Short seller sues Home Capital Group for $4M in damages

A short seller is suing Home Capital Group and three former executives for $4 million, alleging the alternative mortgage lender’s false representations scandal cost him millions when he closed his position early.

Marc Cohodes filed a statement of claim Monday with the Ontario Superior Court of Justice saying he took a substantial short position in Home Capital’s shares in 2014 after determining the company was overvalued.

Between March and June 2015, the claim says based on positive information provided in Home Capital’s financial reporting, Cohodes repurchased 91,800 of those shares at more than $40 each, resulting in a purchase cost of more than $3.6 million.

Cohodes alleges Home Capital, former CEO Gerald Soloway and former CFOs Robert Blowes and Robert Morton knowingly misled investors in the company’s annual and quarterly results by misrepresenting risk management controls.

Home Capital said in a statement Wednesday that “it has valid defences to these claims.”

In 2017, the lender was accused by regulators of misleading investors, which caused depositors to swiftly withdraw their money and leaving the company in crisis mode.

Home Capital eventually agreed to pay $29.5 million to settle with the Ontario Securities Commission and class-action lawsuit matters related to the allegations.

Soloway and Morton faced $1 million and $500,000 penalties respectively. Soloway was barred from acting as director or officer of a public company for four years, while Morton faces a two-year ban.

Blowes is the only executive named in the suit who remains on the company’s board of directors.