The Esteemed James S.A. MacDonald
It would appear that JSA lost approximately ten million dollars in the past as a result of a derivative trade involving shares of Bank of Nova Scotia. This loss occurred in the past. Which ultimately led to yet another reiteration of the age-old tax question of whether a gain or loss on a financial instrument is to be taxed as income or as capital.
The name James S.A. MacDonald kept coming into my head as I listened to the live hearings of the Supreme Court of Canada yesterday to see if anything interesting was taking place. I was trying to figure out if anything was going on. In point of fact, there was: the JSA was a participant in a case that was brought against the Taxman.
This question concerns whether a gain or loss on a financial instrument is to be taxed as income or as capital. JSA has accounted for the loss by writing it off as a business expense, but the Supreme Court will ultimately decide whether or not his evaluation was accurate.
James MacDonald started his professional life in 1969 at McLeod Young Weir. By the time he left ScotiaMcLeod in 1997, he had worked his way up through the ranks to become the Deputy Chairman of the company. During that time, he was a pioneer in the hedge fund industry in Canada and was known as a trailblazer.
James MacDonald and the late Jim Doak established the activist hedge fund firm Enterprise Capital in 1997. Jim Doak was also one of the firm’s co-founders at the time of the company’s founding. When it first started, the company had assets worth a total of $200 million.
On the very first day of the IPO, Manulife and Claridge were two of the most important investors. The investment was made by Claridge, the family office of the Bronfman family in Montreal, and it was for thirty million dollars. Activist investing was the primary endeavor that contributed to Enterprise’s rise to prominence.
In New York City, the company maintained a close working relationship with Crescendo Advisors. They did a lot of their business together, such as investing in the same stocks, obtaining voting positions, and board seats together. 2009 was the year that marked the conclusion of Enterprise.
Enterprise Capital was where Greg Boland got his start in the financial industry before he became famous for his work at West Face Capital. Therefore, Greg Boland, also known as “the smartest man on Bay Street,” had his last boss at JSA. Greg Boland’s career on Bay Street came to an end there.
JSA wanted to engage in some form of temporary hedging, so he decided to engage in the transaction that ultimately led to the tax dispute. JSA’s concern was that the value of his Scotiabank shares would drop in the near future. It would seem that the lesson to be learned from this anecdote is that under no circumstances whatsoever should one bet against Canadian banks.
James MacDonald is a private investor and currently sits on the board of directors at Cymbria. He has been involved in the company for some time. This places him in the middle of a group consisting of exceptionally bright people. (I covered Cymbria in a previous post on Robert Krembil).
The appeal that James S. A. MacDonald made to the Supreme Court of the United States was not successful. Because his transaction was regarded as hedging rather than as speculation, rather than as revenue, it was recorded as a loss on capital. On the other hand, revenue was recorded as a result of the transaction.
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