In Re Computer Sciences Corporation Securities Litigation 11-CV-00610-Stipulation and
In Re Cinar Corporation Securities Litigation 1:00-CV-1086...
Transcript of In Re Cinar Corporation Securities Litigation 1:00-CV-1086...
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
IN RE CINAR CORPORATION Master File No. CV 00 1086
SECURITIES LITIGATION
This Document Relates To:
ALL ACTIONS
CONSOLIDATED AND AMENDED
CLASS ACTION COMPLAINT==
Plaintiffs, individually and on behalf of all other persons
similarly situated, by their undersigned attorneys, for their
consolidated and amended class action complaint, allege upon
personal knowledge as to themselves and their own acts, and upon
information and belief as to all other matters, based upon, inter
alia , the investigation made by and through their attorneys as
detailed in Paragraph 13.
NATURE OF THE ACTION
1. Plaintiffs bring this lawsuit as a class action on
behalf of themselves and all purchasers of limited voting shares
("Class B shares")"' of CINAR Corporation ("CINAR" or the
"Company") through the NASDAQ National Market ("NASDAQ") during
i/ CINAR's share capital consists of Variable Multiple
Voting Shares and Limited Voting Shares. Only Limited Voting
Shares were traded on the NASDAQ. The 1997 Offering (as defined
below) was for Subordinate Voting Shares which were redesignated as
Limited Voting Shares in 1998. The 1999 Offering (as de
below) also only offered Limited Voting Shares.
1553 / CMP / 00043823.WPD v 1 tr
the period April 8, 1997 through and including March 10, 2000
(the "Class Period"), and on behalf of sub-classes consisting of:
a) all purchasers of CINAR stock issued in connection with the
secondary public offering pursuant to the Registration Statement
dated March 3, 1999 (The "1999 Registration Statement") and
through the U.S./International Underwriters as defined therein
(the "1999 Offering"); and b) all purchasers of CINAR stock
issued in connection with the secondary public offering pursuant
to the Registration Statement dated September 23, 1997 (The "1997
Registration Statement") and through the U.S./International
Underwriters as defined therein (the "1997 Offering"); to recover
damages caused by defendants' violations of the federal
securities laws.
2. During the Class Period, CINAR and the Executive
Defendants, as defined below, caused CINAR to disseminate to the
investing public materially false and misleading financial
statements, press releases, and public filings concerning CINAR's
publicly reported revenues, earnings, and assets. Moreover, the
defendants issued materially false and misleading registration
statements in connection with the 1999 Offering of 7 million
Class B shares and the 1997 Offering of 3.1 million Class B
shares to the public, resulting in proceeds for CINAR totaling
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proximately $241 million.=
3. During the Class Period, with respect to claims brought
under the Securities and Exchange Act of 1934, CINAR and the
Executive Defendants engaged in a common course of conduct that
operated as a fraud on the integrity of the market for shares of
CINAR stock by intentionally and/or recklessly: i) overstating
CINAR's revenues and earnings which had been, in large part,
fraudulently obtained through tax credits; ii) failing to
disclose the improper and unauthorized investment of $122 million
of Company assets ; and iii) :ailing to record related party
transactions properly in accordance with U.S. and Canadian
Generally Accepted Accountinc Principles ("GAAP"). As a result,
all of the Company's 1997, 1:98 and 1999 financial reports and
public filings contained numorous material misstatements and
omissions. Indeed, the Company has announced that it will be
restating its fiscal year 197 and 1998 financial statements and
has yet to file its financial results for fiscal year 1999.
4. As a direct result of the defendants' continuing series
of false representations and material omissions, the market price
of CINAR Class B stock surged during the Class Period to a high
of $30.25 per share.
5. The false and misleading nature of defendants'
?/ All dollar amounts in the complaint are in U.S. Dollarsunless otherwise indicated.
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statements was concealed from the investing public until October
15, 1999, when the truth slowly began to emerge. On that day,
press reports began to circulate in the market that CINAR was
being investigated by Montreal police in connection with tax
credit fraud. A report published on Bloomberg on October 15,
1999, stated, in pertinent part, as follows:
The CBC [Canadian Broadcasting Corp.] reported that
Canadians were asked to sign screenplays that were
actually written by U.S. authors to secure tax breaks
that were intended for television productions that were
written by Canadians.
Indeed, it was later di.;closed that one of the Canadians used as
a "front" for scripts w_is Helen Charest, sister to Defendant
Charest, who had signed several scripts using a pseudonym and had
collected nearly $1 million (Cdn.) in royalties. In response to
these reports, CINAR an:iounced that its Audit Committee would be
conducting an internal -_nvestigation into the charges.
6. Immediately f,.)llowing the October 15, 1999 report, the
price of the Company's Class B stock plunged from more than
$28.00 per share on October 14, 1999 to $22.125 per share on
October 15, 1999 and continued to decline over the next few days.
7. Seeking to minimize the damage, CINAR and the Executive
Defendants made public statements in which they falsely stated
that any tax liability would be limited and immaterial. In
response to defendants' materially false and misleading
reassurances, the price of CINAR stock rebounded, climbing from
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$15.9375 per share on October 21, 1999 to $27.3875 per share on
February 8, 2000.
8. However, in a February 18, 2000 press release issued
over Business Wire , CINAR made another partial disclosure that
the financial and accounting impacts of the reviews of the
Company's records related to the tax practices allegations were
"expected to be greater than initially anticipated." Market
reaction to this announcement was immediate. The price of CINAR
Class B stock declined to $17.9375 per share from $24.625, a one-
day decrease of 27% and a decrease of over 40% from the Class
Period high of $30.25 per share reached on September 30, 1999.
Once again, however, this announcement only disclosed part of the
truth-
9. After the close of trading on March 6, 2000, the
Company issued a press release over Business Wire further
disclosing that:
[t]he Company has determined that approximately US $122million of its funds have been invested without theapproval of its Board of Directors. About US$86million of these investments have been pledged tosecure other investments. The Company's efforts todate have not permitted it to determine with claritythe nature of those other investments or their value.The Company is endeavoring to complete with the utmosturgency a special review of this matter to determineits legal position, and to obtain possession of suchfunds.
Hasanain Panju has been terminated as an officer
and employee of the Company. He was formerly the
Senior Executive Vice-President.
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The reviews by the Audit Committee and the Company,which have been broadened in scope, now suggest thatwhile the Company will make every effort to do so, theCompany may not be able to release its financialstatements for the 1999 financial year within theprescribed statuary delays.
10. In the wake of this shocking disclosure, husband and
wife team Ronald Weinberg and Micheline Charest, founders of the
Company, resigned as Co-Chief Executive officers.
11. The response to these stunning disclosures was swift
and devastating. CINAR's stock price plummeted $12.62 to --,lose
at $5.75 per share on March 7, 2000, an amaz_.ng plunge of -learly
70% in one day, and 80% f==-om the Class Period high. Tradieg in
CINAR ClaEs B stock has boon halted on the Ce:.nadian and American
stock excranges since March 8, 2000.
12. On March 10, 20(;0, CINAR announced it would be
restating its financial results for fiscal yE:ars 1997 and 1998
and the first three quarters of fiscal year -999 due to is:eues
related tc improperly obtee.ined tax incentive., nondisclosure of
related party transactions and unauthorized investment
transactions. To date, C1NAR had not filed its annual financial
statement for the year ended November 30, 1999.
13. Class members who purchased shares of CINAR Class B
stock throughout the Class Period have suffered and continue to
suffer substantial injury from the fraud perpetrated by the
Company's most senior executive officers.
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BASIS OF ALLEGATIONS
14. Plaintiffs' allegations set forth herein are based upon
their thorough investigation, conducted by and through their
attorneys, of all reasonably available sources of information,
including, but not limited to, the review of filings by CINAR
with the United States Securities and Exchange Commission
("SEC"), the Canadian securities regulatory authorities (on
"SEDAR")3I, as well as regulatory filings and reports, securities
analyst reports about the Company, press releases and other
public statements issued by the Company during the Class Period,
and media reports about the Company, including articles in
Canadian newspapers, and consultation with experts, including
forensic accountants. Plaintiffs believe that substantial
additional evidentiary support will exist for the allegations set
forth herein after a reasonable opportunity for discovery.
JURISDICTION AND VENUE
15. The claims alleged herein arise under Sections 10(b)
and 20 of the Securities Exchange Act of 1934 (the "Exchange
Act"), 15 U.S.C. §§ 78j(b) and 78t, and Rule 10b-5, 17 C.F.R.
3` Filings with Canadian securities regulatory authorities areelectronically filed on the System for Electronic Document Analysisand Retrieval (SEDAR). All references to Canadian filings by CINARwill hereinafter be referred to as SEDAR filings.
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§ 240.10b-5 promulgated thereunder; and Sections 11 and 15 of the
Securities Act of 1933 (the "Securities Act"), 15 U.S.C. §§ 77k
and 77o.
16. The jurisdiction of this Court is based on Section 27
of the Exchange Act, 15 U.S.C. § 78aa; Section 22 of the
Securities Act, 15 U.S.C. § 77v; and 28 U.S.C. § 1331 (federal
question jurisdiction).
17. Venue is proper in this District pursuant to Section 27
of the Exchange Act, Section 22 of the Securities Act, and 28
U.S.C. 1391(b) and (c). Although CINAR is a Canadian company,
its Class B stock tradES on the NASDAQ National Market, which the
Company represented to be its "principal trading market." CINAR
also reported that almost half of the Company's fiscal year 1998
revenues were generates. in the United States.
18. In addition, a substantial majority of the shares sold
in the 1997 and 1999 Offerings (90% and 77% respectively) were
sold, by agreement, to U.S. and other non-Canadian citizens.
Under the terms of the Underwriting Agreement in the 1997
Offering, the U.S./International Underwriters agreed to sell 2.7
million of the total 3 million shares being offered and were
prohibited from selling those shares in the Provinces of Montreal
or Quebec or to Canadian persons. Similarly, according to the
terms of the Underwriting Agreement in the 1999 Offering, the
U.S./International Underwriters agreed to sell more than 5.4
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million of the total 7 million shares being offered and were
prohibited from selling those shares in Canada or to Canadian
persons.
19. In connection with the acts alleged in this complaint,
defendants, directly or indirectly, used the means and
instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and
the facilities of the national securities exchanges and markets.
PARTIES
20. Lead Plaintiff The Kaufmann Fund purchased CINAR Class
B stock during the Class Period and pursuant to the 1997 and 1999
Registrat:i.on Statements as set forth in the schedule attached
hereto as Exhibit 1 and was damaged thereby. The Kaufmann Fund
was duly appointed to serve as Lead Plaintiff pursuant to Order
of this Court dated May 30, 2000.="
21. Plaintiff Richard A. Melanson purchased 200 shares of
CINAR stock on the open market through NASDAQ on July 7, 1999, at
$25 per share , a price which was artificially inflated by
defendants' misrepresentations.
22. Plaintiffs Chai Ha Tsung and Li Min Xia purchased 200
-" The Certification of The Kauffman Fund was previouslyfiled with the Court in connection with its motion for appointmentas lead plaintiff. The certifications of the other plaintiffs areon file with their originally filed complaints.
1553 / CMP / 00043823.WPD v1 9
shares of CINAR stock on the open market through NASDAQ on March
7, 2000 at $5.6875 per share, a price which was artificially
inflated by defendants' misrepresentations.
23. Plaintiff James Mobashery purchased 1000 shares of
CINAR stock on the open market through NASDAQ on March 8, 2000 at
$7.375 per share, a price which was artificially inflated by
defendants' misrepresentations.
24. Plaintiff Muhammed J. Kahn purchased 500 shares of
CINAR stock on the open market through NASDAQ on March 6, 2000 at
$7.00 per share, a price which was artificially inflated by
defendants' misrepresentations.
25. Defendant CINAR is a company organized under the laws
of the province of Quebec, Canada, and maintains its principal
executive offices at 1055 Rene-Levesque Blvd. East, Montreal,
Quebec. CINAR purports to be an integrated entertainment and
education company that develops, produces, markets and
distributes non-violent programming and supplemental education
products for children, families and educators worldwide. CINAR's
Entertainment Division is a supplier of live action and animated
children's and family programming, including the Emmy Award
winning ARTHURTM, that it markets and distributes to broadcast,
cable and other media outlets. As of June 22, 2000, CINAR had
over 33.1 million shares of Class B stock outstanding. During
the Class Period, the Company's Class B stock traded on the
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NASDAQ market, which is an open, efficient and well-developed
market, until trading was halted indefinitely on March 8, 2000.
CINAR's stock also traded on the Toronto Stock Exchange until
March 8, 2000 and on the Montreal Exchange until that exchange's
restructuring on December 3, 1999.
26. Defendant Ronald A. Weinberg ("Weinberg") was, at all
relevant times hereto, CINAR's Director, President and Co-Chief
Executive officer and served on the Company's Management
Committee. Defendant Weinberg resigned his executive positions
on or about March 6, 2000, but continues to serve on CINAR's
Board of Directors.
27. Defendant Micheline Charest ("Charest") was, at all
relevant times hereto, CINAR's Chairman of the Board of Directors
and Co-Chief Executive Officer and served on the Company's
Management Committee. Defendant Charest resigned from her
executive positions on or about March 6, 2000, but continues to
serve on CINAR's Board of Directors.
28. Defendant Hasanain Panju ("Panju"), at all relevant
times hereto, was the Company's Senior Executive Vice-President,
Director, and Chief Financial officer and served on the Company's
Management Committee. Panju was also listed on CINAR's press
releases as referenced herein as the Company's contact person.
Defendant Panju's employment with CINAR was terminated on March
6, 2000.
1553 / CMP / 00043823.WPD v]
29. Defendants Weinberg, Charest and Panju are collectively
referred to herein as the "Executive Defendants."
