Crossroads DMD, DMD I-V, Sun Country MIC
CROSSROADS DMD, DMD’S I, II, III, IV, V and SUN COUNTRY
APRIL 3, 2018 UPDATE
We wanted to update investors to advise that we have been forced into Ceasing to Act as a result of a conflict of interest that has been created in this litigation. When this action was started, we had a representative for each specific MIC group, to ensure each group had a distinct voice for that group. We had all of the representative plaintiffs swear affidavits to work together despite any potential conflicts. Unfortunately, after our action was started, Caplink, the IFM for Crossroads, started its own action which is only on behalf of the Crossroads investors. This eventually resulted in a conflict between our various investors, despite the prior agreement to work together. We tried to get the groups to continue to agree to work together, but that did not prove successful. We cannot prefer one set of clients over another, so we are forced to cease to act. We have instructed your representatives to seek alternate legal counsel to determine how best to proceed with your interests. So you will likely hear from alternate counsel in the future. We regret this situation arose, but it is not one of our own making. We wish you all the best of luck with your new counsel.
FEBRUARY 14, 2018 UPDATE
I am pleased to provide the following update and apologize for the delay in doing so. We were waiting for a few different things to determine so that we could give you a more accurate update.
We currently have sought two applications. We are seeking production to determine that we have the proper parties, issues and facts identified, in order to seek certification as a class action lawsuit. That application flows from the sworn evidence that we do have that points to the need to ensure all proper parties are identified, so that when we seek certification, we have a more complete application. The second application is the certification application. Those are proceeding under litigation timelines. Affidavits have been filed, and there has been questioning, and then cross-examination is taking place. So we are progressing and do have a litigation schedule.
We thank our witnesses that have assisted us to get here. The representative plaintiff for DMD III, IV, V and Sun Country has been questioned. And we have provided the evidence of a third party in relation to Crossroads and the Investment Fund Manager (IFM) for the DMD’s in support of our various applications. The Crossroads representative plaintiff has not yet been questioned, although we have an affidavit in support of certification that will eventually be questioned upon. To be clear, the IFM is a role held by a company whereby they are retained to oversee the financial transactions in a Mortgage Investment Corporation (MIC) and to look after the best interests of the investment fund. In this regard, the IFM is not beholden to either the company, the directors, or the investors. Rather, the IFM is retained to oversea what is in the best interests of the actual MIC or fund. To that end, we would suggest that generally what is in the best interest of a MIC or fund is usually consistent with what is in the best interests of investors.
We have agreements with some of the defendants in our action. This is to focus the litigation, as the allegations in our lawsuit are primarily related to determining if assets and/or equity that properly belongs to investors has been improperly diverted, and to whom it has been diverted, in either artificial, non-arms length, or related party transactions. We don’t really want to post anything on the website, or in an email, that relates specifically to allegations, because this matter remains to be proven in court. The intention of the lawsuit is to prove those allegations and if we do, seek compensation for investors as a result. We can clarify, however, that we have some sworn evidence and supporting records from the IFM for the various DMD’s, which supports the allegations in our claim. This evidence will be relied upon in advancing our claim and the various applications within it.
We are getting a lot of questions about this lawsuit that are more efficiently answered here. We will refer to the sworn evidence to answer your questions.
One of the first questions is in relation to why are the Crossroads investors and DMD’s (other Mortgage Investment Corp.’s) all going together in one lawsuit. The IFM for the subsidiary MIC’s (DMD I through V and Sun Country, at material times), as I term them, has provided sworn evidence and documentation to support the allegation that there were inter-company loans back and forth between the subsidiary MIC’s and Crossroads, related party loans, and undocumented items about monies and equity being transferred, that are not fully explained. To be clear, this is back and forth between Crossroads MIC and the subsidiary MIC’s. And despite requests for documentation and clarification about those items, the evidence we have is that they were never properly explained.
