kelly. Kelly was a small time cemetery consultant when he hooked up with CCWIPP in 1992. The trustees helped him buy his first hotel and launch a real estate empire.
In some cases the investments violated the pension plan's own investment policy. In some cases, they violated the law. No one was responsible for ensuring compliance with pension legislation and evidently no one did.
By 1999 almost one-half of the pension plan's billion dollar portfolio was invested in these "trustee directed" investments or through investment corporations (single purpose corporations called "I.F. Propco Holdings") that were controlled by members of the pension plan's investment committee.
There also does not appear to have been any steps taken by the Board of Trustees to ensure that the Investment Committee had the prerequisite expertise to invest these pension assets in these investments. FSCO Report, page 48
Although the Investment Committee lacked the necessary expertise to invest its members' assets and the trustees and administrators did nothing about that, they billed themselves as pension governance experts, sharing their knowledge with other pension trustees and administrators at various conventions and special events.
Here are a couple of examples of how sophisticated the CCWIPP players are. Many of those most closely associated with the CCWIPP are officials with the Multi-Employer Benefit Plan Council of Canada (MEBCO) and/or the International Foundation of Employee Benefits (IFEB). In fact Joan Tanaka (CCWIPP Administrator) will be in Vancouver this August teaching IFEB members about "Defining good governance, governance principles, and regulatory models." Joan has been teaching as an expert in this area for many years. Cliff Evans (CCWIPP Investment Committee Chairman) is a favourite teacher for IFEB too. Peter Martini (a close associate of Evans' and recipient of a few million in CCWIPP loans) is on the IFEB Canadian Board too. He's also on the MEBCO Board along with Joan Tanaka. In fact, the MEBCO offices are right inside Dave Harvey's (another Evans' crony with his mitts in the CCWIPP trough) operation in the CCWIPP's old Queens Plate Drive building that they supposedly sold to Retrocom, which is run by another IFEB Board member.
These people are the movers and shakers in Canadian pension circles. They teach good governance--yet they don't practice it. It surely can't be by accident. The FSCO has no real option but to do a full audit of the CCWIPP operations and to involve other agencies such as the CRA and possibly the RCMP. (A knowledgeable insider)
While they educated others in the finer points of good pension administration, their own pension plan became dangerously insolvent. By 2001, CCWIPP's solvency deficiency had ballooned into the hundreds of millions of dollars. The solvency deficiency was identified by pension regulators in Alberta (where CCWIPP was registered at the time) in the mid 1990's as a serious matter that needed to be remedied. Although CCWIPP's financial statements during the late 1990's stated that the trustees were addressing the problem, their free-wheeling investment practices continued and the deficit grew larger.
A 1999 report of the Alberta Pension Commission identified eight pages of compliance issues including misleading financial reporting, lack of proper valuations and the absence of a policy for addressing conflicts of interest.
By 2001, the solvency deficiency stood at approximately $200 million and a plan to scale back members' benefits was being floated past the regulators to deal with it.
Yet none of this caused the trustees to abandon their self-directed investment strategy or to bail out of investments that were clearly not benefiting the members. If anything, the trustees played faster and looser, pouring even more money into existing dogs and getting involved with new ones.
When a member wrote to UFCW trustee and Investment Committee Chairman Cliff Evans in 2002 to ask what was going on, Evans simply - lied.
In a letter dated June 18, 2002 Evans stated that there was no solvency deficiency and that: "All decisions pertaining to the investments of the pension funds are made by the Board of Trustees after having completed the proper due diligence process."
That there was a solvency deficiency by the time Evans wrote this letter is beyond dispute. CCWIPP's financial statements said there was, its actuarial reports said there was and regulators in Alberta and Ontario said there was.
As for proper due diligence, according to the FSCO report no due diligence process existed in 2002 and it was not until 2003 that a subcommittee of the Board of Trustees was appointed to draft one. As of the date of the FSCO's report - May 2005 - a due diligence process exists in draft form only.