30. Defendant Marie-Josee Corbeil ("Corbeil") is, and was
at all relevant times hereto, the Company's Vice-President and
General Counsel and a Director and served on the Company's
Management Committee.
31. Defendant Ernst & Young ("E&Y") is a firm of chartered
accountants located at 1 Place Ville Marie, Bureau 2400,
Montreal Quebec,H3B 3M9 Canada. E&Y is also a member of Ernst &
Young International, Ltd., headquartered in New York, which is a
worldwide organization that provides integrated assurance &
advisory, corporate finance and tax services. E&Y has acted as
CINAR's outside auditors since 1992, audited CINAR's financial
statements for the fiscal years ended November 30, 1997 and
November 30, 1998 and rendered unqualified opinions on the 1997
and 1998 year end financial statements. E&Y's unqualified audit
opinions on CINAR's 1997 and 1999 financial statements appeared
in the 1999 Registration Statement.
32. Each Executive Defendant is liable as a participant in
a fraudulent scheme and course of business that operated as a
fraud or deceit on purchasers of CINAR Class B stock, by
disseminating materially false and misleading statements and/or
concealing materially adverse facts. The scheme: (i) deceived
the investing public regarding CINAR's business, growth,
operations, and the intrinsic value of CINAR Class B stock; and
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(ii) caused plaintiffs and other members of the Class to purchase
CINAR Class B stock at artificially inflated prices.
CLASS ACTION ALLEGATIONS
33. Plaintiffs bring this lawsuit pursuant to Rule 23(a)
and (b)(3) of the Federal Rules of Civil Procedure, on behalf of
themselves and a class (the "Class") of all persons who purchased
or otherwise acquired shares of CINAR Class B stock on the open
market through NASDAQ from April 8, 1997 through March 10, 2000,
inclusive (the "Class Period") and on behalf of Sub-Classes
consisting of:
a. All persons who purchased CCNAR stock i:sued in
the 1997 Offering pursuant :o the 1997
Registration Statement and through the
U.S./International Underwri:ers as defiled therein
(the "1997 Offering Sub-Cla3s"); and
b. All persons who purchased CCNAR stock issued in
the 1999 Offering pursuant =o the 1999
Registration Statement and through the
U.S./International Underwriters as defined therein
(the "1999 Offering Sub-Class") .
Excluded from the Class and Sub-Classes are the defendants named
herein, members of the immediate family of each of the
defendants, any partner, person, firm, trust, corporation,
officer, director or other individual or entity in which any
defendant has a controlling interest or which is related to or
1553 / CMP l 00043823.WPD v1 13
affiliated with any of the defendants, and the legal
representatives, agents, affiliates, heirs, successors-in-
interest or assigns of any such excluded party.
34. The members of the Class and Sub-Classes for whose
benefit this action is brought are so numerous that joinder of
all membersis impracticable. As of June 22, 2000, CINAR had
nearly 34 million shares of Class B stock outstanding.
Furthermore, more than 3 million CINAR Class B shares were issued
pursuant to the 1997 Registration Statement and more than 7
millio_1 CINAR Class B shares were issued pursuant to the 1999
Registration Statement. In addition, approximately 122 million
shares of CINAR Class B stock traded on the NASDAQ during the
Class Period. While the precise number of members of the Class
is not yet known and can only be ascertained through appropriate
discovery, plaintiffs believe there are, at a minimum, thousands
of geo_praphically dispersed members of the Class and Sub-Classes
who purchased CINAR stock during the Class Period.
35. The claims of plaintiffs are typical of the claims of
other members of the Class and Sub-Classes as plaintiffs and
members of the Class and Sub-Classes sustained damages arising
out of defendants' wrongful conduct in violation of federal law
as complained of herein.
36. There are questions of law and fact that are common to
members of the Class and Sub-Classes and predominate over any
questions affecting solely individual members of the Class and
Sub-Classes. Among the questions fo law and fact common to the
i ti53 / CMP / 00043823.WPD vl 14
Class and Sub-Classes are:
a. Whether defendants' acts as alleged herein
violated the federal securities laws;
b. Whether defendants participated in and pursued the
common course of conduct complained of herein;
c. Whether documents, press releases, reports and/or
statements disseminated to the investing public and CINAR's
shareholders during the Class Period omitted or misrepresented
material facts about the business, management, transactions,
markets, financial condition of CINAR, or became materially false
or misleading during the Class Period;
d. Whether the 1997 Registration Statement containEd
untrue statements of fact and/or omitted from disclosure material
facts which were necessary to make the representations made
therein not misleading.
e. Whether the 1999 Registration Statement contained
untrue statements of fact and/or omitted from disclosure material
facts which were necessary to make the representations made
therein not misleading.
f. Whether, with respect to the 1934 Act claims, the
defendants acted knowingly or recklessly in omitting to state
and/or misrepresenting material facts
g. Whether, with respect to the 1934 Act claims, the
market price of CINAR's Class B stock during the Class Period was
artificially inflated or maintained because of the defendants'
conduct complained of herein; and
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h. Whether the members of the Class and Sub-Classes
have sustained damages and, if so, the appropriate measure
thereof.
37. Plaintiffs will fairly and adequately protect the
interests of the members of the Class and Sub-Classes.
Plaintiffs are committed to the vigorous prosecution of this
action and have retained competent counsel experienced in
litigation of this nature. Plaintiffs have no interests
antagonistic to or in conflict with those the Class and Sub-
Classes.
3E.. For the reasons stated herein, a class action is
superior to other available methods for the fair and efficient
adjudication of this action and the claims asserted herein.
Furthermore, because of the damages suffered by the individual
Class rlembers may be relatively small, the expense and burden of
individual litigation makes it impr6cticable for the Class and
Sub-Class members to seek legal redress individually for the
wrongs complained of herein. Plaintiffs anticipate that there
will not be any difficulty in the management of this litigation
as a class action.
39. Plaintiffs will rely, in part, upon the presumption of
reliance established by the fraud-on-the-market doctrine in that:
a. Defendants made public misrepresentations or
failed to disclose material facts during the Class Period;
b. The omissions and misrepresentations were
material;
1553 / CMP / 00043823.WPD vI 16
c. At all relevant times, the market for the
securities of the Company was an efficient market for, among
others, the following reasons:
i) CINAR Class B stock met the requirements for
listing and was listed and actively traded on NASDAQ, a highly
efficient and automated market;
ii) As a regulated issuer, CINAR filed periodic
public reports with the SEC and the Canadian regulatory
authorities; and
iii) CINAR regularly communicated with the
investing public through the dissemination of various reports,
participated in meetings and conferences with investors and
securities analysts and through other customary means of
communicating such as the use of major newswire services for the
dissemination of press releases and providing information and
interviews about the Company to the business media.
d. The misrepresentations and omissions alleged would
tend to induce a reasonable investor to misjudge the value of the
Company's securities; and
e. Plaintiffs and members of the Class and Sub-
Classes purchased their CINAR stock between the time the
defendants failed to disclose or misrepresented material facts
and the time the true facts were disclosed, without knowledge of
the omitted or misrepresented facts.
40. As a result, the market for CINAR securities promptly
digested current information regarding the Company from all
1553/CMP/00043823.WPDvl 17
publicly available sources and reflected such information in
CINAR's stock price. Under these circumstances, all purchasers
of CINAR shares during the Class Period suffered similar injury
through their purchase of shares at artificially maintained
prices and a presumption of reliance applies.
41. It is appropriate to treat CINAR and the Executive
Defendants as a group for pleading purposes and to presume that
the false and misleading information conveyed in CINAR's public
filings as alleged herein is the collective action of the
narrowly defined group of defendants identified above.
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SUBSTANTIVE ALLEGATIONS
Background
42. CINAR purports to be an integrated entertainment and
education company. The Company develops, produces, post-produces
and distributes non-violent programming and educational products
for children, families and educators on an international basis.
The Company operates through two divisions: CINAR Entertainment
and CINAR Education. The Company has publicly described its
objective "to be a leading international provider of children's
and family programming and supplemental education products."
43. CINAR was incorporated _n 1976 by defendants Charest
and Weinberg, the wife and husband team that operated and
controlled the Company throughout the Class Period. After
initially focusing on program distribution for third parties and
sourcing content in Eastern Europe, the Company began to produce
and distribute its own content and build its proprietary library.
44. CINAR went public in Canada on September 15, 1993, on
the Montreal and Toronto exchanges, with an initial public
offering of 2.0 million shares. It became listed on the NASDAQ
in June 1994. Since then, the Company has completed four
secondary offerings, one in April 1995 for 2.6 million shares, a
second in July 1996 for 2.3 million shares, a third during the
Class Period in September 1997 for 3.1 million shares, and a
fourth during the Class Period in March 1999 for 7 million
shares. On April 28, 1998, CINAR declared a 2-for-1 stock split.
1553 / CMP / 00043823.WPD vi 19
The Tax Credit Scheme
45. In connection with an investigation by Canadian
regulatory authorities into charges of copyright violations, it
was discovered that CINAR had substituted the names of Canadian
citizens on scripts written by Americans in order to obtain tax
credits under certain incentive programs established by the
Canadian government. (The programs are detailed in ¶$ 62-63 and
76 below.)
46. One such Canadian "front" was Helene Charest, sister of
defendant Charest, who appeared on the scripts for several CINAR
productions under the pseudonym "Erica Alexandre," a name derived
from the names of defendants Charest ar.d Weinberg's two children.
Helene Charest received nearly $1 million (Cdn.) in royalties for
scripts written bT Americans but attributed to Erica Alexandre.
Helene Charest is not a writer and did not participate in the
writing of any sc:--ipts. The royalties were allegedly repaid in
December 1999.
47. Another Canadian, Thomas LaPierre, has also admitted to
signing his name to scripts written by American authors on behalf
of CINAR and claims that defendants Charest, Weinberg and Corbeil
asked him to draw up sub-contracts to pay the American authors.
Mr. LaPierre is the son of Laurier LaPierre, Chairman of Telefilm
Canada, a Canadian agency which provides funding to qualified
Canadian production companies for certified Canadian productions.
In fiscal 1998 and 1997, CINAR received $3.2 million (Cdn.) and
$6 million (Cdn.), respectively, in funding from Telefilm Canada
1553 / CMP / 00043823-WPD vi 20
for program production.
48. In response to the these allegations, the Royal
Canadian Mounted Police (the "RCMP") began investigating the
accusations of tax credit fraud against CINAR. In the course of
this investigation, the RCMP raided the offices of SODEC, an
agency which certifies productions for the Quebec provincial tax
credit and seized files relating to CINAR. In April, 2000, the
RCMP filed court documents relating to its tax credit fraud
investigation in which they allege that CINAR fraudulently
obtained $7.8 million (Cdn.) in tax credits for productions
falsely represented to have used Canadian scriptwriters. The
RCMP investigation is ongoing.
49. These facts were concealed from the investing public
until the partial cisclosure on October 15, 1999 as detailed in
¶93. It was not until the conclusion of the Class PDriod, on
March 10, 2000, thct the investing public was advised of the
depths of defendants' deceit.
` 'he Unauthorized Investment
50. In the course of its investigation into the allegations
of tax credit fraud, CINAR's auditing committee also discovered
that $122 million had been improperly invested without board
approval and which had not been properly reflected on the
Company's publicly issued financial statements. CINAR quickly
announced that it had recovered $36 million of the funds which
had been invested in Canadian government bonds or other
1553 / CMP / 00043823 _WPD v1 21
investment-grade securities, but it was initially unclear where
the remaining $86 million had been invested.
51. Then, on March 20, 2000, CINAR filed a lawsuit in the
Supreme Court of the Commonwealth of the Bahamas against three
affiliated financial firms - Norshield International Ltd.
("Norshield"), Globe-X Management Ltd. ("Globe Mgt.") and Globe-X
Canadiana Ltd. ("Globe Cdn."). In its suit, CINAR claimed that
$122 million had been invested with these companies without the
approval of CINAR's Board of Directors and sought to recover $76
million still outstanding. Norshield had forwarded $10 million
to CINAR shortly before CINAR's Bahamian litigation was
commenced.
52. CINAR has since disclosed that $86 million was used as
margin for the purchase of non-investment grade commercial paper
of Globe Cdn.
53. The $122 million had been invested through Norshield,
Globe Mgt., and Globe Cdn., all of whom are affiliated with
Norshield Financial Group ("NFG").
54. NFG has several ties with CINAR. For example, Mr.
Xanthoudakis, founder and President of NFG, is a known
acquaintance of defendants Weinberg, Charest and Panju. In its
Bahamian complaint, CINAR has alleged that each of these
defendants knew of and signed off on the $122 million investment.
And, in response to an inquiry by CINAR, NFG had confirmed that
it held certain securities on CINAR's behalf. In addition, NFG's
Vice-President of Finance, Mario Ricci, was previously employed
1553 / CMP / 00043823 .WPD vl 22
as CINAR's Corporate Controller. According to CINAR's Bahamian
complaint, Mr. Ricci also signed off on the investments prior to
his departure from CINAR. Another former CINAR director, Hubert
Marleau, is President of Palos Capital Corp., a merchant banker
that is part of the NFG group of companies. Throughout the Class
Period, none of these facts were disclosed to the investing
public.
55. As of July 6, 2000, CINAR had reported the recovery of
$60 million of the amount invested without board approval. The
Bahamian litigation has been suspended while CINAF. is in
negotiations with the Bahamian companies to recover the remaining
$62 million in investments.
Defendants ' Material Misstatements and Omissions
56. On April 8, 1997, CINAR issued a press release
announcing its financial results for the first qu^_rter ended
February 28, 1997 (the "April 8 Press Release"). The Company
reported that revenues for the first quarter ended February 28,
1997 increased 46% to $17.7 million (Cdn.) compared to $12.2
million (Cdn.) in the first quarter 1996. The Company has
admitted that these statements were materially false and
misleading by virtue of its announced intention to restate its
financial statements for fiscal year ending November 30, 1997.