To date, despite seeking to get the same clarification from the IFM for Crossroads, we have not had any assistance from the IFM for the Crossroads MIC. We cannot advise why, as we have no information in that regard. But we have the evidence of the IFM for all of the other MIC’s that are named within our lawsuit, that these issues with the subsidiary MIC’s were with Crossroads.
We have the sworn evidence of our third party in relation to his dealings with Crossroads. That person was a borrower. He obtained his mortgage files from the IFM for Crossroads, and compared what it was claimed by Crossroads he owed, and compared that to his records of what he paid on his loans. He then compared this data against the court records and financial records for Crossroads. And he has sworn that not all of his payments were being recorded. And he has sworn that his loans were not properly represented in terms of what he owed on his mortgages. This third party had a copy of an email chain related to attempts to direct a foreclosure property in Manitoba to a third-party corporation who is a defendant in our action. This sworn evidence demonstrates how investors equity in Crossroads MIC was being impacted by how the mortgages with this debtor were being administered. To date, we don’t have any assistance from or comment from the Crossroads IFM, Caplink, about this third party affidavit and sworn evidence.
So the reason we have all investors in these Defendant MIC’s going together is because of this evidence that there were intercompany loans, loans to related parties, and lack of documentation to corroborate loans between the various MIC’s and with related parties, or in non-arms length transactions. In situations where funds were supposed to be used solely for lending purposes, under lending guidelines, without comingling. So the fact that the sworn evidence points to comingling having occurred, as a result of disputed transactions between the various MIC’s, it forces the investors to work together to unwind and figure out if any of their equity has been diverted. To be clear, the way the sworn evidence suggests business was being conducted, it will force investors in all of the MIC’s to work together to unwind what occurred to determine if equity was diverted, and if so, where equity was diverted, if any such diversion occurred, to the detriment of which MIC. This cannot be done by advancing claims on an individual MIC basis alone.
We have been asked why the specific MIC’s are named in our lawsuits. They are a proper party to our action for the evidence they have and for the complete resolution of the wrongdoing we allege. We have to include them in order to be able to demonstrate the manner in which corporations may have been used in ways to create the wrong alleged to have occurred to the detriment of investors. The sworn evidence of the IFM for the subsidiary MIC demonstrates some of our problems and why we need the documents from the companies, to demonstrate the transactions to prove our allegations eventually, but firstly to ensure we have all proper parties in our claim. And we have sought litigation agreements with the MIC’s to facilitate doing so. We have no intent of taking or diverting monies that exist in specific MIC’s, through this lawsuit. In fact, we have negotiated agreements to allow DMD IV and V to wind up and pay out investors. That isn’t the focus of our lawsuit. But we need these corporations to assist us in preserving records, in the event the primary defendants in our litigation do not provide us with them. To date, we have tried several times to enter a litigation agreement with Crossroads and the IFM for Crossroads. We have not been successful in those efforts to date. We cannot offer a reason why the Crossroads IFM is not interested in working with us. The IFM for the other DMD’s at material times, as some of the DMD’s no longer have an IFM, has provided us with sworn evidence that will assist us in advancing the claim. At this time, we have no such cooperation from the IFM for Crossroads, let alone an agreement with them, although we have requested it. We understand that the Crossroads IFM is not instructing legal counsel in our action.
With respect to Crossroads, we have evidence of situations where corporations controlled by Mr. Brian Menges held mortgages in first position and in priority to Crossroads. Mr. Menges also runs Caplink, which is also the IFM for Crossroads. We have sought information from Mr. Menges about situations that may mirror the sworn evidence and experience of the Manitoba borrower that has come forward to assist us. We have received no assistance or clarification in this regard.
We do hope to be able to move this litigation forward to your benefit. We continue to seek cooperation and assistance from Caplink and Mr. Brian Menges. We remain hopeful that he will view assisting our lawsuit as being in the best interest of the Crossroads investment fund. We will let you know if we are able to make such arrangements.
