W. Edmund Clark, President and CEO TD Bank Financial Group PO Box 1 Toronto-Dominion Centre King St. W. and Bay St. Toronto, Ontario M5K 1A2
February, 17th, 2011
Letter of Complaint re: Actions by TD Bank regarding its loan with Genesis on the Lakes Ltd. (â€œGenesisâ€?). Dear Mr. Clark, This letter details the irresponsible and unethical actions by TD Canada Trust in its handling of the repayment of its loan to Genesis. The drastic action taken against Genesis to achieve repayment of the TD Bank loan was both unnecessary and incredibly heavy-handed. At every opportunity, TD Bank deliberately pursued the most abusive course of action possible without any regard for the substantial costs that would be borne solely by Genesis shareholders and without any regard for the financial devastation their actions would inflict on the lives and savings of thousands of small investors. As the details of this situation are revealed here I hope you are as sickened as I am to see how a privileged financial institution throws its weight around in a greedy grab for gain at the expense of citizens in its own communities. In short, TD Bank behaved like a swaggering neighbourhood bully, showcasing bankers at their absolute worst. These are the facts surrounding this file: Genesis was formed in order to develop property in Stony Plain, Alberta. The property was a large 150-acre residential development planned in anticipation of the need for quality living and a supportive community for the expected influx of workers and their families connected to the expanding major industries nearby. The property was owned by the FIC Group of Companies, whose shareholders are almost entirely small (mom and pop, young marrieds, single income and retirement age) investors. For many of them, their participation in the Genesis development represented a significant investment. In May of 2007 Genesis chose TD Bank as its financial partner and entered into a loan agreement with them. TD Bank provided a loan of up to $22 Million for the land and construction financing. As part of that arrangement TD Bank required corporate guarantees from all of the FIC companies that had investments into the project. One of the terms of the guarantee was the right of TD Bank to appoint a receiver for every company should the loan go into default. The loan was due for repayment at the end of December, 2008. As of May of 2007 repayment did not appear to be a problem since pre-sales of the lots were adequate to allow repayment prior to that due date. Unfortunately, the credit crisis, (in which the banking industry played a large part), struck in September of 2008 and many of the pre-sales were cancelled. The TD Bank account manager in Calgary, Kevin Hamaoka of the District VP Real Estate Group, expressed his displeasure at the pace of the sales and appeared unconcerned about the economic storm raging around the world that escalated with the collapse of Lehman Bros. At the end of the term of the loan TD Bank indicated it wanted Genesis to pay back the $16 Million balance that was outstanding. It should be noted that at all times Genesis had paid the interest on its loan every month on time. www.ficinvestors.com 1-877-357-0400 | firstname.lastname@example.org
FIC Group and Genesis did not have $16 Million immediately available and had no time available to refinance the loan. Genesis was, however, able to pay down $5 Million of the loan and negotiated an extension until the end of May, 2009. This extension was costly. Over the next several months it became clear that the bank saw this as an opportunity to extract a continuing stream of additional six-figure payments from Genesis. They made it clear that without these extra fees, the loan would be called. In my opinion it was at this point that TD Bank changed from a financial partner to a financial predator, zeroing in on a way to extract additional financial gain from Genesis and its shareholders. The winter extension of the September payment did not provide enough time to make any additional sales. Due to the extreme winter climate, the selling season in Alberta does not begin until after May. TD Bank would know this. Yet, at the same time, TD Bank also stopped funding any additional work on the project, thereby putting additional financial pressure on the project. Genesis protested this double whammy of the huge extension fee on top of a freeze on development funds, but TD Bank had all the advantage and appeared pleased to use it. Genesis had no choice but to pay the additional fees. TD bank was now in a position to dramatically increase the amount it took from Genesis shareholders. Using the threat of calling the loan as its big stick, TD demanded that Genesis make additional payments of $128,500 (2% of loan) at each six-month renewal period. Meanwhile, considerable work still needed to be done in order to complete Phase I of the project and make it attractive to the home builders, who would buy the lots. Unfortunately, TD Bank was working this angle, too. Due to TDâ€™s consistently laggard processing of loan draws needed to pay the subcontractors, Genesis had acquired a reputation as a very slow paying developer. In some cases it took TD Bank two months to have the paperwork completed by its field representative (the quantity surveyor). This paperwork allowed for draw downs on the construction loan to pay contractors/subcontractors. Genesis lodged repeated complaints about this situation, but to no avail. No effort was made by our financial partner to improve the cash flow for the construction process. The result of TDâ€™s sluggish processing was an increased difficulty in getting the final services installed during the summer of 2009. Having these services in place would have greatly assisted Genesis in pre-selling more of the lots that