Propco 10: Cliff Evans' Affordable Housing Misadventure
In 1990 the United Food and Commercial Workers Union's Canadian pension fund, CCWIPP, agreed to float a mortgage to a Toronto real estate agent named Paul Scarponi.
Scarponi needed the money to finance the purchase development land worth a little over a million dollars on which he planned to build houses in the Town of Richmond Hill, a prosperous community in the Greater Toronto Area. The mortgage would be funnelled to Scarponi through a CCWIPP investment corporation called I.F. Propco Holdings (Ontario) 10 Ltd. Cliff Evans, at that time the UFCW's Canadian Director and Chairman of CCWIPP's Investment Committee was also a Director of Propco 10.
In exchange for the mortgage, Propco 10 would get a share of the profits from the subdivision and Evans would get a house for the low low price of $60,000.00.
To seal the deal all Scarponi had to do was to sign a commitment letter and cough up a check for $9,730.00.
All of this comes from court documents sworn by Evans and a couple of lawyers after the deal fell apart and Scarponi sued Propco 10, CCWIPP and its entire Board of Trustees for failing to come through with the cash. The case, called 876502 Ontario Ltd. v. I.F. Propco Holdings (Ontario) 10 Ltd., began in 1991 and ended in 1999.
In 1994, Scarponi asked the court for a default judgement and the CCWIPP/Propco boys who it seems never bothered to file a Statement of Defence in the matter suddenly came to life. Numerous affidavits were filed as Evans and and his lawyers tried to persuade the court of what a bad guy Scarponi was.
They said he had a history of failing to come through on similar commitments. They said he was prone to filing lawsuits. They accused him of perpetrating a scam and of screwing Evans out of the affordable home he'd promised to sell him. It was quite a hatchet job considering that all they really needed to say was, "He didn't come through with the downpayment so we didn't give him the mortgage your Honour."
So intense was the CCWIPP assault on this real estate agent that it's easy to get lost in all the ink they spilled trying to convince the court that he was from hell. Scarponi denied the CCWIPP team's allegations about his character and his background and the judge eventually found them "scandalous", "embarrassing" and "irrelevant" and ordered Propco to pay Scarponi $1,000 for his trouble.
Whatever kind of guy Paul Scarponi was, this isn't about him. It's about the boys from CCWIPP and how they go about the business of investing their members' funds. The extensive documentary record created by Scarponi's - much of it generated by the CCWIPP defence team - provides a rare opportunity to see how they operate and to hear about it in their own words.
The following statements are taken from an Affidavit sworn by Vito Scalisi, a lawyer with the firm of Loopstra, Nixon and McLeish, who "worked extensively on [this] matter..." on behalf of CCWIPP.
...upon being cross-examined in this matter by solicitors for the Plaintiff, Clifford Evans testified he entered into an agreement with Mr. Scarponi pursuant to which he was to purchase one home in Mr. Scarponi's subdivision at a cost of $60,000.00. He further testified that he paid the sum of $60,000.00 to Mr. Scarponi and, in return, received three Agreements of Purchase and Sale showing deposits of $20,000.00 on each of three homes. Mr. Scarponi has sworn in an Affidavit filed in these proceedings that, in actuality, Mr. Evans was purchasing three home and that the Agreements of Purchase and Sale were legitimate.
William Minnis is the President of Beutel Goodman Real Estate Group. Beutel Goodman acted as real estate consultants to the Canadian Commerical Workers Industry Pension Plan. ... Mr. Minnis met with Mr. Scarponi in October of 1990 to discuss the property for the purpose of allowing him to assist the Pension Plan's consultants in determining whether or not to become involved.