People have also asked us about the lawsuit that was commenced by Crossroads against some of the directors. That was started a considerable time after we started our lawsuit and many of the allegations within the pleadings mirror ours. I refer you back to our first point in this update in terms of the concern that other Crossroads lawsuit as plaintiff raises. There are problems with undocumented and disputed intercompany loans between the MIC’s. Establishing liability is one thing, but collecting if liability is proven is an entirely different issue and problem, given there are real concerns here of comingling and lack of documentation about intercompany loans to substantiate them. We are seeking to address these competing lawsuits, but this remains unresolved at this time.
We hope this assists you in understanding our current position. We have some sworn evidence that will now be before the Court and we will be making argument about it. We continue to look for agreements that will benefit all investors. Bluntly, this situation is very complex and we expect it sounds confusing. However, we didn’t create this situation, we are being instructed to litigate this matter so we have to try to unwind it in order for the court to make an appropriate decision.
LAWSUIT COMMENCED – JULY OF 2017 UPDATE
As of July 31, 2017, we have filed an Action in the Court of Queen’s Bench of Alberta to advance a claim on behalf of all investors and/or Class B shareholders in the mortgage investment corporations (MIC’s) listed above. This will exclude the defendants and any related parties to the defendants. This claim is seeking to advance a claim for all of these different investors. We have separate sub-classes of class action participants for each MIC and we intend for each MIC to have a distinct voice and representative of their investment and interest. This is to ensure that each investment has someone that will be advocating on its behalf, so you can take comfort in knowing that your investment will not be treated any differently than another. That is to ensure that in advancing our claim, no one investment is preferred at the expense of another. Given the particular facts involved in this situation and with these projects, this is a necessary point to be made.
Many investors are already sending us their contact information related to this project. We have commenced an action and in doing so, several investors have raised some questions. We will distill their questions here and answer them, so that investors can all have access to the same information, in making their decisions.
We have collected a lot of information about how the MIC’s were being operated, how information was being reported and particularly how financial transactions were being reported, which suggests that the best way for investors to advance a claim is by working together. We intend to have distinct investors from each project represented by a distinct investor in that project. Our current litigation has a stand in for some of the MIC’s but we will be looking for substitute representative plaintiffs, as we proceed.
The different MIC’s are in different positions. Currently, Crossroads is in distinct litigation surrounding the determination of the true valuation of your interest. We cannot comment or speculate on what the valuation will be. Crossroads investors understand that the valuation is not what it was supposed to be. With the subsidiary MIC’s, some are in receivership and some are not. There are concerns in all investments with the expenses, and reporting of financial information. There are also concerns about non-arms’ length transactions. Those are concerns identified in some cases by the Investment Fund Manager (IFM) that was in place to oversee your particular investment.
According to the Offering Memoranda and marketing materials presented to investors, we know the following:
The goal is to force disclosure of financial records and to determine where investors’ equity has been lost. And if it is demonstrated that investors’ equity has been improperly diverted, we will be seeking to get restitution and compensation for that, so that investors can be repaid.
There was a cease trade order, which was eventually addressed. At the time that happened, additional information was sent out to investors. This lawsuit will deal with the legal issues that arise here. This is distinct from the ASC and its actions.
All investors in the above noted projects that are not related to the defendants, understanding that the Defendant class includes the directors and voting shareholders in the above noted projects.
We have filed a Statement of Claim back in July that has been served on the various defendants. With a class action lawsuit, time limitations are in abeyance and we seek to get a court order that certifies us to proceed as a class action. This is a test and process and it will take time to occur. This will involve making an application to prove to the satisfaction of the court that we should be allowed to proceed in this manner. What it allows is for everyone to proceed in one action. In doing so, we will end up with common issues and facts that will be decided in one way, for the benefit or detriment of all parties. It means that every investor will not have to start their own lawsuit. And it means that the defendants will only have to argue about facts and issues once, in a way that will impact all claims. It is a procedural tool that will allow for a large number of investors, like this situation, to have their legal issues determined.
