Liberals & Income Trusts

[August1991]

It won't happen -- this is Canada. after all -- but if David Wilson, the relatively new chairman of the Ontario Securities Commission, wanted to express his complete disdain for the events of the past few days, he might like to order an insider-trading investigation into the way the federal government handled the income trust/dividend tax credit matter.

It won't happen -- this is Canada. after all -- but if David Wilson, the relatively new chairman of the Ontario Securities Commission, wanted to express his complete disdain for the events of the past few days, he might like to order an insider-trading investigation into the way the federal government handled the income trust/dividend tax credit matter.

A starting point would be the appointment schedules of the officials in the finance department and of the staffers in the office of the Finance Minister. The investigation would focus on who met with whom, who told what to whom and whether that information was used by market participants.

Financial Post

An "income trust" is one of several legal ways to avoid corporate taxes. They are particularly attractive to firms which have no growth potential and would prefer to pay out income as dividends. Since corporate taxes are a form of double taxation, income trusts meant an immediate capital gain once created.

The Liberals tolerated income trusts but raised the possibility of making them illegal. Last week, in the orgy of spending announcements, Goodale announced that the legal regime would not change - and there would be a dividend tax credit.

It is sad that this issue is probably too complex to attract much attention. Suffice to say that the Liberals have made it plain who lawyers and traders in Toronto should choose for friends.

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If the Tories were smart, they could suggest that the Liberals are planning to tax RRSPs.

The trust tax would be refundable to average investors, but the funds themselves, along with registered retirement savings plan holders and foreign investors, would not be able to qualify.

“I told them ‘You're going to piss off nine million Canadians who own RRSPs and six million who have pensions,'” said one industry executive, explaining his reaction to Ottawa.

G & M

[August1991]

This issue may have legs. I hope so:

Finance critic Jason Kenney told a hastily called news conference his party has written to the chairman the Ontario Securities Commission asking for an investigation.

Kenney provided no evidence, other than high stock exchange trading volumes last week as Finance Minister Ralph Goodale prepared to announce new tax policies.

After toying with the idea of making changes to income trusts, Goodale announced that he would leave them alone and instead proceeded to cut taxes on dividends.

CP (Notice the dig about "provided no evidence".)

... quoting forensic accountant Al Rosen, the Conservative MP said the heavier-than-usual stock exchange trading volume earlier in the day, "smells like a leak."

"So far, Mr. Goodale has been dismissive of these very troubling questions of insider information having been leaked from his office, refusing to answer questions," Kenney told reporters at the hastily-convened press briefing.

CTV

The pre-election mudslinging got messier yesterday as the New Democrats called on the RCMP to investigate whether someone in Finance Minister Ralph Goodale's office leaked advance details of his income trust announcement last week.

NDP finance critic Judy Wasylycia-Leis said she planned to send a letter tomorrow to the Mounties' Integrated Market Enforcement Team, asking them to investigate whether anyone from Goodale's office leaked details of his dividend tax credit increase to Bay St., allowing some to profit from the advance knowledge.

When the issue was put to Goodale on Friday by reporters, he issued a stern denial, calling any suggestion of a leak "absolutely untrue, a complete falsehood."

CanWest

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This weblog has the best overview of this I have seen. It comes from smalldeadanimals.

This case illustrates how the Liberals operate - they buy friends and offer "comfy fur". The brash greed of some of the traders and lawyers, and the desperation of the Liberals, got the better of them all. It's almost a "victimless" crime too. How can anyone argue with rising stock market values?

[shoop]

I think you hit the nail on the head. Far too complex for most people to get, or get worked up about.

The idea about the RRSPs is right, but it is a very fine line they have to draw. If they don't do it correctly Martin's *lawyers* might send Harper a letter daring him to say it again.

It is sad that this issue is probably too complex to attract much attention.  Suffice to say that the Liberals have made it plain who lawyers and traders in Toronto should choose for friends.

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If the Tories were smart, they could suggest that the Liberals are planning to tax RRSPs.

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[Riverwind]

This issue may have legs.  I hope so: Finance critic Jason Kenney told a hastily called news conference his party has written to the chairman the Ontario Securities Commission asking for an investigation.

I think this is in a tempest in a teapot because:

1) It was common knowledge that Goodale was going to annouce something.

2) With an election coming that annoucement was going to be good news.

3) Any idiot with rudementary knowledge of the stock market could have made an educated guess at which stocks would likely benefit.

In other words, it is possible that news was leaked, however, it is more likely that the run up was caused by nothing more than day traders making a bet.