Michael Rogerson worked for Turnbull and Turnbull, a firm of consulting actuaries in Winnipeg, who were the consultants to the Pension Plan in respect of the relevant transaction. ... Mr. Rogerson will testify that he had a conversation with Mr. Scarponi on November 20, 1990 regarding Mr. Scarponi's failiure to sign the commitment letter in a timely fashion. Mr. Rogerson will testify that he advised Mr. Scarponi that the November 5, 1990 commitment letter had clearly stated the offer was open to acceptance until noon Toronto time, on November 12, 1990. He pointed out to Mr. Scarponi that the commitment letter also required payment of the sum of $9,730.00 by way of a certified cheque...
These statements tell us that Scarponi - whatever CCWIPP officials may have said about him after he sued them - was vetted by a number of consultants and advisors to determine whether CCWIPP should get involved with him. We know that Scarponi was approved for a mortgage of over $1 million dollars subject only to a nominal downpayment of 1% of the principal amount.
We know - straight from the horse's mouth - that Cliff Evans, Chairman of the CCWIPP Investment Committee, was going to get a new house in Scarponi's subdivision for $60,000 at a time when really small homes in the community were selling for upwards of $150,000.00.
We also know from related digging is that in 1990, in addition to being President of Beutel Goodman Real Estate Group, William Minnis was the President of a company called B.G. Preeco Ontario 4. BG Preeco was a part owner - along with another CCWIPP investment corporation controlled by Evans (Propco 4) - of an office building in the west end of Toronto.
From this intriguing story we know that Mike Rogerson was about to become a director of yet another Propco investment corporation, one which would funnel millions into the CCWIPP-fueled investment that would make a former Catholic priest and pedophile Ron Kelly a real estate tycoon.
We know from CCWIPP's financial statements that this deal cost them or, more precisely, cost the members even though it never happened. CCWIPP financial statements for 1995, 1996 and 1997 show losses of $12,000, $51,000 and $89,000 respectively for a Propco 10 investment described only as "inactive". Were these the legal fees from the lawsuit? Maybe or maybe not. CCWIPP's legal fees, including fees to Loopstra Nixon, were reported separately for those years. So who was getting paid in connection with this "inactive" investment?
Even if a fraction of what Team CCWIPP said about Paul Scarponi was true they should never have become involved with him in the first place. Where was their due diligence? From their own sworn statements, the deal with him fell apart because he didn't cough up a check for $9,730.00 and not because they discovered a scam or become aware of any earlier failed real estate transactions. They checked this guy out and decided to lend him a million dollars for a nominal downpayment. Shame on who?
What was Cliff Evans, leader of UFCW Canada and top dog on CCWIPP's investment committee (which makes decisions about where CCWIPP's funds will be invested) doing getting a house from this guy on the high cheap? Evans' role on the investment committee and the coincidental timing of his affordable house purchase and Scarponi's low downpayment mortgage... stink.
That Scarponi changed his tune about just how many affordable houses he'd promised to sell to Evans and for how much after the deal fell apart doesn't change the fact - the most disturbing fact - that up to the time the deal went south Lord CCWIPP was going to get a nice peice of property for himself (not for the pension fund) out of the bargain. One that he could turn around and flip for double or triple his money. Nor does it explain how a bunch of well-paid advisors, some of whom were involved in their own land deals with CCWIPP, determined CCWIPP "should get involved" with him or why the CCWIPP trustees just let it happen.
Nor does the fact that all of this took place more than ten years ago, minimize its importance. If anything, its significance is underscored by the fact that in 1990, CCWIPP officials were just getting into trustee directed investing and embarking upon a path that would lead the pension fund to hundreds of millions of dollars of failed investments and a whopping solvency deficiency.
Indeed, CCWIPP's investment-that-almost-was in Paul Scarponi's land development venture bears many of the same attributes as ensuing CCWIPP investments:
- Millions of dollars invested,
- on very favourable terms,
- in high risk ventures or with enterpreneurs "just starting out",
- through investment corporations controlled by members of CCWIPP's investment committee,
- with a lot of CCWIPP hangers-on hanging around,
- and the CCWIPP trustees going along for the ride.
