A Quebec law firm claims SNC-Lavalin Group Inc. misled investors and engaged in illegal activity in Libya, according to a proposed class-action lawsuit filed on Friday.

Shares in the construction and engineering firm fell more than 20 per cent Tuesday after it launched an investigation into $35 million in mysterious payments and said its 2011 earnings would be less than expected.

In addition to the company, the proposed class action by the law firm of Siskinds, Desmeules includes some of SNC's current and former executives and directors.

"The action alleges, among other things, that the defendants made statements that were materially false and misleading in regard to SNC-Lavalin's code of conduct, legal compliance, and internal controls," the law firm said.

"It is further alleged that SNC and certain members of its senior management team were engaged in unlawful activities in Libya during the class period, contrary to the defendants' class period statements."

The allegations have not been proven in court.

SNC Lavalin's involvement in Libya included a multimillion-dollar contract to build a prison as well as an airport and a massive irrigation project.

On Tuesday, the company launched an accounting probe into $35 million in undocumented payments the company booked last year and said it would have to delay reporting its financial results.

In addition, SNC said it expected to include a loss of about $23 million in the fourth quarter related to its operations in Libya and unfavourable cost changes on certain projects in its infrastructure and environment and chemicals and petroleum businesses.

Libyan operations controversial

The engineering giant has recently been under fire over its operations in Libya and has defended itself against allegations it was excessively cosy with the former Gadhafi regime.

The company parted ways with two of its executives earlier this year after acknowledging that the conduct of its employees had been questioned.

Executive vice-president Riadh Ben Aissa and vice-president finance Stephane Roy left the firm.

Ben Aissa has said the company misrepresented his departure and that he chose to resign and was not forced out.

The lawsuit is seeking $250 million on behalf of investors who bought SNC securities between March 13, 2009 and Feb. 28, 2012.

SNC shares closed up $1.12 at $39.98 Friday. A week earleir, on Feb. 27, the stock closed at $48.37.