Hiring tiff casts cloud over Wind stake

The fallout from the breach of an employment contract is threatening to upset the ownership of Wind Mobile, currently the only viable fourth player in Canada’s wireless industry.

What began as an innocuous employment tiff between two high-profile Bay Street investment funds over Brandon Moyse, a junior investment analyst who decamped from Catalyst Capital Group Inc. for West Face Capital Inc. last year, has now escalated into a potentially volatile legal brawl involving allegations over the deliberate misuse of critical confidential and proprietary information to gain a competitive edge.

In a motion filed with the Ontario Superior Court of Justice, Catalyst is seeking a declaration ordering West Face to set aside its ownership in Wind Mobile and hold it in trust for Catalyst, claiming that the Toronto-based private equity fund used confidential informa- tion provided by a former employee to purchase its stake in the fledgling wireless carrier. At the same time, Catalyst is also seeking an injunction that would prevent West Face from “participating in the management and/or strategic direction” of Wind Mobile, including the upcoming federal spectrum auction scheduled for March 3. The hearing for Catalyst’s motion before an Ontario judge is set for March 19.

West Face, which manages assets of about $2.5 billion, was among a group of investors that joined Globalive Capital, an investment company led by Wind’s founder Anthony Lacavera, to acquire all of the direct and indirect debt and equity interests in the Canadian carrier for $300 million in September.

In its court filings, Catalyst, the second-largest private equity fund in Canada and a specialist in distressed debt, outlined how it had an exclusive negotiation period to hammer out a deal to purchase a stake from VimpelCom Ltd., which owned a controlling interest in the small independent mobile carrier at the time.

However, those negotiations failed “on issues relevant to the regulatory regime affecting Wind,” the court papers outlined. However, within days of those ill-fated talks, Catalyst alleged West Face was able to successfully negotiate a deal with a syndicated investment group that “waived any regulatory concerns” that Catalyst had.

“West Face could not have negotiated the deal it did with Wind without access to Catalyst’s confidential information, which was provided to it by Moyse,” the firm alleges in its court filings. In fact, Catalyst claims that not only did Mr. Moyse, who was primarily responsible for analyzing new investment opportunities from distressed situations, have access to confidential information about its plans for Wind — codenamed “Turbine” — it alleges West Face only began showing interest in the mobile carrier after the former Catalyst employee joined the firm.

A lawyer for West Face dismissed Catalyst’s legal gambit as “without merit.” Jeffrey Mitchell, a partner at Dentons in Toronto, who is representing West Face, told the Financial Post in an email that the “unsubstantiated allegations” against his client are “being pursued to damage West Face, and not for any proper purpose.” He noted that Catalyst has filed a motion document containing “bald allegations only” with “no evidence” to back them up.

“We haven’t seen any evidence yet,” Mr. Mitchell said, adding if Catalyst does file evidence in the form of an affidavit, “we’ll fight it vigorously.”

The bitter dispute between the two Bay Street rivals has been gathering momentum since Mr. Moyse informed Catalyst of his intention to join West Face, a direct competitor in the private equity arena, in May, 2014. Catalyst balked, reminding Mr. Moyse of the terms of his employment contract, which included a noncompetition clause that restricted him from working at a competing firm for six months.

Despite warnings from Catalyst about Mr. Moyse’s confidentiality obligations to his former employer, he began his job as an analyst at West Face in late June. Executives at Catalyst were convinced their former employee had walked away with critical information about the firm’s strategy in the Canadian wireless industry, especially its interest in pursuing an ownership stake in Wind, and because both firms owned the secured debt of Mobilicity.

Inevitably, they wound up before a judge. During the legal process, Mr. Moyse consented to providing forensic images of his personal electronic devices as well as an affidavit outlining all of the documents in his possession. As a result, Catalyst claims its worst fears were realized in the form of 130 pages outlining actual or possible investments that were sent to Thomas Dea, a partner at West Face during the hiring process. “Moyse had transferred Catalyst’s confidential information to West Face, and West Face distributed that confidential information throughout the firm,” Catalyst claims in its filing.

A lawyer acting for Mr. Moyse called it “a rookie mistake” during a hearing last year.

Even so, Ontario Justice Thomas R. Lederer ruled last November that sending out confidential documents and possessing additional files belonging to Catalyst was a serious issue. In his order, he restrained Mr. Moyse from working at West Face for the remainder of his non-competition covenant, which ended Dec. 22.

More important, Justice Lederer authorized an independent supervising solicitor to examine Mr. Moyse’s personal electronic devices and review the forensic images. Catalyst alleges in its filings that Mr. Moyse had more than 830 of the firm’s documents in his possession when he resigned, of which 245 were deemed confidential.

And although a final report on the images on Mr. Moyse’s electronic devices is not yet complete, the court filing alludes to an interim report that has underscored fears at Catalyst that confidential information may been transferred to one of its major rivals.

As a result, Catalyst is also seeking an order to authorize a forensic search of the computers, hard drives and mobile devices at West Face.