The short-seller and the CEO: A war of words over an Al­berta com­pany gets even hot­ter


Badger Day­light­ing Inc. missed an­a­lyst ex­pec­ta­tions when it is­sued first-quar­ter re­sults on May 12, 2017, send­ing its share price tum­bling. But that wasn’t the big­gest thing that hap­pened to the com­pany that day. Ag­gres­sive U.S. short-seller Marc Co­hodes, al­ready en­gaged in a noisy bat­tle with Cana­dian mort­gage lender Home Cap­i­tal Corp., an­nounced that he was also tar­get­ing Badger, an en­vi­ron­men­tal com­pany that spe­cial­izes in soil ex­trac­tion for gov­ern­ments and oil com­pa­nies. Badger has been tak­ing a pub­lic beat­ing from him ever since, with Mr. Co­hodes cit­ing ac­count­ing is­sues, ex­ec­u­tive de­par­tures and a pat­tern of il­le­gal dump­ing of toxic waste, an al­le­ga­tion he said has been brought to him by com­pany whistle­blow­ers. How­ever, in May of this year, Badger took the un­usual step of an­nounc­ing that the Al­berta Se­cu­ri­ties Com­mis­sion (ASC) had con­cluded an in­ves­ti­ga­tion “into al­le­ga­tions by short-sell­ers” with no en­force­ment ac­tion taken against the com­pany. Badger said it was “pur­su­ing all av­enues to bring par­ties en­gaged in abu­sive [short-sell­ing] prac­tices to ac­count.” The shares have since com­pletely re­cov­ered from their May, 2017, de­clines. Now it seems Badger has per­suaded the reg­u­la­tors to pur­sue its ac­cusers, as the ASC said Thurs­day that it has ap­plied for a cease-trade or­der against Mr. Co­hodes re­lated to his Badger po­si­tion. Badger CEO Paul Van­der­berg tes­ti­fied un­der oath to the ASC, lay­ing out a case against Mr. Co­hodes, and pro­vided sup­port­ing e-mails from share­hold­ers that en­cour­aged the reg­u­la­tor to go af­ter the short-seller. The ap­pli­ca­tion is set to be heard next week in Calgary.

