MONTREAL — Embattled Canuck TV company Cinar Corp. dropped another bombshell late Friday, announcing that its financial results for the past three years are “likely” invalid.
The Montreal-based company said that its financial statements for 1997, 1998 and the first three quarters of 1999 will need to be revised with respect to “tax incentives and the disclosure of related party transactions” as a result of its ongoing internal audit.
A cloud of suspicion has hung over the company since last fall, when opposition MPs in the House of Commons accused Cinar of abusing Canada’s lucrative tax-credit system. Allegedly, the company put phony Canadian names on teleplays written by Americans in order to fulfill the Canadian-content requirements of the tax-credit program.
The “related party transactions” to which the company referred in its latest statement are secret deals between the company and some of its senior executives.
The dramatic disclosure comes just days after Cinar stunned the investment community on both sides of the border by announcing that $122 million had been invested without board approval and that Cinar founders and chief execs Micheline Charest and Ronald Weinberg were resigning their positions (Daily Variety, March 7). When Cinar’s stock began trading again on Tuesday, the day after the announcement, shares plunged about 70% on both the Nasdaq and Toronto stock exchanges. Trading was halted again on Thursday, but when trading resumes, the battered Cinar stock will likely be hammered yet again as a result of this latest news.
In the space of a week, one of Canada’s top entertainment companies has seen its market capitalization greatly diminished and its credibility nearly destroyed. Cinar produces the hit kids series “Arthur,” “Wimzie’s House” and “The Busy World of Richard Scarry,” all of which are sold around the world.
Cinar may have also filed an application with Canadian securities regulators to be exempt from having to file its annual financial statements for this fiscal year by the date required. The government may not grant this request.
Representatives from the company were unable to estimate the magnitude of the revisions to Cinar’s financial statements. In 1998, Cinar saw net earnings of $14.9 million, while it collected subsidies and tax credits from the Canadian and Quebec governments of $14.6 million. If the company is forced to pay back government grants obtained fraudulently, its earnings obviously will be significantly affected.
Cinar said that its principal lender, the Royal Bank of Canada, has taken back its $14 million line of credit. If the company wishes to access any of the credit, it will now have to get special consent from the bank.
Also Friday, it was revealed that Helene Charest, sister of Cinar co-founder Micheline Charest, had refunded $672,000 in December to SACD (Societe des Auteurs et Compositeurs Dramatiques), a Paris-based organization that collects royalties for French-language authors and screenwriters around the globe. She handed back the cash after receiving a lawyer’s letter from SACD declaring that the group was set to begin legal proceedings to recover the royalties.
At a press conference in Montreal on Friday, a group of Quebec screenwriters charged that Helene Charest is not a professional writer and that she used the pseudonym “Erika Alexandre” to illegally collect royalties. The Quebec writers alleged that the SACD first heard about the Helene Charest case three years ago, but took no action until the scandal broke in the Canadian Parliament last fall.
The Canuck scribes want the money to remain in Canada rather than be delivered to Paris so that it may be used to compensate the real writers of the Cinar series.
The Royal Canadian Mounted Police continues to investigate the allegations of fraud at Cinar but has yet to press charges or make public any details of its investigation.