DYD - What I Learned About My MP
Do your diligence (DYD) is a common phrase used by investors in speculative public companies. It’s a more serious cousin to buyer beware.
Since we’re in the final stretch of an election campaign, I thought I’d check out the websites of my candidates. I was curious to find out that my MP, Lee Richardson, was “Chairman of the Board of STI Streetlight Alliance, a publicly-traded technology company” according to his website.
I love checking out public companies, so I immediately headed off to Stockwatch.com to check out what turned out to be Streetlight Intelligence Ltd. It has the stock symbol SLQ.V and it trades on the TSX Venture Exchange. He may be involved with STI Streetlight Alliance as well, but I couldn’t find out much about that organization. Alliance/Intelligence whatever, it has something to do with streetlights. Or it used to.
The chart above is not an uncommon sight for investors in TSX Venture listed companies. Of course being Chairman of the Board of public company while sitting as a Member of Parliament is a rare situation. Especially one that announced (in the middle of an election campaign!) that as of April 15, 2011 all employees of the Corporation were issued temporary layoff notices, and the operations of the Corporation were suspended. I thought this a newsworthy event, but I hadn’t heard a peep about it.
There has been past controversy associated with the company, as it received a Natural Resources Canada Grant for $185,000 in 2009. There is nothing wrong with public companies receiving government grants and this was quickly investigated by the Office of the Conflict of Interest and Ethics Commissioner and Richardson was cleared.
“Since I´ve been back in Parliament, I´m not that close to it. ... It´s a publicly traded company. I don´t get involved in the day-to-day stuff," said Richardson, noting he´s a backbench MP and not a government minister.
"I don´t think there´s any conflict of interest in any event." (source)
I believe that Lee Richardson is an ethical man but if I was a shareholder of Streetlight Intelligence I’d be pretty pissed given the share price performance. Especially once I looked up the definition of chairman of the board.
The chairman of the board presides over meetings of the board and generally exerts great influence on the management of the affairs of the corporation.
Naturally Richardson is distancing himself from the company but you can see from Bloomberg Businessweek that he's currently
- Chairman of the Board
- Chairman of Compensation Committee
- Member of Disclosure Policy Committee
- Member of Audit Committee
- Member of Corporate Governance Committee
So while I’m relieved that my MP is ethical, I’m feeling the shareholder’s pain. I’ve had a few zeros in my investing career but I’ve NEVER heard a chairman of the board say he wasn’t that close to his company.
Speaking of shareholders, who lost money on this deal? Turns out that Streetlight Intelligence has been making news in Ottawa because Hydro Ottawa made an investment in the company.
In 2009 and 2010, Hydro Ottawa acquired two purchase options for $500,000 each. The purchase options include a put right whereby Hydro Ottawa may require Streetlight Intelligence to repurchase and cancel each option for $500,000 plus an amount equal to an inherent return on the investment of approximately 10% per annum. In order to provide Hydro Ottawa with security to support Streetlight Intelligence’s obligation to repurchase the options, Streetlight Intelligence granted Hydro Ottawa a first priority security interest over all of its present and future property, assets and undertaking, including all fixed assets, intellectual property and other intangibles. (source)
Their biggest shareholder is Enmax. Enmax owns 16.05% of the company or 15,232,500 shares. Common shares generally become worthless in a bankruptcty. Hydro Ottawa is at the top of the creditor food chain. Enmax is at the bottom.
Why would Hydro Ottawa comment on its investment and not Enmax?
Enmax Government Relations VP Ian Todd at Enmax is currently not at work, he’s spent the election on paid service to Harper. I wouldn’t expect any comments about their investment disaster until after the election. It is embarrassing to Enmax and it has direct ties to Lee Richardson, who would like to win Monday’s election.
Liberal candidate, Jennifer Pollock, would also like to win Monday’s election and she’s asking some important questions. "Investing in what looks like a very speculative venture makes you wonder about the risk that Enmax is taking." (see Tory hopeful's ties to faltering company questioned).
Richardson’s response this week was a familiar one.
“I do not have a day-to-day role with the company. The business relationship has been reviewed and accepted by the office of the conflict of interest and ethics commissioner of Canada. The company's dealings with a department of the Government of Canada have also been reviewed and deemed acceptably arms length by the ethics commissioner."
Groundhog Day anyone?
The bottom line is that Lee Richardson is the highest ranking executive in a company that turned into a sinkhole for the federal government, Hydro Ottawa, and Enmax.
Richardson is no stranger to stock promotion. He’s been involved in lots of deals over the years. I found over 15 on Stockwatch.com. Some were winners, some were sinners. My favorite was In-Flight Phone Canada which was a promotion from the mid 1990’s. Clearly an idea ahead of its time. A newsletter writer of the day pointed out that MCI and Sprint Canada own approximately 30% of the company. Later on the same writer was leary of another Richardson company called Goldtex because “In-Flight Phone of Canada collapsed in a single day because the company's plans failed to materialize.”
I see a pattern here. DYD.
I’m married to Julia Turnbull, a former Liberal Candidate in Calgary Centre. We have a big Jennifer Pollock Liberal sign on our front lawn.