Ra­man­deep Gre­wal, a cor­po­rate lawyer at Stike­man El­liott LLP, says it’s fairly new ter­ri­tory for se­cu­ri­ties reg­u­la­tors to pur­sue ac­tions against short-sell­ers. “It’s rare and it’s in­ter­est­ing that they’re start­ing to go af­ter th­ese short-sell­ers, be­cause his­tor­i­cally you didn’t see any reper­cus­sions at all,” Ms. Gre­wal said. If it were Badger’s de­sire to si­lence Mr. Co­hodes, the op­po­site has oc­curred. The Cal­i­for­nian has launched a fresh attack, al­leg­ing the ASC is pro­tect­ing the com­pany while sup­press­ing le­git­i­mate crit­i­cism. The ASC, his at­tor­neys say, never asked Mr. Co­hodes for ev­i­dence sup­port­ing his al­le­ga­tions about Badger. “It’s a con­sti­tu­tional is­sue. They can’t tell me to shut up. That’s for sure. That will never hap­pen,” Mr. Co­hodes said Fri­day. Spokes­peo­ple for Badger and the ASC both de­clined to com­ment Fri­day, cit­ing the on­go­ing pro­ceed­ings. Badger em­ploys about 1,800 peo­ple across more than 150 lo­ca­tions in Canada and the United States. About 670 em­ploy­ees are in Canada. The com­pany’s tech­nol­ogy uses pres­sur­ized wa­ter and pow­er­ful vac­u­ums to ex­pose buried in­fra­struc­ture such as pipe­lines and ca­bles. It posted just un­der $520-mil­lion in rev­enue over the past 12 months and has a mar­ket cap­i­tal­iza­tion of about $1.1-bil­lion. Mr. Van­der­berg said in an af­fi­davit that “false al­le­ga­tions” by Mr. Co­hodes have co­in­cided with “no­table drops” in Badger’s stock price and spikes in trad­ing vol­umes, harm­ing in­vestors. For ex­am­ple, Badger’s stock price skid­ded 14 per cent af­ter the short-seller first dis­closed his po­si­tion, with nearly five mil­lion shares chang­ing hands. That rep­re­sented 13 per cent of the out­stand­ing float at the time – the high­est trad­ing vol­umes in Badger’s his­tory, ac­cord­ing to the af­fi­davit. By the fol­low­ing week, the shares had slumped by 28 per cent. Some in­vestors sub­se­quently told the com­pany they were sell­ing their shares be­cause of short­seller al­le­ga­tions, Mr. Van­der­berg said in the af­fi­davit. “I be­lieve that if Co­hodes is per­mit­ted to con­tinue mak­ing false state­ments about Badger, there will be sub­stan­tial harm to Badger’s in­vestors, Badger’s busi­ness and rep­u­ta­tion, and the Cana­dian and Al­berta cap­i­tal mar­kets,” he said in the af­fi­davit. The af­fi­davit is padded with pages of Mr. Co­hodes’s Twit­ter salvos. A June 27, 2018, post ac­cused Badger of “il­le­gal toxic dump­ing.” (The com­pany has re­peat­edly de­nied such al­le­ga­tions). He has also called Badger “the big­gest fraud in Canada.” Mr. Van­der­berg ar­gues the so­cial me­dia plat­form is just one venue used by Mr. Co­hodes to lob false state­ments about the com­pany. How­ever, lawyers for the short-seller ac­cuse Badger of cherry-pick­ing events and ex­ag­ger­at­ing the im­pact of his com­men­tary. For ex­am­ple, they at­tribute the im­me­di­ate drop in Badger’s share price af­ter Mr. Co­hodes dis­closed his po­si­tion to poor quar­terly re­sults that missed mar­ket ex­pec­ta­tions. While an un­usual move, it’s not the first time a Cana­dian se­cu­ri­ties reg­u­la­tor has taken on a short-seller over neg­a­tive com­ments about a com­pany. In 2013, the Bri­tish Columbia Se­cu­ri­ties Com­mis­sion al­leged that Jon Richard Carnes had per­pe­trated a fraud by anony­mously pub­lish­ing a neg­a­tive re­port about Van­cou­ver, B.C.-based min­ing com­pany Sil­ver­corp Me­tals Inc., driv­ing down the com­pany’s share price and al­low­ing him to profit from his short po­si­tion. But a BCSC panel dis­missed the fraud al­le­ga­tions in 2015. The com­mis­sion­ers wrote in their rul­ing that while they found Mr. Carnes’s con­duct “un­sa­vory,” it was not clearly abu­sive to the cap­i­tal mar­kets and it is not the com­mis­sion’s role to pun­ish “morally un­sup­port­able” con­duct. An or­der against Mr. Carnes could have had sig­nif­i­cant im­pli­ca­tions be­yond that case, they added. “For ex­am­ple, would re­search an­a­lysts who pub­lish rec­om­men­da­tions on stocks be sub­ject to such a stan­dard and what would that mean when those re­ports are built upon opinion? It is not our role to sanc­tion all per­sons who pub­lish opinion about pub­lic com­pa­nies, re­gard­less of how fair or war­ranted some of those opin­ions might be.” How­ever, Ms. Gre­wal said that such a move doesn’t nec­es­sar­ily mean there will be a “chill­ing ef­fect” on le­git­i­mate re­search opin­ions by stock an­a­lysts. “From what we’ve seen, the se­cu­ri­ties reg­u­la­tors are very care­ful that they’re re­ally go­ing af­ter the ones where they do be­lieve there is a pub­lic in­ter­est con­cern.”

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