Premier allows embattled Sorbara to stay on

[Are Be]

Premier allows embattled Sorbara to stay on

From Friday's Globe and Mail

POSTED AT 1:53 AM EST &nbsp &nbsp &nbsp &nbsp Friday, Feb. 27, 2004

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Premier Dalton McGuinty Thursday gambled the fate of his four-month-old Liberal government on voters accepting his decision to allow Greg Sorbara to remain as Finance Minister despite his past as a director of a company that is the focus of investigations by police and securities authorities.

The Premier allowed Mr. Sorbara to pass responsibility for the Ontario Securities Commission to Management Board Chairman Gerry Phillips in a bid to eliminate the perception of a conflict of interest.

And Mr. McGuinty said Mr. Sorbara has promised to step aside as Finance Minister if he becomes the subject of an investigation himself.

* Royal Group chairman leads jet-set life

"He is not the subject of an investigation," the Premier told a hastily called news conference at Queen's Park Thursday night. "And the commitment he has made to me and to the Ontario public is that, should he become the subject of an investigation, then he will step aside from his ministerial responsibilities."

Questions about Mr. Sorbara's cabinet future arose Wednesday with the revelation that police, tax authorities and the Ontario Securities Commission are investigating Royal Group Technologies Ltd.

Mr. Sorbara was a director of the company, a supplier of plastic building products, until shortly before he became Finance Minister on Oct. 23. Further, he served on the audit committee of the board of directors from at least 1996.

Royal Group said the investigations centre on its dealings with a Caribbean resort development controlled by Vic De Zen, the company's chairman, founder and controlling shareholder.

The 1,000-room resort, spa and casino in St. Kitts bought $32-million in goods and services from Royal Group over the past five years. Mr. Sorbara was a director when the housing materials manufacturer went public in 1994.

The Finance Minister said he learned of the investigation last December but did not reveal it to the Premier until it became public knowledge on Wednesday.

On Thursday, the two met in the Premier's office and agreed that Mr. Sorbara should stay on and oversee the preparation of the province's $70-billion-plus budget. "I have every confidence in our Finance Minister. I think he is doing a great job for the people of Ontario. And I see no reason whatsoever why he should stop doing that job," Mr. McGuinty said.

He acknowledged that he is risking a public backlash by not enforcing stricter standards of propriety for cabinet ministers. "I think that what the public are looking for is a sense that we're doing the right thing and a fair thing in the circumstances," he said.

The Premier defended the fact that Mr. Sorbara had not told him sooner about the investigation into Royal Group by the RCMP, the Canada Customs and Revenue Agency, and the OSC.

"My understanding is there is an Ontario securities regulation which prohibits him from disclosing information to anybody until it has been disclosed by the company itself," Mr. McGuinty said.

But Progressive Conservative critic Frank Klees argued that it is impossible to say Mr. Sorbara is not being investigated when he was a director, and served on the audit committee, of a company that is the subject of a multifaceted investigation.

"It doesn't take a lot of imagination to draw the lines between an investigation of the company and of Mr. Sorbara's role in the company's decisions. ..... He is very much a part of that investigation," Mr. Klees said.

Both Mr. Klees and New Democratic Party financial critic Michael Prue said Mr. Sorbara must resign and Mr. McGuinty must demand the resignation if it is not submitted. "They're trying to pull a political stunt to rearrange a department so that it takes him out of a conflict situation," Mr. Prue said.

In opposition, Mr. McGuinty and his party built their popularity in part by tearing down any Tory cabinet minister who showed the slightest sign of improper spending or potential conflict of interest.

"Being in political life, one has to understand that you cannot afford a taint, or a whiff of scandal, whether there's one there or not," Mr. Prue said.

Mr. Sorbara joined Royal Group as a company director in November, 1994. The securities commission is a self-funded Crown corporation that, until now, reported to the province's legislature through the Finance Minister.

The securities commission said the probe also included the company's disclosure practices, financial statements and trading in its stock. The company, which has operations in North and South America, Europe and Asia, had sales totalling $1.9-billion last year.



© 2004 Bell Globemedia Publishing Inc. All Rights Reserved.

 

[Are Be]

Questions of conflict for Sorbara

By KAREN HOWLETT and PAUL WALDIE
From Saturday's Globe and Mail

POSTED AT 1:37 AM EST &nbsp &nbsp &nbsp &nbsp Saturday, Feb. 28, 2004

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The Ontario Securities Commission told Ontario Finance Minister Greg Sorbara's staff about the investigation into Royal Group Technologies Ltd. — a probe that had the potential to implicate the minister — two months before the news became public.