57. On May 5, 1997, the Company filed an Interim Report for
the First Quarter Ended February 28, 1997 ("1Q97 Interim Report")
with SEDAR. The 1Q97 Interim Report also contained financial
1553 / CMP / 00043823.WPD vl 23
statements for the Company for the first quarter of 1997, among
other periods and reported assets of $41.9 million (Cdn.) in
marketable securities and $15.6 million (Cdn.) in tax credits
refundable. The Company has admitted that these statements were
materially false and misleading by virtue of its announced
intention to restate its financial statements for fiscal year
ending November 30, 1997.
58. On July 19, 1997, CINAR issued a press release
purporting to announce "record" results for both the second
quarter and six months ended May 31, 1997 (the "July 19 Press
Release"). The Company reported that revenues for the second
quarter of 1997 increased 36% to $19.7 million (Cdn.) from $14.5
million (Cdn.) for the comparable period in 1996. The Company
also reported that revenues for the first six months of fiscal
1997 increased 40% to $37.4 million (Cdn.) from $26.6 million
(Cdn.) for the same period in 1996. The Company has admitted
that these statements were materially false and misleading by
virtue of its announced intention to restate its financial
statements for fiscal year ending November 30, 1997.
59. On July 25, 1997, the Company filed an Interim Report
for the Second Quarter Ended May 31, 1997 ("2Q97 Interim Report")
with SEDAR. The 2Q97 Interim Report also contained financial
statements for the Company for the first quarter of 1997, among
other periods and reported assets of $40.9 million (Cdn.) in
marketable securities and $20.3 million (Cdn.) in tax credits
refundable as of May 31, 1997. The Company has admitted that
1553 / CMP / 00043823.W11D vl 24.
and funds from Telefilm Canada represented 1.5% of the
Company's revenues.
63. The 1997 Registration Statement contained the following
description of tax credits received by CINAR under one of the
Canadian government programs:
Since 1995, a refundable tax credit is available under
the Income Tax Act (Canada) for eligible film and
television productions undertaken by qualified Canadian
corporations. The credit is calculated on the basis of
each individual production and is available only to
taxable Canadian corporations whose activities are
primarily those of a Canadian film or video production
business carried on in Canada and which are Canadian-
controlled as determined for the purposes of the
Investment Canada Act. A corporation is controlled by
Canadians for purposes of the Investment Canada Act
where, inter alia, Canadians own a majority of the
voting interests. CINAR qualifies for the tax credit.
believes it will continue to so qualify and will use
its best efforts to ascertain that all its production
projects will continue to be eligible for the tax
credit. Tax credits refundable to CINAR pursuant to
this program amounted to $3.7 million in fiscal 1996.
These statements were materially false and misleading in that
they failed to disclose that in 1997 CINAR's efforts to obtain
those tax credits through the fraudulent substitution of Canadian
authors on scripts written by American writers.
64. Each of the Executive Defendants signed the 1997
Registration Statement and the Prospectus.
65. On or about October 15, 1997, CINAR issued a press
release once again purporting to announce "record" results for
the third quarter and nine months ended August 31, 1997 (the
"October 15 Press Release"). The Company reported that revenues
for the third quarter of fiscal 1997 increased 74% to $17.8
1553 / CMP / 00043823 .WPD vl 26
these statements were materially false and misleading by virtue
of its announced intention to restate its financial statements
for fiscal year ending November 30, 1997.
60. On September 29, 1997, CINAR completed a public
offering of 3,450,000 Subordinate Voting Shares, at a price of
$33.75 per share (including its over-allotment option of 450,000
shares) pursuant to the 1997 Registration Statement. The Company
received proceeds of $97,789,100 before subtracting expenses of
the offering.
61. The 1997 Registration Statement and Prospectus
contained misstatements of material fact and omitted from
disclosure facts necessary to make the statements made therein
not misleading. For example, the 1997 Registration statement
included the Company's financial results for the six months ended
May 31, 1997, as previously reported in the July 19, 1997 release
and in the 2Q97 Interim Report. The Company has admitted that
these statements were materially false and misleading by virtue
of its announced intention to restate its financial statements
for fiscal year ending November 30, 1997.
62. Further, with respect to the issue of tax credits, the
Registration Statement and Prospectus states that the Company
defrays part of its production costs through:
the benefits of government incentives, includingrefundable tax credits from the Canadian government andthe Quebec government and funds from The Canadian FilmDevelopment Corporation ("Telefilm Canada"). ... Forfiscal year 1996, refundable tax credits from theCanadian and Quebec government incentives represented6.4% and 14.7%, respectively, of the Company's revenues
1553 / CMP / 00043823.WPD vl 25
million (Cdn.) from $10.2 million (Cdn.) for the comparable
period in 1996. The Company also reported that revenues for the
first nine months of fiscal 1997 increased 50% to 55.2 million
(Cdn.) from $36.9 million (Cdn.) for the same period in 1996.
The Company has admitted that these statements were materially
false and misleading by virtue of its announced intention to
restate its financial statements for fiscal year ending November
30, 1997.
66. On October 30, 1997, the Company filed an Interim
Report for the Third Quarter Ended August 31, 1997 ("3Q97 Interim
Report") with SEDAR. The 3Q97 Interim Report also contained
financial statements for the Company for the third quarter of
1997, among other periods, and reported assets of $34.9 million
(Cdn.) in marketable securities and $18.7 million (Cdn.) in tax
credits refundable as of August 31, 1997. The Company has
admitted that these statements were materially false and
misleading by virtue of its announced intention to restate its
financial statements for fiscal year ending November 30, 1997.
67. On February 29, 1998, CINAR issued a press release
purporting to announce "record" financial. results for the fourth
quarter and year ended November 30, 1997 (the "February 29 Press
Release"). For the year ended November 30, 1997, the Company
reported that revenues increased 62% to $93.7 million (Cdn.) from
$57.9 million (Cdn.) in the previous year. The Company also
reported that revenues for the fourth quarter 1997 increased 83%
to $38.5 million (Cdn.) from $21.1 million (Cdn.) during the same
1553 / CMP / 0004332 3.WPD v 1 27
period in 1996. The Company has admitted that these statements
were materially false and misleading by virtue of its announced
intention to restate its financial statements for fiscal year
ending November 30, 1997.
68. On April 23, 1998, the Company filed an Annual Report
with SEDAR for the fourth quarter and year ended November 30,
1997 (the `1997 Annual Report"). The 1997 Annual Report also
contained financial statements for the Company for the fourth
quarter and year ended November 30, 1997, among other periods,
and reported $169.3 million (Cda.) in marketable securities and
$23.8 million (Cdn.) in tax credits refundable as of November 31,
1997. the Company has admitted that these statements were
materially false and misleading by virtue of its announced
intentihn to restate its financial statements for fiscal year
ending November 30, 1997.
69. On April 23, 1998, CI'\TAR issued a press release
announcing its financial results for the first quarter 1998, the
period ending February 28, 1998 (the "April 28 Press Release").
The Company reported that revenues for the first quarter
increased 61% to $28.6 million (Cdn.) compared to $17.7 million
(Cdn.) in the first quarter of 1997. The Company has admitted
that these statements were materially false and misleading by
virtue of its announced intention to restate its financial
statements for fiscal year ending November 30, 1998.
70. On April 29, 1998, the Company filed an Interim Report
with SEDAR for the first quarter ended February 28, 1998 (the
1553 / C'MP / 00043823.WPD vl 28
"1Q98 Interim Report"). The 1Q98 Interim Report also contained
financial statements for the Company for the first quarter ended
February 28, 1998, among other periods, and reported $129.4
million (Cdn.) in marketable securities and $25.2 million (Cdn.)
in tax credits refundable as of February 28. 1998. The Company
has admitted that these statements were materially false and
misleading by virtue of its announced intention to restate its
financial statements for fiscal year ending November 30, 1998.
71. On July 8, 1998, CINAR issued a press release
announcing its financial results for the second quarter and six
months ended May 31, 1998 (the "July 8 Press Release"). The
Company reported that revenues for the second quarter of 1998
increased 83% to $36.1 million (Cdn.) from $19.7 million (Cdn.)
for the comparable period in 1997 and that revenues for the first
six months of fiscal 1998 increased 73% to $64.6 million (Cdn.)
frorr $37.4 million (Cdn.) for the same period the prior year.
The Company has admitted that these statements were materially
false, and misleading by virtue of its announced intention to
restate its financial statements for fiscal year ending November
30, L998.
72. The Company filed an Interim Report with SEDAR for the
second quarter and six months ended May 31, 1998 (the "2Q98
Interim Report") on or about April 29, 1998. The 2Q98 Interim
Report also contained financial statements for the Company for
the second quarter ended May 31, 1998, among other periods and
reported assets of $127.9 million (Cdn.) in marketable securities
1553 / CMP / 00043823 .WPD vl 29
and $29 million (Cdn.) in tax credits refundable as of May 31,
1998; $169.3 million (Cdn.) in marketable securities and $23.8
million (Cdn.) in tax credits refundable as of November 30, 1997;
and $41 million (Cdn.) in marketable securities and $20.4 million
(Cdn.) in tax credits refundable as of May 31, 1997. The Company
has admitted that these statements were materially false and
misleading by virtue of its announced intention to restate its
financial statements for fiscal year ending November 30, 1998.
73. On or about October 21, 1998, CINAR issued a press
release purporting to announce its financial results for the
third quarter and nine months ended August 31, 1998 the "October
21, Press Release"). For the third quarter ended August 31,
1998, the Company reported that revenues increased 7I% to $30.5
million (Cdn.) ,. compared to $17.8 mill ion (Cdn.) in the third
quarter of 1997. The Company also repo::ted that, for the nine
months ended August 31, 1998, revenues increased 72% to $95.2
million (Cdn.), compared to $55.2 mill---on (Cdn.) in the 1997 nine
month period. The Company has admitted that these statements
were materially false and misleading by virtue of itE announced
intention to restate its financial statements for fiscal year
ending November 30, 1998.
74. On October 30, 1998, the Company filed an Interim
Report with SEDAR for the third quarter and nine months ended
August 31, 1998 (the "3Q98 Interim Report"). The 3Q98 Interim
Report also contained financial statements for the Company for
the third quarter ended August 31, 1998, among other periods, and
1553/CMP/00043823.WPDv1 30
reported assets of $87.5 million (Cdn.) in marketable securities
and $29 million (Cdn.) in tax credits refundable as of August 31,
1998. The Company has admitted that these statements were
materially false and misleading by virtue of its announced
intention to restate its financial statements for fiscal year
ending November 30, 1998.
75. On February 4, 1999, CINAR issued a press release
purporting to announce its financial results for the fourth
quarter of 1998, the period ending November 30, 1998, as well as
fiscal year 1998. The Company reported that revenues for the
1998 fiscal year increased 61.1% to $151 million (Cdn.) from
$93.7 million (Cdn.) for 1997. Defendant Weinberg commented on
the results in pertinent part as follows:
1998 was a tremendous year for CINAR . With Carson-Dellosa and HighReach Learning, as well as with thepending acquisition of Edisoft Ltd., an interactiveeducational software company , CINAR Education has thetools to increase expansiDn into the fast growingsupplemental education market..
The Company has admitted that :here statements were materially
false and misleading by virtue of its announced intention to
restate its financial statements for fiscal year ending November
30, 1998.
76. On or about February 8, 1999 CINAR filed its Form 40-F
(Annual Report of A Foreign Issuer) with the SEC which confirmed
the previously announced financial results ("1998 40-F"). On
that same date, CINAR filed its Annual Report with SEDAR (the
"1998 Annual Report"). Both the 1998 Annual Report and the Form
1553 / CMP / 00043823 .WPD vl 31
40-F contained audited consolidated financial statements. The
1998 40-F and the 1998 Annual Report, in a section entitled
"Industry Incentives," stated in pertinent part as follows:
Since 1995, a refundable tax credit is available under
the Income Tax Act (Canada) for eligible film and
television productions undertaken by qualified Canadian
corporations. The credit is calculated on the basis of
each individual production and is available only to
taxable Canadian corporations whose activities are
primarily those of a Canadian film or video production
business carried on in Canada and which are Canadian-
controlled as determined for the purposes of the
Investment Canada Act. A corporation is controlled by
Canadians for purposes of the Investment Canada Act
where, inter alia, Canadians own a majority of the
voting interests. CINAR qualifies for the tax credit.
CINAR believes that so long as, among other things, it
continues to be Canadian controlled as determined for
the purposes of the Investment Canada Act, it will
continue to so qualify and it will use its best efforts
to ascertain that all its production projects will
continue to be eligible for the tax credit. Tax
credits refundable to CINAR pursuant to this program
amounted to $6.8 million in fiscal 1998.
The Canadian government, through Telefilm Canada,
has implemented and sustained funding programs over the
last 15 years whereby Telefilm Canada may be assigned
an ownership interest in a production in exchange for
financial assistance. Such assistance may be in the
form of recoupable advances in script development,
investment in production, bridge financing, recouping
advances of the cost of dubbing into English or French
and grants of up to 75% of certain advertising and
promotion costs. Over the years, CINAR has
significantly reduced its reliance on funding from
Telefilm Canada. The Company received approximately
$3.2 million in fiscal 1998 compared to approximately
$6.0 in fiscal 1997, a decline from 6.5% to 2.1% of
total revenue.
Under terms of the current provincial tax creditsystem under the Taxation Act (Quebec), Quebec offers arefundable tax credit for Quebec film production equalto 33 1/3% of eligible manpower costs, which in turncannot exceed 45% of the total production cost of agiven project. The credit is calculated on the basis
1 553 / CMP / 00043823 .WPD vl 32
of each individual production and is available only to
a qualified corporation having an establishment in
Quebec and carrying on an eligible film or television
production business at a fixed place of business inQuebec, as long as the corporation is not controlled,directly or indirectly, by persons domiciled outsideQuebec. The Company will continue to be controlled bypersons domiciled in Quebec so long as more than 50% ofthe members of its Board of Directors are personsdomiciled in Quebec and shares having more than 50% of
the combined voting power of its outstanding shares are
beneficially owned by persons domiciled in Quebec. Taxcredits refundable to CINAR pursuant to the existingprogram amounted to $11.5 million in fiscal 1998.