summer. Had those presales taken place, Genesis would have been able to stay current with the repayment schedule, reduce the loan balance and avoid the additional extension fees and saved FIC investors tens of millions in equity. Builders were aware of the fact that the installation of power, phone, gas and sidewalks had been delayed and, in turn, they delayed their own purchase decisions until these services were installed. Finally, this critical work had to be paid for by Genesis and was completed in October, 2009 at a time when TD increased its demands on Genesis for even more cash. As I mentioned, TD Bank had granted an extension to the loan until the end of May, for which it extracted a large fee. In September, it offered another extension to the end of November, 2009. The cost of this extension was well beyond what the previous extension had cost and also included a requirement that Genesis put six months of interest in a reserve fund, despite the fact that Genesis had made every interest payment on time. In all, the immediate cash required to avail itself of the extension would have cost Genesis over $500,000 â€“ money Genesis did not have on hand. Genesis had used most of its available cash to complete the Phase I work due to the fact that TD Bank had stopped funding the project. Management of Genesis protested this punitive treatment, indicated that these exorbitant demands could not be www.ficinvestors.com 1-877-357-0400 | email@example.com
met and requested time to refinance the loan with another lender. At this point TD Bank clearly revealed their true intent to seize the property. Without any discussion or attempts to work out a mutually reasonable solution, TD called their loan. This was absolutely unnecessary and precipitous, because the loan interest and ongoing fees had been fully paid, the loan was current and the security on the loan was at least three times the loan balance. The only issue was the inability of Genesis to immediately pay in excess of $500,000 on short notice to cover the excessively high extension fees to the bank plus prepaying interest for an additional six months. TD Bank had offered terms that were completely out of proportion to the situation and their subsequent actions were unnecessarily hasty and harsh. In order to avoid a receivership, Genesis searched for alternative financing. This was during the Christmas holiday period in December, 2009; a very difficult time to raise capital. TD Bank took this opportunity to grant additional, but impossibly small extensions of time conditional upon paying substantial fees for each extension. At every turn the TD Bank and its “collector,” Toronto based Kenneth Malcolm, made it clear they were not interested in granting the time needed for refinancing the loan, despite the fact that willing lenders were now involved in the process and ready to step forward to protect the shareholders interests and keep the project moving forward. Instead, rather than working with Genesis and its management and allowing reasonable time to complete the necessary due diligence and loan processing, TD Bank exerted continued pressure with threats to appoint a receiver. At the same time it was indicated to Genesis that this threat could magically stop being such a problem if Genesis made yet another extension payment. This transparent money grab was odious and repugnant. TD Bank took millions of hard-earned investment dollars away from thousands of small investors and funnelled them straight into its own pocket. I can’t describe how heartbreaking it was for me to tell our shareholders what was happening to their money and their hopes and several public meetings and conference calls. It was disappointing to see this level of, what I consider, unrestrained greed in a Canadian financial institution that exists in a virtually uncompetitive, protected environment. In our opinion TD Bank acted irresponsibly and with blatant disregard for the financial devastation it was causing to a large group of small investors. The continuing demands for tens of thousands more dollars to continue extending the term of the loan became impossible to meet. The nature of the loan had not changed; it was still a totally secure loan on which the interest was fully paid. Nevertheless, when the appointed TD bank representatives determined that they couldn’t extract any more cash from Genesis, that there was in fact no more cash to be had from the investors - they called the loan and used the courts as their collection agency. Genesis fought this action. At the time, we pointed out that it would take much longer for the bank to recoup its loan through a receivership than if they allowed Genesis to arrange refinancing. Genesis urgently requested adequate time to complete the arrangements with a new lender, who was prepared to act as quickly as possible. To assure Mr. Malcolm of our good faith, we provided him with the details of these arrangements so that he could see they were indeed, valid and adequate, but our totally reasonable solution fell on deaf ears. Apparently, the only sound Mr. Malcolm and his cohorts wanted to hear was the huge sucking sound of money being siphoned out of the pockets of Genesis shareholders and pumped into TD Bank coffers. On January 12, 2010, after having received $71,655 in “extension fees,” the representatives of TD Bank made www.ficinvestors.com 1-877-357-0400 | firstname.lastname@example.org
