RCMP Watch

David Baines (Vancouver sun) - It’s curious how things work out sometimes. In late 2003, Cpl. Bill Majcher was appointed inspector in charge of the new RCMP Integrated Market Enforcement Team in Vancouver.

It was viewed as an unorthodox appointment because, first of all, it was a big leap for a corporal to make. Secondly, Majcher had previously worked as an undercover officer, and was known more for his free-wheeling style and spontaneous personality than his administrative abilities.

But he knew securities. Before joining the RCMP, he had worked as a bond trader in London, and as a futures and options trader.

He was also a quick study. It wasn’t long before he was in hot pursuit of some very worthwhile targets, mainly junior companies listed on the TSX Venture Exchange and the OTC Bulletin Board in the United States.

“The Bay Streeters seduce you with nice manners, fancy dinners and fancy degrees,” he told Canadian Business. “In B.C., they don’t waste your time with all that — they just screw you.”

He and his staff submitted several briefs recommending charges to Crown, but they didn’t get anywhere. Majcher began to think he could “effect more positive change” by going into politics. While still working as an RCMP inspector, he ran for the federal Conservative nomination in Richmond.

Although he failed in his bid, his superiors — who weren’t even aware he was seeking nomination — were not amused.

They were also not amused by the fact that Majcher was associating with Kevan Garner, whom he had previously caught in a money-laundering sting operation. Garner had done hard time and now they were talking about doing a movie deal together.

RCMP internal affairs officers had other unspecified issues with Majcher. Whatever they were, Majcher was suspended with pay in July 2005. The matter dragged on and was not resolved until several months ago, when the two sides reached a settlement and Majcher officially retired.

Still, he remains a bit of a celebrity, due mainly to his Hollywood-style undercover work. In September, he was featured in a Canadian Business cover story, complaining that the criminal justice system is too soft on white collar crime and stacked in favour of criminals.

Meanwhile — and this is the curious part — he has agreed to serve as executive vice-president and director of a Vancouver junior company called Disaster Preparedness Systems Inc., which is purportedly developing equipment and technology targeted to homeland security, disaster response and emergency preparedness.

During the nine months ending Aug. 31 (its last reporting date), the company generated only $38,299 in revenues and racked up $535,663 in losses. Its assets totalled only $1,134 and it had a serious working capital shortfall and negative equity. It plans to quote its shares on, gulp, the OTC Bulletin Board, which is known as a gathering place for scoundrels and scandals.

In September, Majcher also joined the board of Evolving Gold Corp., a small exploration company listed on the TSX Venture Exchange and co-listed on the bulletin board and equally unruly Frankfurt Exchange.

It has a handful of unexceptional mineral properties and the usual cadre of investor relations consultants. Its stock has doubled in the last couple of months to 75 cents, but there is still little to distinguish this company from the morass of penny stocks that inhabit Vancouver.

I’m not suggesting there is anything illegal or even unethical about these companies. I just find it strange that Majcher would become part of a community where they don’t waste their time with fancy dinners or fancy degrees, they just screw you.

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Despite recent weakness, North American equity markets have generally been on a roll, which highlights just what a bad investment the Working Opportunity Fund has been.

WOF is a labour-sponsored fund company that invests in B.C. start-up companies. People who invest in WOF funds get a 15-per-cent provincial credit and a 15-per-cent federal credit, plus the usual tax deduction if the shares are bought in an RRSP.

The fund did well during the high-tech boom of 1999 and 2000, but has been gagging ever since. Dealers who once touted the company’s impressive returns are now emphasizing the “55-per- cent cash back” tax subsidy.

The theory behind the tax credits is that stimulating small-business development is good for the overall economy and, therefore, good for taxpayers. Problem is, judging by WOF’s investment returns, it isn’t providing very much small-business stimulus.

During the last five years, WOF’s marquee fund, the Balanced 1 Fund, has lost four per cent per year. If you factor in tax credits, it made 0.6 per cent per year. Either way, that’s far less than the S&P/TSX composite index, which has generated 20.4 per cent per year, according to Morningstar Canada.

Since there’s an eight-year lock in, investors who bought shares five years ago are facing a huge opportunity cost (relative to the TSX index) unless the fund makes a miraculous recovery in the next three years.

WOF president David Levi argues that the TSX index, because it is being driven by the hot resource market, is not a fair benchmark.

My first response is that investors really don’t care. It’s sufficient for them to know that, by simply buying a mutual fund that mirrored the TSX index, they would have been better off. I think taxpayers would also have been better off, because investors’ money would have been directed to more productive businesses.

But even if we use the Nasdaq 100 — which Morningstar calls “the best-known technology benchmark in the world” — WOF does not compare well. This index returned 9.6 per year during the past five years, compared with just 0.6 per cent for the balanced fund, even after factoring in tax credits.

The thing that really rankles me is that every year WOF pays a management fee equal to about 2.5 per cent of the fund’s assets to the fund manager, GrowthWorks Capital, which is owned by six labour unions and Levi.

They are getting rich from a scheme that is heavily subsidized by taxpayers, but in my view provides no net public benefit.