The troubles at SNC-Lavalin Group Inc. are starting to rile investors – some of whom are now openly criticizing the company for its handling of what has become a growing scandal.
Allegations of wrongdoing at Montreal-based SNC, one of the largest engineering firms in the word, surfaced months ago, leading to $56-million in missing money, an RCMP investigation, the arrest of a former executive in Switzerland and the departure of three executives including chief executive officer Pierre Duhaime.
While many investors seemed patient at first and comfortable with the company's explanation of events, that has changed – SNC's stock has fallen nearly 30 per cent since January. Now, as SNC prepares to hold its annual meeting in Toronto on Thursday, some major investors have already begun to express their concerns.
"Like other investors, many of our questions concerning recent events and the numerous allegations made against the company remain outstanding and we insist on expressing to you our malaise," Marie Giguère, vice-president of legal affairs at the Caisse de dépôt et placement du Québec, said in a letter sent this week to SNC chairman Gwyn Morgan.
"We have a board that didn't keep its eye on things," Stephen Jarislowsky, CEO of Jarislowsky Fraser Ltd., told Bloomberg News this week. "The discipline was pretty loose." Montreal-based Jarislowsky Fraser holds a 14 per cent stake in SNC, making it the company's largest shareholder. Mr. Jarislowsky declined further comment Tuesday.
And there could be more bad news ahead. A 34-page report by Anthony Scilipoti, an analyst at Toronto-based Veritas Investments, suggested police are likely to find more irregularities at SNC and that its business will start to suffer. "I don't think it's over," said Mr. Scilipoti, who added that several SNC investors have also expressed worry about the company to him.
SNC's troubles began last fall with revelations about the company's close ties to the Moammar Gadhafi regime in Libya, which helped it win nearly $1-billion in contracts. The company was also caught up in a bizarre plot to help Gadhafi's son, Saadi, escape to Mexico last year during the height of the Libyan rebellion. A committee of the company's board launched an internal review in December and released some of the results in March.
The committee alleged the $56-million in total payments – some dating back to 2009 – had gone to unknown commercial agents to help win construction contracts. The money had vanished and the agents didn't appear to exist, the company alleged. The committee put most of the blame on Riadh Ben Aissa, a vice-president who ran SNC's global construction division. He was forced out in February along with Stéphane Roy, a vice-president in the division.
Mr. Ben Aissa, who has denied any wrongdoing, was recently arrested in Switzerland as part of that country's investigation into fraud in North Africa, although it is not clear what charges he faces. The committee is also continuing its probe of the construction division and one source familiar with the investigation said more improper payments could surface. Meanwhile the RCMP conducted a raid at SNC's Montreal head office, gathering up material for their own probe and to help the Swiss.
In his report, Mr. Scilipoti criticized the thoroughness of the SNC board's investigation, saying it did not go far enough and that more executives were likely involved in the alleged activity. "We believe there to be a reasonable likelihood that all irregularities and or illegal acts have not been uncovered by the independent review," the report said. It also concluded that "there is an increased probability that SNC's future business prospects will be adversely affected by additional revelations of improper acts."
Mr. Scilipoti also raised questions about stock sales by SNC executive Michael Novak, who sold 64 per cent of his holdings for gross proceeds of $13-million in March, 2011. And he added that given the many problems with the investigation and the seriousness of the allegations, "the company's transparency, accountability and overall risk management practices will not materially improve."
With files from The Canadian Press