Michael Wekerle has sold almost one quarter of the $10.7-million in debt he holds in Difference Capital Financial Inc. since mid Oct., and claims that a margin call from his broker, GMP Capital Inc. forced his hand.
In July 2013, Mr. Wekerle, who is the co-founder and CEO of Difference and a co-host of CBC TV's popular Dragon's Den program, bought $10-million in the company's convertible debentures through an account he holds at GMP, his former employer. At the time, Mr. Wekerle says, he put up $2.5-million and bought the rest on margin, meaning that he did not have to hold the funds in his account.
According to Mr. Wekerle, in August 2014 he received a letter from GMP that said, "We're taking your margin from 75 to 25 per cent. You have 30 days to come up with $5-million."
If Mr. Wekerle didn't come up with the cash, GMP said it would start "selling out" his position, according to Mr. Wekerle. He says he responded by saying, "'Guys that's impossible. I'm not going to do that.'" According to regulatory filings, $2.5-million of Mr. Wekerle's convertible debentures holdings were sold, in 10 separate transactions between Oct. 17th and Dec 10.
"GMP has another $1.3-million they can sell before it gets down to 25 per cent [margin]," Mr. Wekerle says. "I've been trying to move it [to other brokerage firms] but every time they seem to poison it for me."
The event has been evidently caused great distress for Mr. Wekerle. He added that GMP, the company which he co-founded, and where he had worked for 16 years as its star stock trader, would have known that the timing of the margin call was bad on many fronts.
"They know I bought $30-million in real estate in Waterloo, as I'm completing Dragon's Den and the stock [Difference Capital] is deteriorating. I've had an account at GMP since 1995. I have paid more interest in the lifetime of that firm than anybody else. If you're the biggest interest [payer], you think they'd treat you a little better."
Calls to GMP were not returned.
Mr. Wekerle insists that he didn't decline to post margin because he lacks the funds. "On a bad day, I'm worth $150-million. On a good day I'm worth $250-million." The problem he says, is that lot of his money is tied up in illiquid assets. "I am asset rich and cash poor."
The Difference Capital debentures, which are convertible to common stock, were issued in 2013 as part of a $50-million capital raising and are convertible at $5.75 a share. The further away the shares trade from the conversion price, the less valuable the debentures become. The stock, which closed at $0.99 Tuesday, has lost 80 per cent of its value since Difference went public in May 2012. The shares have rebounded, since trading down to $0.84 earlier in the month. The debentures last traded at $71.08 according to Bloomberg data, which was about 29 per cent below par value. According to the regulatory filings, Mr. Wekerle's debentures were sold at prices which ranged from $79 to $72.
"The optics suck," said Henry Kneis, CFO of Difference, referring to the transactions, in an interview. "But Mike is not the one making the decision. It is not a reflection in his faith, or lack of faith [in Difference Capital]."
Mr. Wekerle is by far the biggest common shareholder in Difference, with a 23 per cent equity stake valued at $8.95-million at current prices. His mother, Hermine Wekerle is the second biggest, holding 11.5 per cent of the company.
Difference mostly invests in private technology, media and health care companies. Its investments have performed poorly, with its portfolio about 22 per cent under water, and a cumulative net loss of $25-million over the past two quarters. Difference has been focusing on paring down its positions and readying a number of them for initial public offerings.
Mr. Wekerle admits there are still "problem files," but he's sanguine about the future of the company. "The firm is doing better," he says.