MONTREAL — Investors on both sides of the border wasted no time in dumping their stakes in Canuck entertainment company Cinar Corp. Tuesday, with shares plunging about 70% on the Toronto and Nasdaq exchanges.
Selloff came a day after the Montreal-based TV producer and distributor announced that $122 million in Cinar funds had been invested without the board’s approval. Also Monday, the company founders and chief executives, Micheline Charest and Ronald Weinberg, resigned their positions.
Cinar stock fell $12.81 on the Nasdaq to close at $5.56, down from a high last year of $30.25. On the Toronto Stock Exchange, the Cinar shares dove C$18.65 ($12.84) to close at $5.75, compared with a 52-week high of $30.63.
Cinar’s shares had already lost 25% of their value two weeks ago when it was first announced that the conclusions of an internal audit into allegations of tax-credit fraud would cost the company a bundle. Trading on Cinar stock was halted in both countries on Monday prior to the announcement of the missing money and executive shake-up.
Analyst Roger Dent of Yorkton Securities in Toronto said there still remains far too much mystery surrounding the financial activities of the company.
“We don’t know enough yet,” said Dent. “We don’t know why this has happened. We don’t know who did it or why they did it. We really are in a vacuum. The market hates uncertainty, and the markets are having to deal with a great deal of uncertainty. The market is assuming there’s more bad news to come.”
The company has said that roughly $122 million was spent without board approval and, of that, $86 million was pledged to secure other investments. At the same time, veteran insurance exec Barrie Usher was appointed president and CEO of Cinar, and seasoned lawyer — and longtime Cinar board member — Lawrence Yelin was named chairman.
Hasanain Panju, formerly senior executive vice president, was fired Monday and has since released a statement declaring he did not make any investments without company consent.
“The investments referred to in the company’s press release were made in the name and for the sole benefit of Cinar Corp. and with its knowledge,” Panju said in his statement. “Mr. Panju, who has loyally served Cinar Corp. and diligently followed the instructions of its founders for over seven years, will continue cooperating with the company and its audit committee to review any matter they wish to bring to his attention as he always has.”
Late Monday, Charest and Weinberg — who remain on the Cinar board — released their own statement, saying: “The board has asked us to continue to play a strong leadership role in Cinar’s business. We have agreed to devote all of our talents and energies to the business of the company.”
Two additional class-action lawsuits were filed Tuesday against Cinar, bringing the number of suits facing the company to four. Both the offices of Jeffrey Abraham and Shepherd & Geller have filed suits in the U.S. District Court for the Eastern District of New York charging that the company has violated federal securities laws by failing to disclose it put phony Canadian names on scripts written by U.S. writers to obtain tax credits.
As a result, according to the suits, the company’s financial results were falsely inflated.
There is also an ongoing Royal Canadian Mounted Police investigation into the allegations of tax-credit fraud at Cinar.