Crypto fraud, billionaires ups and downs and Harry Steele buys Eastern Provincial Airways
December 5, 2022 Volume 3 #35
I Got Stripes
How long can it before FTX Founder Sam Bankman-Fried is charged with fraud? Some American prosecutor is bound to want to make his name trying to send the king of crypto to jail. “Where did the missing money go? Fried can only guess.” That from the Wall Street Journal.
“Dollars are fungible with each other. And so it’s not like there’s this $1 bill over here that you can trace through from start to finish. What you get is more just omnibus, you know, pots of assets of various forms,” he told the Wall Street Journal.
Try running that by a jury of twelve working stiff Americans. None of them will understand how Cryptocurrencies work and they might be a bit jealous of a 30 year old who ran one of the world’s largest crypto exchanges. And why was in the Bahamas?
“Why hasn't Sam Bankman-Fried been arrested yet,” asked New York Magazine on Friday, and to hammer home the point put him next to Bernie Madoff.
Money flowed from FTX to other entities Bankman-Fried ran. He says a house in his parents name was in fact marked for future charitable purposes. His parents, Stanford law professors Joseph Bankman and Barbara Fried, co-signed the deed for a Bahamas beach house. The parents said they intend to return the property following FTX’s downfall.
SBF, as he is known, says he is down to his last $100,000, is now contrite and says a fraud was not planned.
‘I pretty much never leave the apartment. Most of my closest friends and colleagues are not—I think probably don’t want to talk with me right now.’ he told the Journal. He will probably be leaving his luxury apartment in the Bahamas sooner than later.
Who’s on First
The rich list changes over ten years. Zuckerberg is gone from the top ten in 2022. Bridge partners Bill Gates and Warren Buffett make it every year. Elon Musk popped up just in the last two years. The Wealth God giveth and She taketh away.
Take a Chance
You can probably collect more than $200 —actually $4,300 when adjusted for inflation from 1935 when Monopoly appeared— if you have a leased car. The companies that drew up the lease contracts three years ago had no idea there would be a shortage of used cars. Buy the car back, keep it and drive it if it is in top shape, or cash in and sell it to someone. You will almost certainly get more than you paid the leasing company.
The rent on Boardwalk with a hotel is $2,000, that is $43,000 in today’s money.
City of Light going Dark?
Paris was first called the City of Light when it was one of the first to put in gas street lamps in the 1860s. Now the light is electric. And that’s the problem.
Even nuclear powered France is having trouble with electricity and heat because of the shortages from the War in Ukraine. The neon may be shut off at night.
Gimme the Juice
Here’s where the power comes from in four European countries. France is having some problems with its nuclear power stations. Norway is in clover. Germany and Britain could be in trouble if it’s a cold winter.
China’s Covid Surge
Their vaccine doesn’t work and Xi is too stubborn/nationalistic to use ones that do
So Apple is Pulling out
Apple will move iPhone production from China to Vietnam and India. Covid, lockdowns and protests at the giant Foxconn plant in China have cause shortages of iPhone 14s. Can’t have that.
Real Estate Shorts
Zombie office towers in New York City. Work from home and never coming back. Third rate office buildings are empty and their owners are in hock. Collapse soon.
Housing prices outside of London drops sharply. Stroud in Gloucestershire looked great during the lockdown. Not so much now.
Ditto for rural Essex, York and the Lake District. Rising mortgage rates. Same for the Zombie office towers.
Middle class people with jobs living in mini-vans in Vancouver because they can’t afford to buy houses.
Canada’s real estate agents ignore the law and their own rules on money laundering. One of the reasons those people are living in vans.
Essay of the Week
This is a long chapter from the book I wrote on Harry Steele. It details Mr. Steele’s first big business deal, buying Eastern Provincial Airways. Mr. Steele and his wife had built up a substantial nest egg, but it was this deal, scratched out on a cocktail napkin, that was the basis of Harry Steele’s business empire.
Chapter Seven
Eastern Provincial Airways
Nobody has ever made any money on a sustained basis in Canada operating an airline.
— Harry Steele
Despite Harry Steele’s claim that it is impossible to make money operating an airline in Canada, he made a success of Eastern Provincial Airways, the business that was the start of his business career and the making of his fortune. Harry never thought of actually owning the airline until after he left the navy, but that’s just what he ended up doing.
