A final chapter in the long saga of failed labour-sponsored fund Retrocom Growth Fund Inc. is expected to unfold next week when the Ontario Securities Commission will meet to consider settlement agreements with four former executives accused of wrongdoing during the fund's final years of operation.
In statements of allegations released yesterday, the OSC alleged that the Toronto-based fund's assets "were materially overvalued" between August, 2000, and August, 2004.
The $49-million real estate fund suspended payouts in December, 2005, after receiving a flood of redemption requests from investors. At the time, the fund blamed its financial problems on Ontario government tax credit changes affecting labour-sponsored funds.
A month later, Retrocom issued a release saying it expected to make a significant reduction to its net asset value following an independent valuation of the fund's assets. Retrocom was subsequently hit with a $2-million lawsuit from one of its major investors, and filed for bankruptcy protection in mid-2006.
The OSC allegations yesterday said the trustee overseeing the fund's liquidation does not expect any assets will be available for distribution to the fund's 21,000 investors.
According to the commission's allegations, the fund's auditor required an $8.5-million writedown of Retrocom's assets for the year ended Aug. 31, 2004, and the fund initially approved the charge in January, 2005.
Less than a month later, however, the OSC said the fund reversed $7-million of the writedown, retroactive to Sept. 1, 2004, without consulting with the auditors.
The OSC said the fund's valuation committee based the reversal on information provided by the fund's management company, Retrocom Investment Management Inc. (RIMI), that a land swap deal was close to completion at a higher price than the land was valued in the 2004 audit. The deal ultimately did not close, and the OSC said the reversal did not appear warranted.
The OSC also alleged that three managers from RIMI improperly received personal payments following property deals concluded by the fund. It said the executives were in a conflict of interest and did not receive the fund's consent for the payments.
The commission said yesterday that it has reached settlement agreements with four former employees of the fund or the management company: Roy Michael Steplock, president and chief executive officer of RIMI; Christopher Geddes, chief financial officer of the fund; Edward Holko, vice-president of finance and administration at RIMI; and Ralph Tersigni, vice-president of marketing and labour relations at RIMI.
Terms of the settlements will not be released until they are approved by an OSC hearing panel. A hearing is scheduled for April 12.
Mr. Holko said yesterday that he had no comment on the case. Others named in the allegations could not be reached for comment.
The allegations do not involve Retrocom Mid-Market Real Estate Investment Trust, an independent REIT that went public in 2004. The REIT ended its management contract with Retrocom Investment Management Inc. in 2006.
Janet McFarland