It was one member's determination to find out what was happening with his pension plan that prompted the FSCO to begin an examination of CCWIPP's investments and its investment practices.
That was in December 2002. The report of the examination, issued in May 2005, lays out the breathtaking lawbreaking (that's what non-compliance is) set out above (except for the part about Evans lying) and then some.
According to the report, as of 2005, a total of $166 million of union members' retirement money was invested in a number of financially troubled hotel properties in the Caribbean. A further $120 million (approximately) is sloshing around in troubled, bankrupt or high-risk businesses. At least $800,000 is unaccounted for in relation to one investment alone. Records relating to some of these deals do not exist, are in draft form only or have not been produced despite an order from the Superintendent of Pensions for disclosure.
As if that's not bad enough, the CCWIPP trustees seem to be continuing their decade-long relationship with an unsavoury character - a former Catholic priest and convicted pedophile - Ronald H. Kelly. This, despite the fact that Kelly has defaulted on millions of CCWIPP loans and was recently convicted on fraud-related charges in the Bahamas.
The Reluctant Regulator
As much as the FSCO's report is a welcome development and sheds considerable light on the fruits of CCWIPP's trustee-directed lunacy, what the FSCO intends to do about it is unclear. The report itself is troubling on a number of different levels and calls into question the regulator's willingness to apply appropriate regulatory muscle in a situation where laws intended to protect the public have been flouted repeatedly, blatantly and for as long time.
Why did it take two and a half years to conduct this examination?
Information about the investments examined by the FSCO was available in 2002 when the examination began. Much of it came from public sources and a lot of it was handed to the FSCO on a silver platter. How long should it take for a regulatory agency to determine that there has been a breach of the law once facts supporting that conclusion are in? Is there not an obligation on the regulator to move quickly - particularly in circumstances where money continues to flow into questionable investments as the months pass?
It would seem that there should have been some urgency about this examination. Yet, according to the report itself, the "on site" visits by FSCO examiners to CCWIPP's and other offices did not take place until early 2004 (over a year after the examination began). What were the examiners waiting for? (In contrast, an investigation earlier this year by the Auditor General of Manitoba into questionable investment practices of the Crocus labour sponsored investment fund took less than six months).
The leisurely pace of the FSCO's examination is that much more troubling given that the CCWIPP trustees seem to have been less than cooperative with the FSCO. Throughout the report there are references to the trustees' failure to provide documents and other information requested by the examiners.
On February 5, 2003 Tom Golfetto, Director of FSCO's Pensions Plans Branch wrote to CCWIPP Administrator Joan Tanaka demanding disclosure of documents related to a wide range of CCWIPP's investments. Golfetto didn't ask nicely. He used his authority under the Pension Benefits Act to demand the disclosure of the information. It is evident that the trustees didn't fully comply with his demand. In the report's Conclusion, the examiners again request various documents that were demanded by Golfetto more than two years earlier.
Why, two years after Golfetto's letter, are the examiners still requesting information? Why has the FSCO not used more compelling means to get production of the documents that the trustees aren't coughing up - like the courts?
Why was a draft report forwarded to the trustees months before the actual report was issued?
What is the point of having the trustees respond to the draft report? Isn't it the regulator's responsibility to determine whether there is compliance with the law? Why should the CCWIPP crew have any say in that determination? CCRA doesn't send draft assessment notices. The police don't lay draft charges. A regulator's report should be a report and not a debate.
A statement included in the report's Introduction is especially troubling:
It should be noted that the administrator has rightly pointed out that "The FSCO Draft Report failed to take note and acknowledge that in 2001 the Board of Trustees actively began focusing their efforts on rebalancing the CCWIPP investment portfolio so that a greater percentage of the Fund's assets would be under the management of professional lnvestment Managers. In this regard considerable work has been undertaken by the Board through the divestiture of Trustee Directed lnvestments and Propco Corporations resulting in over $200,000,000 being returned to the CCWIPP to date."
