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Mar 28, 2017

Time for the adults to act: Short-seller on Home Capital Group

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Independent investor and well-known short-seller Marc Cohodes is reiterating his call for greater regulatory scrutiny of Home Capital Group (HCG.TO) in the wake of the mortgage lender’s surprise firing of Chief Executive Martin Reid. In an interview on BNN, Cohodes, whose allegations of impropriety at the company have not been proven, called for a full investigation of Home Capital.

“It’s time for the adults in Canada who regulate and oversee this company to take action,” he said. “[Home Capital will be serious] when they hire outside legal counsel to do a full internal investigation of what’s really going on there.”

Cohodes said he has no interest in exiting his short position in Home Capital until all traces of former CEO Gerald Soloway’s regime have been expunged from the firm. Soloway remains the third-largest shareholder in the company, holding a 5.5 per cent stake.

“Some adult in the program needs to purge the company of the Soloway era.  They need to get rid of all the legacy directors, all the legacy employees,” Cohodes said. “They need to bring in fresh blood.”

Cohodes took aim at disclosure practices at Home Capital, which the Ontario Securities Commission saw as lacking enough to warrant enforcement notices for unnamed current and former executives. Home Capital did not disclose whether Reid was one of the executives slapped with an OSC notice.

“The company’s disclosure is awful. It’s as bad as it can possibly be at a financial company,” Cohodes said.

While Cohodes maintains his strong conviction that the company’s share price will continue to decline, he cautioned retail investors against trying a similar strategy.

“Don’t try this at home: shorting stocks is dangerous and I don’t advise anyone do it,” he said. “Anyone at home: don’t try this.”


STRESS-TESTING COHODES

BNN stress-tested some of the claims Cohodes made in his interview Tuesday.

Cohodes: “Rhonda Starkman has been abused and she’s been ripped off by [Home Capital].”

Editor's note: Rhonda Starkman is a Toronto woman who sued Home Trust in 2015 in a failed attempt to try to stop her home from being repossessed. Home Trust held a $348,575 mortgage on the property as well as a second mortgage $118,207 that secured a Visa credit card. 

Starkman disputed the “accuracy of certain adjustments to the total amount due under both mortgages.” A judge conceded Starkman had brought up “serious question… regarding the total amount due under the mortgages.” However, he refused to stop the repossession since Starkman did not dispute the validity of the security held by Home Trust and had not made a single payment on either mortgage for four years.

Starkman’s motion was denied and she was ordered to pay Home Trust legal costs of $5,500.

Cohodes: Cohodes says he is short shares of Equitable Group “in a very big way” and went on to say:

“… (Equitable Group) has hired some of these “Home Cap castoffs”… and I suggest Equitable has no controls.”

Editor's Note: Equitable Group responded by saying: “We do not comment on the strategies or views from any market participant in our stock. “

“We believe that our public disclosures and conference calls adequately describe our position on our control environment and hiring practices, including the fact that we are recognized as a platinum employer by AON Hewitt. “

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