Wednesday, March 22, 2006

New battle front opens up on Sorbara: pension fund sues over his Royal Group role

On the eve of Dwight "Spanky" Duncan's first budget as Ontario finance minister, Greg Sorbara’s road back to that job has just had another sinkhole appear, namely a $1-billion class action lawsuit against him and other Royal Group figures, stemming from his 10-year tenure as an independent director of the Woodbridge-based firm. The National Post reports:

Former Ontario finance minister Gregory Sorbara and company founder Vic De Zen are among eight former and current officials with Royal Group Technologies Ltd. named in a $1-billion class-action lawsuit filed in an Ontario court.

The Canadian Commercial Workers Industry Pension Plan claims that Royal Group and the eight company officials were "oppressive" and "unfairly prejudicial" to shareholders because they failed to disclose a series of related-party transactions that ultimately triggered an ongoing criminal investigation.

"Mr. De Zen always viewed Royal Group as 'his' company, despite the massive amount of capital invested in the company by the plaintiff and many others," the claim alleges.

Mr. Sorbara and two other defendants, Ralph Brehn and Ronald Slaght, sat on the audit committee of Royal Group's board and should have exercised "heightened vigilance" in monitoring the company's actions, especially in light of Mr. De Zen's voting control. Mr. De Zen converted his multiple-voting shares to subordinate voting shares last June.

At least five U.S.-based law firms have filed new class actions in the U.S. federal court, seeking relief on behalf of U.S.-based shareholders only. Yesterday's filing marks the first shareholders' class action filed against Royal Group in a Canadian court.

The pension plan, based in Campbellville, Ont., bought shares of Royal Group between Feb. 26, 1998, and Oct. 18, 2004. It claims $700-million in actual damages plus $300-million in punitive damages because, among other things, the company and the executives named allegedly overstated financial results and failed to disclose investigations into related party transactions.

Also named as defendants are Gary Brown, a former director and chief financial officer; Dominic D'Amico, a founder and "significant shareholder" of the company; Douglas Dunsmuir, a former chief executive and director; and Ron Goegan, a former chief financial officer.

The Canadian Commercial Workers’ plan is not the only pension fund that may have been burned on their Royal Group holdings. As I blogged on October 17th (see “Sorbara’s Plea: Incompetent but Innocent”), other owners of Royal Group shares included the working stiffs who contribute to the Canada Pension Plan and Ontario Teachers Pension Plan (N.B. Royal Group's symbol is "RYG". CPP holdings are under "Mutual Fund Ownership" and Teachers’ holdings are under “Institutional Ownership” on the MSN site).

When the Ontario Securities Commission notified Royal Group of its investigation in December, 2003, the Ontario Public Service Employees Union (OPSEU) Pension Plan held about 750,000 shares, but no longer owns any shares.

Royal Group recently announced that it won't meet the March 29 deadline for reporting audited 2005 financial results, and may have to restate reports for previous periods.

The last we heard from Sorbara, he was denying that he leaked news of a TTC subway expansion to a local politician. Days before, he was trying to have his name removed from RCMP warrants executed at his family's business offices last fall in connection with the Royal Group matter. It's not clear how far this new suit will go, but having to defend this lawsuit at the same time he is trying to clear his name with the RCMP will likely add additional mental and financial burdens.

A few weeks ago I ran into a longtime Woodbridge resident of of Mr. Sorbara's generation. He was firmly of the view that Sorbara will not run again.

1 comment:

Fred said...

hmmmm . . what's that smell

Ahh yes . TOAST !!