Kevin McGuigan has successfully applied, and withstood an appeal to the Alberta Court of Appeal, in a different lawsuit, where a variety of investors are working together to advance a claim for certification. This legal precedent is a powerful argument as to why this should be the path to follow here, when dealing with several different MIC’s. Some of the same issues arise here. There appears to be issues over intercompany loans and the documentation of such. This certification application process will enable investors to work together, instead of being forced to compete with each other. A predominant reason we are following the path we are is the concern about inter-company loans between various MIC’s that are not properly documented.
You can send us your information by completing the questionnaire form on this website and emailing it to us. We will place you on our contact list. You will receive periodic updates, as we have them. You will also be able to get updates off the website.
Please carefully read and complete the form, as it requires you to also make a choice on retainer options, which will be explained further below.
You can opt out, which is standard in any class action proceeding. We will still be advancing a claim on behalf of investors in your class, but you do not have to share legal costs and advance with us.
We believe that working together will enable us to pool the evidence we have, on separate investments, to prove liability and to justify damages for all investments. We urge you to consider joining our claim.
We are asking for people to retain us by making a $200.00 contribution toward legal costs. We may make another cash call in the future, for the same amount. For investors in Tier 1, the contingent portion of their fee agreement will be 5% of the net proceeds. For those not opting to contribute in Tier 1, our contingent fee will be 35% of the claim proceeds.
We cannot predict the timing or cost of this litigation, nor can we predict the likelihood of success. We can assure you that we are prepared to work on a hybrid contingency fee agreement, which will allow us to charge a percentage of fees against any settlement or funds collected to resolve this action. We will collect a percentage fee at the conclusion of this matter, only if we are successful. The percentage charged against those contributing to the legal costs (Tier 1) will be substantially less than what we will charge as a percentage against any proceeds collected for investors that are not helping to cover some of the ongoing legal costs (Tier 2). We will seek to have the Defendants pay some or all of our clients’ legal costs. But that will only occur if we are successful.
We are looking for fair and reasonable compensation for all investors. It starts with getting back your money, plus interest and legal costs. And then we will look at damages.
No – that would create a situation of preferences, or hopes that one project is paid before another. To be absolutely fair, consistent and to avoid an administrative nightmare on our end, it is all or nothing – all tier 1, or all tier 2. People have until NOVEMBER 30, 2017 to participate as a tier 1 client.
You would still be covered under our fee agreement, however, your percentage of what we collect for you to be paid to us for collecting funds on your behalf will be much higher. You will be in Tier 2. Those that contribute to legal costs as we go, we are going to be asking for their legal costs to be repaid, as far as the Courts may allow. And we will be looking for a much lower percentage of the amount collected for their legal cost of doing so. We have a tier 2 legal fee which is based on a much higher percentage of what we may collect on your behalf, for those that do not contribute to legal costs. The incentive here is that we expect to have at least a few hundred people contributing to legal costs, leveraging the true cost of advancing this action. And we are charging at a reduced rate under our hybrid agreement. We hope that we will not be making a further retainer request in the future, depending on the number of contributors and the progress of the action, including interim steps.
In order to participate, we are allowing investor until November 30, 2017 to join into the action with the intention of contribution to legal costs. To be clear, in resolution of this matter, we will be looking for indemnification of legal costs from the Defendants, but we primarily intend to try to maximize the pool of monies available for investors. And as a result, we intend to charge more legal fees against any funds we may collect on behalf of investors that do not contribute to legal costs but opt to remain in our lawsuit, if we are certified.
Please contact us through our website email form. It is how you give us your contact information as well as advising us if you want to be a Tier 1 or Tier 2 client. You must send your retainer if you are opting to be in Tier 1.
If you hold the investment with another person(s), please just complete one questionnaire for the investment and let us know on the form. This is applicable for a situation where, for example, a husband and wife own the investment jointly. If you hold the investment in a corporation, give us that name and a personal contact name of whom we may contact in relation to the investment.
