A cohort of minority shareholders in New Zealand-based financial software provider FNZ Group is claiming the value of their shares was unfairly diluted and is threatening a lawsuit against the company and its largest shareholders, which include two major Canadian pension funds.
The dispute revolves around FNZ’s decision to raise about US$1.5-billion amid its expansion into markets in Europe, North America and Asia.
The Caisse de dépôt et placement du Québec, which invests $473-billion on behalf of dozens of pension and insurance funds, invested early in FNZ in 2018 and is the company’s largest single shareholder.
In 2022, the $700-billion Canada Pension Plan Investment Board (CPPIB), which invests for 22 million working and retired Canadians, invested US$1.1-billion in FNZ when the company was near its peak valuation.
The size of the Caisse’s and CPPIB’s ownership stakes is not publicly disclosed.
FNZ provides a digital wealth management platform to about 650 financial institutions such as banks and insurers, which collectively have 26 million wealth management clients and $1.7-trillion in assets under administration.
The company recently expanded to Canada, and Bank of Montreal is a major FNZ customer through a multiyear partnership to replace some digital systems for the bank’s private wealth and investing clients.
As FNZ expanded, it raised £250-million ($459-million) through a debt facility in April, 2024. Five months later, the company raised another US$700-million ($966-million) by issuing preference shares that could allow existing institutional shareholders to be paid back more than twice the amount of new money they invested.
The proceeds helped fund its operations and expansion plan, and the company refinanced US$2.1-billion of debt.
The preference shares issued last year give large shareholders a three-times preferred rate of return over three years, plus a special dividend that pays 18 per cent per year and additional warrants, according to legal letters reviewed by The Globe and Mail.
The Caisse, CPPIB and other institutional shareholders, including Singapore-based Temasek Holdings Ltd. and U.S.-based private equity firm Motive Partners, took part in each of the company’s recent funding rounds, purchasing preference shares.
About 200 owners of FNZ’s class B shares, who include current and former employees, have alleged through lawyers that those are “plainly uncommercial terms” designed to allow larger investors to maximize returns.
They allege that the company’s class B common shares, some of which they own, have been diluted by more than US$3-billion, significantly reducing their collective value.
In a letter sent to the company in late March, lawyers for the group alleged that “the board of FNZ appears to have enriched its own interests at the expense of minority, unrepresented shareholders.”
No formal legal proceeding has been launched, but the dissenting shareholder group said in a statement that it intends to file a class action against FNZ and its directors in a New Zealand court at the end of May.
Those employee shareholders, who have not identified themselves in the statement or through a spokesperson, allege the company and certain institutional investors who purchased preference shares could be liable for as much as US$6-billion.
In a letter, lawyers for FNZ responded by saying the shareholders’ financial claims are “simplistic and inaccurate.” They claimed FNZ pursued “the only viable options available” to raise funds, which are “absolutely necessary and critical” to keep the company afloat as it grows.
FNZ’s board of directors, which included founder and then-CEO Adrian Durham, unanimously approved the two capital raises in 2024, the company’s lawyers said.
“Management provided a response through their external legal counsel, which denied all of our claims and concerns – but with no real substance as to why," a spokesperson for the class B shareholder group said in an e-mailed statement. “This is a continuation of the inadequate engagement we‘ve experienced with management from the outset.”
FNZ describes the capital it raised as normal-course funding for a growing company that is investing in a business plan to boost cash flows and achieve long-term profitability.
“That capital provides financial strength. That capital allows us to service our clients. This capital benefits, directly or indirectly, our employees,” FNZ group president Roman Regelman said in an interview. “And of course, ultimately our mission is to deliver results for our institutional shareholders, and we‘re very proud, of course, to have these institutions among our backers.”
Yet FNZ’s lawyers have cast the capital injections in more urgent terms.
“The alternative to raising new capital was potentially catastrophic to all shareholders,” the company’s lawyers wrote.
At the time CPPIB invested in FNZ in 2022, the company was valued at more than US$20-billion, but it has not released an updated valuation since then – a period in which high interest rates have eaten away at what some companies are worth.
The Caisse, which has an FNZ board seat, and CPPIB now risk being dragged into potentially costly litigation. The class B shareholder group has said it would ask a court to join certain institutional shareholders to a class action, alleging that they “stood to gain from the conduct of their board representatives” and should “be ordered to make good to the shareholders.”
A spokesperson said the Caisse will not comment on potential legal proceedings, and a CPPIB spokesperson declined to comment.
Last year, around the time FNZ undertook the disputed preference share issue, the company changed its leadership. Mr. Durham stepped down to a board and advisory role. Financial executive Blythe Masters succeeded him as CEO, and Mr. Regelman joined as president. Both are “industry partners” at Motive Partners, which has a seat on FNZ’s board.
Minority shareholders were offered “catch-up rights,” allowing them a chance to buy into FNZ’s preference share raise at the same terms as the larger institutional investors. But the shareholder group’s lawyers say that was an empty offer, as most employee shareholders “do not have the means to subscribe on the terms offered.”
Mr. Regelman disputed that claim and countered that “when the company grows, the shareholders, institutional and individual, benefit.”
“The five institutional shareholders, employee shareholders, all have equal rights, equal participation, and all institutional shareholders have participated,” he said. “I think that’s a very important point on fairness, on equity.”
In April, FNZ raised a further US$500-million in a funding round, which the shareholder group claims “will further dilute” their holdings, according to a legal letter.
“The real basis for this move is unclear,” according to a statement from the shareholder group. “It can’t be an emergency, otherwise that would mean the board has presided over emergency funding, on unreasonable terms, in May, 2024, August, 2024 and now April, 2025.”
Lawyers for FNZ acknowledged that shareholders who do not subscribe to catch-up offers will be diluted by current and future capital raises, but say the company raised funding in the best interest of all shareholders.
“That does not make a capital raise, undertaken to ensure the survival of the Company, unfairly prejudicial,” they wrote.