SNC-Lavalin Group Inc. faces new legal action from investors questioning why the Canadian engineering giant waited several weeks to disclose publicly that it would not be invited to strike a deal to settle criminal corruption charges related to its business dealings in Libya.
Law firm Strosberg Sasso Sutts LLP filed a suit seeking authorization for a class action against SNC-Lavalin in Ontario Superior Court late Monday. The firm is seeking $75-million in damages on behalf of investors for negligent misrepresentation and liability for secondary market disclosure under Ontario’s Securities Act.
"Disclosure is the cornerstone of the Canadian capital markets," Jay Strosberg, a partner at the firm, said in an interview. "It'll be interesting to hear what the explanation is for why they waited to disclose this important information for more than a month."
The plaintiffs allege in their suit that Montreal-based SNC-Lavalin failed to disclose in a timely manner the decision of the director of the Public Prosecution Service of Canada that it would not invite the company to negotiate an out-of-court settlement called a remediation agreement. SNC-Lavalin is seeking such an agreement to avoid a trial that it says would hurt its innocent stakeholders.
The director of Public Prosecution Service of Canada, Kathleen Roussel, informed SNC-Lavalin on Sept. 4 that she would not negotiate a settlement and would instead proceed to trial. In the weeks that followed, lobbying records show company representatives communicated with federal officials to discuss issues including justice and law enforcement.
A federal court filing obtained by The Globe and Mail shows legal counsel for the director of the prosecution service told the company on Oct. 9 that the director had reviewed further information submitted by the company and would not change her mind. The next day, Oct. 10, SNC-Lavalin issued a news release stating that it has been advised by the director of the prosecution service that “at this time,” the director will not invite SNC-Lavalin to negotiate a remediation agreement.
“Once the truth was revealed at the opening of trading on October 10, 2018, the price of SNC’s shares declined by over 15 per cent,” the suit alleges. SNC-Lavalin’s failure to disclose the information in a timely way caused investors to continue to believe that the company “may be able to avoid prosecution,” the suit alleges.
A spokesperson for SNC-Lavalin declined to comment on the timing of its disclosure, saying all exchanges with the director of the prosecution service are the object of the ongoing judicial process before the federal court.
Investors last year won $110-million from SNC-Lavalin and its insurers to settle two separate class-action lawsuits related to allegations it misled investors about its activities in Libya. It was one of the largest securities class-action settlements since 2006, when Ontario and Quebec began introducing provisions to create civil liability for secondary market representation, lawyers for the plaintiffs said at the time.
Shares in SNC-Lavalin gained slightly Tuesday on the Toronto Stock Exchange, trading up 0.5 per cent to $37.15.