A U.S. court has approved a multimillion-dollar settlement in a securities fraud class-action lawsuit against a bankrupt energy exploration company for which embattled Sen. Pamela Wallin was a director.
Between June 2007 and December 2011, Wallin was a paid member of the board of Oilsands Quest Inc., a Calgary-based exploration company. As a director, the Saskatchewan senator was named in the lawsuit along with fellow board members, TD Securities and Calgary consulting firm McDaniel and Associates.
The lawsuit, filed by investors in United States District Court in New York in 2011, alleged that Oilsands Quest and its directors overstated the value of the company’s assets by $136-million.
“Through a series of false and misleading press releases, investor presentations and accounting manipulations, defendants fraudulently pumped up Oilsands Quest’s stock price by portraying Oilsands Quest as the largest owner of valuable rights to bitumen in Saskatchewan’s oilsands, creating a modern-day gold rush for what defendants knew to be largely worthless mining rights,” reads the original court document.
It goes on to say company officials knew that the vast majority of the land contained no bitumen and “defendants engaged in contrived exploration and testing activities to justify the retention of worthless mining rights in order to mislead investors about the value of the company’s properties.”
While most oilsands development is focused in the area around Fort McMurray in northern Alberta, Saskatchewan has significant oilsands deposits. But the oil is considerably more difficult to extract because the deposits are capped by a glacial till rather than the shale typically found in Alberta.
Still, Oilsands Quest led a charge to develop on the eastern side of the boundary.
The firm filed for bankruptcy protection in an Alberta court in November 2011 and for Chapter 15 protection in a U.S. bankruptcy court in February 2012. Its assets have been sold to Cenovus Energy.
Earlier this month, United States District Judge Jed Rakoff signed off on a $10.2-million settlement which gave defendants about 36 cents on the dollar.
Rakoff is the judge who presided over a $163-million settlement last year in the case of disgraced New York financier Bernard Madoff, whose Ponzi scheme defrauded investors of billions of dollars.
Oilsands Quest has not admitted any wrong-doing and has denied all allegations. The firm decided it would be “desirable and beneficial” to settle because litigation could have dragged on.
The settlement, by Canadian standards, is quite large, says a Calgary lawyer whose firm handled proceedings in Canada at the request of the U.S. lawyers representing the plaintiffs.
“It’s double digits. You don’t see a lot of those here,” said Clint Docken of the firm Docken and Klym. “It’s more common in the U.S., but the fact they’re paying over $10-million I think is representative of something.
“If you’re not liable, it’s not a nuisance lawsuit, so why would you settle?”
It doesn’t appear that Wallin or the other directors will be out of pocket, Docken said.
“It’s the directors’ and officers’ insurer who is paying this.”
During her time as a director, Wallin earned nearly $648,000 in cash and offered option awards, the court documents said. She resigned shortly after Oilsands Quest went into receivership.
She did not answer a request for comment submitted last week by The Canadian Press.
Wallin, who was appointed to the Senate in 2009, has also been on the board of Gluskin Sheff & Associates Inc., a wealth management firm with offices in Calgary and Toronto. She’s also served on the board for Porter Airlines. From 2007 to 2011 she was chancellor at the University of Guelph.
Her finances have been under a microscope for weeks.
The one-time journalist and former Conservative caucus member has been ordered to reimburse the Senate almost $140,000 for ineligible travel expense claims. The order followed an independent audit of her travel expenses.
A Senate committee alerted the RCMP to the results of the audit. The Mounties are already investigating living allowances claimed by senators Mike Duffy, Patrick Brazeau and Mac Harb.