Opinion: The Caisse has yet to shed light on its crypto mishap

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Caisse de Dépôt et Placement President Charles Emond ponders a question before the Legislative Finance Committee on August 17, 2020 at the Legislative Assembly of Quebec. Jacques Boissinot/The Canadian Press

It’s time for the Quebec pension giant to come clean about its botched investment in Celsius Network.

Caisse de depot et placement du Quebec has previously described its financing of the New Jersey-based cryptocurrency lender as an investment mistake, with chief executive Charles Emond suggesting the pension fund manager bought the company too soon. .

Now, however, New York Attorney General Letitia James is suing Alex Mashinsky, former CEO and co-founder of Celsius Network, for defrauding investors by making a litany of false claims, covering up the company’s dire financial situation. and breaking securities laws in a slew. of American states.

It’s a mind-boggling list of allegations. Of course, none have been tested in court. But with more detail about the comedic claims Mr Mashinsky made to solicit backers, it looks increasingly like Caisse, one of the world’s biggest institutional investors, has been seriously snookered by a clown. crypto.

Mr Mashinsky, a self-proclaimed Robin Hood who resided in a Crypto Castle (in New York, not Sherwood Forest) has repeatedly claimed that Celsius is safer than a bank, according to Ms James’ lawsuit.

It’s getting worse. He routinely used crypto lingo to communicate with investors, according to the court filing.

Mr. Mashinsky advocated HODL (slang for hanging on for dear life) as an investment strategy, according to the lawsuit.

He also told investors to ignore FUD (another silly acronym that abbreviates fear, uncertainty and doubt) even as Celsius’ liabilities exceeded its assets by hundreds of millions of dollars, according to the court filing. .

It is simply astonishing that an informed institutional investor like the Caisse allowed himself to be fooled by such nonsense.

That’s why it’s incumbent on the Caisse to provide proper answers on how its fund managers got mixed up in Celsius and why this investment passed their smell test. It’s a matter of maintaining public trust.

To be clear, it’s not the size of its Celsius write-off that’s troubling US$150 million, it’s a pittance for the Fund, which has $392 billion in net assets. On the contrary, it is the outsized damage that this failed investment has caused to its legendary brand.

After all, the Caisse first made a big show of supporting Celsius, presenting it as the world’s leading crypto lender with a strong management team that puts transparency and customer protection at the heart of its operations.

Millions of Quebecers rely on the Caisse to manage their retirement money. It is not enough to disclose, as Mr. Emond did when publishing the Caisse’s half-year results last August, that a post-mortem was in progress on the investment in Celsius. The public also deserves to know the results.

We have nothing new to add to what we have said previously. We talked about this investment at length during our half-year results, Caisse spokeswoman Kate Monfette wrote in an email to The Globe and Mail on Thursday.

And we continue our legal work to defend the interests of our filers, including through the ongoing Chapter 11 litigation, she added.

Very well, but the Caisse recently boasted of being the first Canadian pension fund to adopt the CFA Institute’s Code for Asset Managers. Its principles of conduct include continuous communication with clients and ensuring that information provided is complete and contains material facts, including information provided about the investment process.

To be fair, the Fund is not the only major Canadian pension fund manager that has been burned by the recent crypto carnage.

The Ontario Teachers’ Pension Plan has invested US$95 million in FTX Ltd. According to its new CEO, John Ray, the now bankrupt cryptocurrency exchange suffered from a complete failure of corporate controls and a complete lack of reliable financial information.

In fact, US prosecutors have charged FTX founder Sam Bankman-Fried with orchestrating massive criminal fraud.

Like the Caisse with Celsius, Teachers’ disclosures on its FTX investment have been slow in coming and remain incomplete. Teachers took several days to admit the size of his investment and still only made general statements about his due diligence processes.

Canadians deserve better.

It should be obvious by now that public pension funds shouldn’t invest in anything crypto-related because it’s too risky.

Additionally, pension fund managers need to pay closer attention to the financial statements of any growing business they invest in, regardless of industry.

While FTX and Celsius both had audited financial statements, the accounting firms that signed them were unclear, and it was unclear whether they had the skills to service such complex businesses.

Canadian pension funds should only invest in start-up companies that use auditors big enough to have their work subject to annual review by accounting firm regulators.

If public pension funds do not take such measures on a voluntary basis, then our elected officials should introduce legislation to impose such rules.

(South of the border, Ms. James is urging the US Congress to create legislation that would ban US pension funds from investing in digital assets, such as cryptocurrencies, to protect workers’ savings.)

It is unacceptable for Canadian pension fund managers to pay lip service to transparency.

Mr. Emond told a Montreal audience at the Canadian Club last month that it’s your Caisse. Exactly.

So do the right thing and give Quebecers real answers on the Celsius debacle. Otherwise, they might conclude that their Fund simply ignored the FUD.

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