Tuesday, February 5, 2019

The Caisse's Alleged Mafia Ties?

Jacob Serebrin of The Montreal Gazette reports, Caisse suspends Otéra vice-president over husband's alleged Mafia ties:
Quebec’s provincial pension fund manager says it has suspended a vice-president at one of its subsidiaries — a move that comes after allegations emerged that her husband is linked to the Montreal Mafia.

The Caisse de dépôt et placement du Québec has suspended Martine Gaudreault, a vice-president at real estate lender Otéra Capital, while it conducts an investigation into “certain allegations,” it said in a statement.

On Tuesday, Le Journal de Montréal reported that Gaudreault’s partner, Alain Cormier, the president of alternative lender and real estate management company Bancan, has done business with people linked to alleged members of the Montreal Mafia.

On Tuesday, Bancan’s website — which had listed properties available for rent as well as information about its mortgage lending offerings as recently as the day before — had been largely wiped of content.

The Caisse said it is taking the allegations “very seriously, because they concern issues of integrity.”

The pension fund manager said the investigation will be conducted by an external lawyer and that the results of the investigation will be made public. Gaudreault will be suspended until the investigation is complete.

Otéra Capital’s investment portfolio was worth $12 billion in 2017.
Someone sent me the article from Le Journal de Montréal and the first thing I said was: "Oh boy, this is Michael Sabia's worst nightmare!"

The last thing Michael wants to read about in the papers, even if it's a rag newspaper, is that some VP at the Caisse has any ties whatsoever to Montreal's notorious mafia.

Don't forget, Michael Sabia's parents are both of Italian descent and the last thing he needs to read about is someone at the Caisse may have ties to the Rizutto clan.

Now, I read the article carefully and it doesn't look good at all. Mrs. Gaudreault got involved with a man who did business with well-known mafiosos and she became a vice-president of this company and invested money in it. Needless to say, the optics look terrible even if her claim that she wasn't aware of what was going on is true.

Unfortunately for Mrs. Gaudreault, this personal relationship will likely cost her her employment at the Caisse regardless of whether she's proven innocent which she may very well be.

Nevertheless, regardless of what happens to her, it's a huge wake-up call for the Caisse's top brass, they need to really improve operational risk controls at all levels of the organization to ensure this never happens again, undermining the public's trust in this public organization.

For example, if you hire someone, you let an independent and qualified third-party firm conduct a thorough background check on them, their family and significant other. Under no circumstance can management hire someone if they fail this background check from an independent third party.

Moreover, regular follow-up background checks by an independent third party need to be done on an ongoing basis, either every year or at least every three years to make sure the organization isn't vulnerable to anything remotely shady.

Relying on some internal code of ethics is a complete waste of time and doesn't go far enough in my opinion.

Anyway, the Caisse is taking this matter very seriously, which it should, and I wouldn't be surprised if Quebec's provincial police, La Sûreté du Québec, conducts its own independent investigation as well as the Autorité des marchés financiers which might get involved to make sure there was no fraud or corruption that took place.

This bomb exploded and now it's up to the Caisse to conduct its own investigation and work with other authorities to restore the public's trust and confidence in the organization.

By the way, this is a wake-up call for all the large Canadian and US pensions reading this blog, not just the Caisse, because I guarantee you without proper controls and background checks, this could have easily happened anywhere.

The Caisse has two major real estate subsidiaries, Ivanhoé Cambridge, which I discussed last week when I went over the US logistics deal with OMERS's real estate subsidiary, Oxford Properties, and Otéra Capital which handles commercial real estate loans.

Importantly, I have no doubt, none whatsoever, that the people working at these organizations are nothing but hard-working and ethical professionals who would never conduct themselves in any questionable manner. Besides, even if they tried, there are many safeguards in place to detect and prevent fraud and corruption.

Also, when you read an article in Le Journal de Montréal, you have to take it with a huge dose of skepticism because their goal is to sensasionalize everything to sell newspapers.

The sad part is Quebeckers reading this article at home will automatically assume the Caisse has ties to the Rizutto clan, which is the furthest thing from the truth.

Still, this is a wake-up call and if it's one thing we know about Michael Sabia is he's one very tough cookie, he will confront this scandal head on and heads will roll and measures will be taken to make sure it never happens again.

That's all I have to say about this latest Caisse scandal. I understand that investigative reporters are only doing their job and they have a right to publish their articles even if they're hyper-sensational, but a bomb went off at the Caisse today and it's now up to Michael and his senior managers to clean up the mess and restore public confidence in this important institution.

Those of you who want to see a news report, you can watch a clip in this TVA Nouvelles article (in French). If I was Mrs. Gaudreault, I would refrain from picking up the phone and get myself a good lawyer.

TVA also reported on reaction from Quebec’s government leaders and opposition leaders. You can watch that clip here.

Below, Nandan M. Nilekani, Chairman, Infosys, Marc Engel, Chief Supply Chain Officer, Unilever, Michael Sabia, President and CEO, Caisse de dépôt du Québec and Erik Schatzker, Editor-at–Large, Bloomberg TV talk about digital disruption and how it has forced leaders to rethink how companies execute.

Great discussion, one that I'm sure Michael enjoyed taking part in. It's too bad he had to get home to clean up this mess.

Update: On Friday, February 8, the Montreal Gazette reports, Head of Caisse subsidiary Otéra Capital will step down during investigation:
In a press release, the Caisse said it has accepted an offer from Alfonso Graceffa, the president and CEO of Otéra Capital, a real estate lender, to withdraw from all his functions at the Caisse’s real estate subsidiaries while an external investigation into Otéra Capital is conducted.

Gaudreault was suspended by the Caisse within hours. The Caisse said it would appoint an external lawyer to conduct an investigation and that Gaudreault would be suspended until the investigation is complete.

However, Graceffa has also faced questions about his own actions – companies he owns have allegedly received 11 loans from a subsidiary of Otéra, MCAP, since 2010, totalling $9.2 million and one of his business partners received a loan of $44 million from Otéra, according to reports in the Journal.

The Caisse has said the results of the investigation will be made public.
Read the entire article here. This isn't good news for Otéra Capital or the Caisse. As I said, heads will roll over this!

The Caisse put out two press releases on this subject (only in French) which you can read here and here. We have to wait for the full investigation to be completed to understand how this happened, what are the repercussions, and what measures will be taken to make sure it nevers happens again.

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