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April 6, 2006 - No. 50

Stelco
Rolf Gerstenberger Wins Re-election

Stelco
Rolf Gerstenberger Wins Re-election
Trading New Stelco Shares: CCAA Bankruptcy Fraud Consummated
Monopoly Capital Hooliganism
Deceit Is Their Stock in Trade - Excerpts from Bill Cara Blog
 


Stelco
Rolf Gerstenberger Wins Re-election

By a vote of nearly two to one in a large turn-out of workers at Stelco's Hamilton Steel (formerly Hilton Works), Rolf Gerstenberger was re-elected president of United Steelworkers Local 1005.

Current vice-president Jake Lombardo who ran against Gerstenberger on a platform of compromise and delivering a contract in upcoming negotiations with the company was defeated, along with four other members of the current executive.

Executive member Gary Howe was elected vice-president also with a two to one vote, along with a majority of workers who have supported Gerstenberger's leadership throughout the Companies' Creditors Arrangement Act (CCAA) bankruptcy fraud.

Overnight the media, which strongly advocated Lombardo's election, went from calling Gerstenberger a hard-line "avowed Marxist" who may provoke a strike to a "fiery steelworkers' leader." For their part, the workers went all out to reaffirm the Spirit of '46 to defend their rights and expressed confidence in Gerstenberger's leadership.

Congratulations to the new Local 1005 executive and all the Hamilton Stelco workers and retirees who for more than three years have successfully defended their rights in the face of an historic corporate scam.

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Trading New Stelco Shares:
CCAA Bankruptcy Fraud Consummated

There couldn't be a more despicable example of monopoly capital hooliganism than what workers are witnessing at Stelco. The alarming profiteering upon exiting bankruptcy protection has generated enormous outrage, even though it was widely predicted. It is an example of the "shock and awe" tactics of monopoly capital: "We can do it and you are powerless so may as well give up the fight for your rights."

This particular type of capitalist profit is not even connected with the production of steel or any use-value. Production of added-value by steelworkers and the existence of privately-owned productive steel works provide a backdrop to the dark wheeling and dealing that gives rise to this most parasitic form of monopoly capitalist profit.

Within the social economy, share coupons represent a kind of private currency with their own floating rate. A small gang that controls the Board of Directors and executive management of a particular enterprise issues the private share currency not to raise capital for the enterprise and contribute to its viability but as part of a scheme to make a big quick score.

Increasingly, the issuing of private share currency is fashioned under dubious circumstances in cahoots with government institutions, such as the Ontario Superior Court and the Companies' Creditors Arrangement Act (CCAA). The old private share currency is liquidated and a new one issued to those in control, which has occurred at Stelco, Algoma, Air Canada, Ivaco et al. This practice also includes the most corrupt and inhuman activity of threatening the working class with loss of livelihoods, wages, benefits and pensions. It is most widespread in the United States with cases now underway involving tens of thousands of autoworkers and current shareholders at Delphi, airline workers at Delta and elsewhere.

Private Currency Within the Social Economy

Stelco's new private share currency entered circulation April 3. Its floating rate rose dramatically providing the possibility of stupendous profits for those who awarded the private currency to themselves and their allies. The private Stelco currency merged with the national currency becoming interchangeable, as the Stelco stock coupon is very liquid. Canadian dollars can be easily exchanged for Stelco share currency and vice versa.

Monopoly capital has become so powerful and its manipulation of the state so brazen, such as with the CCAA process, that it can literally print money for its own private gain and use in total contradiction with the public good and the people's conception of justice. In this case, Brookfield/Tricap and its co-conspirators used $114,675,000 of Canadian currency to issue 27.1 million units of Stelco share currency and within two days the floating rate rose dramatically, but not unexpectedly because it was all carefully planned and orchestrated, creating the possibility to exchange the 27.1 million units of Stelco currency for $650,400,000 worth of Canadian currency.

To have private groups issuing new currency to themselves is unjust and highly destructive to the social economy. The injustice is in addition to the diverse economic problems this practice causes, such as draining money from other sectors of the social economy, removing it from the productive economy and concentrating it in the possession of particular individuals and groups, diluting the Canadian currency contributing to inflation etc.

The practice is grossly unjust and an insult to the working class that creates all material wealth from the country's resources. The social product generated by workers in Canada's main means of production is the basis for their own wellbeing and of society. The social forces of production such as Stelco and their social product must no longer be considered the private property of individuals to do with as they please.

The practice of issuing private share currency to privileged individuals and groups must be condemned. The organized working class must demand that government authority do its duty and put an end to the issuing of private share currency, especially when a monopoly claims CCAA bankruptcy protection.

