more on the dilution
No_More you hit the nail on the head when you talked about the number of units creating a dilution. There were at least 40 million to begin with, and I have to go back to the restructuring details and pick through them again; however there was the securities swap and the bondholders exchanged their bonds for trust units in Northwynd. Northwynd then acquired the loans made by Fairmont to FRPL and the accompanying security interests in the Fairmont assets. FRPL had been in default of due payments to the bondholders(ist mortgage) since Dec., 2008.
As of March 31, 2010 the outstanding principal owed to the bondholdrs was $41,443,449.00, and unpaid interest of $10,561,831; as well another $12,640,933.00 owed. 43,804,817 LP (Limited Partnership) units were created, each worth $1.00. Northwynd needed a "bridge financing loan" to repay CCAA financing and to provide money to operate with, and a "demand promisory note" for $43 million was made. The loan agreement included the Fairmont security (property) and general service agreements. The general security agreement was granted to FRPL by Fairmont, Lake Okanagan Resort (LOR), and LOR Villas (run by another shell - Lorwynd).
All of this established Northwynd Properties Real Estate Trust as a "mutual fund trust", which was created primarily for the purposes of investing directly or indirectly in securities of Northwynd LP "in any business involving real estate development, acquisition and OPERATION!!!!!" Five of the major bond holders were employees of FRPL.....guess who?
This dilution of the value of the securities occurs frequently when exempt status is acquired (remember, less reporting to the public, no prospectus), and is essentially Debt Securities that can be sold. The huge problem that arises is what the Investment Industry Regulatory Organization of Canada (IIROC) refers to as: Over the Counter (OTC) trading with little information available to the public; a lack of systematic regulatory reporting or transparency for investors; a lack of timely pricing info (i.e. you don't know the true value of what you paid for); and no reassurance or specific valuation of the assets (i.e. Fairmont Property) that indicate that it can withstand the dilution created with the huge number of units being sold. In fact it couldn't possibly occur with the Fairmont and LOR properties and land; they are not worth anywhere near that, are mortgaged to the hilt and further loans (may as well be second or third mortgages) were taken out with the property as security. In essence it is debt on debt. Does this not set the stage for the potential emergence of a ponzi-like operation. Selling to Peter and using the proceeds to pay Paul; and then selling to Mary in order to pay Peter? There is no other way to pay the 12% guaranteed return on the investment over three years unless there is another source of revenue being gernerated.
When I specifically asked Northwynd CC where this revenue comes from, the response was essentially it is none of my business. After all we are just the TS peasantry! NCC did state that they were not involved in unit transactions and suggested they didn't know what I meant by Debt Securities transactions. Isn't it interesting that IIROC proposed requirements for Debt Securities Transactions in Feb., 2013, and they may be enforceable very soon if not already. That meant there had to be a fast scramble to get in as much $ as possible or run the risk of having to be accountable to IIROC and perhaps ultimately face charges of fraud for knowingly selling securities for way more than they are worth, and giving misleading information and promises of returns to unwitting investors.
The only other way to argue that this is not what was/is happening is to acknowledge that the principal bond/unit holders are investing their own money; and I can't see where you can add in other assets (property) as additional security; it is after all Northwynd's Real Estate and nothing else. The trustee who got busted interestingly claimed that he was investing the money he earned from sales commissions back into the trust, and he too was the victim of fraud. If I were prosecuting a criminal case based on this crap I sure as hell would be serving him with a subpoena to testify. Nothing like looking for a rat hoping to escape at least two years in the pen!
