April 24, 2017 / 12:55 PM / 2 years ago

Home Capital founder to step down from board amid regulatory probe

(Reuters) - Canada’s Home Capital Group Inc (HCG.TO) said founder and former CEO Gerald Soloway will step down from the board once a replacement is found, days after regulators accused the company of making “materially misleading statements” to investors.

Shares of Canada’s biggest non-bank mortgage lender fell as much as 5.7 percent to C$18.15 in morning trading.

The Ontario Securities Commission (OSC) on Wednesday issued allegations against Soloway and another former Chief Executive Officer Martin Reid and current Chief Financial Officer Robert Morton.

Home Capital on Monday said Morton “will assume responsibilities for special projects outside the financial reporting group” after the company files its first-quarter results.

Board member Robert Blowes, a former CFO, will assume the CFO’s role on an interim basis.

“These are important steps in rebuilding confidence and putting the focus back on our profitable underlying business and its solid performance,” said Kevin Smith, chair of the company’s board.

Home Capital said it had a short list of candidates, and intends to identify a replacement for Soloway as soon as possible.

Soloway will contest elections to the board at the annual general meeting on May 11, Home Capital said.

Blowes, who was elected to the board in May 2015, will also stand for re-election.

Home Capital also said Bank of Nova Scotia (BNS.TO) would resume sales of Home Trust deposit products from Monday, subject to a certain cap.

However, analysts flagged concerns about the stability of the company’s primary funding source, its guaranteed investment certificates.

“If HCG were to lose access to the bank boards, we believe liquidity risk may become a serious concern,” GMP Securities analysts wrote in a note.

“We see this as the first sign the broker fraud and related issues may materially impact operations.”

Home Capital said on Friday it would defend itself against allegations by regulators that it withheld information about fraud by mortgage brokers.

The OSC has set a hearing on the matter for May 4.

In July 2015, the company said it had suspended contracts with 45 independent mortgage brokers after an investigation found they had falsified information about borrowers’ incomes.

Reid’s contract was terminated in March, and longtime director Bonita Then was appointed to the role on an interim basis.

The company said on Monday it was actively recruiting a CEO, and a successor will be named as soon as possible.

Reporting by Arathy S Nair in Bengaluru; Editing by Sriraj Kalluvila

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