A Toronto judge has tossed out a shareholder lawsuit alleging that Vancouver-based Western Coal Corp. artificially drove down its share price in 2007, allowing certain major investors to later make millions when it rebounded.
The decision, issued Sept. 14 by Mr. Justice George Strathy of the Ontario Superior Court, is also sharply critical of Al Rosen, the well-known Toronto forensic accountant retained by the plaintiffs' lawyers as an expert witness.
The ruling stops a potential class-action lawsuit demanding $220-million on behalf of former shareholders in the company, a mid-sized coal producer with mines in B.C. and West Virginia that was taken over by Birmingham, Ala.-based Walter Energy Inc. last year.
The plaintiffs alleged in court documents that Western Coal injected bad news into financial results released in November, 2007, to give "the false impression" the company was "on the verge of bankruptcy." The company and the other defendants named in the case called the allegations "baseless," denying the existence of any scheme to profit from the stock price's plunge. They argue accounting and disclosure rules required Western Coal to warn investors about its financial situation at the time. (None of the defendants could be reached for comment Monday.)
In his ruling denying the lawsuit the approval it needs to proceed under the Ontario Securities Act, Judge Strathy singles out reports on Western Coal filed by Mr. Rosen. The reports contain "exaggerated, inflammatory and pejorative comments," Judge Strathy writes, concluding that he "has no confidence in [the evidence's] reliability."
Judge Strathy accuses Mr. Rosen of exceeding "the bounds of his expertise." The judge says Mr. Rosen was wrong to inject opinions on corporate governance into the reports he filed with the court. The judge also says Mr. Rosen's assertions were "frequently based on suspicion and innuendo" or were "pure speculation."
Referring to the allegation of a deliberate ploy to fool investors, Judge Strathy says: "This is another example of Rosen's inclination to find a boogie man under every bed. When light is actually shone on the subject, it disappears."
Mr. Rosen said Monday that his credentials qualify him to discuss corporate governance, and that his testimony has been accepted in dozens of previous trials in Canada and elsewhere.
The plaintiffs' lead lawyer in the case, James Orr of Kim Orr Barristers PC, said an appeal was "probable." And he defended Mr. Rosen, pointing out that the accountant was never cross-examined and "is widely recognized as one of the pre-emminent accountants."
Lawyers for Western Coal and the other defendants in the lawsuit, including Britain-based Cambrian Mining PLC and Guernsey-registered hedge fund Audley European Opportunities Master Fund Ltd., could not be reached for comment.