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A Cash Store outlet in Winnipeg is seen in this file photo.John Woods/The Globe and Mail

Cash Store Financial Services Inc. has finished up its investigation of an acquisition gone awry and appears to have concluded the issue was poor management, not something more sinister.

Some of the issues at Cash Store (a topic of numerous prior Streetwise posts on its troubles) stem from its acquisition of a portfolio of previously off-balance sheet loans that turned out to be way overvalued. How overvalued? Cash Store issued $132-million in bonds to purchase a loan portfolio. The purchase took place in early 2012. The portfolio was held at a fair value of $50-million by the end of last year.

The curious thing is how Cash Store paid so much more than the loans were later found to be worth when it was Cash Store that made the loans in the first place.

Cash Store's disclosure around the issue blamed management, saying management's policies on valuing the assets and accounting were lacking. But there were also darker suspicions. In Cash Store's own words, the company received "written communications that contained questions about the acquisition of the consumer loan portfolio from third-party lenders in late January 2012 and included allegations regarding the existence of undisclosed related party transactions in connection with the acquisition."

So Cash Store formed a special committee and hired lawyers and forensic investigators to look into the matter. The probe took four months and "involved interviews of current and former officers, directors, employees and advisors of the Company and a review of relevant documents and agreements, as well as electronically stored information obtained from Company computers and those of employees, former employees and directors most likely to have information relevant to the investigation," Cash Store said in a release Wednesday.

After all that, when the special committee reported its findings to the Cash Store board, the decision was there would be no changes required to public disclosures made previously. In other words, the initial finding of management mistakes stands. (The press release is here.) That's the good news, if one can call it that. The bad news is that the Alberta Securities Commission has decided that the company's financial statements still need some work, and so has halted trading in Cash Store shares. The matter relates to accounting for accruals around lawsuits. Cash Store expects to fix the problem within a couple of weeks.

(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)

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