Mr. Sorbara was told of the investigation by a member of his staff but did not disclose what some observers believe was a conflict of interest — even to his boss, Premier Dalton McGuinty. And he continued to oversee the OSC until one day after the probe became public this week.

Mr. Sorbara, who before being named Finance Minister was a director of Royal Group and chairman of its audit committee, has said he knew about the investigation in late December but would have been in breach of securities laws had he disclosed it.

He has temporarily passed responsibility for the OSC to another minister to eliminate the perception of a conflict of interest.

The OSC said it is routine to tell the Finance Ministry of regulatory investigations and, more importantly in this case, it believed the probe was going to be disclosed within a few hours last December.

Even though Royal Group was told by another regulatory body to disclose the probe in late December to allow public markets to trade on all relevant facts, it refused. This week that the public learned Royal Group is under investigation by the RCMP, the OSC and tax authorities.

As details emerged about the St. Kitts resort at the centre of the scandal, explanations yesterday about what Mr. Sorbara was told about the investigation have raised questions about the OSC.

Securities lawyers and former regulators, who spoke on condition they not be identified, questioned why staff at the OSC would inform the ministry about any investigation before it is made public, let alone one that could involve the cabinet member responsible for the OSC itself.

x In fact, one former regulator said there were obvious reasons why, in his experience, the ministry was never advised of any pending investigation. "You don't want to put them in a position where you've given them a heads-up or something."

Diane Flanagan, a spokeswoman for Mr. Sorbara, said yesterday that the Finance Minister was told indirectly about the matter by one of his staff. "He was not told any details of the investigation. He was just informed that there should be a press release coming and stating that there would be an investigation."

Ms. Flanagan said she was not sure if the ministry was routinely advised of such matters.

OSC spokeswoman Wendy Dey said it is routine for staff in the enforcement branch to inform ministry staff about any investigation a few hours before the matter becomes public.

"We did our job in terms of advising the ministry of a matter we believed was going to go public within a few hours. It's absolutely normal practice for us to advise the ministry staff of matters that the government may be asked to comment on a few hours before we believe the information would become public. We do that all the time."

The OSC wrote Royal Group on Dec. 22, informing the Woodbridge, Ont.-based building products company that it was under investigation and that the regulator's enforcement staff believed the matter had become material to the markets.

The OSC also sent a copy of the letter to Market Regulation Services Inc., or RS, which polices trading activity on Canada's two stock exchanges. It was RS that instructed Royal Group to publicly disclose the investigation, but the company chose not to do so, Ms. Dey said.

Neither Ms. Dey nor RS chief executive officer Tom Atkinson would address why the regulators didn't take action then and force the company to issue a statement.

"All I can tell you is we wanted them to put out that disclosure," Mr. Atkinson said yesterday.

Royal Group's shares were trading at about $11 on the Toronto Stock Exchange in late December, but climbed steadily in January and February while the public was in the dark about the probe. The shares jumped to $17.36 on Tuesday, the day before the company disclosed the investigation, but have since dropped sharply. The stock closed at $13.45 yesterday, down 53 cents on the day.

A securities lawyer familiar with the OSC said he can't understand why staff at the OSC and Mr. Sorbara would do nothing about such a potentially explosive situation for two months.

"They know the minister they're reporting to is a guy who [could be involved]," he said. "Why didn't they go to the Premier and say: 'We think it's a conflict of interest that could taint the whole investigation?'."

Mr. Sorbara joined the board of Royal Group in 1994, shortly after the company went public, and was named chairman of the audit committee. He stepped down from the board last October to become Finance Minister.

He was appointed to the company's board because of his business ties to the construction industry, a Royal Group spokesman said earlier. Mr. Sorbara's family runs a Toronto real estate developer.

Questions arose this week because the OSC has said the probe is into the company's disclosure record, financial statements and trading in its shares.

Royal Group revealed this week that the investigation centres on a Caribbean resort controlled by Vic De Zen, the company's founder, chairman and biggest shareholder. The OSC, RCMP and tax authorities are probing an alleged $32-million in related-party dealings between the company and the resort over five years.

The resort and casino in St. Kitts dates to 1996 when Mr. De Zen first approached Archie Zuliani about a project on the island.

Mr. Zuliani, a Toronto developer who runs a hotel in St. Kitts, met Mr. De Zen through a mutual friend at Royal Group. "He wanted to build it all in plastic."

According to Mr. Zuliani, dozens of Royal Group employees worked on the resort project. "They used to fly in with their own plane," he said in an interview yesterday.

"The project manager ran the project from [Royal Group's] Toronto office, right out of the office there. The interior decorator, they all worked out of [Royal Group]."