Harry Steele knew the history of Eastern Provincial Airways long before he got involved with the airline. It was a legend in Newfoundland, flying into every region of the island and Labrador, bringing in supplies to remote mining camps, landing fishermen on lakes and salmon streams, and evacuating the sick and injured to hospitals.
Eastern Provincial Airways was the fourth largest airline in Canada in 1978 but it was dwarfed by Air Canada and CP Air. Number three with a regional airline in western Canada. EPA had 850 employees when Harry Steele took it over
The airline was started in 1949, the same year Newfoundland joined Confederation. Chesley A. Crosbie (father of John Crosbie, the federal politician and Tory cabinet minister) bought the operation from Eric Blackwood, a pilot with the Royal Canadian Air Force in the Second World War. Among the first aircraft was a Cessna T-50, a converted twin-engine military transport from the war. It carried four passengers and had a range of 1,200 kilometres or 750 miles. Blackwood registered the name Eastern Provincial Airways, but the financial backer was Chesley Crosbie.
From the start, the fledgling airline operated from Gander, a combination military and civilian airfield with runways capable of handling any traffic.
“It was started on a shoestring budget, with a couple of small airplanes and hopes for a bright future by Newfoundland businessman Ches Crosbie and his managing director and pilot, Eric Blackwood. Marsh Jones was its first full-timepilot,” wrote Harry in his introduction to Marsh Jones’s 1998 book on the early his- tory of the airline: The Little Airline That Could. Eastern Provincial Airways. The First Fifteen Years.
Harry’s introduction continues: “Those were the days of seat- of-the-pants flying with little more than a map, compassand radio to enable pilots of the fledgling airline to carry out their assigned duties. Flying conditions were often harsh and unforgiving; landing sites were largely untested, and much was left to the pilot’s judgment and initiative. But the little airline survived, and grew.”
Royal Cooper was the chief pilot for Eastern Provincial start ing in 1956. He too wrote a book, Tales from a Pilot’sLogbook. It is a fascinating look at his life as a pilot; he logged more than twenty thousand hours in the air on sixty different types of air- craft. Some of the most interesting sections deal with his time as a bush pilot for EPA.
The native of Summerville, Bonavista Bay, flew with a Newfoundland squadron in England in the Second WorldWar. Royal flew the Mosquito, a twin-engine fighter-bomber, one of the fastest aircraft of the war.
When he returned to Canada, Royal had a hard time finding work as a pilot. There was a glut of wartime pilots also looking for a job. Eventually, he started work for Maritime Central Airways, then in 1954 he was hired by Ches Crosbie for EPA. He moved to Gander, where he lived for the rest of his life, serving on the town council for thirteen years, and three terms as mayor.
EPA bought its second Beaver from de Havilland in Toronto. The single-engine, short-take-off-and-landing plane was designed and built in Canada for Canadian conditions. Equipped with skis or amphibious floats (floats with retractable wheels), the plane could be used anywhere.
There are stories of brave pilots flying in all kinds of weather. Royal and his team could do repairs on the spot to get stricken aircraft flying out of remote lakes. One time they had to stuff a damaged float with inner tubes so it could holdup until they got the plane into the air.
On one medical evacuation, Royal remembers the water was choppy, and the patient had an injured back. He said he screamed every time the plane hit a wave. Once the plane was airborne, the man’s pain subsided and the man, who had obviously not lost his sense of humour, quipped: “I think next time I’ll walk.”
Royal started the airline’s service to Greenland, perhaps the most unusual thing the airline ever did. In 1958 the Danish government hired EPA to connect with SAS, the Scandinavian airline, from the main airport to small communities up and down the coast of Greenland. The principal aircraft used were the Canso, a fairly large amphibious aircraft that was a leftover from the war, along with de Havilland Otters, the larger version of the Beaver.
“To me, the hardest part of flying in Greenland was learning to pronounce the place names. However, we were soon rolling such names as Ivigtut [now Ivittuut], Qutdligssat [now Qullissat], Sukkertoppen, Julianehab [now Qaqortoq], and Egedesminde [now Aasiaat] off our tongues as if we had lived there all our lives,” says Royal, who retired in 1972, long before Harry took control of the airline.
