July 09, 2008 at 6:11 PM EDT
VANCOUVER–Investment firm Canaccord Capital Inc. disclosed yesterday that seven clients are suing it over their entanglement in non-bank asset-backed commercial paper.
Canaccord's annual information form declared the claims are without merit and it will defend itself vigorously. Its stock closed up 3 cents at $7.65 on the Toronto Stock Exchange after trading as low as $7.14, down from $22.49 a year ago.
The firm – the largest retailer of the short-term paper, which was regarded as a secure and liquid vehicle until the ABCP market seized up last August – said four of the clients who are suing are eligible to have most of their losses made good under Canaccord's relief program for holders of less than $1 million of ABCP. It didn't specify how much exposure other client litigants had.
Canaccord said it also faces an eighth lawsuit from a small investor who was a client of an outside broker that bought ABCP.
The firm said it would be released from all eight actions under the ABCP workout arranged by the Pan-Canadian investors committee.
That committee was set up after buyers disappeared for Canadian non-bank ABCP amid last summer's sharp contraction in global credit market liquidity.
The committee plan – converting ABCP into long-term notes while providing protection from lawsuits for institutions that created and sold it unless they engaged in fraud – has been approved by a majority of noteholders and by the Ontario Superior Court, but decisions are subject to appeal.
The ABCP market has not functioned since August because of fears toxic U.S. mortgages might be included in the assets underlying the paper, which until then had rolled over routinely as it expired.
Canaccord has 1,480 clients holding affected ABCP with a maturity value of $270 million, and 1,430 hold $1 million or less totalling $138 million, which Canaccord will repurchase at face value.