These statements were materially false and misleading at the time
they were made as defendants had knowingly and/or recklessly
obtained the tax credit.:, by fraudulently claiming Canadian
authorsdip of scripts w--_itten by American citizens which would
have disqualified such CINAR programs from eligibility under the
government tax credit p_--ograms.
77. On,March 4, 1799, CINAR issued a press release
announcing that it had executed an underwriting agreement for the
sale to the public in the U.S. and Canada of 7,000,000 Limited
Voting Shares at a price of $20.00 (U.S.) per share. The press
release stated that 6,500,000 shares were to be sold by CINAR and
500,000 shares were to be sold by corporations controlled by
principal shareholders of the Company. In connection with the
Offering, on March 4, 1999, the Company filed the 1999
Registration Statement, which incorporated a prospectus (the
"1999 Prospectus"). In the aggregate, the 1999 Offering
generated proceeds of more than $150 million.
78. On March 23, 1999, CINAR issued a press release
1553 / CMP / 00043823. WPD vl 3 j
announcing that the underwriters for the offering had exercised
"in full their over-allotment option for an additional 1,050,000
Limited Voting Shares for $20.00 (U.S.) per share."
79. The 1999 Registration Statement and Prospectus
contained misstatements of material fact and omitted from
disclosure facts necessary to make the statements made therein
not misleading. For example, the 1999 Registration Statement
repeated the Company's financial results for, among other years,
fiscal year 1998, and contained the Company's 1998 financial
statements. The Company has admitted that these statements were
materially fal;e and misleading by virtue of its announced
intention to r state its financial' statements for fiscal year
ending November 30,I 1998.
80. Furt-ier, with respec-, to!the issue of tax credits, the
1999 Registration and Prospectus repeated verbatim the Company's
statements con_:erning the so-called "Industry Incentives"
contained in the 1998 Annual Report and reported that in fiscal,
1998 and 1997, CINAR received $6.8 million (Cdn.) and $5.9
million (Cdn.), respectively, to tax credits under the Investment
Canada Act and $11.5 million (Cdn.) and $10.7 million,
respectively (Cdn.), in tax credits under the Taxation Act
(Quebec). These statements were materially false and misleading
because they failed to disclose that a substantial portion of
these tax credits had been fraudulently obtained through CINAR's
practice of falsely representing scripts written by U.S. writers
as the work of Canadian citizens.
1553 / CMP / 00043823-WPD v1 34
81. The 1999 Registration Statement also contained a
material misstatement of fact regarding CINAR's investments.
CINAR's Balance Sheet listed assets of $70.4 million (Cdn.) in
Marketable Securities as of November 30, 1998 and $169.3 million
(Cdn.) in Marketable Securities as of November 30, 1997. Note 4
of the Notes to Consolidated Financial Statements states:
"Marketable Securities [17% (1997-18%) of which are denominated
in Canadian dollars and 83% (1997-82%)] consist of consist of
high investment grade securities and are carriec at cost which
approximated market value." This statement was materially false
and misleading in that it failed to disclose thc.t $122 million
had been invested and used as margin for the purchase of non-
investment grade commercial paper. As would later be disclosed,
the investments were made without authorization fromICINAR's
board of directors but with knowledge and/or reckless disregard
by the Executive Defendants.
82. Each of the Executive Defendants and Corbeil signed the
1999 Registration Statement.
83. On April 21, 1999, CINAR issued a press release
announcing its financial results for the first quarter of 1999,
the period ending February 28, 1999 ("April 21 Press Release").
The Company reported revenues for the first quarter increased
27.8% to $36.5 million (Cdn.), as compared to $28.6 million
(Cdn.) for the same period the prior year. The Company has
admitted that these statements were materially false and
misleading by virtue of its announced intention to restate its
1553 / CMP / 00043823 .WPD v1 35
financial statements for fiscal year ending November 30, 1998
84. The April 21 Press Release was attached to a Form 6-K,
which was filed with the SEC the same day as its release to the
public.
85. On April 27, 1999 CINAR filed a Form 6-K with the SEC
which attached the Company's First Quarter Interim Report for 3
months ended February 28, 1999 (the "1Q99 Interim Report"). The
1Q99 Interim Report contained a letter which was signed by
defendants Charest and Weinberg and was virtually identical to
the April 21 Press Release. The 1Q99 Interim Report also
contained financial statements for the Company for the first
quarter of 1999, among other periods. The report disclosed
assets of $113.8 million (Cdn.) in marketable securities and
$37.6 million (Cdn.) in tax credits refundable as of February 28,
1999; $70.4 million (Cdn.) in marketable securities and $33
million (Cdn.) in tax credits refundable as of November 30, 1998;
and $129.4 million (Cdn.) in marketable securities End $25.3
million (Cdn.) in tax credits refundable as of Febriary 28, 1998.
The Company has admitted that these statements were materially
false and misleading by virtue of its announced intention to
restate its financial statements for fir fiscal year 1998 and the
first three quarters of fiscal year 1999.
86. On July 7, 1999 CINAR issued a press release announcing
its financial results for the second quarter of 1999, the period
ending May 31, 1999 ("July 7 Press Release"). The Company
reported revenues for the second quarter increased 41.2% to $51.0
1553 / CMP / 00043823-WPD v 1 36
million (Cdn.), as compared to $36.1 million (Cdn.) for the same
period the prior year. The July 7 Press Release also contained a
"Consolidated Statement of Earnings." The Company has admitted
that these statements were materially false and misleading by
virtue of its announced intention to restate its financial
-statements for fiscal year 1998 and the first three-quarters of
fiscal year 1999.
87. The July 7 Press Release was attached to a Form 6-K,
which was filed with the SEC the same day as i'=s release to the
public, and attached the Company's Second Quarter Interim Report
for 3 months ended May 31, 1999 (the "2Q99 Intarim Report"). The
'2Q99 Interim Report contained a letter which was signed by
defendants Charest and Weinberg and was virtually identical to
the July 7 Press Release. The 2Q99 Interim Reaort also contained
!financial statements for the Company for the s?cond quarter of
1998, among other periods. The report disclos.?d assets of $261
!million (Cdn.) in marketable securities and $4.3 million (Cdn.) in
tax credits refundable as of May 31, 1999; $70.4 million (Cdn.)
in marketable securities and $33 million (Cdn.) in tax credits
refundable as of November 30, 1998; and $127.9 million (Cdn.) in
marketable securities and $29 million (Cdn.) in tax credits
refundable as of May 31, 1998. The Company has admitted that
these statements were materially false and misleading by virtue
of its announced intention to restate its financial statements
for fiscal year 1998 and the first three quarters of fiscal year
1999.
1553 / CMP / 00043823.WPD v1 37
88. On November 2, 1999, the Company filed an Interim
Report with SEDAR for the third quarter and nine months ended
August 31, 1999 (the "3Q99 Interim Report"). The 3Q99 Interim
Report also contained financial statements for the Company for
the third quarter ended August 31, 1999, among other periods.
The report disclosed assets of $237.6 million (Cdn.) in
marketable securities and $46.3 million (Cdn.) in tax credits
refundable as of August 31, 1999; $70.4 million (Cdn.) in
marketable securities and $33 million (Cdn.) in tax credits
refundable as of November 30, 1998; and $87.6 million (Cdn.) -n
marketable securities and $28.8 million (Cdn.) in tax credits
refundable as of August 31, 1998. The Company has admitted tat
these statements were materially false and misleading by virt_ie
of its announced intention to restate its financial statements
for fiscal year 1998 and for the first three quarters of fiscal
year 1999.
89. The statements referenced above in $$ 56 -59, 61, 63,
65-81, and 83-88; and in $11 94, 96, 99, and 101 below, were
materially false and misleading whaz^n made because defendants
misrepresented and failed to disclose the following facts:
(a) that the Company was falsely representing that it
was earning strong results and had continuing growth when in
fact, such results and growth were due to the fact that
defendants were fraudulently claiming that scripts written by
United States citizens were written by Canadian citizens in order
to obtain tax credits from the Canadian and Quebec governments;
1553 / CMP; 00043823.WPD v1 38
(b) that the Company's financial results were
artificially inflated by millions of dollars as a result of its
fraudulent tax practices which at all material times violated
both U.S. and Canadian GAAP;
(c) that, because Canadian broadcasters are required to
spend a specific amount on Canadian programming, they generally
pay a premium for Canadian productions. Thus, CINAR's Canadian
customers had arguably overpaid for foreign programming falsely
represented by CINAR to be Canadian programming and could seek
reimbursement of such overpayments;
(d) that, as a result of the forEgoing , defendants'
estimates, projections and opinions as to the Company's expected
revenues, earnings, income and value of itE stock were lacking in
reasonable basis at all relevant times; anc.
(e) that $122 million had been invested overseas
without authorisation from CINAR's board of directors, some of
which had been used as margin for the purchase of non-investment
grade commercial paper.
90. Under GAAP, restatement is a serious step reserved only
for situations in which no lesser remedy is available. According
to the Accounting Recommendations of the Auditing Standards Board
of the Canadian Institute of Chartered Accountants ("CICA
Handbook") § 1506, restatements are only permitted - and are
required - for material accounting errors or irregularities that
existed at the time the financial statements were prepared.
91. As a consequence of the misrepresentations and
1553 / CMP i 00043823-WPD vl 39
investigating alleged irregularities involving CINAR, a report
published on Bloomberg on October 15, 1999, stated, in pertinent
part, as follows:
The CBC [Canadian Broadcasting Corp.] reported that
Canadians were asked to sign screenplays that were
actually written by U.S. authors to secure tax breaks
that were intended for television productions that were
written by Canadians.
94. Following the public reports of potential tax issues at
CINAR, the price of the Company's Class B stock dropped from more
than $28.00 to X15.9375 per share. CINAR and the Executive
Defendants, however, immediately sought to counteract this
negative news ar_d resultant stock price drop by falsely
portraying any potential liability in connection with any tax
problems as lim._ted and not material. In this regard, on October
18, 1999, CINAR issued a press release announcing that "the
company has moved to deal with allegations contained in certain
media reports cc,ncerning practices with respect to Canadian
content rules related to television and film productions." The
press release stated:
The allegations in the media appear to pertain to
episodes produced several years ago and have no
relation to the current operations and activities of
the company. Based upon its review to date, CINAR
believes that such allegations will not have any
material adverse impact on the financial position or
results of the compan
Nonetheless, the Board of Directors has given a special
mandate to members of the Audit Committee of the Board,
composed only of outside directors, to review the
various issues associated with the allegations. The
Committee has been instructed to report its findings
and recommendations to the Board of Directors at the
earliest possible date. The Board reaffirms its intent
1553 / CMP / 00043823.WPD vl 41
concealment regarding the intentional use of unearned tax
credits, the massive amounts of unauthorized and undisclosed
investments and the failure to disclose or properly account for
related party transactions, every quarterly and annual financial
press release issued on behalf of CINAR during the Class Period,
and every quarterly and annual report distributed-to shareholders
and filed with the SEC or the Canadian regulatory authorities,
was materially inaccurate, as they contained or referenced
financial statements which overstated earnings and assets in
material amounts.
92. W--iile plaintiffs are not privy to ,he exact amoL-nt of
the restateaentsj for each period, by virtue _)f CINAR's st6-ted
intention t_) restate their financial results for the fiscal years
ended 1997 ±nd 1998, as well as all reported quarters for 1999,
defendants _ire implicitly acknowledging the -ateriality of the
misstatements and omissions contained in the restated
financials.-7
The Truth Begins to Emerg e
93. On October 15, 1999, press reports began to circulate
in the market that CINAR was being investigated by Montreal
police in connection with tax credit fraud. Following reports by
certain Canadian media that the Montreal police were
Such amounts will be pleaded with greater specificityonce CINAR has filed the restatement with the appropriate
regulatory agencies.
1553 / CMP / 00043823_WPD vl 40
to cooperate with all competent authorities. [Emphasis
added.]
95. The statements referenced above in ^j 94 were false and
misleading when made because CINAR and the Executive Defendants
lacked any reasonable basis for their stated belief that the
allegations would not have "any material adverse impact on the
financial position or results of the company." These statements
were also false and misleading because they misrepresented and
failed to disclose the adverse facts as set forth in ¶ 90.
96. Then, on October 19, 1999, CINAR issued a press release
announcing its financial results for the third quarter of 1999,
the period ending August 31, 1999 ("October 19 Press Release").
The Company reported revenues for the third quarter increased
52.3% to $46.5 million (Cdn.), as compared to $30.5 million
(Cdn.) for the same period the prior year. The Company has
admitted that these statements were materially false and
misleading by virtue of its announced intention to restate its
financial statements for the first three quarters of fiscal year
1999.
97. As further proof that the market was still being misled
by CINAR, in conjunction with the Company's attempts at
stabilizing its stock price, Jeffries & Co, Inc. ("Jeffries &
Co.") reported on October 20, 1999 as follows:
The company reported an upside surprise for 3099,driven primarily by better-than-expected gross marginimprovement in both its entertainment and educationdivisions. In relation to recent reports of potentialtax fraud allegations, we remain confident that thereis no systematic attempt by Cinar management to defraud
1553 / CMP / 00043823.WPD vl 42
the Canadian tax credit program.
98. Following these announcements, the price of CINAR stock
gradually rebounded, climbing from $15.9375 per share on October
21, 1999 to $27.3875 per share on February 8, 2000.
