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Investors in failed fund laud first settlement

Shareholders of Crocus Investment Fund are cheering an agreement that is a first step to settling a $200-million class-action lawsuit, saying it should also clear the path for a receiver to begin distributing funds to investors.

The scandal-ridden fund was created by the Manitoba government in 1992 as a labour-sponsored fund to invest in small Manitoba companies, but its securities were frozen in late 2004 when regulators became concerned the fund was overstating the value of its holdings.

A 2005 report by the province's Auditor-General alleged improper accounting and abuses of travel and expense policies, which have been denied by former executives. The fund remains the subject of an RCMP investigation.

Shareholder lawyer Jay Prober confirmed yesterday that there is a settlement with the insurer representing the fund's 18 former officers and directors. He said the maximum possible payout from Chubb Insurance Co. of Canada is $5-million, but "several million dollars would not be inaccurate" as a likely distribution.

"It's a huge step forward for the class action, it adds tremendous momentum to the case," Mr. Prober said.

The class-action lawsuit is still going ahead against other parties not involved in the settlement, including the government of Manitoba, the Manitoba Securities Commission, former auditors PricewaterhouseCoopers LLP and former investment bankers BMO Nesbitt Burns Inc. and Wellington West Capital Inc.

Mr. Prober added that the fund's 34,000 shareholders can also "take solace and comfort from the fact that at least this part has been settled."

Bernie Bellan, who heads the Crocus Investors Association, which launched the class-action suit, said the settlement should allow receiver Deloitte & Touche to begin distributing money it has already raised.

The receiver has been liquidating the fund's investments to raise money to compensate shareholders. In its latest report, Deloitte said it has $58.1-million in cash being held for investors, and is still working to sell more assets.

The receiver applied to the Manitoba Court of Queen's Bench in 2006 for permission to begin distributing some funds to shareholders, but the court denied the request, saying it was unclear how much liability the fund was still was facing. Former officers and directors also challenged the distribution request, arguing the fund's assets were needed to indemnify their legal costs.

Mr. Bellan said the settlement should allow the receiver to apply again for approval to make distributions to shareholders.

"People have been waiting so long now, and so many people have just given up and have almost thought they were never going to see anything for it," Mr. Bellan said.

"So this would be great if people could actually get some money in their hands. They would see there was some point to this after all."

Rob Dewar, a lawyer representing Deloitte & Touche, said the receiver could not comment on whether a settlement will open the tap for distributions to start flowing.

"There are some i's to dot and t's to cross, and until that's done, I don't think it's appropriate to make any sort of comment," he said.

Mr. Bellan, meanwhile, said shareholders are pleased with the settlement agreement even though it appears to be a small fraction of the $150-million in losses and $50-million in damages that were sought when the suit was filed.

© 2007 The Globe and Mail. All rights reserved.

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