Tuesday, November 26, 2013

The back door bagman!

Canada's 'single best political fundraiser' close to centre of Duffy affair

Stephen Maher
Friday, November 22, 2013
Chair of Senate Standing Committee on Banking, Trade and Commerce Irving Gerstein is seen before committee Wednesday, November 20, 2013. (Adrian Wyld/The Canadian Press)

OTTAWA – On the morning of November 2, Senator Irving Gerstein gave a speech to federal Conservative party delegates at the party’s Calgary convention, to update them on the “very solvent” state of the party’s finances.

To grateful applause, Gerstein presented a rosy report, saying that thanks to “complex, leading edge fundraising techniques,” the party is debt-free and has cash on hand, unlike the heavily indebted Liberals.

The speech wouldn’t have been of interest to anyone but the Tories in the room, except that Gerstein also took the opportunity to try to clear the air over his role in the $90,000 payment from former Harper Chief-of-Staff Nigel Wright to Senator Mike Duffy.

“I made it absolutely clear to Nigel Wright that the Conservative Fund of Canada would not pay for Senator Mike Duffy’s disputed expenses and it never did,” Gerstein said.

When the RCMP released emails this week as part of an investigation into the secret payment, it became clear that Gerstein’s role was more complicated than just saying no to Wright. Gerstein had at first considered paying Duffy’s expenses, according to the RCMP, then balked at the pricetag. When he learned that Wright was paying Duffy, he may have suggested Wright be reimbursed, the RCMP notes. At the request of the Prime Minister’s Office, Gerstein called the Ontario Managing Partner of Deloitte to inquire about the firm’s audit of Duffy’s expenses, which has led critics to raise questions about the independence of the report.

Prime Minister Stephen Harper has said that he knew nothing about the secret payment, or about the party’s aborted plan to pay Duffy’s expenses. Gerstein knew, and apparently didn’t tell Harper, but alone among the key actors involved in the scheme, remains in his job.

Gerstein, more accustomed to political backrooms and corporate boardrooms than scrums, has declined to talk to reporters about any of this. He typically leaves the Conservative Senate caucus meeting by a back door, and would only say “no comment” when approached before a meeting of the Senate banking committee this week.
It’s not the first time Gerstein has been in the spotlight. He was often in the papers when he ran his family’s firm, Peoples Jewellers, which eventually went into bankruptcy; and when he faced Elections Act charges in the “In-and-Out” scandal. But the Senate affair promises to put him under a higher level of media scrutiny.
Gerstein has long been a key part of the team behind Harper.

Last year, Ian Brodie, Harper’s former Chief of Staff, told MacLean’s that Gerstein is the “the single best political fundraiser any party in Canada has ever had.”

“I literally don’t know what Mr. Harper would do without him.”

Gerstein told delegates in Calgary that he started raising funds for the Progressive Conservatives under John Diefenbaker in 1965.

By the 1980s, in the Mulroney era, he was on the audit committee of the Progressive Conservative Fund, eventually becoming the chairman.

When Harper engineered the merger of the PCs with the Canadian Alliance, he surprised insiders by leaving Gerstein – a Progressive Conservative – in charge. Records from Corporations Canada show that while other Directors have come and gone, Gerstein has remained in charge of the fund.

Gerstein successfully made the transition from the days when bagmen raised money by calling friends on Bay Street, to the era of raising money through databases, a transition only the Conservatives have managed successfully.

Since corporate and union money is banned, and there are caps on individual donations, parties must rely on emotional messages and cutting-edge marketing techniques to pry open supporters’ wallets. Gerstein appears to have mastered all this, presiding over the most successful fundraising machine in Canadian political history.

In 2009, Harper appointed him to the Senate, a high point in a career that at one point seemed to be going terribly.

Gerstein was born and raised in Toronto, the grandson of Frank Gerstein, a Lithuanian watchmaker who in 1919 opened a shop on Queen Street. By the time Irving took over the business, his father, Bert, had transformed it into Canada’s biggest jewelry chain – Peoples – with stories in malls across Canada.

Irving, who had been educated at Upper Canada College, the Wharton School of Finance and the London School of Economics, was ambitious.

In the 1985, he led a hostile takeover of Zales, the much larger Texas-based jewelry chain, financed in part by Switzerland’s Swarovski family, and partly by junk bonds from Michael Milken, who was later jailed for unrelated securities violations.

In a Report on Business profile of Gerstein, Edward Greenspon described him as “an odd mixture of Duddy Kravitz and Cary Grant, drivingly ambitious but forever the urbane gentleman.”

Gerstein’s heavily leveraged takeover left him in control of the world’s largest jewelry chain. He immediately fired hundreds of employees. By 1993, though, after the stock market crash of 1987 left the business reeling, the company was broke.

The Swarovskis were reportedly angry, as was Irving’s uncle Marvin, whose side of the family was wiped out in the subsequent bankruptcies and lawsuits, which took years to work through court. The FBI launched an investigation into inventory accounting practices at Zales, which ended without charges in 1994.

Gerstein resigned from Peoples in 1993, on the same day the company announced that auditors from Deloitte & Touche had uncovered “certain financial irregularities.” He was not singled out, and remained on the Board of Directors.

Gerstein was said to be insulated from the worst of the fallout by family money, but it was not easy for him.

“He got hit hard and I know it hurt him at many levels, financially, socially, but he bounced back,” said one businessperson who knew him during the bankruptcy, speaking on condition of anonymity.

Gerstein eventually rebuilt his enviable business connections and has three lucrative positions as a corporate director that provide an income of about $300,000 a year in cash and stock options for attending meetings.

Public filings show he keeps publicly traded securities in CAMF Holdings Limited an Ontario company registered in the name of his wife, Gail. The Senate ethics code does not require senators’ spouses’ holdings to be publicly disclosed. Gerstein didn’t respond to a request for information on his portfolio this week.

Gerstein again came to public prominence in 2008, when Elections Canada and the RCMP raided the Conservative Party’s Ottawa headquarters as part of an investigation into the “In and Out” scandal. Gerstein, who was the party’s official agent, and the late Senator Doug Finley, the campaign manager, were charged with violating the Elections Act.

At issue were a series of illegal financial transfers from ridings across the country to the central campaign, which allowed the Tories to spend $1.3 million more than the other parties on the national campaign.

Charges against Gerstein and Finley were dropped as part of a plea bargain the party ultimately reached with the Crown, but an email released in the court case suggested Gerstein played a key role in the scheme.

Gerstein doesn’t use email, but as in the Wright-Duffy court files, email conversations about Gerstein shed light on his apparent behind-the-scenes role in “In-and-Out.”

In December 2005, during the federal election campaign, David Campbell, an advertising executive, sent colleagues an email describing a conversation with Gerstein. “They may be spending up to their legal limit on this campaign,” he wrote. “They also are thinking about ‘switching’ some of the time over to the ridings. It sounded like the reason was to legally maximize advertising expenditures.”

It would be a mistake to conclude from that exchange that Gerstein personally planned the scheme, says Robin Sears, a longtime New Democrat who works at Earnscliffe Strategy in Ottawa, saying Gerstein wouldn’t have been involved in the details of such a scheme.

Sears knows and likes Gerstein, and says the fact that he is usually invisible is likely evidence of Gerstein’s prudence.

“One of the things you could say about him quite reasonably given the span of time that he’s been involved at a very senior level, is that although his head comes above the water when there’s a mess, and he gets named in something, it’s proof of his value and his skill that for the rest of the 30 years in between, he’s been silent.”



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