99. On February 18, 2000, CINAR issued a press release
which reported:
The Company and its Audit Committee and theirrespective advisors have been reviewing the Company'srecord relating to its productions, including thosewith respect to scriptwriting. These reviews arecontinuing as part of the preparation of financialstatements for the 1999 fiscal year. Management andthe auditors of the Company are working closelytogether with a view to finalize the Company'sfinancial statements for the 1999 fiscal year: they areexpected to be available in a few weeks time, withinthe regulatory time frame.
The financial and accounting impacts of the outcome ofthose reviews, although not yet determined, areexpected to be greater than initially anticipated.However, the Company expects that the outcome of suchreviews will not undermine its financial strength orliquidity. Management is positive about its ongoingbusiness activities.
100. Market reaction to the uncertainty described by this
announcement was immediate and punitive for CINAR shareholders.
The price of CINAR Class B stock declined to $17.9375 per share
from $24.625, a one-day decrease of 27% and a decrease of over
40% from a Class Period high of $30.25 per share reached on
September 9, 1999.
101. On March 6, 2000, after the close of trading, the
Company issued a press release over the Canadian Corporate News
wire services in which additional partial disclosures were made:
1553 / CMP / 00043823.WPD v] 4 -)
party transactions. Furthermore, it alsoappears likely that the financial informationreported for the first, second and thirdquarters of fiscal 1999 will need to berestated for issues related to taxincentives, disclosure of related partytransactions and unauthorised [sic]transactions. Accordingly, the Company'spreviously issued financial statements forthe financial years ended November 30, 1997and 1998 as well as for the first, second andthird quarters of the 1999 financial yearand, where applicable, the auditors' reportthereon, should not be relied upon.
105. Because CINAR has failed to file its financial
statements for the year ending November 30, 1999 with the SEC and
Canadian regulatory authorities, it faces delisting from the
NASDAQ and the Toronto Stock Exchange. CINAR representatives met
with NASDAQ officials on July 13, 2000, in an effort to convince
the exchange nct to delist CINAR's shares and to update NASDAQ on
ElY's ongoing audit.
106. In the interim, Telefilm Caiada and Canadian Televison
Fund, two organizations which provide funding to Canadian
productions, have halted all dealings with CINAR until it can
provide more information about its financial situation and the
tax credit fraud.
107. As of the date of this complaint, CINAR has not
announced the completion of E&Y's audit of CINAR's fiscal year
1999 financials, which is said to be delayed due to the discovery
of additional scripts which were falsely credited as authored by
Canadians for purposes of improperly receiving tax credits. In a
National Post article dated June 21, 2000, CINAR's newly
1553/CMP/00043823.WPDv1 45
appointed Chief Executive Officer, Barrie Usher, is quoted as
saying, "We did find some more items that had to be investigated
and that has really slowed up the issue of finalizing the tax
credit situation."
SCIENTER ALLEGATIONS
108. As alleged herein, CINAR and the Executive Defendants
acted with scienter in that they knew or recklessly disregarded
that the public documents and statements issued or disseminated
in the name of CINAR were materially false or misleading; knew or
recklessly disregarded that such statements or documents would be
issued or disseminated to the investing public; and knowingly or
recklessly substantially participated or acquie"ced in the
issuance or dissemination of such statements or documents as
primary violators of the federal securities lawrr. As set forth
elsewhere herein in detail, CINAR and the Executive Defendants,
by virtue of their receipt of information reflecting the true
facts regarding CINAR, their control over, and/&r receipt and/or
modification of CINAR's allegedly materially misleading
misstatements and/or their associations with CINAR which made
them privy to confidential proprietary information concerning
CINAR, participated in the fraudulent scheme alleged herein.
Indeed, with respect to defendants Weinberg and Charest, a family
member, using the collective names of the defendants' children,
took credit for scripts written by American citizens. As a
result, at least with respect to these defendants, actual
1553 / CMP / 00043823.WPD vl 46
knowledge of the fraudulent tax credit scheme can be inferred.
109. The misstatements and omissions of CINAR and the
Executive Defendants regarding the Company's fraudulent tax
practices and the wholly improper and undisclosed investment of
$122 million of the Company's funds artificially inflated and
served to maintain the price of CINAR's Class B stock at an
artificially high price.
110. CINAR and the Executive Defendants were motivated to
conceal the true nature of CINAR's revenues which were
artificially inflated by the Company's fraudulent tax practices
in order to artificially inflate the Company's Class B stock
price which was being used as currency in negotiating and s
consummating numerous stock-for-stock acquisitions during the
Class Period. CINAR's artificially inflated stock price allowed
these defendants to exchange less CINAR stock for acquisitions,
while simultaneously allowing the Executive Defendants and
Corbeil to expand CINAR without suffering a corresponding amount
of dilution of their personal stock holdings that normally
accompanies stock-for-stock acquisitions.
ill. Specifically, on July 2, 1997, CINAR announced that it
had agreed to purchase Carson-Dellosa Publishing Company Inc. and
two of its subsidiaries ("Carson-Dellosa") for $24.5 million in
cash and $16 million in CINAR Class B subordinate-voting shares.
CINAR's artificially inflated stock price allowed defendants to
exchange less CINAR Class B stock in its deal with Carson-
Dellosa, while simultaneously allowing the Executive Defendants
1553 / CMP / 00043823.WPD vl 47
[t]he Company has determined that approximately US $122million of its funds have been invested without theapproval of its Board of Directors. About US$86million of these investments have been pledged tosecure other investments. The Company's efforts todate have not permitted it to determine with claritythe nature of those other investments or their value.The Company is endeavoring to complete with the utmosturgency a special review of this matter to determineits legal position, and to obtain possession of suchfunds. Hasanain Panju has been terminated as anofficer and employee of the Company. He was formerlythe Senior Executive Vice-President. Although thereviews by the Audit Committee and the Company, whichhave been broadened in scope, now suggest that whilethe Company will make every effort to do so, theCompany may not be able to release its financialstatements for the 1999 fiscal year within theprescribed statuary delays.
102. In the wake of this shocking disclosure, husband and
wife team Ronald Weinberg and Micheline Charest resigned as co-
chiEf executives.
103. The response of investors to these stunning disclosures
was swift and devastating. On the NASDAQ exchange, CINAR's stock
price plummeted $12.62 to close at $5.75 per share on March 7,
200C - an amazing plunge of nearly 70% in one day, and 80% from
the Class Period high. Trading in CINAR stock has been halted on
the Canadian and American stock exchanges since March 8, 2000.
104. On March 10, 2000, CINAR issued a press release stating
that:
[A]s a result of the reviews undertaken bythe Company and its Audit Committee anddiscussions with its auditors, it appearslikely its audited financial statements forthe financial years ended November 30, 1997and 1998 will need to be restated. Thereasons for such restatements relate to taxincentives and the disclosure of related
1553 / ('MP / 00043823.WPD v] 44
and Corbeil to expand CINAR without suffering a corresponding
amount of dilution of their personal holdings.
112. Later, on May 26, 1998, CINAR announced that is had
agreed to acquire High Reach Learning for approximately $26
million, including 422,000 Limited Voting Shares of CINAR. Once
again, CINAR's artificially inflated stock price allowed
defendants to exchange less CINAR Class B stock in its deal with
Carson-Dellosa, while simultaneously allowing the Executive
Defendants and Corbeil to expand CINAR without suffering a
corresponding amount of dilution of their personal holdings.
113. In addition, CINAR and the Executive Defendants were
motivated to artificially inflate the price of CINAR shares in
order to complete the 1997 and 1999 Secondary Offerings of CINAR
stock during the Class Period.
114. The undisclosed adverse information concealed by
defendants during the Class Period is the type of inforrration
which, because of SEC regulations, rules of the national stock
exchanges and customary business practice, is expected by
investors and securities analysts to be disclosed to the
investing public. This information is known by corporate
officials and their legal and financial advisors to be the type
of information which is expected to be and must be disclosed.
Under Item 303 of Regulation S-K, promulgated by the SEC under
the Exchange Act, there is a duty to disclose in periodic reports
filed with the SEC "known trends or any known demands,
commitments, events or uncertainties" that are reasonably likely
1553 / CMP / 00043823.WPD v 1 48
to have a material impact on a company's sales revenues, income
or liquidity, or cause previously reported financial information
not to be indicative of future operating results. 17 C.F.R.
§ 229.303(a)(l)-3(3) and Instruction 3. In addition to the
periodic reports required under the Exchange Act, management of a
public company has a duty promptly "to make full and prompt
announcements of material facts regarding the company's financial
condition." SEC Release No. 34-8995, 3 Fed. Sec. L. Rep. (CCH)
23,120A, at 17,095, 17 C.F.R. § 241.8995 (October 15, 1970).
The SEC regulates companies "that can reasonably be expected to
reach investors and the trading markets, whoever the intended
primary audience." SEC Release No. 33-6504, 3 Fed. Sec. L. Rep.
(CCH) ¶ 23,120, at 17,095-3, 17 C.F.I.z§ 241.20560 (January 13,
1984). The SEC has emphasized that '[i]nvestors have legitimate
expectations that public companies a:--e making, and will continue
to make, prompt disclosure of signif:_cant corporate
developments." SEC Release No. 1827=., [1981-1982 Transfer
Binder] Fed. Sec. L. Rep. (CCH) ¶ 83,049, at 84,618 (November 19,
1981). Defendants' violation of Item 303 of Regulation S-K,
serve as further indicia of their scienter because the
undisclosed information was known to defendants and such
information suggested that their public statements regarding
CINAR's revenues and assets were not accurate.
115. The market for CINAR Class B stock was open, well-
developed and efficient at all relevant times. As a result of
the materially false and misleading statements and failures to
1553 I CMP I00043823.WPD vt 49
disclose the full truth about CINAR, its business and its
improper activities, CINAR Class B stock traded at artificially
maintained prices throughout the Class Period. Plaintiffs and
other members of the Class purchased or otherwise acquired CINAR
Class B stock relying upon the integrity of the market price of
CINAR Class B stock and market information relating to the
Company or, in the alternative, upon defendants' materially false
and misleading statements, and in ignorance of the adverse,
material undisclosed information and false financial statements
known to defendants and have been damaged thereby.
Violations of GAAP and Auditing Standards
116. The SEC requires that publicly-traded companies present
their financial. statements in accordance with GAAP. 17 C.F.R. §
210.4-01(a)(1). CINAR's 1997 and 1998 annual financial
statements and the interim financial statements on Form 6-K
issued throughout the Class Period were materially misstated and
were presented in a manner which violated GAAP because, among
other reasons:
a. They were not prepared on a consistent basis;
b. Amounts due from governments were overstated;
c. They failed to report marketable securities at
their net realizable value, and all of the
interest income that was derived therefrom; and
the assets, equity and income, of the enterprise
were overstated.
1553 / CMP / 00043823-WPD vl 50
117. CINAR's financial statements also violated the
following GAAP principles, among others:
a. The principle of fair presentation ("presents
fairly"). ( See APB No. 4, ¶(¶ 109, 138, 189, and
Canadian Institute of Chartered Accountants
("CICA") Handbook, Sections 1000 and 1500)
b. The principle of adequacy and fairness of
disclosure. ( See APB No. 4, $11 81, 106, 189, 199
and CICA Handbook, Accounting, pp 9-10.)
c. The principle of materiality concerning
information that is significant enough to affect
evaluations or decisions. ( See APB No. 4, $$ 25,
128 and CICA Handbook, Section 1000.)
d. The principle that the substance of transactions
rather than form should be reflected. ( See APB
No. 4, 11$ 25, 35, 127 and CICA Handbook, Section
1000.)
f. The principle that the financial statements
contain and disclose relevant, understandable, and
timely information for the economic decisions of
the user. ( See APB No. 4, ¶$ 23, 88, 89, 92 and
CICA Handbook, Section 1000.)
g. The principle that the financial statements
provide reliable financial information about the
enterprise for the economic decisions of the user.
( See APB No. 4, ¶ ¶ 77, 78, 107, 108 and CICA
1553 / CMP / 00043823 . WPD v1 51
Handbook, Section 1000.)
118. Defendant E&Y did not plan, staff, execute and finalize
the audits of CINAR in accordance with Canadian Professional
Standards. In particular:
a. E&Y did not design the audits in a manner that
would provide reasonable assurance of detecting
errors and irregularities (intentional
misstatements) that are material to the financial
statements;
b. E&Y did not obtain sufficient knowledge of matters
relating to the nature of CINAR's business and its
organizational and operating characteristics;
c. E&Y did not adhere to the principle that items
included in the financial statements be reliably
corroborated by outside evidence ("verifiability")
d. E&Y did not confirm the existence of CINAR's
reported investments and did not verify ownership
of such investments;
e. E&Y failed to audit the value of the reported
marketable securities and did not trace the income
received from investments;
f. E&Y did not ascertain whether the income received
from CINAR's investments was commensurate with the
risks;
g. E&Y did not confirm or verify whether securities
had been pledged;
1 553 CMP 00043923 WPD vl 52
h. E&Y did not investigate properly all related party
transactions;
i. E&Y did not confirm or verify CINAR's eligibility
for government grants and tax credits; and
j. E&Y did not evaluate properly the collectibility
of CINAR's receivables, including grant money from
government programs.
( See CICA Handbook, Sections 5000, 5025, 5090, 5100, 5130, 5135,
5136, 5140, 5145, 5150, 5200, 5205, 5300, 5301, 5303, 5400, 5405,
and 5510.)
COUNT I
ON BEHALF OF THE CLASS AGAINST CINAR
AND THE EXECUTIVE DEFENDANTS FOR
VIOLATIONS OF SECTION 10(b) OF THE
EXCHANGE ACT !iND RULE 10b-5 OF THE
SECURITIES ANT) EXCHANGE COMMISSION
119. Plaintiffs repeat and reallege each and every preceding
allegation as if fully set forth herein.
120. This count is brought by plaintiffs pursuant to Section
10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder
by the SEC against CINAR and the Executive Defendants.