good on their endless threats and caused the court to appoint Price Waterhouse Coopers (“PWC”) to act as Receiver for Genesis on the Lakes Ltd. as well as the companies that had guaranteed the debt of Genesis. This included FIC Investments USA Ltd., FIC Investment Ltd., China Dragon Fund Ltd., WBIC Canada Ltd., S. E. Asia Fund Ltd. and a numbered company, 0760838 BC Ltd. that is owned by FIC Investment, WBIC and China Dragon Fund (“Guarantor companies”). The Receiver’s mandate was to sell the assets of all the companies in order to generate enough money to pay off the TD Bank and, of course, to pay the substantial Receivership fees. After those obligations were met, any excess funds would go to unsecured creditors, of which there were very few. The impact of TD Bank’s action has been devastating to Genesis shareholders. The entire $30 Million in equity in the Genesis project has been wiped out. That $10,000 from the retired teacher and the $25,000 from a single-mom are now wiped out! After that was done, the Receiver proceeded to decimate the Guarantor companies, selling off its major asset, a portfolio of diamonds, at 70 percent below FIC’s wholesale cost. FIC never sold any diamond for less than a 30% gain and the receivers were ruthless without any regard for true value of assets. They also sold our securities at a time when the markets were just beginning to rise, thereby costing shareholders the significant upside of a hefty rise in the stock markets in 2010. In fact shortly after the receivers sold our stocks many rose by triple digits as a result of the great commodities bull market rally. Once again by TD Bank working with FIC we could have saved $30 million in equity for FIC investors. Furthermore, the considerable fees paid to the Receiver and its lawyers, fees which exceeded over $1 Million dollars, came from the assets sold at these canyon-deep discounts. This whole episode is sharply disappointing when one considers the fact that no funds were required from the Guarantor companies to pay off the TD loan. This stage was completely punitive. The process of these forced sales wreaked financial havoc within these companies to such an extent that they are now largely gutted and without value, thanks to the enthusiasm of the Receivers. Once again an unnecessary step. The management team of FIC worked during this time for no compensation and constantly monitored and challenged the receivers and their arrogance on every step they took. We believe that if we did not do this FIC would still be in receivership with the receivers shucking out every dime they could to pay their enormous fees. It is interesting to note that on the day of FIC discharge from receivership that approval of the receivers fees were on the agenda the same day. If FIC challenged the outrages fees we would have been kept in receivership so this prudent move by the receivers did not allow us to challenge their fees if we wanted to get out of receivership. This whole process was like using a sledge hammer to flatten a fly. It was totally out of proportion to the situation and totally avoidable. TD Bank showed no restraint in its eagerness to destroy the hopes and financial expectations of thousands of small investors. And in the aftermath of this massacre, as the wounded and maimed financial bodies left on the battlefield struggle for survival, TD Bank is indifferent, apparently regarding the victims of their greed merely collateral damage and of no concern. Mr. Clark, if you are an honourable man, you must see that in any ledger of morality or business ethics, this was a despicable process. The Genesis project was sold at a fraction of its value, yet was still more than sufficient to pay off the entire TD loan and all of its fees, legal costs, etc. In all it took eight months for the Receiver to sell the property and pay off the loan. Refinancing the loan would have taken just a couple of months. Nevertheless, TD is now fully paid. They had no financial write down and no financial pain. Instead they have all their money back and the Receivers made a juicy profit www.ficinvestors.com 1-877-357-0400 | email@example.com
from their execution of Genesis and the Guarantor companies. And now someone else owns all those assets at a huge discount and they will benefit from the markets’ upside moves instead of the small investors, who took the original risk. There’s more: In addition to the financial devastation visited upon the shareholders, there were other negative results from the actions of your bank. The Receiver moved to cancel the office lease for the FIC Group since it had been signed by one of the Guarantor companies. All the staff were permanently laid off, many of whom had been with FIC since it was founded several years ago. The contents of the FIC Group offices were sold by an auction company. All files pertaining to the Guarantor companies were removed by the Receiver. Even after the TD Bank loan was fully paid out, PWC remained as a Receiver of the Guarantor companies and it took an additional four more months of concerted effort and tens of thousands of extra dollars in fees to finally have them discharged on December 21, 2010. All in all, TD Bank did well for itself. The loan was fully paid in September, 2010 in the amount of $8,145,00.00 and the Receivers are counting their profits. But on the other side of the fence, due to TD Bank’s refusal to consider any cooperative effort, and by imposing the avenue of receivership on Genesis, FIC Shareholders watched helplessly as well over $30 Million in equity was lost to them, along with their hopes and expectations for a better financial future. FIC management is now attempting to assess the depth of the damage resulting from the financial earthquake triggered by the actions of TD Banks representatives. We are trying to piece together what remains amid the rubble in an attempt to rebuild, if possible. Mr. Clark, the facts clearly show that it was not necessary for TD to inflict this degree of financial pain on a group of small investors. Certainly, I got hurt along with my staff and management team, but the money belonged to our shareholders who we have the highest concern. We maintain