In 1963 Eastern Provincial merged with the much larger Maritime Central Airways, which was founded by two men from the Maritimes, Carl Burke of Prince Edward Island and Josiah Anderson from Moncton, New Brunswick.
One of its first planes was a Boeing 247. That is not a typo. The 247 was a small twin-engine aircraft, advanced for its day when it first started flying in the 1930s. It was able to carry ten passengers and had a range of 1,200 kilometres or 750 miles, enough to make it from Halifax to St. John’s.
Maritime Central expanded and continued to modernize its fleet with DC3s, DC4s, DC6s, and the British Viscount airliner. When Eastern Provincial took it over it was the third largest airline in Canada. By the time Harry Steele took command in 1979, EPA was flying Boeing 737s, a long way from the Boeing 247.
When Paul Hellyer, Canada’s minister of defence, decided to unify the Canadian Armed Forces and scrap naval uniforms, Harry decided to leave the Royal Canadian Navy. As has been mentioned, the unification of the armed forces was not the only reason behind Harry’s decision, but it certainly helped him to make that difficult choice. Also making things easier was the fact that Harry was in a very good financial position. Catherine Steele’s skill in the real estate market and hotel management provided significant income, and of course Harry had had a good deal of early success in the stock market.
Even when he was in the navy, business began to occupy more and more of Harry’s time and interest. Harry Steele had become a student of the market and what made business tick. If he could pick a winner in the stock market, he could find a company to buy and run. The navy served him well, but life in business beckoned. On leaving the navy, what seemed like a golden opportunity was staring him in the face. Newfoundland’s only airline was in trouble, and the Crosbie family, a prominent a name in the St. John’s business world back then, were looking for a way to save it or sell it.
Harry Steele was forty-five years old when he quit the navy in 1974. The managers of EPA thought they could use a man with military experience and an outgoing personality. They hired Harry as vice-president of traffic. He lasted less than a year on the job. A man who was used to things running with military precision thought the airline was terribly run.
“These guys don’t know if they are pitching or catching,” is one of Harry’s favourite sayings and one that applied, in his opinion, to the management of EPA.
Looking at the airline from the inside, and looking at its depressed stock price, Harry decided to try for control. He already owned a fair chunk of shares of Eastern Provincial Airways.
“Shortly after he left the company he put together the wherewithal to buy the company. I think he was convinced that under new ownership and leadership that something could be made of the airline,” says Roy Rideout.
Coming up with the “wherewithal” took a lot of juggling. Harry mortgaged his house and the family stake in The Albatross Hotel, and put it all together. It helped that he already had a sizeable slice of EPA stock, purchased at bargain basement prices. Harry was one of the largest shareholders apart from Andrew Crosbie.
“Business at the hotel started going straight up, making money. So that’s how Dad was able to leverage cash out of that and every other asset he had to take over the airline,” says Rob Steele.
“There’s no doubt about it, acquiring EPA was a turning point because it ramped up the public image for him, and it was Atlantic Canada and beyond at that point,” says John Steele. “It catapulted him not only onto the Atlantic Canada stage but the national stage as well. It was a terrible business to be in, very hard to make money, but it was very sexy because it was travel and all that stuff. It certainly was a game-changer.”
Harry didn’t just drift into the airline. For years he had been an astute student of the stock market. It was only natural that he would take a look at the only publicly traded company that operated out of Gander, Newfoundland. At the time, the airline was losing close to a million dollars a year. Its shares were trading around $1.85. Despite the fact that the firm was losing money and its shares were in the cellar, Harry believed EPA had potential, and so slowly he started to buy into the firm.
“I knew Miller’s [EPA president, Keith Miller] or Crosbie’s shares were going to be sold, and I knew control was going to be changed and had to change,” said Harry over breakfast at The Albatross Hotel in Gander one October morning in 2017. It is more than thirty years since his day-to-day involvement with Eastern Provincial, but every day he still wears the blue tie with red EPA logo with the red stylized bird. He knows how important that first venture was to his future success, and makes a subtle point of announcing it every day.
“Harry had just come from Washington to Gander where he was the base commander,” says David Bruce. “At that point, when we met him, he was thinking about buying Eastern Provincial Airways from the Crosbies, and he gave me an order to accumulate EPA stock. For about two years we would buy four hundred one day and seven hundred the next day, and we just kept buying and buying it until he got a reasonable position and then he went in and bid to Crosbie for the rest of it, and he won it.”