121. During the Class Period, CINAR and the Executive
Defendants, and each of them, carried out a plan, scheme and
course of conduct which was intended to and, throughout the Class
Period, did: (i) deceive the investing public, including
plaintiffs, as alleged herein; (ii) artificially inflate and
1553 ! CMP / 00043823. WPD v1 53
maintain the market price of CINAR's securities; and (iii) cause
plaintiffs to purchase CINAR's securities at artificially
inflated prices. In furtherance of this unlawful scheme, plan
and course of conduct, CINAR and the Executive Defendants, and
each of them took the actions set forth herein.
122._CINAR and each of the Executive Defendants (a) employed
devices, schemes, and artifices to defraud; (b) made untrue
statements of material fact and/or omitted to state material
facts necessary to make the statements not misleading; and (c)
engagqed in acts, practices, and a course of business which
oper,ited as a fraud and deceit upon the purchasers of CINAR stcck
in a:i effort to maintain artificially high market prices for
CINA-I's securities in violation of Section 10(b) of the Exchance
Act and Rule 10b--5.
123. In addition to the duties of full disclosure imposed on
the xecutive Defendants, by their status as controlling persons
of C:`:NAR, as a result of their affirmative statements and
repots, or participation in the making of affirmative statements
and reports to the investing public, these defendants had a duty
to promptly disseminate truthful information that would be
material to investors in compliance with the integrated
disclosure provisions of the SEC as embodied in SEC Regulation
S-X (17 C.F.R. Sections 210.01 et seq.) and S-K (17 C.F.R.
Sections 229.10 et seq.) and other SEC regulations, including
accurate and truthful information with respect to CINAR's
operations and financial condition so that the market price of
1553 / CMP / 00043823 -WPD vJ 54
CINAR's Class B stock would be based on truthful, complete and
accurate information.
124. CINAR and the Executive Defendants, individually and in
concert, directly and indirectly, by the use of means or
instrumentalities of interstate commerce and/or of the mails,
engaged and participated in a continuous course of conduct to
conceal adverse material information about the business and
operations of CINAR as specified herein. These defendants
employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged
in acts, practices, and a course of conduct as alleged herein in
an effort to assure investors of CINAR's value and performance
and continued substantial growth, which included the making of,
or the participation in. the making of, untrue statements of
material facts and omitting to state material facts necessary in
order to make the statements made about CINAR and its business
operations in light of the circumstances under which they were
made, not misleading, as set forth more particularly herein, and
engaged in transactions, practices and a course of business which
operated as a fraud and deceit upon the purchasers of CINAR
securities during the Class Period.
125. Each of the Executive Defendants' primary liability
arises from the following facts: (i) the Executive Defendants
were high-level executives and/or directors at CINAR during the
Class Period and members of the Company's management team or had
control thereof; (ii) each Executive Defendant enjoyed
1553 / CMP l 0004382 I.WPD vl 55
significant personal contact and familiarity with the other
defendants and was advised of and had access to the other
defendants' internal reports and other data and information about
CINAR's policies and practices at all relevant times; (iii) each
of these defendants, by virtue of his or her responsibilities and
activities as a senior officer and/or director of the Company was
privy to and participated in the creation, development and
reporting of the Company's internal budgets, plans, projections
and/or reports; and (iv) each Executive Defendant was aware of
CINAR's dissemination of information to the investing public
which they knew or recklessly disregarded was materially false
and misleading.
126. The Executive Defenc.ants had actual knowledge of the
misrepresentations and omissic.ns of material facts set forth
herein, or acted with recklesE disregard for the truth in that
they failed to ascertain and to disclose such facts, even though
such facts were available to them. Such defendants' material
misrepresentations and/or omissions were done knowingly or
recklessly and for the purpose and effect of concealing the true
nature of CINAR's operating condition and future business
prospects from the investing public and supporting the
artificially inflated price of its securities. As demonstrated
by said defendants' overstatements and misstatements of CINAR's
business, operations and earnings throughout the Class Period,
said defendants, if they did not have actual knowledge of the
misrepresentations and omissions alleged, were reckless in
1553 / CMP / 00043823.WPD vl 56
failing to obtain such knowledge by deliberately refraining from
taking those steps necessary to discover whether those statements
were false or misleading.
127. As a result of the dissemination of the materially
false and misleading information and failure to disclose material
facts by CINAR and the Executive Defendants, as set forth above,
the market price of CINAR Class B stock was artificially inflated
and maintained throughout the Class Period. In ignorance of the
fact that the market price of CINAR's Class B stock was
artificially inflated and maintained, and relying directly or
indirectly on the false and misleading statements made by
defendants, or upon the integrity of the market in which CINAR's
Class B stock trades, and the truth of any representations made
to appropriate agencies as to the investing public, at the times
at which any statements were wade, and/or on the absence of
material adverse information that was known to or recklessly
disregarded by CINAR and the Executive Defendants but not
disclosed in public statements by CINAR and the Executive
Defendants during the Class Period, plaintiffs and the other
members of the Class acquired CINAR Class B stock during the
Class Period at an artificially high price and were damaged
thereby.
128. At the time of said misrepresentations and omissions,
plaintiffs and other members of the Class were ignorant of their
falsity, and believed them to be true. Had plaintiffs and the
other members of the Class and the marketplace known of the true
1553 /CMP / 00043823_WPD v1 57
financial condition and business prospects of CINAR, which were
not disclosed, plaintiffs and other members of the Class would
not have purchased or otherwise acquired CINAR Class B stock
during the Class Period, or, if they had acquired CINAR Class B
stock during the Class Period, they would not have done so at the
artificially inflated prices which they paid.
129. By virtue of the foregoing, CINAR and the Executive
Defendants have violated Section 10(b) of the Exchange Act, and
Rule lOb-5 promulgated thereunder.
130. As a direct and proximate result of the wrongful
conduct of the CINAR and the Executive Defendants, plaintif-s and
the other members of the Class suffered damages in connection
^)ith their purchases of CINAR's Clasp B stock during the Class
Period.
131. The undisclosed adverse information concealed by C'INAR
nod the Executive Defendants during the Class Period is the type
of information which, because of SEC regulations, rules of the
rational stock exchanges and customary business practice, is
expected by investors and securities analysts to be disclosed to
the investing public. This information is known by corporate
officials and their legal and financial advisors to be the type
of information which is expected to be and must be disclosed.
1 553 / CMP / 00043823 .WPD vl 58
COUNT II
ON BEHALF OF THE CLASS AGAINST THEEXECUTIVE DEFENDANTS FOR VIOLATIONS
OF SECTION 20(a) OF THE EXCHANGE ACT
132. Plaintiffs repeat and reallege each and every preceding
allegation as if fully set forth herein.
133. The Executive Defendants acted as controlling persons
of CINAR within the meaning of Section 20(a) of the Exchange Act
as alleged herein. By virtue of their high-level positions, and
their ownership and contractual rights, participation in and/or
awareness of the Company's operations and/or intimate knowledge
of the Company's internal financial condition, business practice
and acquisitions, these defendants had the power to influence and
control and did influence and control, directly or indirectly,
the decision-making of CINAR, including the content and
dissemination of the various statements which plaintiffs contend
are false and misleading. The Executive Defendants were each
provided with or had unlimited access to copies of CINAR's
internal reports, press releases, public filings and other
statements alleged by plaintiffs to be misleading prior to and/or
shortly after these statements were issued and had the ability to
prevent the issuance of the statements or cause the statements to
be corrected.
134. In particular, each of these defendants had direct
involvement in or intimate knowledge of the day-to-day operations
of CINAR and therefore, is presumed to have had the power to
1553/ CMP / 00043823. WPD v 1 59
control or influence the particular transactions giving rise to
the securities violations as alleged herein, and exercised the
same.
135. Furthermore, as of March 18, 1999, defendants Weinberg
and Charest each own approximately 2.5 million (total 5 million)
of CINAR's Class A shares. Thus, Weinberg and Charest, who are
husband and wife, collectively own a controlling 62.40 of CINAR's
total voting rights. Defendant Corbeil owns 1500 Class A shares
and defendant Panju owns 3300 Class A shares and 3300 Class B
shares.
136. As set forth above, the Executive Defendants each
violate. Section 10(b) and Rule 10b-5 by their acts and omissions
as a_llele.d in this Complaint. By virtue of their positions as
controlling persons, these defendants are liable pursuant to
Section 20(a) of the Exchange Act. As a direct and proximate
result if the wrongful conduct of these defendants, plaintiffs
and oth--r members of the Class suffered damages in connection
with their purchases of the Company's securities during the Class
Period.
COUNT III
ON BEHALF OF THE 1997 OFFERING SUB-CLASS
AGAINST CINAR AND THE EXECUTIVE DEFENDANTS
FOR VIOLATIONS OF SECTION 11 OF THE
SECURITIES ACT IN THE 1997 OFFERING
137. Plaintiffs repeat and reallege each and every preceding
allegation as if fully set forth herein.
1553 / CMP / 00043823.WPD vl 60
138. Count III is brought pursuant to Section 11 of the
Securities Act, 15 U.S.C. § 77k, on behalf of the 1997 Offering
Sub-class against CINAR and the Executive Defendants, in
connection with the 1997 Offering.
139. To the extent that it reported financial results for
the first six-months of fiscal year 1997, the 1997 Registration
Statement contained untrue statements of material fact and
omitted to state other facts necessary to make the statements
made the:_ein not misleading, and failed to disclose material
facts ad,-quately as described above when it was declared
effectiv-_ by the SEC.
140. CINAR was the registrant for the sharES sold to
plaintif=s and other members of the Class in the 1997 Offering.
The Execjtive Defendants were directors and officers of CINAR at
the time the 1997 Registration Statement was declared effective
by the S:iC and each Executive Defendant signed the 1997
Registra=ion Statement. CINAR issued, caused tc be issued and
participited in the issuance of the materially false and
misleading statements to the investing public which were
contained in the 1997 Registration Statement, which
misrepresented or failed to disclose, inter alia , the facts set
forth above. CINAR is strictly liable to plaintiff The Kaufmann
Fund and the 1997 Offering Sub-Class as an issuer of the shares.
141. Lead Plaintiff The Kaufmann Fund acquired CINAR stock
issued pursuant to the 1997 Registration Statement.
1553 l CMP 00043223.WPI) vl 61
142. Lead Plaintiff and other members of the 1997 Offeringt
Sub-Class have sustained damages as a result of the wrongdoing
alleged herein. The value of CINAR's Class B stock has declined
substantially since the 1997 Registration Statement became
effective due to defendants' wrongful conduct described herein-
143. At the time they purchased CINAR Class B stock, Lead
Plaintiff and other members of the 1997 Offering Sub-Class were
without knowledge of the facts concerning the wrongful conduct
alleged herein and could not have reasonably discovered those
fact=s .
144. Less than one year has elapsed since plaintiffs
dis-overed or reasonably could have discovered the facts upon
which this Complaint is based. Less than three years have
ela.)sed since the securities upon wh_ch this Count is brought
wer,^ bona fide offered to the public.
, -I T TT TTT
ON BEHALF OF THE 1997 OFFERING SUB - CLASS AGAINST
CINAR FOR VIOLATIONS OF SECTION 12(A)(2) OF
THE SECURITIES ACT IN THE 1997 OFFERING
145. Plaintiffs repeat and reallege each and every preceding
allegation as if fully set forth herein.
146. Count IV is brought pursuant to Section 12(a)(2) of the
Securities Act against CINAR in connection with the 1997
Offering.
147. CINAR was a seller, offeror and/or solicitor of sales
of the shares offered pursuant to the 1997 Registration
1553 / CMP / 00043823.WPD vI 62
Statement.
148. CINAR solicited and/or was a substantial factor in the
purchase by plaintiff The Kaufmann Fund and the 1997 Offering
Sub-Class of Class B stock in the 1997 Offering. In support of
soliciting sales of the Class B stock issued by CINAR, the
Company did the following acts in furtherance of the 1997
Offering:
a. CINAR actively drafted, revised, and filed the
1997 Registration Statement with the SEC and caused the SEC to
declare the 1997 Registration Statement to be declared effective.
The 1997 Registration Statement and Prospectus were "selling
documents" calculated by CINAR to create an interest in CINAR's
Class B stock and was widely distributed by defendants for that
purpose;
b. CINAR finalized the 1997 Registration Statement
and Prospectus and caused them to become effective as of
September 29, 1997. But for CINAR having drafted, filed, and/or
signed the 1997 Registration Statement and Prospectus, the 1997
Offering could not have been effected; and
c. CINAR conceived and planned the 1997 Offering and
orchestrated all activities necessary to effect the offering of
these securities to the investing public, including plaintiffs
and the 1997 Offering Sub-Class, by issuing the securities,
promoting the securities, and supervising their distribution and
ultimate sale to the investing public.
149. The 1997 Registration Statement and Prospectus
1553 / CMP / 00043823_WPD v1 63
contained untrue statements of material fact and omitted from
disclosure facts necessary to make the statements made therein
not misleading.
150. According to the 1997 Registration Statement and
Prospectus, "of the 3,000,000 Subordinate Voting Shares being
offered hereby ...., 2,750,000 are being offered by CINAR
CINAR, therefore, was a seller, offeror and/or solicitor of sales
of the shares offered pursuant to the 1997 Registration
Statement.
151. Lead Plaintiff The Kaufmann Fund and other members of
the 1997 Offering Sub-Class acquired the Company's Class B stock
pursuant to the 1997 Registration Statement. Plainti_-fs did not
know, and in the exercise of reasonable diligence could not have
known, of the untruths and omissions contained in or made in
connection with the 1997 Registration Statement.
152. Plaintiff The Kaufmann Fund and other membe_.-s of the
1997 Offering Sub-Class have sustained injury and suffered`
damages.
153. By reason of the conduct alleged herein, plaintiff The
Kaufmann Fund and members of the 1997 Offering Sub-Class who hold
the Company's shares have the right to rescind and recover the
consideration paid for the Company's shares and hereby elect to
rescind and tender their shares of the Company to the defendants
sued herein. 1997 Offering Sub-Class members who have sold their
shares of CINAR are entitled to rescissory damages.
