JAMAICAN investors who poured US$5.37 million ($845.50 million) into EquityLine Mortgage Investment Corporation (ELMIC) are bracing for devastating losses as court proceedings suggest limited recovery from the Canadian mortgage lender.

The latest court filing by KSV Restructuring Inc, receiver for EquityLine SPV Limited Partnership, revealed these details. The SPV –special purpose vehicle–was formed in June 2021 by ELMIC to access a credit facility from Equitable Bank, Canada’s seventh-largest bank.

KSV was appointed receiver of EquityLine SPV in August 2024 after Equitable Bank and Computershare Trust Company of Canada (CTCC) uncovered proceedings that had taken place without their knowledge. KSV later found that 25 mortgages arranged by EquityLine SPV — valued at CAD$11.8 million — were in default, with at least eight mortgagors alleging fraud. Three mortgagors have filed legal action against CTCC which holds the legal title to the mortgage loans on behalf of EquityLine SPV.

Among the mortgagors alleging fraud is Margaret Ellen Jank, a 72-year-old single woman who has filed two legal claims against CTCC, EquityLine SPV, ELMIC and several other parties. Jank is retired and earns CAD$28,883 in annual fixed income. These claims are being spearheaded by Paula Fazari, her daughter and litigation guardian, with Geoffrey Adair listed as the attorney of record.

Jank’s legal team sought to lift the stay of proceedings applied against EquityLine SPV to allow for her to bring a motion for a partial summary judgement to discharge the CAD$335,000 mortgage against her property. However, KSV opposed this proposal as it would defeat the single proceeding model of administering the EquityLine SPV estate. Also, KSV mentioned that this would create risk of inconsistent findings and increase the cost of administering the estate which requires it to understand the validity and enforceability of the allegedly fraudulent mortgages.

Justice Jessica Kimmel, the judge overseeing the Equitable Bank versus EquityLine SPV case, approved the request by KSV and Jank to adjudicate the request to discharge the Jank mortgage subject to a particular process. That process would include KSV seeking a response and position from Sergiy Shchavyelyev, founder and president of the EquityLine Group of companies; Terry Walman, an attorney at law, who should respond within 30 days; and KSV reviewing EquityLine SPV’s books and records relating to Jank’s mortgage along with her supporting documents in a reasonable and proportionate manner, with KSV to provide a response within 60 days of May 16.

If KSV determines that the Jank mortgage charge should be discharged, then this determination would be binding on all other parties mentioned in the claim with KSV to process the discharge request. However, if KSV does not determine that the Jank mortgage charge should be discharged, Jank could bring a motion to the court to set aside KSV’s determination and request the Ontario Superior Court of Justice discharge the mortgage charge.

This isn’t great news for Jamaican investors as the realisable value of EquityLine SPV’s portfolio might be reduced even further, making any recovery of their investment even more dismal. When Equitable Bank began its legal proceedings in June 2024 it was stated that there were 34 mortgages worth CAD$18.12 million on EquityLine SPV’s books relative to the CAD$10.07 million owed to Equitable Bank. However, Equitable discovered that most of the mortgages were in default.

ELMIC withdrew its 2023 audited financials after Grant Thornton LLP, an auditing firm in Canada, requested it withdraw its auditor’s report. As a result, investors don’t have a true estimation of the business’ true state. The last set of numbers made available showed that ELMIC had a CAD$5.98-million shareholder deficit which meant that liabilities exceeded assets. ELMIC’s last reported asset base for 2023, with the consolidation of EquityLine SPV, was CAD$47.26 million and liabilities of CA$53.24 million.

EquityLine Mortgage Investment Corporation listed on the Jamaica Stock Exchange (JSE) in January 2019 where it raised US$5.37 million by issuing series A redeemable preferred shares. Investors received preferred dividends at an 8.0 per cent yield which totalled approximately US$2.15 million over the five years the company maintained its payments. However, the principal component was not repaid to Jamaican investors after multiple announcements. Sigma Global Bond, Sigma Optima, Sagicor Pooled Equity Fund and Sigma Global Markets Fund own two-thirds of the preferred shares. These funds are all managed by Sagicor Group Jamaica Limited.

ELMIC was delisted from the JSE in October 2024 for multiple breaches of market rules.

At least six active legal claims have been filed against ELMIC over the last year, with the next case hearing to be discussed next month. ELMIC narrowly dodged going into receivership along with its affiliate companies in December after KSV sought the request through the courts.

The Jamaica Observer has reached out multiple times to EquityLine founder Sergiy Shchavyelyev who has not replied to any requests.

Most information contained in this article was retrieved from
https://www.ksvadvisory.com/experience/case/equityline and https://www.jamstockex.com.