Montreal: A u.s. class action suit on behalf of investors who acquired limited voting shares in Cinar Corp. in February 1999 alleges the Montreal production company violated u.s. securities laws.

Despite the u.s. development, Cinar shares on nasdaq are trading slightly higher than their initial February ’99 sales price.

A claim presented by New York law firm Milberg Weiss Bershad Hynes and Lerach in the U.S. District Court for the Eastern District of New York, says Cinar ‘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 favourable tax credits and that, as a result, the company’s financial results were artificially inflated.’

The merits of the u.s. claim remain unclear as the New York law firm is actively soliciting other u.s. investors in Cinar. At least one Canadian law firm is also believed to be prospecting for disgruntled Canadian investors.

Cinar raised about $150 million in a public offering in February 1999, but the various reviews of contracts and the ongoing police investigations related to the validity of production tax credits only emerged in October.

Cinar responded to the u.s. legal action saying it ‘has not yet been served with any complaint, and based upon the allegations contained in the press release the company intends to defend the lawsuit vigorously.’

Cinar has pushed back the release date for its ’99 financial results as its audit committee continues to review contracts.

On Feb. 18, a Cinar audit report stated the financial impact of the current tax credit investigation would be ‘greater than initially anticipated.’

The company’s Nov. 30, 1999 year-end results are normally released by late February, but Louise Sansregret, vp investor relations, says technically Cinar has until April 18 to file.

Despite news of the u.s. lawsuit Feb. 23, picked up by the u.s. wire services, Cinar (CIF/CINR) stock remained essentially unchanged on the nasdaq following a 20% drop on Feb. 22. On the tse, Cinar shares dropped more than $9 on Feb. 21 after the audit committee report, moving up to $28.75 (CIF.A) and $29.35 (CIF.B) by Feb. 29.

Cinar priced its February ’99 share offering at us$20 a share. Almost a year later, on Tuesday, Feb. 29, Cinar shares on nasdaq were trading at us$20.75.

Allegations of tax fraud against Cinar were raised in the House of Commons last fall. An rcmp and Surete du Quebec investigation is ongoing. Sansregret was unable to confirm Cinar is negotiating a tax settlement with Revenue Canada.