154. Less than three years has elapsed since the securities
1 553 / CMP / 00043823.WPD vl 64
upon which this Count is brought were sold to the public. Less
than one year has elapsed since plaintiffs discovered or
reasonably could have discovered the facts upon which this Count
is based.
COUNT V
ON BEHALF OF THE 1997 OFFERING SUB-CLASS
AGAINST THE EXECUTIVE DEFENDANTS
FOR VIOLATIONS OF SECTION 15 OF THE
SECURITIES ACT IN THE 1997 OFFERING
155. Plaintiffs repeat and reallege each and every preceding
allegation as if set forth fully herein
156. Count V is brought by plaintiffs pursuant to Section 15
of the Securities Act, 15 U.S.C. § 770, on behalf of the 1997
Offering Sub-Class against the Executiv,:^ Defendants.
157. CINAR is liable as an issuer ender Section 11 of the
Securities Act and as a seller under Seeetion 12(a)(2) of the
Securities Act as set forth in Counts I-I and IV herein.
158. The Executive Defendants, b•T virtue of their power to
sign the 1997 Registration Statement, h__gh-ranking positions at
CINAR, stock ownership and/or other specific acts identified
above, were, at the time of the wrongs alleged herein,
controlling persons within the meaning of Section 15 of the
Securities Act.
159. By reason of the conduct alleged in Count III of the
Complaint, the Executive Defendants are liable for the aforesaid
wrongful conduct, and are liable to plaintiff The Kaufmann Fund
and to the other members of the 1997 Offering Sub-Class for
1 553 / CMP / 00043823.WPD v1 65
substantial damages which they suffered in connection with their
acquisition of CINAR stock during the Class Period_
160. Less than one year has elapsed since the securities
upon which this Count is brought were sold to the public. Less
than three years have elapsed since plaintiffs discovered or
reasonably could have discovered the facts upon which this Count
is based.
COUNT VI
ON BEHALF OF THE 1999 OFFERING SUB-CLASS
AGAINST ALL DEFENDANTS FOR VIOLATIONS OF
SECTION 11 OF THE SECURITIES ACT IN THE 1999 O]PFERING
161. Plaintiffs repeat and reallege each and every preceding
allegation as if fully set forth herein.
162. Count VI is brought pursuant to Section 11 of the
Securities Act, 15 U.S.C_ § 77k on behalf of the 199) Offering
Sub-Class against all defendants in connection with the 1999
Offering.
163. The 1999 Registration Statement contained untrue
statements of material fact and omitted to state other facts
necessary to make the statements made therein not misleading, and
failed to disclose material facts adequately as described above
when it was declared effective by the SEC.
164. CINAR was the registrant for the shares sold to
plaintiff The Kaufmann Fund and other members of the 1999
Offering Sub-Class in the 1999 Offering. The Executive
Defendants and Corbeil were directors and officers of CINAR at
15,53 / CMP / 00043823. WPD k-1 66
the time the 1999 Registration Statement was declared effective
by the SEC and each Executive Defendant and defendant Corbeil
signed the 1999 Registration Statement. CINAR issued, caused to
be issued and participated in the issuance of the materially
false and misleading statements to the investing public which
were contained in the 1999 Registration Statement, which
misrepresented or failed to disclose, inter alia , the facts set
forth above. CINAR is strictly liable to plaintiff The Kaufmann
Fund arid the 1999 Offering Sub-Class as an issuer of the shares.
1S5. E&Y consented to the inclusion of its auditor's
opinions in the 1999 Registration Statement. E&Y's audit
opinions with respect to CINAR's 1997 and 1998 financier!
statem€nts were materially false and misleading on Marca 9, 1999
when the 1999 Registration Statement was declared effec_.ive for
the following reasons:
(a) the Company' s financial statements included tens of
millions of dollars in revenue from tax credits which h,id been
fraudu]ently obtained for scripts written for CINAR programs by
U.S. citizens which were being falsely accredited to Canadian
citizens;
(b) the Company's financial results were artificially
inflated as a result of its fraudulent tax practices which at all
material times violated both U.S. and Canadian GAAP;
(c) CINAR's fraudulent practice of substituting the
names of Canadian scriptwriters on its programs had resulted in
CINAR's Canadian customers overpaying for programming and the
1553 / CMP / 00043523 WPD vl 67
subsequent disclosure of this practice subjects CINAR to
liability for the repayment of those overcharges;
(d) the estimates, projections and opinions as to the
Company's expected revenues, earnings, income and value of its
stock were lacking in reasonable basis at all relevant times due
to its fraudulent tax practices; and
(e) the Company was falsely representing its assets to
be invested in marketable securities when, in fact, $122 million
had been invested overseas without authorization from CINAR's
Board of Directors, and some of which had been used as margin for
the purchase of non-investment grade commercial paper.
166. Lead Plaintiff The Kaufmann Fund acquired CINAR stock
issued pursuant to the 1999 Registration Statement.
167. Lead Plaintiff and other members of the 1999 Offering
Sub-Class have sustained damages as a result of the wrongdoing
alleged herein. The value of CINAR's Class B stock has declined
substantially since the 1999 Registration Statement became
effective due to defendants` wrongful conduct described herein.
168. At the time they purchased CINAR Class B stock, Lead
Plaintiff and other members of the 1999 Offering Sub-Class were
without knowledge of the facts concerning the wrongful conduct
alleged herein and could not have reasonably discovered those
facts.
169. Less than one year has elapsed since plaintiffs
discovered or reasonably could have discovered the facts upon
which this Complaint is based. Less than three years have
1553 / CMP / 00043823 WPD vl 68
elapsed since the securities upon which this Count is brought
were bona fide offered to the public.
COUNT VII
ON BEHALF OF THE 1999 OFFERING SUB-CLASS AGAINST
CINAR FOR VIOLATIONS OF SECTION 12(A)(2) OF
THE SECURITIES ACT IN THE 1999 OFFERING
170. Plaintiffs repeat and reallege each and every preceding
allegation as if fully set forth herein.
171. Count IV is brought pursuant to Section 12(a)(2) of the
Securities Act against CINAR in connection with the 1999
Offering.
172. CINAR was a seller, offeror and/or solicitor of sales
of the shares offered pursuant to the 1999 Registration
Statement.
173. CINAR solicited and/or was a substantial factor in the
purchase by plaintiffs and the 1999 Offering Sub-Class of Class B
stock in the 1999 Offering. In support of soliciting sales of
the Class B stock issued by CINAR, the Company did the following
acts in furtherance of the 1999 Offering:
a. CINAR actively drafted, revised, and filed the
1999 Registration Statement with the SEC and caused the SEC to
declare the 1999 Registration Statement to be declared effective.
The 1999 Registration Statement and Prospectus were "selling
documents" calculated by CINAR to create an interest in CINAR's
Class B stock and was widely distributed by defendants for that
purpose;
1553 / CMP / 00043823.WPD v1 69
b. CINAR finalized the 1999 Registration Statement
and Prospectus and caused them to become effective as of March 9,
1999. But for CINAR having drafted, filed, and/or signed the
1999 Registration Statement and Prospectus, the 1999 offering
could not have been effected; and
c. CINAR conceived and planned the 1999 Offering and
orchestrated all activities necessary to effect the offering of
these securities to the investing public, including plaintiff The
Kaufmann Fund and the 1999 Offering Sub-Class, by issuing the
securities, promoting the securities, and supervising their
distribution and ultimate sale to the investing public.
174. The 1999 Registration Statement and Prospectus
contained untrue statements of material fact and omitted from
disclosure facts necessary to make the statements made therein
not misleading.
175. According to the 1999 Registration Statement and
Prospectus, "Of the 7,000,000 Limited Voting Shares being offered
hereby, 6,500,000 are being offered by CINAR ... ." CINAR,
therefore, was a seller, offeror and/or solicitor of sales of the
shares offered pursuant to the 1999 Registration Statement.
176. Lead Plaintiff The Kaufmann Fund and other members of
the 1999 Offering Sub-Class acquired the Company's Class B stock
pursuant to the 1999 Registration Statement. Plaintiffs did not
know, and in the exercise of reasonable diligence could not have
known, of the untruths and omissions contained in or made in
connection with the 1999 Registration Statement.
1553 / CMP / 00043823.WPD vl 70
177. Plaintiffs and other members of the 1999 Offering Sub-
Class have sustained injury and suffered damages.
178. By reason of the conduct alleged herein, plaintiff The
Kaufmann Fund and members of the 1999 Offering Sub-Class who hold
the Company's shares have the right to rescind and recover the
consideration paid for the Company's shares and hereby elect to
rescind and tender their shares of the Company to the defendants
sued herein. 1999 Offering Sub-Class members who have sold their
shares of CINAR are entitled to rescissory damages.
179. Less than three years has elapsed since the securities
upon which this Count is brought were sold to the public. Less
than one year has elapsed since plaintiffs discovered or
reasonably could have discovered the facts apon which this Count
is based.
COUNT VIII
ON BEHALF OF THE 1999 OFFERING SUB-CLASS
AGAINST THE EXECUTIVE DEFENDANTS ..ND CORBEIL
FOR VIOLATIONS OF SECTION 15 OF THE
SECURITIES ACT IN THE 1999 OFFERING
180. Plaintiffs repeat and reallege each and every preceding
allegation as if set forth fully herein.
181. Count VIII is brought by plaintiffs pursuant to Section
15 of the Securities Act, 15 U.S.C. § 77o, on behalf of the 1999
Offering Sub-Class against the Executive Defendants and Corbeil.
182. CINAR is liable as an issuer under Section 11 of the
Securities Act and as a seller under Section 12(a)(2) of the
1 553 / CMP / 00043823.WPD v 1 71
Securities Act as set forth in Counts VI and VII herein.
183. The Executive Defendants and Corbeil, by virtue of
their power to sign the 1999 Registration Statement, high-ranking
positions at CINAR, stock ownership and/or other specific acts
identified above, were, at the time of the wrongs alleged herein,
controlling persons within the meaning of Section 15 of the
Securities Act.
134. By reason of the conduct alleged in Count VI of the
Complaint, the Executive Defendants and Corbeil are liable for
the aforesaid wrongful conduct, and are liable to plaintiff 'Ihe
Kaufmann Fund and to the other members of the 1999 Sub-Class for
substantial damrges which they suffered in connection with tleir
acquisition of CINAR stock during the Class Period.
185. Less than one year has elapsed since the securitieE
upon which this Count is brought were sold to the public, LEss
than three years have elapsed since plaintiffs discovered or
reasonably could have discovered the facts upon which this Ccunt
is based.
15 53 / CMP / 00043823.WPD vI 72
PRAYER FOR RELIEF AND JURY DEMAND
WHEREFORE, plaintiffs, on their own behalf and on behalf of
the Class and Sub-Classes, pray for judgment as follows:
A. Declaring this action to be a proper class action and
certifying plaintiffs as class representatives under Rule 23 of
the Federal Rules of Civil Procedure;
B. Awarding compensatory damages in favor of plaintiffs
and the other members of the Class and Sub-Classes against all
doofendants, jointly and severally, for the damages sustained as a
rE>sult of the wrongdoing of defendants, together with interest
thereon;
C. Awarding plaintiffs the fees and expenses incurred in
this action, including reasonable allowance of fees for
p:;aintiffs' attorneys and experts; and
D. Granting such other and further relief as the Court may
dE.em just and proper.
PLAINTIFFS DEMAND A TRIAL BY JURY.
Doted : July 21, 2000
LOWEY DANNENBERG BEMPORAD
& SELINGER, P.C.
By:
Neil L. Selinger aS"9389)
Jeanne F. D'Esposlto (JD 5843)
The Gateway, 11th Floor
One North Lexington Avenue
White Plains, NY 10601
Telephone : ( 914) 997-0500
LEAD COUNSEL FOR PLAINTIFFS
1553 % CMP / 00043821WPD vl 73
Andrew Barroway, Esq.David Kessler, Esq.Patricia Weiser, Esq.SCHIFFRIN & BARROWAY, LLP
3 Bala Plaza East, Suite 400Bala Cynwyd, PATelephone: (610) 667-7706
Joseph J. Tabacco, Jr., Esq.Nicole Lavallee, Esq.BERMAN, DeVALERIO, PEASE
& TABACCO, P.C.425 California Street, Suite 2025
San Francisco, CA 94104Telephone: (415) 433-3200
Steven G. Schulman, Esq.MILBERG WEISS BERSHAD HYNES &
LERACH, LLPOne Pennsylvania PlazaNew York, NY 10119
Telephone: (212) 594-5300
Mel E. Lifshitz, Esq.BERNSTEIN, LIEBHARD & LIFSHITZ, LLP10 East 40`h Street, 22"a FloorNew York, NY 10016Telephone: (212) 779-1414
Stanley M. Grossman, Esq.POMERANTZ HAUDEK BLOCK & GRCSSMANN100 Park AvenueNew York, NY 10017-5516
Telephone: (212) 661-1100
Tzivia Brody, Esq.
STULL, STULL & BRODY
6 East 45th StreetNew York, NY 10017Telephone: (212) 687-7230
Jonathan M. Stein, Esq.
SHEPHERD & GELLER, LLC7200 West Camino Real, Suite 203Boca Raton, FL 33433
Telephone: (561) 750-3000
Jeffrey H. Squire, Esq.KIRBY McINERNEY & SQUIRE LLP830 Third Avenue, 10th FloorNew York, NY 10022
1553 / CMP l 00043823.WPD vl 74
Telephone: (212) 317-2300
Joseph Weiss, Esq.
WEISS & YOURMAN
The French Building, Suite 1600
551 Fifth Avenue
New York, NY 10176
Telephone: (212) 682-3025
LAW OFFICES OF JEFFREY S. ABRAHAM
The Lincoln Building
60 East 42nd Street, 47th Floor
New York, NY 10165
Telephone: (212) 692-0555
Lionel Z. Glancy, Esq.