The two developers had a falling out in 1999 and Mr. De Zen bought out Mr. Zuliani's interest.

Mr. Zuliani, whose hotel is next door to the resort, said Mr. De Zen and Douglas Dunsmuir, Royal Group's chief executive officer, own up to a dozen companies in St. Kitts and have extensive property holdings.

Mr. Zuliani was questioned by RCMP officers this week in Toronto about the resort. "I met with them and I gave them the whole history," he said.

He added that the police have already tracked down several companies held by Mr. De Zen on the island.



© 2004 Bell Globemedia Publishing Inc. All Rights Reserved.

 

[Are Be]

Sorbara saga
Investors have a right to know what's going on in the stock market
By LORRIE GOLDSTEIN -- Toronto Sun

New Democrat MPP Michael Prue may be a socialist, but he sure understands capitalism.

He showed that last week by zeroing in on a key issue that has largely been ignored in the controversy over Finance Minister Greg Sorbara and the investigation of Royal Group Technologies Ltd. by the Ontario Securities Commission, the RCMP and federal tax authorities.

That is, this isn't just a political controversy about whether Sorbara, who oversees the OSC, should have told Premier Dalton McGuinty on Dec. 22, when he was first informed of it, that Royal Group Technologies was being investigated by the OSC. (Sorbara had been a director and chair of the company's audit committee up until last fall's election.)

Rather, it also raises concerns about the integrity of the stock market, and whether there's a level playing field for investors. As Prue put it last week: "They (the OSC) should have disclosed it on that day - to allow it to go on for two and half months (actually it was two) - 16.2 million shares have been traded and everyone who has invested their money in that company ... has been taken for a bit of a ride."

Certainly those holding shares in Royal Group last week, when the investigation was finally made public, were taken for a ride - down. The company's stock, which had risen to $17.36 per share on Tuesday (after steadily climbing from $11 in late December) plummeted after news of the investigation became public, ending the week at $13.45.

What still isn't clear is why the OSC, which told Sorbara's ministry about its investigation on Dec. 22 and says it instructed the Royal Group on the same day to reveal the information because the matter had become relevant to the markets, then waited two more months. The OSC says it forwarded a copy of its Dec. 22 letter to the Royal Group to Market Regulation Services Inc., which polices Canada's stock markets, and Market Regulations then instructed the Royal Group to make the news public, which it didn't do. Last week the OSC, after receiving what it described as new information, sent another letter to Royal Group reminding it of its obligation to make the probe public, which the firm then did.

The point is that for two months investors bought and sold Royal Group stock without access to information relevant to the stock price - that the firm was under a major investigation that the OSC believed should be public knowledge.

Sorbara's explanation for not telling Premier Dalton McGuinty about the OSC investigation and his prior relationship to the company, is that he was bound to secrecy by Ontario's Securities Act.

But late yesterday, OSC spokesperson Wendy Dey flatly told the Sun's Antonella Artuso: "There's nothing that would have stopped the minister going to the premier, or the integrity commissioner, according to securities laws." Indeed, it's been hard to understand all along why there was any need for Sorbara to keep the matter secret from McGuinty.

The main reason for the confidentiality rules in securities law is so that no one can profit from insider information.

For example, someone learning a company was under a major investigation by the OSC - one not yet made public - could "short" the stock - a financial transaction in which you make money if the price goes down. Obviously, that wasn't a concern if Sorbara spoke privately to McGuinty about the situation he was in.

You also have to ask why the OSC didn't inform the premier. For two months it continued to investigate a company which wasn't disclosing that information to the public, a fact the OSC believed was relevant to the market. Further, this was a company whose former director and chair of the audit committee, was now the minister charged with overseeing the OSC, and he wasn't saying anything publicly either.

Let's remember this whole controversy could have been avoided if news of the OSC probe had been disclosed on the same day the OSC said it wanted it disclosed - Dec. 22.

Had that happened, Sorbara could have immediately gone to McGuinty and they could have decided on the appropriate action - whether to relieve Sorbara of his responsibility for the OSC then, as McGuinty finally did last week, or have Sorbara step aside until the investigations were completed.

As it was, Sorbara continued as finance minister for two months, while the OSC investigation remained a secret, even participating in cabinet's selection of a new vice-chair for the OSC. All of this has led to allegations that he was in a conflict of interest and that political interference might have been brought to bear on the OSC.

None of which means Sorbara did anything wrong.

But you have to ask, what was he thinking?
Lorrie can be reached at (416) 947-2212, by fax at (416) 947-3228 or by e-mail at lorrie.goldstein@tor.sunpub.com. Or visit his home page.
Letters to the editor should be sent to editor@tor.sunpub.com.

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