some Canadian institutions have reason to be shy...
some Canadian institutions have reason to shy away from placing themselves in a position where they may have to explain why they failed to carry out adequate due diligence on YBM (or even more hazardous to their reputations -- it could be that they DID know of YBM's Russian mafiya origins and links and STILL placed money under their management into this TSE time-bomb)
Monday, March 01, 1999
Canadians stay at home on YBM lawsuits
Jurisdictional battle: Canadian apathy, high U.S. legal fees cited as
reasons
By SANDRA RUBIN
The Financial Post
The majority of Canadian institutions that lost money in the collapse of YBM Magnex International Inc. have slammed the door on lawyers chasing the Philadelphia-area company and its advisors in U.S. federal court, saying they are sticking with a Canadian lawsuit.
It is shaping up as a slanging match over institutional accountability, with U.S. lawyers pointing out Canada has yet to see a single award or settlement in a class-action securities fraud.
Almost all the money managers -- who collectively lost hundreds of millions of dollars in client funds in YBM's collapse amid allegations of money laundering -- have declined to sign up with a U.S. suit, saying they prefer to take their chances at home.
"I don't know how to explain it, maybe it's traditional Canadian apathy," said a major YBM shareholder who spoke on condition of anonymity. "We don't want my or my firm's name further associated with YBM. We're trying to put that behind us.
"But I can tell you I am very leery of participating directly in any U.S. suit."
YBM was the pick of some of Canada's top fund managers until it was raided by the FBI in an organized crime probe on May 13, wiping out $635-million in market value.
The tale of the industrial magnet manufacturer that incorporated in Alberta, headquartered in Pennsylvania, used U.S. auditors, but traded its stock only in Toronto is symptomatic of the twisted jurisdictional tangles woven in international stock frauds.
They can make it fiendishly complicated for shareholders to figure out where to chase those they hold responsible.
Harvey Strosberg of the Windsor, Ont., firm of Gignac Sutts, says it's
really very simple.
"Canadians who bought the stock on a Canadian exchange should deal with the problem in Canada," said Mr. Strosberg, who is leading the major Canadian class action against Bre-X Minerals Ltd. as well as YBM.
He pointed to Bre-X, where a Texas judge declined to take jurisdiction over Canadians, as one reason it is vital to litigate cases like YBM at home.
"I don't see that the American courts are any better equipped to deal with this than we are. You don't need some lawyer from Texas, Philadelphia or New York to say, 'I'm here to deliver you from evil.' That's nonsense."
But Paul Yetter of Houston's Yetter & Warden LLP says like it or not, U.S. courts have a long history of protecting investors, which is why he filed suit there.
"The objective here is simple: Getting money back for shareholders," said Mr. Yetter, who started following YBM the night of the FBI raid. "While it's encouraging to see recent Canadian rulings [in Bre-X], the fact remains U.S. courts have a track record of proven results.
"And YBM is a classic case of a U.S.-based company with U.S. officers and U.S. advisors exporting securities fraud."
Several money managers said privately they're leery of high legal fees and are reluctant to lend their names to a U.S. action.
"Let's see: a large Canadian institution going to the U.S. courts to seek redress for claims against a Canadian company that traded in Canada?" mused another of YBM's biggest shareholders. "It's not obvious that's something you'd want to participate in."
But a Canadian legal expert says serious investors should go where there is the best shot at recovery.
"A hard-nosed investor would pick the jurisdiction with the best substantive law," said Michael McGowan, a Toronto lawyer who has written a definitive textbook on Canadian civil law.
"In general, securities law is more favourable to investors in the U.S., if U.S. courts are prepared to have worldwide classes -- and in the past they have been. If they are, it may make sense to do them all in the States."
He dismissed concerns about contingency fees, saying the norm here is 20% to 25%, whereas in the United States, 25% is average.
Russel Beatie of New York's Beatie & Osborn LLP, which has also filed suit, said Canadians should see where they get results, riding both cases at once.
"If anyone thinks the correct way to proceed here is to close down one in order to make the other the exclusive method of dealing with this problem, then I say they're not putting shareholder interests first."
Canadian institutions would be able to collect on any U.S. settlement even if they didn't sign up at this stage. But by not having been one of the group as a plaintiff, they're losing a key opportunity to seize control, said David Rosenberg, a Harvard law school professor.
"If they take control over the action, they can make sure their interests -- which may not be coincident with smaller investors or investors from other countries -- are fully protected. On the face of it, it's hard to understand why they wouldn't intervene.
"There are always all sorts of discretionary judgments to be made, both in litigating and settling. So you really want to have influence over a case, it just doesn't pay to hang back."
One Canadian money manager said he soured on the U.S. suit after getting what seemed like a simple form from a New York law firm to register his YBM shares. He realized after reading it more closely that signing would have made him lead plaintiff -- obliging him to testify at grand jury hearings and at trial.
"This was just a little trolling exercise they did," he said. "It's really not right. These guys phone you and say they have your interests at heart -- and you say: 'You know what guys? You have your own interests at heart.' "
A handful of Canadian institutions, including Toronto-Dominion Bank and the powerful Ontario Teachers' Pension Plan Board, say they have not completely ruled out taking a role. "We're still examining what's in our best interests," said Bob Bertram, Teachers' senior vice-president of investment.
|