Our initial approach is to look to get parties back their original investments. Plus interest. Plus costs and disbursements. Plus damages. We order them that way so you can see priority. The approach we take is to simplify the liability and damages claim – so we can hopefully avoid accounting costs and investigations. We are firm in our belief that funds have been so vastly co-mingled that it would be impossible to sort them out. And that isn’t the fight we want to have with these defendants.
This is our retainer. We are not promising this will cover it all. However, we are getting some indication that there is strong support for this claim by investors. We do not know how hard the defendants will fight. We are working to advance our applications with supporting evidence to hopefully diminish their incentive to fight with us.
This is precisely why starting point is to get people their original investments back. We have information that many properties on which mortgages were advanced ended up in foreclosure. We will be tracing properties and mortgages. Some concerns with financial information have been identified for us by various parties and in various documents. Those will be made publicly available in our affidavits and materials filed in support of this legal action and certification of it.
The manner of collection will depend on what settlement or judgment occurs and it will be impacted by which defendants are part of the settlement. Many of the defendants currently have assets, but we do not control what the defendants will do with what assets in the meantime, so this question cannot be precisely answered at this time.
Suffice to say that the strongest indication of our confidence that there will be a payment of judgment or settlement is the fact that we are prepared to work upon a hybrid contingency agreement. If there is no collection, we do not get paid that portion of our fee. We do not guarantee success or collection, but we feel that this lawsuit is the best method for investors to pursue to get their money back.
You can pursue your own lawsuit. Once we get to the certification stage, all investors will have the opportunity to “opt out” of this class action lawsuit. This right is provided by the Class Proceedings Act. If you opt out of this lawsuit, you can pursue your own claim, independent of other investors. But if you do, you do not benefit from the common findings on issues and facts that will be made in our lawsuit. Where many investors are working together toward proving liability and obtaining compensation.
We are asking investors to contribute $200.00 toward legal costs. If you so contribute, you will be asked to print out the form that is on this link, and to send it to us with your contact information. This will enable you to be a Tier 1 investor. These investor are making partial contribution to ongoing legal costs. If we collect in this matter, the percentage legal fee sought to be charged on the share of Tier 1 investors will be substantially less than those charged against those investors that do not contribute to ongoing legal costs. Tier 2 investors will be those that opt not to contribute to ongoing legal costs and do not opt out of our litigation, if we are certified. That process will be explained further at the appropriate time. But investors will only have a limited time to participate as a Tier 1 investor. We cannot guarantee there will not be another cash call for $200. We cannot guarantee this lawsuit will be successful. We can state that we are working on a hybrid basis, and that those investors in Tier 1 will not be expected to contribute as a big a percentage to legal fees if this matter is successfully resolved in the future.
We ask that all investors complete an investor participation form, found on our “information form” page for the Crossroads litigation. You can also download the form here.
This is not a right or guarantee. It is our intention to have the Court endorse certification of this claim, so investors can work together to advance their interests and seek common determination of common issues and facts in dispute. Certification will be opposed, we expect.
If we are certified, we will then work toward proving liability. Our objective is to assist investors in realizing some return and hopefully receive some restitution of their investment in the various MIC’s. With respect to Crossroads, we are not looking to duplicate the efforts of the IFM and we understand that litigation is currently identifying the fair market value of the preferred shares based on the remaining assets in that project. Our litigation is intended to explore the financial information and is expected to attempt to trace any equity that should properly be with the investors, in recognition of the various representations made in either the Offering memorandums, marketing materials or financial disclosure made to investors.
We are not advocating the RCMP to investigate, nor are we pressuring the Alberta Securities Commission here. We are pressing a civil litigation claim. These involve complex issues and facts. We are not presuming the validity of any allegation. You must understand that as an investor, you are being asked to be part of a lawsuit that will seek to prove you have sustained damages.
If any of you have emails or mail correspondence, in which you made inquiries about the project and received a response, then please also contact us to forward that to us so we can compile our records. That would include, but not be limited to, emails inquiries on the status of matters and responses you were getting in return. Items that were not sent to everyone.
We will attempt to keep investors posted through our website. We ask for your patience, as matters do not proceed quickly.