Peguis First Nation has hired a new law firm to contend with a $172-million lawsuit its chief says has effectively hampered his community’s finances.
The northern Interlake First Nation had previously argued in a statement of defence it doesn’t have to pay loans it described as illegal, unconscionable and part of “a Ponzi scheme.”
Peguis Chief Stan Bird said he’s brought in “a new set of eyes” to defend against the claim brought against Peguis by PricewaterhouseCoopers Inc., a court-ordered receiver for insolvent lender Bridging Finance Inc.
That $172 million sought from Peguis exceeds what the First Nation, which has 11,670 members living on and off reserve, spends every year on its annual budget.
“It’s almost like we can’t do very much until that’s resolved, and we do have our legal team looking at that right now,” Bird said in an interview.
“We brought on a new firm to address that because we need to move out from under this position that we’re in.”
In December 2022, four months before Bird was elected chief, PricewaterhouseCoopers filed the $172-million claim in Manitoba’s Court of King’s Bench, naming Peguis, its chief and council and five Peguis-associated corporations as defendants.
Peguis took out three loans in 2017 from Bridging Finance, according to an amended version of the claim.
Bridging was placed into court-ordered receivership in 2021 after the Ontario Securities Commission alleged managers with the company funnelled investors’ money to themselves.
PricewaterhouseCoopers is now trying to recover $99.5 million in principal plus $72.6 million in interest from Peguis for loans that matured at the end of 2020, according to the amended claim.
The loans had an interest rate equal to BMO Bank of Montreal’s prime lending rate plus 11 per cent, according to the amended claim.
One loan, taken out initially to build 50 homes on reserve and maintain existing housing, ended up being $41.7 million, according to the amended claim.
A second loan of $6.9 million was intended to build gas bars in Winnipeg and Selkirk, while a third loan, which totalled $50.9 million, replaced previous Bank of Montreal loans, according to the amended claim.
PricewaterhouseCoopers said in its amended claim it will accept $172 million in damages for breach of contract as an alternative to Peguis paying back the principal and interest.
As of July 2023, Peguis had not paid any of the money back, according to a Bridging Finance receivership update posted on the PricewaterhouseCoopers website.
Loans were illegal, Peguis argued
In a statement of defence filed on Sept. 1, 2023, five of the defendants — Peguis, its chief and council, the Peguis Development Corporation and two Peguis-associated numbered companies — denied most of the allegations.
Those defendants argued the loans from Bridging Finance were illegal because the managers used company funds and investor money “to personally enrich themselves, thereby committing fraud and other wrongdoings.”
The managers of Bridging Finance constituted “a criminal organization” and ought to have known Peguis “was not in any position” to repay the loans, the statement of defence stated.
“The scheme was in its entirety a Ponzi scheme for which no valid recourse is available to the receiver,” the statement of defence continued.
The Peguis defendants also called the loans “unconscionable” due to “the inexperience and financial naiveté of these defendants” compared to Bridging officials, according to the statement of defence.
They accused the latter of causing Peguis to default on earlier loans with BMO Bank of Montreal when Peguis took out some of its loans from Bridging, according to the statement of defence.
In a separate statement of defence, two other defendants — Chief Peguis Investment Corporation and Peguis First Nation Real Estate Development — denied most of the allegations, stating they were not the borrowers.
The latter two defendants also said in their statement that they rely on the defences put forward by the other defendants.
In a cross-claim against the five other defendants, Chief Peguis Investment Corporation and Peguis First Nation Real Estate Development seek to be paid if they are found liable to pay PricewaterhouseCoopers.
Writedown of Peguis debt questioned
Prior to Bird’s election as chief in 2023, Peguis First Nation posted financial statements for 2022 that indicated the debt owed to Bridging Finance had been written down to $25 million.
Bird said he questions the veracity of that claim, which PricewaterhouseCoopers has not confirmed.
Accounting firm Baker Tilly, which audited the Peguis financial statements, included a cautionary note about the writedown.
“We were unable to obtain third-party confirmation from the receivers of Bridging Finance Inc., a major creditor of the First Nation, which is in receivership. Thus, we were not provided with sufficient and appropriate evidence to support the existence and completeness of demand loan owning by the First Nation,” Baker Tilly wrote in the statement.
Mingzhi Liu, an accounting professor at the University of Manitoba, said a defendant under liquidation can seek solutions to write down debt.
“This case is different. Peguis First Nation unilaterally wrote down the debt without providing sufficient evidence,” Liu said. “That’s why Baker Tilly issued a qualified opinion.”