Home Capital regulatory hearing adjourned, shares slump

TORONTO (Reuters) - Home Capital Group shares fell 12 percent on Thursday after a regulatory hearing to investigate claims the mortgage lender and three of its long-time executives had misled investors was adjourned until next month.

The entry to the Home Capital Group's headquarters is seen at an office tower in the financial district of Toronto, Ontario, Canada May 1, 2017. Picture taken using a wide angle lens. REUTERS/Chris Helgren

The Ontario Securities Commission (OSC) has accused Home Capital of hiding fraudulent mortgage broker activity from shareholders for months and the allegations have already contributed to Canada’s largest non-bank lender suffering a share-price nosedive and run on deposits, prompting it to secure C$2 billion ($1.5 billion) emergency funding last week.

The delay means uncertainty over the case will drag on for several weeks.

An initial hearing on Thursday was adjourned until June 2 after lawyers acting for Home Capital and the executives said they needed time to sift through 22,000 documents provided by the OSC and review 10 names presented by the OSC as witnesses.

The parties agreed to a second hearing on June 2, at which they will prepare an Agreed Statement of Facts, which is designed to minimize disputed facts at a later hearing scheduled for July 14 to examine the merits of the case.

Shares in Home Capital were trading at C$6.01 at 3:23 p.m. EDT (1923 GMT), down 12.1 percent.

The OSC first detailed the accusations on April 19. If the panel rules that the respondents broke securities law they can be banned from acting as a director or officer of any issuer, while the company itself could face de-registration.

The OSC alleges that the company and its senior leadership misled investors in an annual report released in February 2015 and a quarterly update in May that year in which they blamed a decline in mortgage originations on external factors including the competitive mortgage marketplace.

Home Capital did not acknowledge the review and subsequent terminations until July 10, 2015. The lender, which offers mortgages to borrowers who do not meet the lending requirements of the country’s biggest banks, has said that it believes its disclosures satisfied requirements, and that it intends to vigorously defend itself.

Late on Wednesday, rating agency DBRS downgraded Home Capital’s senior debt rating, reflecting concerns over the recent events, including the delay in releasing its first quarter earnings.

The OSC panel is an administrative tribunal that decides whether the evidence submitted proves that the allegations are more likely than not to be true.

($1 = 1.3728 Canadian dollars)

Reporting by Alastair Sharp; Editing by Marguerita Choy