Canada ABCP parties agree to allow fraud lawsuits

Wed May 28, 2008 2:55pm EDT
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By Lynne Olver

TORONTO (Reuters) - The parties involved in a lengthy attempt to fix Canada's C$32 billion ($32.3 billion) non-bank asset-backed commercial paper market have proposed allowing certain claims of fraud to proceed.

That in turn could pave the way for the necessary court approval of the market restructuring plan, and an Ontario court judge is expected to hear the matter on Friday.

The proposed change, outlined in a report on Wednesday by the court-appointed monitor, specifies who could pursue lawsuits for fraud, and who could be sued. Until now, banks involved in the workout had insisted they should be shielded from all possible litigation in exchange for agreeing to various aspects of the restructuring plan.

"The applicants propose that a process to address claims based in fraud be effected by an amendment to the plan," the court-appointed monitor, Ernst & Young Inc, says in its latest report.

Broad legal releases in the original ABCP restructuring plan had been a sticking point for some corporate investors, who wanted to preserve the right to sue their banks or investment dealers for selling the short-term investments, which have been in limbo since last August.

But the proposal to allow fraud lawsuits in limited circumstances will probably not satisfy corporate investors who have complained about misconduct and misrepresentation, not just fraud, said Colin Kilgour, an independent adviser on ABCP issues.

"The reality is people won't be happy," Kilgour said. If the plan gets court approval, "we're still going to see appeals," Kilgour predicted.

On May 16, an Ontario Superior Court judge delayed a decision on whether or not to approve the ABCP restructuring plan, saying he could not determine whether such broad legal releases were fair and reasonable.   Continued...