Don't look for complicated explainations when a simple one is just as valid.

[August1991]

In other words, it is possible that news was leaked, however, it is more likely that the run up was caused by nothing more than day traders making a bet.

It was possible the news was leaked... I think we have a textbook example of the efficient markets hypothesis.

And how else to explain the action in the high dividend-paying stocks, such as BCE, on Wednesday. The stock, which hit a six-month low the previous day --jumped by 4.9% on Wednesday, on twice the normal volume.

From the Financial Post above.

You can see the chart for BCE trading here. (Thursday was a holiday in the US. With a billion shares outstanding, BCE has a market capitalization of around $25 billion. A one dollar rise makes people feel one billion richer.)

BTW, Michael Sabia is CEO of BCE:

Before joining BCE, Mr. Sabia was an executive of Canadian National Railway Company (CN). He joined CN as Vice-President, Corporate Development in 1993 and was appointed Executive Vice-President and Chief Financial Officer in 1995.

Prior to joining CN, Mr. Sabia held a number of senior positions in the Canadian Federal Public Service, including Director-General of Tax Policy in the Department of Finance and Deputy Secretary to the Cabinet (Plans) in the Privy Council Office.

BCE

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My point in all of this is to draw attention to how the Liberal Party operates and how it rewards people for conducive behaviour.

[Riverwind]

My point in all of this is to draw attention to how the Liberal Party operates and how it rewards people for conducive behaviour.

There is nothing to these allegations other than the typical partisan 'let's fabricate stories to make the liberal's look bad' rhetoric. It is just as likely that the run up was a result of day traders betting on rumor than any real knowledge of what Goodale was going to say.

If you look at trading activity for BCE over the last several months you will see that trading days with 'twice the normal volume' occur quite frequently and that the volume of shares trade itself is evidence of nothing.

Similarily, Sabia's connection to the Liberals also are evidence of nothing. I suspect almost every CEO on bay street has connections to the Liberals because they have been in power for the last 12 years.

That said, the conservatives will likely try to make political hayout of this and a lot of people will blindly assume that there must be truth to the rumor but that just illustrates why we don't run our court system by public opinion poll.

[August1991]

There is nothing to these allegations other than the typical partisan 'let's fabricate stories to make the liberal's look bad' rhetoric.

Sparhawk, I don't know if you say that because you nominally support the Liberals (or more likely abhor the idea of Harper as PM) or, perhaps worse, you are enured to this type of politics. People in the Third World (and previously in Eastern Europe) have a similar view of government and politics. "Well, you know, that happens... "

I have chosen one firm, BCE. With a volume of 3 million trades, a price rise of $1 stands to make some people $3 million for an afternoon's work. That alone would pay for several air tickets to Ottawa last week. (According to The Financial Post, it did.)

More generally, the Liberals put a nice jump into the step of Michael Sabia.

Everyone is drawing the right conclusion: be friends with the Liberals and you'll get some comfy fur too.

Similarily, Sabia's connection to the Liberals also are evidence of nothing. I suspect almost every CEO on bay street has connections to the Liberals because they have been in power for the last 12 years.

BCE is based in Montreal. Its main businesses (Bell, CTV) are highly dependant on federal regulatory bodies.

[Riverwind]

I have chosen one firm, BCE.  With a volume of 3 million trades, a price rise of $1 stands to make some people $3 million for an afternoon's work.  That alone would pay for several air tickets to Ottawa last week.  (According to The Financial Post, it did.)

Some people made a bet on which way the stock was going based on guesses and rumors. Day traders do this all of the time and some make a good living at it. You are stretching the facts beyond recognition if you believe that the information we have now is conclusive proof that there must have been a leak.

We will never find out the truth of this matter so what we think is almost moot. I take the view that one should not assume conspiracy if there are alternative logical explainations. You seem to take the view that one should always assume conspiracy unless there is proof beyond doubt that none occured.

[August1991]

Some people made a bet on which way the stock was going based on guesses and rumors. Day traders do this all of the time and some make a good living at it.

True, but I think most eventually blow up.

We will never find out the truth of this matter so what we think is almost moot.

Agreed.

I take the view that one should not assume conspiracy if there are alternative logical explainations. You seem to take the view that one should always assume conspiracy unless there is proof beyond doubt that none occured.

I generally take your viewpoint too but in this case, I can see the clear potential for Liberal benefit and I cannot believe they wouldn't have taken it.

I think you noted that the Opposition will criticize the Liberals for this. I can understand the NDP position: they favour corporate taxes. For the Conservatives however, it's a criticsm of process not the decision itself.

