Callidus revises reporting after OSC review

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Lending firm Callidus Capital Corp. said on Thursday it is changing how it reports financial results in response to an Ontario Securities Commission review, as it fights allegations from a former employee that there have been "multiple complaints" about how it portrays its $1-billion loan portfolio.

Toronto-based Callidus, led by well-known fund manager Newton Glassman, lends to businesses that cannot borrow from banks and other traditional lenders. The company reported a first-quarter loss Thursday of $3.5-million on revenues of $36.4-million. As part of that report, Callidus stated it's revising how it discloses certain financial measures to investors, "in connection with an Ontario Securities Commission continuous disclosure review."

Previously, Callidus has reported net income, return on equity and earnings per share using certain adjustments – including the exclusion of some provisions for loan losses. Now it will no longer do that. The company revised its presentation of financial results for fiscal 2015 and 2016.

Callidus's stock price dropped 13 per cent to close at $14.83 after the quarterly report.

Last fall, Callidus said it would explore a deal to go private because it believed its shares traded at a significant discount to the value of the company's assets, and has since that 19 parties looked at the books. Canaccord Genuity analyst Scott Chan described it as a "tough quarter," and noted that the company did not give investors much new information on how the privatization talks are going.

Separately, Callidus is embroiled in an ongoing lawsuit with its former chief underwriter, Craig Boyer, which began when the executive left the company in 2016 after eight years in senior roles and subsequently sued for vacation pay, health benefits and stock options he claims he is owed. Callidus responded in February with a $150-million countersuit that states Mr. Boyer misled the company, in part by signing off on forged letters and artificially inflated financial results at companies that borrowed from Callidus.

In response to the countersuit, Mr. Boyer said in a March filing with the Ontario Superior Court of Justice that the company's $150-million claim "is raised for ulterior purposes. Callidus is subject to multiple complaints and regulatory investigations with respect to its material non-disclosure to fund members and the public as to the status, and transfer, of its various investments."

Mr. Boyer said the Callidus countersuit was launched "in order to deflect these complaints and investigations."

During a conference call on Thursday with analysts, Mr. Glassman was asked about the OSC reviews and Mr. Boyer's allegations and said: "If there was something serious going on with the commission, I am virtually certain that commission would … rightly force us to disclose it. A continuous disclosure review is just to review."

A spokesperson for Callidus said: "The company has revised its disclosure and approach with respect to its use of non-IFRS financial measures this quarter in connection with an ordinary course Ontario Securities Commission continuous disclosure review. The company is in full compliance with securities laws and all other legal requirements.

"In addition, Mr. Boyer's allegations are frivolous and without merit, and Callidus will be bringing a motion shortly to have them struck on the basis that they are abusive and improper."

Callidus is controlled by private-equity fund Catalyst Capital Group Inc., which has approximately $5-billion in assets under management and was founded by Mr. Glassman in 2002. Callidus was spun out as a public company in 2014 and is no stranger to controversy. In 2015, short sellers took a run at the Callidus following critical research reports from hedge fund West Face Capital Inc. and Veritas Investment Research Corp. Callidus subsequently sued both firms and that litigation is ongoing.

Callidus subsequently introduced share buybacks and saw its stock price rise. This past October, the firm announced Goldman Sachs & Co. had been hired to advise on the potential privatization of the company.

The firm said initial talks with potential buyers indicated the company would be taken private at a price "that is consistent with the previously disclosed valuation range provided by National Bank Financial [of $18 to $22 per share]."

Thursday's financial results did not contain a reference to the $18 to $22 per share price, and when analysts asked if the six potential buyers are expected to make an offer in that range, Mr. Glassman said: "If we had a view that the valuation had changed, we would disclose it to the market."

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