Callidus Capital Corp. has filed a lawsuit against a group of investors and borrowers in Canada and the United States for allegedly working in concert to drive down the price of the distressed-debt lender's shares.
The Toronto-based company filed the lawsuit on Tuesday in an Ontario court. It is suing a group of investment firms – which it calls the "wolfpack conspirators" – that includes private-equity firm West Face Capital Inc., hedge fund Anson Group and several companies related to it, and ClaritySpring Inc.
The lawsuit alleges that the "conspirators" took short positions in Callidus and engaged in a "wave of short attacks against Callidus" in a bid to profit as shares fell, according to court filings. Callidus is also claiming that these people "spread false information through the Bay Street rumour mill" and then worked with members of the press to publish a "negative and false" story about Callidus.
"The conspiracy required very sophisticated co-ordination and perfect timing under the hand of the wolfpack conspirators," says the claim filed by Callidus.
None of the allegations have been proven in court.
Callidus is seeking either $450-million in damages or, alternatively, the amount the investors allegedly earned by trading Callidus shares or betting against the stock since Aug. 9. The lawsuit also calls for the investors to admit they defamed Callidus.
This is the fourth legal action Catalyst Capital Group Inc., the private-equity parent of Callidus, has launched against West Face and its principal, Gregory Boland. West Face said in a statement that it has "prevailed" over Catalyst in the two previous matters that have proceeded to hearings or trial.
"Catalyst's allegations are completely devoid of merit, and will be defended vigorously at every turn," West Face added in its statement.
West Face said it hasn't shorted the shares of Callidus in more than two years and has not spoken to Anson about any investment Anson has made in Callidus.
Anson and ClaritySpring didn't immediately respond to a request for comment.
In its statement of claim, Callidus alleges that the defendants entered into an agreement to work together to harm Callidus. Months after the alleged agreement took place, the Wall Street Journal published an article on Aug. 9 by reporter Rob Copeland, who is named in the lawsuit, that stated Callidus is the subject of whistle-blower complaints with Canada's largest market regulator.
The article reported that at least four complaints have been filed with the Ontario Securities Commission claiming fraud at the firm and Catalyst. The Journal article also said a unit of the Toronto Police Service that specializes in financial crimes had started its own inquiries.
Shares of Callidus tumbled after the article was published.
Callidus said it had not been contacted by authorities about these complaints, adding that the company has adhered to "the highest ethical standards" in its business practices.
Mr. Copeland declined to comment.
A spokesman for Dow Jones, which is owned by News Corp. and publishes The Wall Street Journal, said in an e-mail: "We are confident in the fairness and accuracy of our reporting. We firmly stand behind Rob."