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 Edmonton is the capital city of the Provinces and territories of Canada, Canadian province of Alberta. It is situated on the North Saskatchewan River and is the centre of the Edmonton Metropolitan Region, which is surrounded by Central 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 name ''First Investors'' 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 The Alberta Securities Commission (ASC) is the securities commission responsible for administering and enforcing securities legislation in the Canadian province of Alberta. ThAlberta Securities Act RSA 2000 a revision of the original Act that ca ...

regulation and also required licences 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 Richard Frederick Johnston (April 6, 1863 – April 4, 1934) was a 19th-century American center fielder in Major League Baseball. He played eight seasons in the majors, for five different teams in three different leagues. In 746 games over ...

cancelled the operating licences 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 CBC News is the division of the Canadian Broadcasting Corporation responsible for the news gathering and production of news programs on the corporation's English-language operations, namely CBC Television, CBC Radio, CBC News Network, and CBC ...

, 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 Donald Ross Getty (August 30, 1933 – February 26, 2016) was a Canadian athlete, businessman, and politician who served as the 11th premier of Alberta between 1985 and 1992. Before entering politics, Getty had been a quarterback for the Edmon ...

. 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.

History

References

Further reading