As for myself, income trusts wouldn't exist if we didn't have corporate taxes. I'm all in favour of the Irish model.

[Guest eureka]

I am puzzled to know what this is all about. It has been known for weeks that something would be done about Income Trusts and their tax advantage. It was to be expected that many would think of the possibility that what was done would be the way.

I, myself, bought a few bank shares recently expecting something good and knowing that there would be no great risk.

[shoop]

The issue is the unusually large volume of trading in shares directly affected by this policy change mere hours before the announcement.

Heck, even CBC ran something on it's business page about this.

Forensic accountant Al Rosen said it looks to him that Bay Street knew the details of Goodale's announcement well before he made it. "Clearly, there was a leak between 2 and 4 [p.m. EST]," he told CBC News.

I am puzzled to know what this is all about. It has been known for weeks that something would be done about Income Trusts and their tax advantage. It was to be expected that many would think of the possibility that what was done would be the way.

I, myself, bought a few bank shares recently expecting something good and knowing that there would be no great risk.

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[Riverwind]

The issue is the unusually large volume of trading in shares directly affected by this policy change mere hours before the announcement.

A fact that means absolutely nothing. Everyone knew that Goodale was going to annouce something after the close of the markets on that day. Any idiot could have guessed it would be good news because of the election coming. All the higher trading volumes show is that the day traders in Toronto are herd animals.

This story is bogus and I suspect most conservatives who have the slightest understanding of how the stock rumour mill works know it is bogus but they are playing the story up because it suits thier political purposes.

If you really want to convince someone that there was a leak in the MOF office then investigate market activity before Goodale annouced that income trusts were under review. If there is evidence of mass selling immediately before that announcement then there could be something more sinsister going on.

However, this story should be ignored until someone can produce something more substantial than speculations about a higher than normal trading volume.

[August1991]

Everyone knew that Goodale was going to annouce something after the close of the markets on that day.

The devil is in the details, Sparhawk. Everyone? Who knew something was going to be announced and when?

Harper rightly raised this issue the right way in his speech tonight. The Liberals operate by keeping a certain number of key people happy with "comfy fur" while everyone else is on the outside peering through between the railings.

[Riverwind]

Everyone knew that Goodale was going to annouce something after the close of the markets on that day.

The devil is in the details, Sparhawk. Everyone? Who knew something was going to be announced and when?

I heard it on the CBC news the day before - it was public information for anyone who cared about it.

[August1991]

Keep an eye on this one:

A forensic accountant told CTV Newsnet's Mike Duffy Live that he thinks the probability there was insider trading is between 75 and 85 per cent.

Either "someone had tremendous good luck ... or there's a leak," said Al Rosen.

CTV

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BTW, Sparhawk, to respond to your post above, this is what Goodale said on 18 November:

Finance Minister Ralph Goodale says he's aiming to release Ottawa's new policy governing income trusts before the end of January, regardless of a possible election campaign.

Goodale says he's been closely following public consultations on the controversial trust issue and will be ready to move soon after Ottawa's Dec. 31 deadline for input.

He told The Canadian Press that the timing won't hinge on a possible federal election early in the new year.

The federal Finance Department ignited a firestorm last September when it announced a full review of the highly popular investment vehicle.

CP

But then, on Wed 23 November at 6 pm, Goodale made the public announcement.

[Dan]

Don't look for complicated explainations when a simple one is just as valid.

Given the Liberal track record and the corruption that Gomery has exposed, it is just as likely that the Liberals leaked the information to their friends in exchange for campaign kickbacks.

I can hear hoofbeats and I'm thinking horse not zebra.

[tml12]

Don't look for complicated explainations when a simple one is just as valid.

Given the Liberal track record and the corruption that Gomery has exposed, it is just as likely that the Liberals leaked the information to their friends in exchange for campaign kickbacks.

I can hear hoofbeats and I'm thinking horse not zebra.

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I wouldn't doubt it...

[Riverwind]

But then, on Wed 23 November at 6 pm, Goodale made the public announcement.

Sometime in the evening of Nov 22 or in the morning of a Nov 23 I heard that Goodale would annouce something by the end of the day. It is possible that the news outlet was reporting on the street rumors but if they were then you can hardly say that the information was available to a few select insiders.

[August1991]

For those that follow this:

Certainly, New Democratic Party finance critic Judy Wasylycia-Leis smelled a big, fat, road-killed rat. She has written a letter to RCMP Commissioner Giuliano Zaccardelli demanding that the Mounties' Integrated Market Enforcement Team probe a "possible breach of security or illegal transfer of information" in advance of the income-trust ruling. She said the apparent leak "resulted in considerable benefit to certain persons." And she wants Zaccardelli's stock market cops to probe the serious breach in "a timely way."

