Are Short Sellers Right About Home Capital Group Inc.?
Nelson Smith, 25 August 2016
Tuesday was not a good day for Home Capital Group Inc. (TSX:HCG) shares. An anonymous author identifying as “The Friendly Bear” wrote a scathing piece about the company on the investing website “Seeking Alpha.” The article investigated the company’s relationship with a mortgage brokerage called Re-Charge Corp.
Essentially, the dirt goes something like this.
Home Capital sold mortgages to Re-Charge in the autumn of 2015 on at least 14 different occasions. Many of these mortgages were on real estate in Brampton, Ontario, which insiders view as a place where mortgage fraud is common. Thus, the author of the article hinted that the reason why many of these loans were sold is because borrowers were either behind or in default.
Additionally, one of the principals of Re-Charge Corp is William J. Walker, a lawyer who was named to Home Capital’s board of directors in November 2015. This relationship between Walker and Re-Charge was never disclosed to shareholders. In fact, the relationship with Re-Charge was never disclosed.