It is acknowledged that the Board of Trustees did take steps in April 2001 to focus on the active rebalancing of CCWIPP. It is further acknowledged that the Board continues to take steps to move a greater percentage of the assets to professional lnvestment Managers. As a result of these steps, the amount of assets in Trustee Directed lnvestments and Propcos was at 31% of the assets as at December 2003 and declined further in 2004. In addition, the administrator has taken steps to establish new procedures for the oversight of these investments. The Board has provided additional material to address all of the concerns raised by FSCO in this report. This information is under review by FSCO.
Considering what follows in the ensuing 75 pages, the claims about an active effort to "rebalance" the pension plan beginning in 2001 and the recovery of over $200 million are dubious (to be charitable about it).
Based on the FSCO's and the CCWIPP crew's own math, it seems quite unlikely that $200 million has been recovered. Similarly, the trustees' efforts at rebalancing are discredited by the rest of the report. If anything, it is apparent that from 2001 onwards the trustees continued to pour good money after bad into longstanding lost causes like AFM Hospitality and the Caribbean hotels, and also found some new losers in which to invest (like the now-defunct Case Financial and the also defunct Purely Supreme Foods and the equally defunct World Blend shoe company - to name just a few). The conflicts of interest continued (see the adventures of Bernard Christophe, Chairman of the Board of Trustees, starting on page 29), no due diligence process was implemented (despite the findings of the Alberta Pension Commission a couple of years earlier). In short, it was business as usual post 2001.
The placement of these inaccuracies in the Introduction is misleading. It suggests to the reader that things have been getting better for the past fours years, that a lot of money has been recovered and the trustees are working hard to put things right: Don't bother with the ensuing 75 tedious pages people, the crisis is under control.
But the crisis is not under control. If $200 million has already been returned to the plan, why is the solvency deficiency as large as it was in 2001? Why was a 20% reduction in pension accrual rates implemented in January of 2005?
Then there are the investments that the FSCO knew about but did not address in its examination.
These too involve millions of dollars of members' money that was put at risk and, in some cases, pissed away helping out CCWIPP-connected non-members.
There was the one where one Propco swallowed several million dollars worth of a borrower's debts to a bank and another Propco. That was a really good one.
There was the one about the Propco that sued another Propco to take control of a commercial building.
There was the one where CCWIPP loaned money to a company among whose Directors was a CCWIPP Investment Committee member and a senior manager of George Weston Company.
There was the one about the Propco that offloaded its bank mortgages (used to purchase an interest in a commercial building) to another buyer (giving the appearance of having sold its interest in the place) but continued to hold the position of primary debtor for those mortgages.
Then there was the one about the house that Cliff Evans was supposed to get as part of a loan to a land developer. The deal fell apart at the last minute, resulting in years of litigation, but the fact remains that Evans was going to benefit personally from his role in lending CCWIPP funds.
Hey FSCO guys, doesn't any of this stuff interest you? We know that you know about it. We told you! Is it in compliance with the Pension Benefits Act? Come on, you've had two and a half years to work on this. Why limit your investigation?
The FSCO only examined a limited number of investments.
Why was that? Should the regulator, faced with possible widespread non-compliance, not understand the full scope of the non-compliance? Is that not an important consideration when determining what to do about it?
And speaking of what the FSCO intends to do...
...about the lawbreaking that its examination uncovered, that's less than clear.
The "conclusions" set out on page 60 of its report are not conclusions at all but rather a mixed bag of requests for information that the CCWIPP trustees have not provided and requests that they now begin to abide by the law that they have repeatedly ignored. The conclusions as to non-compliance with the law are scattered throughout the body of the report. But having found lots of these, the regulator appears content to wait for "additional information" from the CCWIPP trustees before deciding what to do. The nature of the information and its purpose is unclear and there is no indication of just when the process of mulling it over might be completed.
