A Cash Store in Calgary, AB in 2010. A British litigation financing firm will bankroll three $152.4-million lawsuits against the former auditor, legal adviser and financial adviser of The Cash Store Financial Services Inc., a Canadian payday lender that filed for creditor protection in 2014.Chris Bolin Photography Inc./The Globe and Mail
A Britain-based litigation financing firm will bankroll three $152.4-million lawsuits against the former auditor, legal adviser and financial adviser of The Cash Store Financial Services Inc., a Canadian payday lender that filed for creditor protection in 2014.
Augusta Ventures has agreed to finance lawsuits against KPMG LLP, Cassels Brock & Blackwell LLP and Canaccord Genuity Corp., which were brought by a group of Cash Store creditors in 2015, for professional negligence and breach of contract. KPMG was Cash Store’s auditor from 2002 to 2014, Cassels was its legal counsel during the same period and Canaccord is its former financial adviser.
The lawsuits allege the three firms failed to identify several red flags in Cash Store’s business model and help rectify the problems, including “material misstatements” about how the company funded its loans.
Bill Aziz, the litigation trustee for Cash Store, told The Globe and Mail the lawsuits are intended to benefit creditors who “have losses because they advanced debt to the company under circumstances where there was a fundamental misdescription” of Cash Store’s business model. The creditors, he said, are owed more than $130-million, plus 12 per cent in annual interest.
Cash Store, which was based in Edmonton and had more than 500 Canadian locations, provided high-interest loans to mostly low-income people with poor credit scores. The company’s missteps ultimately led an Ontario court to deny the renewal of its licence and its shares were delisted from the Toronto Stock Exchange.
“It’s alleged in these lawsuits that KPMG, Cassels Brock and Canaccord caused over $100-million in damages to Cash Store and its creditors,” said Mr. Aziz, who is president of BlueTree Advisors Inc., a corporate restructuring advisory firm based in Oakville, Ont.
“Litigation funding that we’ve been able to secure ensures that the litigation against the defendant[s] is fully funded and that we are able to see through trial so that they are held to account for their misconduct.”
KPMG, Cassels and Canaccord have filed respective statements of defence in response to the lawsuits, with each party denying it acted with negligence and denying any breach of duties to Cash Store.
“These multiple actions are a transparent attempt by disgruntled bondholders to hold reputable professional firms liable for the losses Cash Store sustained as a consequence of the [company’s] own mismanagement,” KPMG wrote in its statement of defence.
Canaccord wrote that it did not advise Cash Store on the acquisition of a loan portfolio at issue in the statement of claim, and said claims against the firm were barred by a statute of limitations anyway.
Cassels wrote in its statement of defence that it never breached its duties to Cash Store, and that the law firm’s duties were limited to its client, not Cash Store’s investors.
Mr. Aziz did not disclose Augusta’s total funding package, but said that it will fund up to $8.5-million to pay for a defendant’s legal costs if the plaintiffs lose a case and must pay those costs.
“We spent a considerable amount of time working with Augusta and its counsel to ensure they understood what is the issue here,” Mr. Aziz said. “Augusta Ventures is underwriting this because they think it’s a good prospect for success.”
Litigation funding is relatively new in the Canadian legal system. Firms that bankroll lawsuits often get a cut of the settlement if the plaintiff’s claim succeeds. In proceedings under the Companies’ Creditors Arrangement Act, a prospective litigation financing agreement must meet a number of conditions to be approved, such as the length of time the funding will be required, and whether the funding will enhance creditor returns.
Founded in 2013, Augusta has funded more than 250 cases in Britain, the U.S., Australia, Asia and Canada, providing more than $600-million in capital. Augusta’s Canadian office was established in 2019, and it has an office in Toronto.
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