A Toronto law firm has filed a $1.5 billion lawsuit on behalf of investors in Montreal-based SNC-Lavalin, alleging the company's directors are liable for the firm's cratered stock price because of an unfolding scandal surrounding questionable payments to secure contracts in North Africa.
Rochon Genova LLP launched a global class action against the TSX-listed engineering firm on Wednesday, alleging numerous securities law violations by the company, its board of directors and certain officers.
'Some directors choose not to ask so that they have credible deniability' —Business Prof. Fred Lazar
The suit seeks $1.5 billion in damages. At the end of February, SNC-Lavalin shares lost 20 per cent of their value, or roughly $1.5 billion, after the company issued a press release stating it had launched an investigation into $35 million of undocumented payments.
"That investigation later found the company had made $56 million of improper payments to foreign agents and that those payments had been authorized by the company's former CEO Pierre Duhaime," the law firm said in a release Wednesday.
Duhaime stepped down at the end of March but not before the company agreed to give him more than $5 million over the next two years.
"When a company repeatedly highlights its strong governance practices to the investing public, revelations of serious misconduct cause damage to the company's reputation and, in turn, substantial harm to its investors," Rochon lawyer John Archibald said.
Case may not proceed
So far, the lawsuit is uncertified, meaning it will be up to a judge to decide if an identifiable class of victims exists and if there is enough of a case to proceed to a trial. There is currently no timeline of when and if that might happen.
At the company's annual general meeting in Toronto last week, SNC-Lavalin's board of directors was re-elected without incident, but Schulich School of Business professor Fred Lazar said Wednesday the company's governance is in question.
"How can directors not ask the obvious questions and still claim that the board is following good corporate governance practices?" Lazar asked. "Unfortunately, some directors choose not to ask so that they have 'credible deniability'. Don't ask and the company doesn't tell, and then, when a scandal breaks, you have your defence: you didn't know," Lazar said.
When asked for comment by CBC News, SNC-Lavalin spokesperson Leslie Quinton said "we plan to vigorously defend ourselves, since we think we have always published information appropriately and accurately, following regulatory requirements and best practices regarding timely corporate disclosure."
The lawsuit is being brought on behalf of all investors, except those who live in Quebec, who purchased common shares in the company between February 2007 and February 2012, inclusive, or who purchased debentures of the company through the company's June 2009 prospectus offering.
A separate class action lawsuit has already been brought against the company along similar lines by Quebec-based law firm Siskinds, Desmeules.