So do Canadian voters.

Goodale claimed it was a "drive-by smear," sounding a lot like Jean Chretien.

The Mounties' Integrated Market Enforcement Team is the same wing that's investigating the dysfunctional Alberta Securities Commission (ASC). Allegations there are over files that were curiously incomplete, or over stock trading by officials who were investigating the companies they were investing in. (As was revealed in Alberta Auditor General Fred Dunn's stinging special report earlier this month. ASC brass took Dunn to court in a brazen attempt to halt the investigation.)

Edmonton Sun columnist

I suppose the OSC could also investigate.

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Sometime in the evening of Nov 22 or in the morning of a Nov 23 I heard that Goodale would annouce something by the end of the day. It is possible that the news outlet was reporting on the street rumors but if they were then you can hardly say that the information was available to a few select insiders.

There is a difference between knowing for certain that a property will be on the market and suspecting that the property will soon be up for sale. And the difference is what makes some people rich and others merely comfortable.

Investigations aside, the terrible result of this is that the message is out: the Liberals are where the action is.

Alan Greenspan has been a successful governor, and the US economy has benefitted greatly, because Greenspan was careful about even appearances, let alone his actions.

[Riverwind]

Sometime in the evening of Nov 22 or in the morning of a Nov 23 I heard that Goodale would annouce something by the end of the day. It is possible that the news outlet was reporting on the street rumors but if they were then you can hardly say that the information was available to a few select insiders.

There is a difference between knowing for certain that a property will be on the market and suspecting that the property will soon be up for sale. And the difference is what makes some people rich and others merely comfortable.

People who play the market make bets on rumors. In fact, if there was any manipulation I would bet that certain players started the rumor just to get the stocks to go up so they could profit. They could not care less whether the rumor was true or false as long as it was believable.

Goodale's office manages a lot of sensitive information and has been above reproach before now. It does not make sense that they would do something so blantently unethical immediately before an election on ethics.

I suspect you are letting your hatred of all things Liberal colour your analysis of the facts on this issue.

[August1991]

Goodale's office manages a lot of sensitive information and has been above reproach before now. It does not make sense that they would do something so blantently unethical immediately before an election on ethics.

I suspect you are letting your hatred of all things Liberal colour your analysis of the facts on this issue.

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Maybe you are right, Sparhawk, that I am being too partisan about this. As you posted above, proving insider-trading is very hard and so this discussion is largely moot.

As to the idea that Goodale or someone in his office wouldn't risk this, IME, that's not how politics works. Risk-averse people don't go into politics. The evidence is circumstantial but glaring - and we have past experience too.

If I take a similar argument to yours, it seems to me that too many English-Canadians are willing to accept Liberal corruption just to keep Harper out of office. The Liberals know this. What's the old phrase? "But why does he act that way? Because he can."

[August1991]

Don't look for complicated explainations when a simple one is just as valid.

Given the Liberal track record and the corruption that Gomery has exposed, it is just as likely that the Liberals leaked the information to their friends in exchange for campaign kickbacks.

I can hear hoofbeats and I'm thinking horse not zebra.

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Not a bad prediction!

I'm resurrecting this thread because at the outset of the scandal, I think Sparhawk's discussion was accurate. This is political much more than criminal.

[shoop]

Now it depends what you mean by "too many" English-Canadians.

The Liberals are up only one point on the national ballot question. Get rid of their 26 point lead in Quebec and that puts the CPC up six to eight points in the rest of Canada.

Breaking it down regionally the CPC is looking like they will pick up four seats in the atlantic provinces. At least 15 in Ontario. (With the NDs picking up another 4) Two or three in the prairies. (Net win with the NDs picking up two in SK.) Two or three squeakers for the CPC in Quebec.

At this point the CPC loses worst case three seats in BC to the NDs.

Couple that with ten Liberal losses in Quebec and here is a good guess at the makeup of the new house.

CPC = 117 seats

LPC = 103 seats

BQ = 60 seats

NDP = 28 seats

Harper will get a good two years to govern. The Liberals will be fighting their civil war and the bloc won't be in any rush to force an election...

If I take a similar argument to yours, it seems to me that too many English-Canadians are willing to accept Liberal corruption just to keep Harper out of office. The Liberals know this. What's the old phrase? "But why does he act that way?  Because he can."

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