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A sign shows the entrance to the offices of Callidus Capital in Toronto last year.CHRIS HELGREN

It was already shaping up to be a busy week for Newton Glassman. Now, he has more explaining to do.

Bay Street's attention has been fixed on Callidus Capital Corp., the publicly traded lending arm of Mr. Glassman's private-equity firm, Catalyst Capital Group Inc. Callidus is expected to report results for the fourth-quarter of 2017 later in the week and, more importantly, to provide an update on a sale process for the company that has dragged on a year and a half.

The market's view of Callidus's prospects is getting ugly. Callidus shares have dropped sharply of late, sinking another 6 per cent to an all-time low of $6.65 on Friday. That makes a previous target of $18 to $22 in a takeover look increasingly out of reach. Investors will be focused on the value the company places on its assets – mostly debt and equity of financially distressed or restructuring companies.

There is also speculation that Catalyst-owned Gateway Casinos & Entertainment Ltd. could file for an initial public offering soon, following a recent debt restructuring that included a sale and leaseback of Vancouver-area real estate properties that generated proceeds of $483-million. Catalyst declined to comment on the IPO possibility.

These would be enough agenda items for most chief executives for one week. But, for the famously pugnacious Mr. Glassman, who is frequently at the centre of financial and legal fights, this activity comes amid increasing questions about the value of some of Catalyst's investments.

A lengthy Reuters news report on Friday quoted a hedge fund manager and others questioning the valuation of Catalyst's holdings, its ability to cash out of some investments at advertised prices and its extensions to the lives of its funds, which allow it to hold on to investor capital for longer.

The report said some of those holdings include litigation claims – money that Catalyst believes it will gain in the future from lawsuits, but which are far from certain.

Financial documents for some Catalyst funds, obtained by The Globe and Mail, show that the firm put a value on nearly US$450-million (as of Dec. 31, 2016) on litigation related to the firm's unsuccessful attempt in 2014 to take over wireless carrier Wind Mobile.

A fund known as Catalyst Fund Limited Partnership III placed a value of US$148.9-million on Wind litigation as of that date, according to the documents. Another fund, Catalyst Fund Limited Partnership IV & IV-PP, valued Wind litigation at US$297.9-million. (The financial review presents numbers both with and without the litigation winnings.)

Legal actions are part and parcel of Mr. Glassman's operation and there are a number stemming from Catalyst's failure to acquire Wind Mobile following talks with its previous owners. A rival investment firm, West Face Capital Inc., acquired the cellphone company for $300-million and sold it to Shaw Communications Inc. about a year and a half later for $1.6-billion.

In one high-profile case, Catalyst accused one of its former analysts who was subsequently hired by West Face Capital of passing on proprietary and confidential information. The suit was unsuccessful, with the trial judge ruling that Mr. Glassman's testimony was difficult to rely on. "He was aggressive, argumentative, refused to make concessions that should have been made and contradicted his own statements made contemporaneously in e-mails," the judge stated in his decision. In February, Catalyst lost an appeal of the decision.

In a second lawsuit filed in May, 2016, Mr. Glassman sued former Wind Mobile owners VimpelCom Ltd. and Globalive Capital Inc., as well as UBS Securities Canada, West Face and a bunch of others, alleging breach of contract. The case has yet to be heard. It is this case that apparently gives rise to the US$450-million in hoped-for litigation awards for Catalyst.

The Reuters report quoted an Oxford University private-equity expert as saying the estimated return on the litigation was "extraordinarily" high.

Catalyst spokesman Dan Gagnier declined to say if the same Wind Mobile-related litigation figures would also be included in 2017 materials to investors, or if they had changed to reflect any new view of the firm's chances in court.

But in a statement late on Friday casting aspersions on the Reuters article, Catalyst said it was "incomprehensible" that the news agency would portray informational disclosure to investors as being part of audited financial statements. (The story said the figures were from "a presentation to investors.")

Catalyst said it considers any notion that it overvalues assets or is unable to achieve targeted returns by stated deadlines to be pure effrontery. "Our funds are structured to be long-lived to maximize value for our investors. Our process for valuing current investments is rigid, conservative and has been proven out repeatedly," the statement said.

The documents obtained by The Globe also show that Catalyst funds have a lot riding on the performance of publicly traded Callidus. The documents for Fund III say that the fund had invested US$404.6-million in shares and debt of Callidus or related entities, as of the end of 2016. Fund IV & IV-PP had invested US$530.1-million.

It is not known how much those figures changed in 2017. But Catalyst's ownership of Callidus equity, at least, has been growing. Catalyst and funds managed by it owned about 70 per cent of Callidus as of Sept. 30, up from 66.7 per cent at the end of 2016.

That suggests Callidus is a drag on the performance of Mr. Glassman's Catalyst funds. Prior to Friday's selloff, Callidus stock had fallen 60 per cent in a year. Analysts had tied the drop to a dearth of new lending announcements and fears about concentration of investments in two companies – Oklahoma-based Horizontal Well Drillers and C&C Wood Products of Quesnel, B.C.

Recall that Mr. Glassman had previously helped raise investor expectations that Callidus could be worth $18 to $22 a share in a privatization, based on a 2016 National Bank Financial valuation. More than a year ago he suggested that as many as 17 potential bidders were considering offers in that neighbourhood.

But the process appears to have bogged down. A few months later, Callidus floated the possibility of an alternative to a sale – that is, the absorption of Callidus by a private debt fund.

It was all further complicated by legal action brought by Mr. Glassman following a Wall Street Journal story last August about whistle-blower complaints to the Ontario Securities Commission, accusing Catalyst and Callidus of fraud. The suit names several defendants, including Mr. Glassman's nemesis, Greg Boland of West Face, as well as a Journal reporter and several others.

Mr. Glassman contends that Callidus was the target in a "wolf-pack conspiracy" of short-sellers to drive down the stock price. Mr. Boland countersued, stating that he and West Face were not involved in any conspiracy, and that he closed out his short position in Callidus a couple years earlier.

Amid this week's flurry, investors will look to Callidus's financial and deal progress to see how that's all playing out.

Follow Jeffrey Jones on Twitter: @the_Jeff_JonesOpens in a new window

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