that your TD Bank representatives acted hastily, irresponsibly and without any concern for the effects of its actions when they commanded their troops to “Give no quarter.” Sir, I am sincerely asking that you consider change to your standard practices when your customers have challenges. According to your own published document entitled “TD’s Leadership Profile” you encourage TD staff members to “Demonstrate Unwavering Integrity” and “to do the right thing to the highest ethical standards” and to “treat people with respect.” Clearly, these ideals were not met in FIC’s case. We don’t dispute the fact that TD had the legal right to appoint a receiver. We just don’t understand why that wasn’t the last resort instead of the first action, given the following: First, the bank loan was well secured both by the property and the assets of the Guarantor companies, so clearly the principal amount of the loan was not at risk; land isn’t going to get up and leave town. Second, the loan interest had been consistently paid on time. Third, a few more months would have seen a refinancing of the project and a full payout of your loan. Mr. Clark, there was no downside for TD Bank to wait a few months and allow Genesis time to refinance and pay out the loan balance in full. Qualified lenders were in place. Yet instead, your managers chose to put the Genesis shareholders through a financial meat grinder, which resulted in a massive financial loss for them with the attendant stress and disappointment that comes from the realization that their life savings have been unnecessarily and carelessly discarded with very little concern from TD file managers. And to add salt to the wound, your bank had already managed to www.ficinvestors.com 1-877-357-0400 | firstname.lastname@example.org
extract hundreds of thousands of dollars of extra money from Genesis by the methodical use of threats and reprieves. On behalf of our shareholders, we object strongly to the actions of TD Bank and the abysmal handling of this case by your representatives. I can’t believe that you, personally, would condone such callous treatment of one of your customers. Nor can I believe that you would personally condone taking such hasty actions that had potential for such cataclysmic negative impacts on so many innocent lives. It may seem like a small thing to your multi-billion dollar organization, but as a result of this action, those of our shareholders who are TD customers will undoubtedly re-evaluate their relationship with your bank and we will certainly be sharing this letter with thousands of them. Their trust in your bank has been brutalized and you can be assured that word will spread about how TD really behaves towards its customers. What is particularly disappointing is how TD Bank’s public image is so diametrically opposed to its actual operating policies and procedures in this case. On the one hand TD Bank works to make communities better; according to your own website you have provided over $50 Million for kids and communities, which I applaud. But on the other hand, by taking these actions against Genesis, TD Bank has in fact helped to diminish communities by destroying the financial future of many community members and costing people their jobs. The following is just one of the hundreds of comments we have received from the small investors affected by TD Bank’s actions. It comes from Mr. B. Bigford. “I cannot believe that a financial institution can have such power to control other people’s investment properties, especially when they are in good standing. In my opinion the Federal Government should be made aware of this issue and the Toronto Dominion should be removed from practicing business in Canada. Just because they start feeling the heat of a financial crisis, they have no right to take it out on investors of good standing. [Their behavior] Looks to me to be the ultimate in Greed and lack of Integrity.” We are certainly aware that the Genesis project faced lots of challenges. Among those were the global financial crisis which had a chilling effect on economies worldwide. Many of these situations could not be predicted, yet when such unprecedented events occur, it is incumbent upon management and its financial partner to work cooperatively to find solutions. Unfortunately, our financial partner, TD Bank, was not helpful in any way and did not seek any reasonable solutions. Instead, our financial partner became a major contributor to the problem and exacerbated an already delicate situation. In short, the approach taken by the TD account managers was adversarial, hard-lined and uncooperative. We believe that as one of the few privileged chartered banks in Canada, TD has a clear responsibility to treat its customers in a responsible and reasonable manner. While you and your bank must be concerned for the funds entrusted by depositors and need to ensure your own shareholders are not disadvantaged, we believe that in this case neither of these assurances was in jeopardy. The bank could easily have met any obligations to its depositors and shareholders without resorting to the irresponsible and rapacious behaviour that caused such a calamity for Genesis shareholders. We believe that any reasonable banker could have and should have offered to work with Genesis cooperatively to resolve the situation without resorting to the continual stream of threats and intimidation demonstrated in the starkly confrontational manner that Mr. Malcolm adopted. It wasn’t necessary and it wasn’t professional and we object strenuously to the inappropriate and punitive treatment afforded Genesis and it representatives. For example, on one occasion when trying to continue a dialogue with Mr. Malcolm we were told to quit abruptly by TD’s lawyer and told that Mr. Malcolm didn’t want to be contacted by FIC and that all communication should go www.ficinvestors.com 1-877-357-0400 | email@example.com
