Home Capital Group announced on Thursday that it has agreements in place to settle with the Ontario Securities Commission (OSC) and with respect to a class-action lawsuit related to the allegations of misleading disclosure.
Earlier this year, the OSC alleged that the mortgage lender, as well as three of its former executives, breached the province’s securities laws. Also, a class-action suit alleged that the company didn’t make required disclosures regarding its termination of relationships with some mortgage brokers and brokerages in 2014 and 2015.
“These settlements will enable us to move forward with regaining the confidence of our depositors and shareholders and creating value for all our stakeholders,” says Brenda Eprile, chair of the Home Capital board.
Recovering From a Run on Cash
After the OSC announced its allegations, Home Capital’s customers rushed to withdraw money—funds the company uses for mortgage lending—from their high-interest savings accounts, leaving the company in a bind. As a result, Home Capital was forced to get an emergency $2-billion line of credit to keep its business running. The company also saw its stock price plunge.
Under the deal with the OSC, Home Capital will make a payment of $10 million and also reimburse the regulator $500,000 in costs. The company’s founder and former CEO Gerald Soloway will pay an administrative penalty of $1 million and be prohibited from serving as a director or officer of a public company for four years.
Former CEO Martin Reid and former chief financial officer Robert Morton will each pay $500,000 in penalties. They’ll also be barred from serving as a director or officer of a public company for two years.
Under the class-action settlement, Home Capital will make a payment of $29.5 million—which includes $11 million of the payments being made in the Commission settlement.
Owning Up to the OSC
The company also accepted full responsibility for failing to meet its disclosure obligations. It was an about face from just two months ago. In April, Home Capital said it believed “its disclosure satisfied applicable disclosure requirements” and the OSC’s allegations were “without merit.” Now, the lender also “acknowledges that the Commission is not to blame for the events of recent months involving its liquidity position.”
Each settlement is conditional upon the approval of the other. The OSC has scheduled a hearing for August 9 to consider whether to approve the settlement. The parties involved in the class action are in the process of obtaining a date for an initial court hearing.
Home Capital expects to fund substantially all of the costs of the settlements through its available liability insurance.
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