The practice reflects the destructive nature of private ownership of social production, a contradiction at the heart of Canada's modern integrated social economy that must be overcome through the unity and cooperation of the organized working class, replacing private ownership of the basic sectors of the social economy with social ownership that serves the public good.

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Monopoly Capital Hooliganism

Within two days, the new shares in Stelco equity have ballooned from the initial price of $5.50 to $24. Around 4 million shares changed ownership during that time. Those in control of the Stelco Companies' Creditors Arrangement Act (CCAA) fraud liquidated the old shares and created new ones that were issued to themselves for $5.50 each March 31, the day that Stelco exited CCAA. The public were able to buy the shares with the opening of trading on the Toronto Stock Exchange April 3. Even before trading began the initial price had already climbed from $5.50 to $15.00 reaching $24 the following day.

A total of 27.1 million Stelco shares for a combined price of $149,050,000 ($34,375,000 was transferred debt) were allocated in approximately the following manner on March 31:

Brookfield/Tricap: 9.93 million shares; paid $54,615,000; at current trading price worth $238,320,000 for a paper capitalist profit of $183,705,000 within two days

Appaloosa: 4.96 million shares; paid $27,280,000; at current trading price worth $119,040,000 for a paper capitalist profit of $91,760,000; (plus it claims entitlement to an additional 43,849 shares and 56,546 warrants with one warrant equal to one share at the initial price of $11. Appaloosa's claim is under dispute and before the court this July.)

Sunrise: 4.96 million shares; paid $27,280,000; at current trading price worth $119,040,000 for a paper capitalist profit of $91,760,000; (plus a disputed claim to an undisclosed number of additional shares and warrants)

Rodney Mott, new Stelco CEO: 1 million shares immediately purchased at $5.50 each; paid $5,500,000; at current trading price worth $24 million for a paper capitalist profit of $18,500,000; plus 1.04 million optioned shares that can be purchased over the next four years at $5.50 no matter what the trading price; the optioned shares when purchased are in addition to the total number of outstanding shares

Creditors in Stelco who were recognised under the Brookfield restructuring plan; all the affected creditors opted to receive stock at $5.50 rather than cash: 6.25 million shares; a transfer of $34,375,000 of their affected debt (no new money injected into Stelco); at current trading price worth $150,000,000 for a paper capitalist profit of $115,625,000

Total: 27.1 million shares issued (not optioned); paid $114,675,000 (new cash to Stelco) plus $34,375,000 of transferred debt for a total worth of $149,050,000; at current trading price the total share equity is now worth $650,400,000 for a paper capitalist profit of $501,350,000 in two days.

Other details released:

Unnamed individuals: 860,000 options were handed out to buy stock at $5.50 over the next four years no matter what the trading price

Stock options: 700,000 additional options to buy stock at $5.50 will be handed out to unnamed individuals in the future

Stelco now has outstanding:

- a new $600 million asset backed loan facility

- a $375 million secured revolving term loan owned by Brookfield/Tricap

- a low interest loan of $150 million from the Province of Ontario

- 27,100,000 New Common Shares (traded on the TSX; some ownership under dispute) for which the company received $114,675,000; no additional monies come to the company for those shares no matter what the trading price becomes

- 2,269,600 New Warrants (traded on the TSX; one warrant entitled to purchase one share at $11 at a set date; ownership under dispute)

- US$235,070,000 of New Secured Floating Rate Notes (part of the turnover of old debt; traded on the TSX); interest on the New Secured Floating Rate Notes payable in semi-annual instalments will float with the London Interbank Offering Rate. The interest rate applicable from March 31, 2006 to September 30, 2006 is 10.61%

- plus options to purchase 1.94 million of the company's New Common Shares to be issued in the future

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Deceit Is Their Stock in Trade
- Excerpts from Bill Cara Blog -

The following item contains excerpts from Bill Cara's blog dated April 3 and 4; full blogs are available at www.billcara.com.

* * *

The ROBTV stock reporter just made the following statement: "A good day for Stelco... A tripling of the stock price." No this wasn't a good day for Stelco; Stelco was raped, then died, and family and friends are in mourning. This was a tragedy.

Let's for once call a spade a spade: Brascan/Brookfield/Tricap and their friends had the good day. They got away with fraud. The rest of us want to throw up.

The old owners were stripped of all their stock -- left with zero to show for their investment in Stelco. And the new owners added about $400 million in debt, after they caused $150 million to be paid out to lawyers and accountants to make this fraud look like a legitimate deal. Even writing off these costs, the Company barely lost any money.

Please, anybody, tell me how adding $400 million in debt and virtually no equity to a bankrupt company suddenly makes it a healthy one...? The Company was NEVER worth less than $1 billion, and probably double that. The old shareholders just had $10 a share stolen and the shares taken from them. The Toronto Exchange and Ontario Securities Commission never lifted a finger.

