Principal Group

The Principal Group was a group of interrelated Canadian financial companies that collapsed in 1987, resulting in losses to an estimated 67,000 people. Losses were in recovered in part through provincial governments paying compensation, based on findings as to deficiencies in regulatory oversight.Brian Brennan
Principal Group Collapse: The Man Who Knew"
Extracted fro
''Boondoggles, Bonanzas, and Other Alberta Stories''
Fifth House Publishers, 2003, as reprinted in ''Business Edge'', January 6, 2004.

History

The Principal Group was primarily three companies: First Investors Corporation, Associated Investors of Canada and Principal Savings and Trust Corporation. First Investors Corporation was established by Donald Cormie in 1954. The company was initially based in Edmonton, Alberta. The company sold investment contracts, which were contracts by which investors remitted monthly amounts to First Investors Corporation, in return for a promised future redemption amount, plus interest. In 1959, First Investors opened offices in Nova Scotia, New Brunswick and Newfoundland. At the same time, it also opened offices in Washington, Oregon and Colorado as Principal Investors, since the First Investor's name was owned in the United States by another party. Associated Investors of Canada was acquired in 1962.

The companies were subject to Alberta Securities Commission regulation and also required licenses to sell investment contracts. Alberta regulatory concerns were expressed as early as 1961, which concerns continued until the demise of the companies some twenty-five years later. These concerns related to excessive valuations of transactions and the general solvency of the companies, among other matters. On June 30, 1987, Alberta Treasurer Dick Johnston cancelled the operating licenses of First Investors Corporation and Associated Investors of Canada. Six weeks later, the Principal Group filed for bankruptcy, owing more than 67,000 investors approximately $468 million ($ billion today).Uncredited
Principal investors getting final payment
CBC News, May 2, 2001. Retrieved 2016-11-14.

Calgary lawyer William Code was appointed in 1987 to conduct an inquiry into the financial affairs of the corporation, the findings of which were released in July 1989. Code found fault with the regulatory conduct of the Alberta government. Two weeks after the report was released, the accountable minister during the period under review, Connie Osterman, was dismissed from cabinet by Premier Don Getty.

The Ombudsman of Alberta, Aleck Trawick, initiated a separate inquiry. This inquiry was followed by inquiries initiated by Ombudsman offices in British Columbia, Saskatchewan, Nova Scotia, and New Brunswick.In its 1991 report, released in 1992, the Office of the Ombudsman of New Brunswick disclosed that it had "investigated a complaint lodged on behalf of 3,252 mostly elderly persons of limited means who suffered severe financial loss following the collapse of First Investors Corporation. Appendixes contain complaint summaries and statistical tables." National Criminal Justice Service, Abstracts Database,
Office of the Ombudsman (New Brunswick), 25th Annual Report, 1991
'. Retrieved 2016-11-11. All the inquiries found degrees of fault in the regulatory oversight by the various provinces. Investors finally settled their various claims in 2001, at which time their estimated recovery rate was 90%, including compensation paid by provincial governments.

References

Further reading

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Financial services companies of Canada
Fraud in Canada
Financial services companies established in 1954
Financial services companies disestablished in 1987