Harry’s son Peter, a man with an amazing memory and in many ways keeper of much family lore, remembers pretty much the same story. “He kept accumulating stock when it was beaten up to get to be the number two position [i.e., the second largest shareholder] and then bought out number one and three. Andrew Crosbie was number one, and number three was the president of the company, Keith Miller,” says Peter.
While the original deal was scribbled on the back of place mat, the formal agreement was done by the lawyers in St.John’s. On October 27, 1978, the following letter changed control of Newfoundland’s airline from the Crosbie family, top of the heap in the tight-knit world of business in Newfoundland, to Harry Steele, the man who started life in isolated Musgrave Harbour.
Option to Purchase Shares
To: H.R. Steele Gander, Nfld.
In consideration of other good and valuable consideration and the sum of $1.00 now paid to the undersigned by you (receipt of which is hereby acknowledged), the undersigned hereby grants to you an option irrevocable with the time hereinafter limited to purchase the following number of shares owned or controlled by the undersigned in the capital stock of Eastern Provincial Airways Limited being common shares without par value, at the price of $8.00 per share net-net.
This option is exercisable at any time up to and including the 29st [sic] day of December 1978 by mailing a notice in writing addressed to the under signed at the address given below or by serving such notice in writing personally and if the option is exercised the undersigned shall sell or cause to be sold, and you or your assignors shall purchase the said shares at the price of $8.00 per share net-net. The said sale shall be closed within seven days of the exercise of the option when payment shall be made by bank drafts or certified cheques upon delivery of share certificates representing the said shares duly endorsed in blank for the transfer.
This option may be exercised by you or your successors or assigns.
Time shall be the essence hereof.
In witness whereof I have signed this 27th day of October 1978.
Andrew C. Crosbie St. John’s, Nfld.
Witness
H. Wareham
That slog of legalese was translated into plain English by the headline in the Daily News of St. John’s almost a month later on November 22, 1978. “But It’s Still a Newfoundlander!!” screamed the headline. “EPA Changes Hands.”
The article explained, much more clearly than the lawyer’s letter, that Andrew Crosbie was out as chairman, and Harry Steele of Gander, Newfoundland, was the new president.
Forty-nine-year-old Harry Raymond Steele, a native of Musgrave Harbour, who worked his way up from highways department labourer to command rank in the Canadian navy, became president and chief executive officer of Eastern Provincial Airways Tuesday.
Mr. Steele also emerged as the largest of the airline’s nearly nine hundred shareholders as the result of a $5-million transaction that appeared to put an end to speculation EPA might become the object of a takeover bid by CP Air, which has long sought parallel access with Air Canada into Atlantic Canada.
The article went on, but the reporter, W.C. Callahan, certainly did a masterful job of summing up the entire deal in two concise paragraphs. His observation about CP Air was particularly prescient.
Steele’s purchase of EPA was not without its problems, how- ever. “At the time that he bought EPA his main contact within the airline was Harold Wareham. They were kind of like compadres, and Harold was the guy who knew all the inside stuff on the air- line and Harry became comfortable with the notion that, if he bought it, they could do somethingwith it. So that was sometime in the late 1970s that he bought it and shortly afterward there was an altercation between Harry and Harold which culminated in a lot of unpleasantness and a court case [which Wareham lost] and all the rest of that,” says Doug Rose.
Today, Harold Wareham lives quietly in St. John’s. He has no interest in resurrecting old war stories. But in 1996 he had something to say to writer David Napier. While the remarks were descriptive, they showed no sign of bitterness. “Steele’s a hard charger, and some people might feel they’re being trampled in the process,” says Wareham. “He fights a fair fight, but when he does, he goes for it all. He can leave a lot of people bobbing in his wake, or his slipstream, as it were.”
Shortly after taking over EPA, Harry made a couple of take- over moves that were not successful. In 1979 Steele launched an audacious, if ultimately unsuccessful, bid to buy Florida-based National Airlines for $425 million, and the next year hooked up with Algoma Central Railway and a group of Quebec businessmen to try to buy Quebec-based Nordair for $30 million. Finally— and most importantly for employee morale — he took on the giant Canadian Pacific Airlines in a bitter David-and-Goliath battle for control of Atlantic Canada’s skies. And won!