Investors Roland Keiper and Brian Chapman have sued Home Capital Group Inc. and three of its former executives for $2-million, alleging negligent behaviour, untimely disclosures and public misrepresentations.
It is the second lawsuit from shareholders who opted out of Home Capital's $29.5-million class-action settlement to resolve a scandal involving falsified loan applications.
Earlier in December, another shareholder that opted out of the settlement – West Face Capital – filed a $70-million lawsuit against the mortgage lender and former executives for inaccurate and misleading public disclosures.
Mr. Keiper and Mr. Chapman's 84-page statement of claim said the former executives' misrepresentations caused "Home Capital's shares to trade at inflated prices … which directly resulted in damage" to the plaintiffs.
The former executives had "exclusive access to information about Home Capital's business and operations. As such, they were the primary source of information specifically related to Home Capital's business which was relevant to the decisions" of Mr. Keiper and Mr. Chapman "to acquire shares," said the lawsuit filed in Ontario's Superior Court of Justice on Dec. 22.
Home Capital is "vicariously liable for the acts and omissions" of the former executives, the lawsuit said.
Home Capital said in a news release on Thursday that it believes it has "valid defences" and "intends to fully defend its conduct."
Home Capital said of those eligible for the global settlement, investors controlling 1,717,600 shares opted out of the settlement.
The company said West Face held 1,234,700 of those shares.
Home Capital also said it believes that Mr. Keiper and Mr. Chapman account for 390,900 of those shares. Mr. Keiper would not confirm that number nor would he comment on the lawsuit.
"Oftentimes, big players, if they are not part of the settling group, opt out if they think they have a better shot on their own and they will take a run at it," said Craig Lockwood, a partner at the law firm Osler.
"You are looking at a five-year investment, say, as opposed to an immediate payout. You really have to have a very strong case with some serious dollars at the end of it," he said.
In the lawsuit, Mr. Keiper and Mr. Chapman said they bought shares and other securities of Home Capital over the period of early November, 2014, through the close of trading on July 10, 2015, when the mortgage lender was allegedly making misleading statements about its business that artificially propped up its stock.
It was only after markets closed on July 10, 2015, that Home Capital revealed the termination of about 45 mortgage brokers, which caused Home Capital's stock to plummet.