In 40 years I have never seen anything like this.

Read the Globe & Mail report today and tell me if this isn't enough to turn off any person who actually believes that equity markets are not a scam.

"Shares of Stelco Inc. rocketed as much as 239 per cent higher on the Toronto Stock Exchange in their first day of trading since the steel maker emerged from court-supervised bankruptcy protection.

"The shares, issued at $5.50 and trading under the ticker STE-T, opened Monday at $15 and rose as high as $18.65. At last check, they were up $18.01, or 228 per cent....

"Mr. Mott bought 1 million new company shares 'as a personal investment' on Monday at a price of $5.50 a share, for a total cost of $5.5-million, Stelco said in a weekend release....

I am appalled.

Don't anyone ever again say to me that capital markets are not managed by crooks.

A reader once wrote to say that he liked my style as it was somewhat jaded, but very much based in reality. Now you see why. I have watched these Stelco-type deals repeat themselves time and again over the years.

You know, I never ever had a dime invested in Stelco. I just spent hundreds of hours of my valuable time to prove a point. I have made it.

Actually Brascan/Brookfield made it for me -- as I knew they would.

April 04, 2006
Stelco makes a mockery of equity markets

I cannot leave it alone. For almost two years I told you this would happen to Stelco shareholders and bondholders. The mockery of equity markets is now complete.

On the order of a single judge, the share register destroyed the equity interests of the legitimate shareholders last month. New shares were priced at $5.50, but there was no basis for that because adding $400 million in debt to a bankrupt company still makes it a bankrupt.

So on the second day of trading of the "new" Stelco shares, the stock closed today at $24.00. That's twenty-four dollars from $5.50 in just two days.

Did I expect this? Of course; some of the same people (the judge and the restructuring officer) were there to do the same for another steel company here -- Algoma Steel -- whose shares zoomed from $3.00 to $30.00 in short order after all the Moms & Pops had their shares stolen then too.

So, no, I'm not surprised. I predicted it in this blog.

This is an open blog and one that is read by about 10,000 Canadians, including Toronto Stock Exchange staff, Ontario Securities Commission staff and politicians, judges, securities lawyers, other lawyers and accountants, cops, brokers, analysts, money managers, teachers and Moms & Pops.

I have a question: Is there a single person in this country who can explain how suddenly there is value behind Stelco that didn't exist a month ago when the "old" shares were still trading?

If you have an answer, just send me a comment with your name and position attached to it. I'll review it because the rest of the world -- the other 30,000 people who read my blog -- would like to know if it is possible that theft of assets is legal in Canada....

Life as a broker-dealer is not always pretty, but I always cared enough for people that I got to sleep at night. But then there was never a bad one come along like Stelco.

Mom & Pop just had a couple billion dollars stolen. They need answers.

The rest of the world needs answers.

Comment from Cara reader:

Sorry, I only have another question to add: if we don't have a single journalist in Canada with the requisite balls to tackle this, what about an American? Surely there must be at least one foreign journalist who reads this blog and isn't afraid of wading into this mess.

Cara reply:

Others have asked about why there is not more Canadian media coverage. Reporters are not well paid, and there are only about three major media groups here. The employer depends on advertising from the financial services industry, and the reporters know it is a closed system, so they protect their careers. I suppose there are some reporters who would do this, but it takes someone who understands financial summaries and capital markets and banking agreements. Most editors would rather re-hash corporate press releases. In the case of Stelco, those news releases all through this CCAA charade were produced and distributed by the person who did the same job at Brascan as a vice president for well over ten years there too. I venture to say that unless they discovered that from my blog, the "reporters" covering the Stelco story did not even know that important fact.

And as for lawyers speaking out, I believe that the 39 firms involved, all earning big fees from the Stelco case, pretty much cover the legal landscape here....

If we can't take care of people who cannot take care of themselves, then who will? What kind of society do we end up with?

What happened here is just shameful. With money in hand, I figure it would have been an easy task to flood that CCAA courtroom of Judge Farley with enough independent and objective business valuations (of $1 billion and up) to make his head spin. As it stands he took the two that were submitted (one by a qualified Bay Street analyst and another by the world's biggest forensic accounting firm) and allowed his courtroom to make a mockery of them too.

When a society stops caring, it self destructs.

Apparently I am one of the few who care. I hope there are others.

This same thing happened with United Airlines and will soon happen to Delta and Northwest shareholders. Different situations, but the end result is the original shareholders left holding the bag.

(TML Comment: The workers, Mr. Cara, the workers, the community and the Canadian economy.)

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