through TD’s lawyer. This was both a surprising and disappointing manner in which to communicate with a client who was trying to find solutions. We believe it unnecessarily complicated communication channels and increased the cost of negotiation significantly since now two sets of lawyers were involved just to make routine enquiries. Exactly how does that attitude promote TD’s published aim of “providing the best run, integrated, customerfocused financial institution” and to “treat people with respect?” There can be no question that TD Bank had substantially greater resources than did FIC to enter into a legal contest. In fact, as a result of TD’s actions, FIC’s long standing law firm, Fraser, Milner, Casgrain abruptly resigned from representing FIC on an unrelated matter and returned our retainer, leaving us to find new lawyers for the ongoing matters they were handling for us. Further, as we approached other major law firms it became clear that none of them was interested in opposing a big bank because TD Bank has a file with all large law firms we approached and made it difficult for FIC to find legal representation. This seems to be standard practice for TD to lock up the major law firms in any city, thus making it difficult for companies like ours to seek legal remedy. Then, in what can only be described as a legal ambush, TD had its lawyers apply for a summary judgment on an application for Receivership with just a few days notice. This was a blatant attempt to catch us off guard and steamroll a judge into granting an uncontested motion. While FIC was able to scramble and find a law firm to represent its interests and get the motion delayed, it was a very costly process once again at the costs of monies belonging to thousands of “moms and pops”. Interestingly enough, TD then agreed to grant additional time in exchange for yet another extortionate payment. Again, Mr. Clark there appears to be a significant disconnection between TD’s statements about its leadership and business practices and its behaviour in real life. Your policy states “use positive influence not power to deliver results.” In this case there was no attempt to use positive influence, only the hasty application of the bank’s considerable power. Mr. Clark, we hope that the heavy-handed practices that were unfairly imposed upon the small investors of Genesis are not standard practices at TD Canada Trust. We hope that in this case there was an oversight or error in the handling of this matter and that these are not your routine collection policies and procedures. We hope that TD isn’t so irresponsible as to allow this to happen to other borrowers. We hope you will fully investigation all persons involved with our file and I intend to keep our thousands of shareholders updated on what internal investigation will occur as we will not “go away” until change happens and have the ears of thousands of small investors who have been hurt. We were, at our proudest moment, the largest investment club in Canada and now we are struggling slowly to rebuild to a fraction of our former size. We urge you review the handling of the Genesis file to determine if it was truly carried out according to TD policies and procedures. I am sure given all the negative publicity of bankers the national and international media may be interested in our well documented story and I have already had interested media ask for interviews. Our thousands of small shareholders are very interested in hearing the results of such an investigation. And as part of our responsibility to them, we intend to keep them apprised of any feedback from TD Bank through both our monthly conference calls and our emails. Tragically, we can’t recover the shareholder’s lost money. We can, however, share our message with TD and other Big Banks, calling on them to act responsibly and adhere to minimum standards of conduct when dealing with their customers, especially their small customers who don’t have the enormous resources available to banks to fight for their own interests. www.ficinvestors.com 1-877-357-0400 | firstname.lastname@example.org
With great power and privilege come great responsibility and when this responsibility is ignored or corrupted, it must be pointed out to those who are in a position to repair it. Mr. Clark, you are one of those powerful, privileged few, who can effect a positive change in how your bank interacts with businesses that are dedicated to improving lives and communities. With all due respect, we invite to look into this situation and determine what changes need to be made. Clearly, we have a significant interest in how you meet this challenge. We have no intention of going away and will work diligently to ensure change happens as that can be the only good that comes from our story. Finally, I must quote from your own published “Leadership Profile” that states “actions speak louder than words.” Over the past few years we have seen the actions of your bank. All our shareholders and the other financial bodies impacted negatively by this shameful affair got your message loud and clear. That message was “Run, don’t walk to the nearest exit, because this bank can not be trusted to act fairly and they will crush you because they can.” With all due caution, we await your next action. Yes this was a long letter but $30 million dollars lost is also a lot of money!
Yours truly Michael Lathigee CEO FIC Group of Companies Distribution List Superintendent of Financial Institutions Office of the Prime Minister Chamber of Commerce CBC Globe and Mail Financial Post Thousand of our investment club members Thousands of those on our distribution list Etc.
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