Shares of Callidus have dropped by 25 per cent since Wednesday.Brent Lewin/Bloomberg
The top executive at Callidus Capital Corp. is blaming a few disgruntled clients for a media report alleging that the Toronto-based alternative lender is the subject of whistle-blower complaints with Canada's largest market regulator.
During Callidus's second-quarter earnings call with analysts on Friday, its chief executive officer Newton Glassman said that the company has not been contacted by authorities about these complaints. He added that it looked like these statements had been made to the benefit of people who wanted to drive down Callidus's share price.
Mr. Glassman addressed an article published Wednesday in The Wall Street Journal that stated that at least four individuals have filed statements with the Ontario Securities Commission alleging fraud at both Callidus and its private equity parent, Catalyst Capital Group Inc. The Journal article alleges that a unit of the Toronto Police Service that specializes in financial crimes has started its own inquiries, citing an unnamed department spokeswoman.
"Other than what has been reported by the Journal, we have no knowledge of any complaints or inquiries," Mr. Glassman said on the call. "We have no knowledge of any legitimate basis for any complaints or inquiries. We have received no inquiries from any authority in either regard."
Callidus and Catalyst lend money to financially distressed companies. Both firms are being accused by at least four people of inflating the value of assets and deceiving borrowers on the terms of the loans, according to the Journal.
Mr. Glassman said that he believed the complainants were people who had done business with Callidus before and that were guarantors of defaulted loans.
"Callidus has current litigation relating to the enforcement of guaranties," Mr. Glassman said. "The relevant guarantors have already had the opportunity to present their allegations in court, without success. That is because the allegations are false."
He added that Callidus has adhered to "the highest ethical standards" in its business practices and that its financial statements are audited by major accounting firm KPMG LLP.
Shares of Callidus have dropped by 25 per cent since Wednesday, when the Journal article was published. The stock closed down 3 per cent Friday to $11.47.
In the second quarter, Callidus posted a loss of $26-million, compared with a profit of $38-million a year ago.
During the past year, Catalyst has been working on a plan to take Callidus private. Callidus said on Thursday that this process has taken longer than originally expected.
As a result, it also retained a placement agent and advisory firm that specializes in raising capital for alternative investments, including private debt funds. If a private debt fund offers greater value than other proposals, Callidus said Catalyst has advised that funds it manages would most likely participate in the transaction – and would do so on the same economic terms.
There is no certainty a transaction will take place. However, Catalyst, which manages funds that own 68 per cent of Callidus, says it continues to be committed to completing a deal within the previously published valuation range of $18 to $22 per share.