LAW OFFICES OF L. Z. GLANCY
1801 Avenue of the Stars
Los Angeles, CA 90067
Telephone: (310) 201-9160
Gary S. Graifman, Esq.
KANTROWITZ, GOLDHAMMER
& GRAIFMAN, P.C.
210 Summit Avenue
Montvale, NJ 07645
Telephone: (201) 391-7000
Brian Murphy, Esq.
RABIN & PECKEL LLP
275 Madison Avenue
New York, New York 10016
Telephone: 212) 682-1818
Leo W. Desmond, Esq.
2161 Palm Beach lake Blvd.
Suite 204
West Palm Beach, FL 33409
Telephone: (561) 721-8000
1553 / CMP / 00043823 .WPD vl 75
EXHIBIT A KAUFMANN FUND CINAR TRANSACTIONS
!•-an'. U'pe description traded: sell date shareslocal net b net
unit price l cost localamount it
As of 4/8/97: held 590,000 shares
BUY CINAR CORP -1:9/97 4 / 1 4/97 5M00 000 1.228.125.00 1_'28 . 125.00 24 . 562500
BUY CINAR CORP 4:15 97 4/18:97 10.000 000 243 . 750.00 243.750 00 24.375000
BUY CINAR CORP 4/ 16/97 42 1/97 20.000000 490,000 . 00 490.000.00 24.500000
BUY CINAR CORP 421'97 4,2-197 20.000 000 478 ,000.00 4 78,000.00 23.900000
BUY CINAR CORP 42997 5.2.97 10,000000 230.625.00 230.62500 23 . 062_500
BUY CINAR CORP -1 , 30 97 5 1 5,97 2.500 000 57,187 50 57.187.0 22.875000
BUY CINAR CORP 5 2 97 5,7/97 3.000 000 68.625.00 68 . 625.00 22 . 875000
BUY CINAR CORP 5 97 8 97 2.500 000-
57.187-50 57.1 S7 . 50--- ------- -22.8. 000
BUY CINAR CORP 5 8.9 7 5 1 9; 5.000 000 114,375 . 00 11.4.375.00 22 . 875000
BUY CINAR CORP 5, 8 .' 97 5 13, 97 37.000 000 851.000 . 00 851,000.00 23.000000
BUY CINAR CORP 9,23:97 9 1:2 9,97 2.000 000 67,500 00 67 ,5 00.00 33 . 750000
BUY CI\AR CORP 9 ; 2397 929'97 I ;5.000 000 :.906 . 2.0.00 5.906.2 50 , 00 33 350000
BUY CINAR CORP 9 1124 97 9:2997 73,000 000 2.669.996 .90 2.669.996.90 36.575300
BUY CINAR CORP 3/-1 , 99 3.9 99 250.000 000 5.000 . 000.00 5.000 . 000.00 20.000000
BUY CINAR CORP 101 S 99 10.'21;99 123.000 000 2.210.000 . 00 2.210.000 . 00 17.680000
BUY--------
CINAR CORP--- -
10 18 99- -----
10/21;99------
25.000 .000 433 , 312.50 -133 3 12.50 17.312500
BUY CINAR CORP 101599 10.'21,99 _0.000000 873.250M 873 ?-0.00 17.46-000
BUY C [NAR CORP 10 2 -,,,99 11,11'99 5.000 000 75 .312.50 74;.312.50 15.062500
BUY CI `AR CORP 11 1 99 11 ,4 99 ,15.000 000 794,376.00 794 . 376.00 17.652800
BUY CINAR CORP 1 1,16,99 1 1,119 1, 99 37.500 000 4-16.092 - 50 -446.092 . 50 11.895800
BUY CINAR CORP 11,16 99 11:19:99 12.500 000 148.437.50 148.437.50 11.875000
BUY CINAR CORP 12 1,99 126 .99 50.000 000 742,030-00 742 . 030.00 14.840600
SELL C1\AR CORP 10 1-1 97 10'17/97 25,000.000 1.021,840.93 1.021.840.90 40-875000 914382.50
local net base nettrans type description trade date sell date shares unit price id cost local
amount a mount
SELL C'INARC'ORP 1011( 10.21,97 7000000 282.335.57 2i 5.50 40.375000 256.02' 10
SELL CINAR CORP 102 11'3.97 3.500.000 134.542.86 1.3 _4280 38 482100 12_8.013 53
SELL CINAR C ORP 103097 11 -1 97 7.000.000 _72.46!00 272.-161.00 39 964300 256.0_'' Iu
SELL CINAR CORP I 1 3 97 1 L6 97 1.400 000 54.804 67 54.801.60 39 187500 51._205 4'
SELL C11N:\R (ORP 1 I 21 97 11 16 97 (J.100 000 2-:5.516.81 245.516.80 40 250000 10) 33
SELL CIN:AR ('ORf' 1 1 97 12 1 9? 5.000 00) 204-36S 1S '_04.368 10 -10 875000 1 52.8-(I 50
SELL CINAR C ORP f 2 ') 97 13 12 9- 35.000 000 1.329.955-66 1.329.955 60 3S 000000 1.207.532 -10
SELL CINAR CORP I. _8.98 2 2 98 5.000 000 Is-4.901s- 1 S4.99 " 80 . 7 000000 165.750 00
SELL C'INAR CORP 1.30,98 2--i.98 2.000000 71-.t)67 57 72.667 50 363'• 5000 6-.500 00
SELL CINAR C-ORP 22.98 215 98 4.000 000 146.375.1 1 146.37510 36.625000 135.000 00
SELL. CINAR UORP 22598 22.'109S 5.300 000 195.956-72 195.956 70 3? 014200 178 5'3 01)
SELL CINAR CORP _.'6/98 2 1 1 /98 4.000 000 148.995.03 148.995.00 37.250000 13 5.000 00
SELL CINAR CORP 2;9'98 2..'12'98 6.500 000 238.429.60 238,429.60 36-682700 219.375.00
SELL CINAR CORP 2'10.98 2/13198 6.200.000 227.067.43 227,067.40 36.625000 209._25000
SELL CINAR C ORP 2/10/98 2/13/98 1.000.000 36.855.00 36.855.00 36.875000 33.750 00
SELL CINAR CORP 2/ 111198 2/17/98 7.000.000 251.991.60 251.991.60 36.000000 236.250 00
SELL CINARCORP 120.%98 2251/98 37.500000 1.434.327.18 1,434.327.10 38250000 1.265.625.00
SELL CINAR CORP -_'23!98 2/26-98 2.000000 --o ^7..792.z_3 ^79,792.30 39.937500 6'.00 00
SELL CINAR CORP _ 5 98 3110'98 1 9.500000 715.661 93 745.662.90 39.240400 65S.125 00
SELL CINAR CORP 5. 111,98 5/14/98 22.500-000 428,736.70 428.736.70 19.055600 379.687.50
SELL CINAR CORP 5 2'98 5i15i98 26.500 000 502.423.21 502.423.20 19.000000 447,187, -0
SELL CINAR CORP 5'13'98 5/18198 3,000.000 56.002_0 56.002.50 18.687500 50.625.00
SELL CINAR C ORP 5: 15.98 5i20/98 28.000.000 535.389 75 535,389.70 19.121700 472.500.00
SELL CINAR CORP 5;: 81 98 5,'21/98 20.000 000 38-2,487.25 382.487 20 19.125000 337.500 00
SELL CINAR CORP 10"4.'98 10/19/98 8.000.000 131.550.80 13.550.80 16.484400 105,500.00
SELL CINAR CORP 10 5 98 10/20/98 32.500.000 537.16&09 537.168.00 16.528800 4_8,593.75
SELL CINAR CORP 10 16,98 l0%21/98 49.000.000 819-095 89 519.095.80 16.716242 640.688.00
SELL ! CINAR CORP 10, 9,98 10/22/98 10.500 000 183.056 31-11 185.0-5630 17.625000 135.8-43.75
SELL CINARCORP 11.'_198 11/5/98 25.000.000 5-13731.87 5-13,731.80 21.750000 321.5617_50
SELL CINAR CORP 11 3 98 11/6/98 25.000.000 540.606.97 540.60690 21.625000 310,750.00
SELL CINARCORP II 198 11 /6/98 5.000.000 107.921 39 107.92130 21.625000 6-1.062.50
SELL CINAR CORP 11 9:98 11/13/98 45,000 000 978.717.37 978,717.30 21.750000 552.656.25
SELL CAR CORP I I1 98 11/16/98 25,000.000 540.60697 540,606.90 21.625000 307,031.25
SELL CINAR CORP 111, 2'98 11/17/98 25,000.000 538 562.50 538,562-50 21.562500 306.625.00
SELL CINAR CORP 11% 3,98 11/18/99 25.000.000 538.562.50 538-=62-50 21.562500 306,250.00
SELL CINAR CORP I I: -11,98 11/20/98 25.000.000 524.982-50 524.982 50 21.000000 304.8 12.50
SELL CINAR CORP 11, IS 98 11,23/98 25.000.000 531 2_2.29 5343220 21 250000 302.437.50
SELL CINAR CORP 1 1.19 98 11/24,198 35,000.000 7S6.S-47 27 786,8 7.20 22.48'.100 419,937.50
SELL CINAR CORP 11/2) 98 11/251198 15.000.000 33, 1,.188 75 337.488.70 22.500000 179,250.00
SELL CINAR CORP 1 I 2 ' 98 11,127/98 25.000.000 581 230 62 5814060 23.250000 287,968.75
SELL CINAR CORP 11.2.:98 11/27/98 10.000000 232_.925.00 2_32.92500 23-312500 117,406.25
SELL C1NAR CORP 11.2- 98 11/30.'98 12.500000 '-87 490.41 287,490 -10 23.000000 143,750 00
SELL CINAR CORP 1 J."224 98 1 l i'301,'98 1 1.000.0001 252 51.56 2_52.151-50 23.000000 126,500.00
SELL CINAR CORP 1 1,27,98 112,98 6.000.000 136.505.64 136.505.60 22.791700 69.000.00
SELL CINAR CORP 12'898 12/11;98 20.500.000 -152_._266.17 45_.26610 22.062500 235,750.00
SELL CINAR CORP 12%10-98 12%16'98 6,700.000 14 777.19 143,T77- 10 21.500000 77,050.00
SELL CINAR CORP 12/11,98 12/16/98 12,000.000 263.511 20 263.511.20 22.000000 137,706.25
SELL CINARC'ORP 12/'21%98 12/24;98 7.300.000 163.789.74 163.789.70 22.477700 83,493.75
SELL CINAR CORP 12/23/98 12/29/98 14.000.000 31 1.054-21 31 1.054.20 22.258900 160.125-00
SELL CINARCORP 225100 3:1;00 97,000000 1.856.508.31 1,856,508.30 19.169900 1.940,000.00
SELL CINAR CORP 2'25,00 3/1 00 3,000.000 56.371, 5.61 56.375 60 18.812500 60,000.00
SELL CINAR CORP 3:'1%00 3/6;00 1,600.000 31,334.95 31,334-90 19.625000 32,000.00
SELL CINAR CORP 3%3,00 3%8t00 2-500.000 44.586.01 44,586.00 17.875000 50,000.00
SELL CINAR CORP 3/7.00 3110/00 250,000.000 1,415.577.81 1,415,577 80 5.662500 4,758,488.00
SELL CINAR CORP 3%8,'00 3/13%00 140,000.000 988.717.04 988,717.00 7.125000 1,987,178.50
SELL CINAR CORP 3/8,00 3113/00 35,000 000 249.678.17 249,678.10 7.133900 61 1,275.00
SELL CINAR CORP 3/8,00 3 13/00 75,000.000 537.199.51 537,199.50 7.192900 1,322,819.50
SPDIV CINAR CORP 4/30/98 5/5/98 800,000.000 0.00 0.00 0-000000 0.00
NO.004 ©02e2/23/01D 10:38 SHEPHERD a GELLER' LAC 4 M ILBERG NY 1JUZ
.1 t .a,a ^v .. vvv'R V V-e
0222/08 A V 15:19 SHE'" +lD 8. GELLER , LLC 4 202 G54o54 N0.'392 D03
Gana, LLC73X} Car1ui Re4 SW%u 203
B= R=L PL 33433
(561 ) 750-3000(361) 730-3364 Pa miI
C TIFICAflON ON NAMED PLAINTIFFE _U TO "-DERAL RF, QUM .A $
RICHARD SON ("Plaintiff'), declares as to the claims asserted under the federal " ' ssec
taw& that:
1. Plaintifhas reviewed or will review the CThTAR CORPORATION curltiescomplaint or will review it prior to filing.
2. Plaintiff did not purchase the seeurity that is the subject of this action at thedirection ofPlaintif€°s counsel or in order to participate in this private action or any other lti ion.under the federal securities laws
3. F'aintif is willing to serve as a represenzative party on behalf of the class,including providing testimony at deposition and trial, if necessary,
4. P.ainti.f has made no transaction(s) dieing the Class Period in the debt orequity securities that are the subject of thic action except those set forth below-
PriceatiOtt Amount P92 P(E Share
CINAR Pau t $5000 7/7/99 $25.00
5. D ring the years prior to the date of this Certifloate, Plaintiff has sought toseine or served as a reprisentative party for a class In the following actions filed under the federalsacurilies laws:
6. The PWntiffw ll not accept any payment for serving as a representative pattyan behaN of the class beyond the Plaintiffs pro rate share of any recovery, except such reasonablecosts and expenses (inetudb 'g lost wages) directly relating to the representation of the class asordered or approved by the court.
I ddaeiare under penalty of perjury that the foregoing is true and correct. Executed this 22' day ofFebruary, 2400_
a" 'Wm4tlQI AIi^TYL?A9321^s^APch^rv^ 22.3000