Now that the bankruptcy protection has been lifted for the AB District, the CEF / DIL Representative Action can proceed as well as official action by government enforcement agencies such as the AB and BC Securities Commissions.
What does this mean? The Securities Commissions won’t discuss ongoing investigations – and rightfully so – but we can look at what’s happening in similar cases to see what may be coming down the line.
To that end, the AB Securities Commission issued the following notice about the now-defunct Cash Store because its financial officers “failed to file financial statements prepared according to generally accepted accounting principles.”
Anyone that’s read the Task Force Report will recognize the phrase “generally accepted accounting principles” (GAAP). The CEF auditors cited ABC District / CEF for not following GAAP with respect to how they treated certain aspects of their operation and the auditors had to provide corrections to adjust the finances to show how things would be if GAAP had been followed.
The notice also cites a financial officer of Cash Store because he “authorized or permitted the violations relating to guarantees to occur.” Applying this standard to the CEF / DIL situation could mean that whoever was in charge at CEF and/or DIL when securities laws were breached could also be facing official ASC/BSC action.
Finally the courts have barred the AB District from ever selling investments again. That kind of thing doesn’t happen without a reason.
CALGARY, Nov. 16, 2017 /CNW/ – The Alberta Securities Commission (ASC) has issued a Notice of Hearing alleging improper financial disclosure by Cash Store Financial Services Inc. (now known as 1511419 Ontario Inc.) (Cash Store), its former chief executive officer Gordon Reykdal and its former chief financial officer Nancy Bland. Cash Store was listed on both Canadian and U.S. stock exchanges until 2014.
The Notice of Hearing states that Cash Store failed to file financial statements prepared according to generally accepted accounting principles. In particular, Cash Store failed to disclose guarantee obligations it owed to certain lenders in its 2011 annual and 2012 interim financial statements, and made false or misleading statements by representing that certain loans were not guaranteed. Cash Store also failed to disclose an appropriate valuation for loans it purchased from these lenders in its interim 2012 financial reports.
The Notice of Hearing also alleges that Reykdal authorized or permitted the violations relating to guarantees to occur, and that Reykdal and Bland authorized or permitted the violation relating to the loan valuation to occur.
The allegations have not been proven.
Update 2017-12-03: The Task Force report starts to discuss CEF’s failure to follow GAAP on page 15.