The questions raised by the Scarponi investment are just as familiar:
- Do CCWIPP Trustees conduct adequate due diligence before committing millions of members' dollars towards high-risk investments in hotels, real estate and other ventures?
- Do CCWIPP trustees benefit personally from their dual roles as trustees or directors of CCWIPP or both? Do they receive director's fees, commissions, bonuses and other rumuneration?
- Who benefits the most from the easy terms - CCWIPP members or the guys who get their money?
Scarponi's lawsuit was finally dismissed in 1999. While we have no way of knowing exactly how much money was spent by CCWIPP and Propco 10 in connection with the lawsuit, it's safe to say that it cost the members something. It's also fair to say that if CCWIPP had chosen not to become involved with Scarponi in the first instance, it would have cost the members nothing.
Last we heard, Paul Scarponi was still working as a real estate agent, Rod Stewart impersonator and entertainment promoter. In 1997 he was the organizer of a tribute event called Mirage in Concert which kicked off that year's opening of the Canadian National Exhibition. According to a local media report, the event featured entertainers making like Madonna, Michael Jackson, Tina Turner, Elton John, Roy Orbison, and The Blues Brothers. "We're creating an illusion", Scarponi is quoted as saying.
You're not the only one Paul. At least your illusions are entertaining and the performers know what they're doing.
The Financial Services Commission of Ontario continues its ongoing examintion of CCWIPP. That examination has been ongoing for almost two years now. There does not appear to be an end in sight. Meanwhile, CCWIPP continues to pour its members' money into hopeless investments like this Bahamian Resort and this California company of which Cliff Evans is Chairman and, possibly this condo conversion project.
Evans and other CCWIPP Investment Committee members continue to control dozens of investment corporations that flow the money to high risk low yield destinations. The CCWIPP trustees dutifully give their decisions the seal of approval. Big dollars flow each year into the pockets of numerous advisors and consulting companies - some of which are controlled by the CCWIPP trustees - for their expert advice.
In 1995, for instance, the law firm of Loopstra Nixon billed CCWIPP $13,845. In 1996, its tab was $64,647. In 1995 actuarial consultants Turnbull and Turnbill got CCWIPP $310,302. In 1996, their tab was $152,251. In 1997, $227,129 was paid out to certain unnamed "Investment Managers". In 1998, the unnamed managers received $221,270.
The bellying up to the CCWIPP trough continues. According to CCWIPP's financial statement for 2003, $1.2 million was paid out for consulting - almost $1 million of that to a company controlled by CCWIPP trustees, $1.3 million was paid for investment services. $266 million is tied up in equity, loans and mortgages invested through investment corporations like Propco 10. $70 million in loans are in default. $7 million worth of interest has been deferred on other loans.
It seems that the only people not getting a good deal out of CCWIPP are its members.
On May 1, 2004, a CCWIPP member posted this update in MfD Forum:
I have just received a notice in the mail advising me of a change in my CCWIPP Pension Plan. It states:
A combination of low interest rates, difficult investment markets and regulatory requirements has resulted in the board of Trustees of the Canadian Commercial Workers Industrial Pension Plan having to allocate contributions in the amount of three cents per hour (three cent requirement) to support the benefits already accured under the Pension Plan.
In order to protect benefit entitlements already earned to May 1,2004, the board of trustees has decided that any increase in contributions on or after that date(existing collective agreements or renegotiated collective agreements) will first be used to offset the three-cent requirement before the benefit level is adjusted upwards. If however, no increase in contributions is negotiated upon the renewal of your collective agreement, and the three-cent requirement has not been accommodated previously, your current service benefit level will be adjusted, at that time.
The three cent requirement will be reviewed annually and eliminated when it is appropirate, financially, to do so.
Respectfully Submitted,
Bernard Christophe
Chairman, Board of Trustees
Creating illusions is a full time job for a lot of people.