At page 5 there is a statement: "subsequent to the meeting of February 24, 2005, CCWIPP has made submission which address some of the issues raised in this report. These submissions are under review".
At page 3, however, there is a statement: " The Board has provided additional material to address all of the concerns raised by the FSCO in this report. This information is under review by the FSCO."
Apart from the contradiction between some and all, there's this brainteaser:
It should be noted that the findings of this report, in part, reflect the historical record of the activities related to the handling of certain of the investments of the pension fund. FSCO's examiners documented their findings and made their conclusions based on the material available in the files at the time the examination was undertaken.
The new submissions are being reviewed by FSCO to determine if the matters identified in this report have been or are being addressed and whether all compliance issues have been resolved.
Concurrently, FSCO will take steps to determine whether the activities surrounding certain of the investment of some of the real estate assets warrant further action under the Act.
Translation: The CCWIPP trustees jerked the regulator around for two years. Then they saw a draft report that didn't exactly give them as warm feeling. They turned up at a meeting in February 2005 with some explanations that the regulators had a hard time swallowing. Realizing that they couldn't bob and weave forever and that the release of an embarrassing report was imminent, they sent some additional information to address some or all (depending on which paragraph you prefer) of the issues in the draft report. While the regulator is chewing on the new stuff, it issues a report-that-isn't-quite-the-final-report. It promises that while it's chewing on the new information, it will decide if anything further needs to be done.
Anyone who's cynical about the regulator's intentions can be forgiven.
Is the FSCO preparing to wipe the slate clean based on promises of future compliance?
Considering the scale of the lawbreaking, the millions that have been squandered or put at risk, the impact on the pensions of millions of working Canadians, the trustees' self-proclaimed expertise, their failure to act after the Alberta report of six years ago, it is incumbent on the regulator to do more than request that the scofflaws straighten up and fly right and sweep their mess under the carpet.
This wasn't a one-time miscalculation or some moderate-risk investment that looked good but didn't pan out. What happened here was prolonged, repeated and systematic. It wasn't one instance or even a few instances of non-compliance, it was an outright flouting of the law for a very long time. Millions of workers' retirement savings were exposed to unacceptable risk and inexcusable losses were incurred. The most basic of precautions were not taken. It is clear that whatever their intentions, the trustees were not acting in the interests of the members - and that's against the law.
The trustees acted with the cavalier arrogance of big shots who believe they are accountable to no one.
Here's the whole arrogant lot:
- Gordon Cannady, Vice President. Human Resources, Canada Safeway Limited
- Bernard Christophe, Executive Assistant to the President, UFCW Local 832, Chairman of the CCWIPP Board of Trustees
- Cliff Evans, Former Director of UFCW Canada, Chairman of the CCWIPP Investment Committee
- Anthony Filato, Secretary - Treasurer, UFCW Local 500
- Michael Fraser, Canadian Director, UFCW, International Vice President
- Wayne Hanley, President, UFCW Local 175
- Lucy Paglione, Vice President Pension & Benefits, George Weston Ltd.
- Andre Picard, Vice President Human Resources, Metro Richelieu Inc.
- Howard Preston, Representing Smaller Participating Employers
- Tom Zakrzewski, Senior Vice President Labour Relations, A & P Canada Limited
The purpose of the law is to make them accountable. The regulators have the power to hold them accountable. The Ontario Government can either use its regulatory powers to protect the people or participate in their betrayal. The choice is theirs. We'll make sure you know about it.
If a group of wealthy investors was burned the way that these workers have been burned, what would the Ontario Government do about it? What would the Ministry of Finance (which oversees the FSCO) do about it? That's the question that CCWIPP members and concerned members of the public need to ask our legislators.
Ask the Premier Dalton McGuinty: Dalton.McGuinty@premier.gov.on.ca.
Ask Minister of Finance Greg Sorbara: email@example.com.
Tell them what you expect them to do.