Thank you.
Hello, bonjour. My name is Wynne Miles. My husband, Mike, and I are self-employed, and so we do not have a pension to look forward to. We have one son and one daughter in university, and both have plans for graduate studies. We are 58 and 55 years old, respectively.
We were sold this faulty savings product by Canaccord, which purchased it from Scotia Capital.
Mr. Menzies, you have indicated in the past few days that you wanted to know if we, the retail clients, understood what we were buying. The short answer is no. And in actual fact, we did not personally ask for this product. The ABCPs were sold to us without our knowledge and consent.
On July 26, 2008, we had a significant portion of our retirement savings plans and Government of Canada T-bills in a money market account. The next day, on July 27, these savings were in a product identified as “structured investment CPs”. We subsequently found out that money from our RRSP accounts had also been placed in ABCPs before July 26. However, on July 27, 80% of our now-frozen savings were put into ABCPs without our knowledge or consent.
We're not sophisticated investors; rather, we're very conservative with our savings. Ironically, we kept these savings in a money market fund due to concerns about market volatility. We did not know what a synthetic collateralized debt obligation--or CDO--or an ABCP was until August, when we found our savings were frozen.
We paid our financial adviser to invest these savings in secure products such as T-bills and we believe our investment adviser thought she was doing just that. However, at no time were CDOs or ABCPs discussed. And if we had been asked if we wanted to buy synthetic CDOs or ABCPs, we would have said no.
Our first priority over the past few months was to have our savings returned with interest. Yesterday's press releases by Canaccord are very welcome, but we need clarification with regard to the terms of the offer, and as well, I understand, there may well be an appeal by Canaccord clients excluded from that offer.
We need an immediate resolution to this crisis. We, and approximately 1,800 retail clients, have waited over seven months and have suffered financially and emotionally. I will need our savings returned with accrued interest before I vote yes for the proposed restructuring agreement. I will also need to be assured that all the retail clients of Canaccord, Credential Securities, or the National Bank have also been made whole.
We have many concerns about the product we were sold, the restructuring process, and the upcoming vote. I will briefly discuss eight of these concerns.
Number one, the non-bank ABCPs were sold without a prospectus, which is contrary to the provincial securities act. As well, they had a flawed liquidity agreement.
Number two, we need to know more about the timing--what happened when. According to the media and court documents, institutions such as Scotia Capital were aware by July 24, 2007, that the non-bank ABCP contained some American subprime mortgages. However, it is alleged that they continued to sell these papers to retail customers like us through investment firms such as Canaccord and Credential Securities, up to the day that those funds were frozen, by which time Scotia Capital had reduced their holdings of ABCP by $140 million. So if fraud has occurred, we do not think that the CCAA, or the Companies’ Creditors Arrangement Act, should be used to protect any guilty parties.
Number three, the Pan-Canadian Investors Committee has worked very hard to come up with a solution. However, we as retail clients did not have input into that restructuring agreement. The proposed solution of issuing long-term notes, rated only by the DBRS, is not acceptable to retail clients. We cannot wait. We need our savings back now. We had our savings in short-term T-bills because we needed access to them.
Many other retail clients are retired and completely dependent on their retirement savings. I received a phone call a few days ago from an 86-year-old veteran, who has his savings frozen in both Canaccord and Credential accounts. He's afraid to speak out as he lives alone and he has concerns about his own personal safety. Sadly, when he does discuss the issue of ABCPs, his blood pressure goes up above 200, thereby endangering his health.
There are a lot of really sad stories out there. I don't think that's the way we should treat our veterans.
The new long-term notes will again be rated only by the DBRS. The ABCP trusts, which are currently frozen, were rated by the DBRS as R-1 high, or triple-A. I'd like to quote from the August 22, 2007, Canaccord information newsletter with regard to the DBRS rating scale for commercial paper and short-term debt, which says:
The DBRS short-term debt rating scale is meant to give an indication of the risk that a borrower will not fulfill its near-term debt obligations in a timely manner. Every DBRS rating is based on quantitative and qualitative considerations relevant to the borrowing entity.
So for an R-1 high, which is how those trusts were rated, it says:
Short-term debt rated R-1 (high) is of the highest credit quality, and indicates an entity possessing unquestioned ability to repay current liabilities as they fall due. Entities rated in this category normally maintain strong liquidity positions, conservative debt levels, and profitability that is both stable and above average. Companies achieving an R-1 (high) rating are normally leaders in structurally sound industry segments with proven track records, sustainable positive future results, and no substantial qualifying negative factors. Given the extremely tough definition DBRS has established for an R-1 (high), few entities are strong enough to achieve this rating.
Obviously this was not an appropriate rating for the ABCPs that are now frozen. However, we are being asked to accept the new long-term notes, which, again, are rated only by the DBRS.
A pan-Pacific committee has advised the retail groups to support the yes vote, and therefore support the restructuring agreement. We would thereby accept long-term notes in place of our old short-term notes and not receive any of our savings for five years, and the rest, if anything is left, after nine years. As well, a yes vote requires that we accept a broad legal release. We'd give up our right to sue anyone involved in this financial fiasco. We have been told that if we vote no, we will be left with little or nothing. As I've said before, I feel as if I am being offered an ultimatum, and that makes me very angry. It also makes me wonder if my rights, under the Charter of Rights and Freedoms, are being infringed on.
The proposed restructuring package—that is this 400-page document here—is too complicated for most retail clients. Some people have yet to even receive their packages. Ours arrived on Monday. We downloaded one a while ago, though.
Similarly, the presentation given at the information sessions by Purdy Crawford's pan-Pacific committee were too technical for most retail investors, and in actual fact, they were misleading. The analysis that was presented pooled all of the conduits together, while the relevant information on specific conduits—for example, our savings are frozen in SIT III--was not available.
My husband took three days off work to read this restructuring agreement before the pan-Pacific investors committee information session in Vancouver last week. I'd like to point out that we are professionals, and he didn't get paid for those three days. We have worked very hard for months now and have lost a lot of professional time in the effort to get our savings back.
He was able to point out at the meeting that they had omitted to mention a significant fact, that the funds that make up the SIT III conduit--our savings--for the most part mature in 2013, but we would receive only 10% of our savings at that time, and the rest, if there is anything left, would not be available until 2016.
We have no idea what the new notes will sell for either in the immediate future, if we wanted to sell them after the restructuring, or eight years down the road. No one will give us a value; no one will project a value on these notes.
The requirement that we waive our rights to sue is completely unacceptable. We have been wronged. The proposed legal release would protect everyone except members of the retail group, such as us. In fact, we have only recently received a commitment that we may be funded for legal representation.
My last point is that we do not know if all 1,800 retail investors have been contacted and, therefore, if they will be able to vote. We do not have access to the confidential client lists.
I know of one Canaccord client who only found out that he owns ABCP on April 4, and then only because he took the initiative to contact his financial adviser, not the other way around.
So where do we go from here?
We want to know why the provincial and federal governments did not prevent the sale of these faulty savings products. Do we need changes to the provincial securities act as well as changes to the federal Bank Act, which regulates the banking sector in Canada? Certainly the rating system for savings products needs to be reviewed.
It's not acceptable to treat people like this. It cannot be allowed to happen again, so that is your job, as I see it.
In closing, I'd like to thank you for the opportunity to present my story and my thoughts to you, as representatives of the Government of Canada.
I look forward to a speedy resolution in this financial disaster and to getting a good night's sleep.
Thank you very much.