The alternative mortgage lender said the draft, is claiming damages of $70 million.
“The company believes it has valid defences and, if West Face commences the claim, the company intends to fully defend its conduct, as well as to investigate the conduct of the various short sellers and the propriety of their actions whether acting alone or in concert with others,” Home Capital said in a statement, as quoted by The Canadian Press.
The company said the claim was prepared on behalf of West Face Long Term Opportunities Global Master LP, a Caymans Island limited partnership which opted out of a global settlement in connection with a class-action lawsuit earlier this year.
Read more: Home Capital continues to struggles to retain confidence
In June, Home Capital agreed to pay $30.5 million to settle a class-action lawsuit and a matter before the Ontario Securities Commission concerning allegations of misleading disclosure.
Raymond James analyst Brenna Phelan noted that Home Capital currently trades at a discount to its closest peer, Equitable Bank.
“While the penalty itself is manageable, we believe this statement, as well as any future court case, will serve as a reminder of skeletons in the closet,” Phelan wrote regarding the potential lawsuit from West Face.
Home Capital said the West Face claim describes building a significant short position in Home Capital in the spring and summer of 2013 before covering its short position between the fall of 2013 and the spring of 2015.
West Face said it covered its short position during a period in which it now believes that market prices of Home Capital shares were inflated due to incomplete public disclosures.
“West Face acted alone in its short position and did not act in concert with any other short sellers,” the Toronto-based investment manager said in a statement.
The firm said it has not traded Home Capital shares since April 2015.
Home Capital Group Inc. said earlier this week that it has received a draft statement of claim from a partnership managed by West Face Capital Inc. containing allegations of misrepresentation.