On December 2, 2002 the U.S. District Court for the Eastern District of New York issued an opinion approving a $25 million plus interest at the applicable United States 6 months Treasury Bill rate (an estimated total of $27.25 million) settlement on behalf of Federated Kaufmann Fund and the class of purchasers of securities of CINAR Corporation.
The original complaint alleges that CINAR and certain of its officers and directors with violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint alleges that defendants failed to disclose that the Company was falsely representing that scripts written by United States citizens were written by Canadian citizens in order to obtain favorable tax credits and that, as a result, the Company's financial results were artificially inflated.
The complaint further alleges that in October 1999, press reports revealed that CINAR was the subject of a tax investigation by Canadian federal authorities relating to the issue of whether the company had improperly obtained tax credits available to Canadian-only television productions by falsely attributing scripts written by American authors to Canadians. At that time, the complaint alleges that defendants falsely characterized any impact from the investigation as not material. Then, on February 18, 2000, CINAR issued a press release announcing that at 'a meeting of its Board of Directors, CINAR Corporation (NASDAQ:CINR) reported today on the status of the reviews initiated by its management and Audit Committee of its Board of Directors in connection with certain allegations relating to Canadian content regulations with respect to its productions' and that the 'financial and accounting impact' would be greater than initially anticipated. In response to this announcement, the price of CINAR stock plummeted by 27%. As alleged in the complaint, during the Class Period, without disclosing the aforementioned adverse facts, defendants raised more than $150 million through the sale of CINAR stock in a public offering.