MI Developments Inc., the real estate arm of Frank Stronach's business empire, was "obsessed" with avoiding shareholder votes, an Ontario Securities Commission hearing was told yesterday.
A group of hedge funds that hold a minority stake in MI have asked the OSC to prevent the company from making any more loans to subsidiary Magna Entertainment Corp. (MEC), or buying assets from MEC, without their approval.
MEC is the troubled race track operator, partly owned by MI, that is now in bankruptcy protection.
In the past year, MI has been making new loans and extending existing ones improperly, contravening rules that should let minority shareholders have a vote, the funds allege.
At a hearing in front of two OSC commissioners, lawyer Michael Barrack, who represents San Francisco-based Farallon Capital Management LLC, said MID has an "extreme aversion to letting minority shareholders participate in any decision making." The company's management has an "obsession ... with avoiding minority shareholder votes," he added.
The hedge funds are unhappy that MI used exemptions in the securities rules that are designed to let some "related-party" transactions take place without the input of minority shareholders.
Some of MI's transactions were "artificial" and designed solely to improperly gain those exemptions, the hedge funds allege, and should therefore not be allowed.
Mr. Barrack, and Tom Heinzman, who represented New York-based Greenlight Capital Inc. at the hearing, also alleged that MI contravened OSC insider trading rules in a series of transactions that reorganized the company last November.
MI says it has met all the requirements of the securities rules. Mr. Stronach controls MI and MEC, along with auto parts giant Magna International Inc. MI was spun off from Magna International in 2003 to own and manage the car part maker's real estate properties, but Mr. Stronach and his family retained a significant stake.
MI Developments (MIM.A-T)
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