Montreal: While the rcmp carries on with its investigation of alleged illegalities in tax credit claims made by Cinar Corporation for an unspecified number of Canadian content productions, the industry has started to counteract consumer press reports and statements made in the House of Commons by the Bloc Quebecois alleging widespread abuse of public production funds.

The print media, including La Presse, The Globe and Mail and Le Devoir, have used the allegations against the Montreal children’s program producer as proof of systemic abuse by Canadian producers (La Presse says it now has information that at least four other major Montreal production companies are ‘under scrutiny’), and laxness, or worse, on the part of funding and certification authorities.

Following a technical briefing session in Ottawa Oct. 25, officials from Canadian Heritage and cavco emerged to defend their current certification practices, denying widespread abuse. cavco issues about $60 million a year in tax credits to Canadian producers.

For its part, Heritage has announced its own internal review, and the Quebec government has asked sodec for an assessment of funding practices. The latter is expected by mid-November.

In the House, Heritage Minister Sheila Copps asked the Bloc to desist from making politically motivated allegations and allow the rcmp to conduct its investigation. The substance of the allegations against Cinar concerns the substitution of Canadian names for Americans as screenwriters on productions claiming content tax credits.

In the current climate of recrimination – in an industry notoriously divided into haves and have-nots – it’s still unclear whose agenda is currently being advanced in the mainstream media and the House of Commons.

That point was made recently by Caisse de Depot et Placement du Quebec president Jean-Claude Scraire, who recommended the Bloc and its allies in the media exercise a little caution.

In an Oct. 23 La Presse story, Scraire charges that despite no official searches or the laying of any formal charges, the Bloc has used its parliamentary immunity to make allegations against Cinar, as that company’s stock value dropped by a full third.

Ironically, Scraire made the remarks in Los Angeles, where he was a member of a Quebec trade delegation, led by Quebec Premier Lucien Bouchard, aimed at promoting the province’s production services, especially animation and visual special-effects companies.

While Cinar was prominently displayed in the mission’s promotions, Quebec delegates were dismayed when local l.a. news coverage concentrated on the problems of the Montreal production company. In effect, the Bloc’s campaign went over like a lead balloon among delegates.

Scraire went on to say the Caisse does have a minor investment in Cinar, but added the wider warning that nearly half the company’s 1,000 employees work in Montreal.

In an Oct. 18 prepared statement, Cinar says it is taking steps to deal with the allegations: ‘The allegations in the media appear to pertain to episodes produced several years ago and have no relation to the current operations and activities of the company. Based upon its review to date, Cinar believes that such allegations will not have any material adverse impact on the financial position or results of the company.’

The company’s board of directors has also asked its independently constituted audit committee to review the issues surrounding the allegations.

Playback has information Cinar co-ceo Micheline Charest is also preparing a written statement.

Although Cinar reported a record third quarter on Oct. 19, the allegations helped spark a major downward run against Cinar stock.

On Oct. 18, cif.a stock had dropped $15.15 on the tse to $26.35 after closing at $41.50 the previous Friday. The stock has moved upwards since and was trading in the $28 to $30 range at Playback press time. The 52-week high/low is $43.50 and $25.50.

‘Unnamed informer’

The story first surfaced – in its current form – on Oct. 14 in a Journal de Montreal article reporting the launch of a police investigation into an alleged tax credit fraud by a Montreal production company. The newspaper said the police investigation was based on a ‘tip’ from an ‘unnamed informer,’ and although the paper did not name Cinar, it claimed police had conducted interviews at Telefilm Canada, cavco and Revenue Canada.

A day later, a Radio-Canada newscast named Cinar as the company under investigation, prompting Bloc mp Stephane Bergeron to ask about Cinar under the immunity of the House.

In the House, Bergeron asked Copps to respond to the allegations made in the press, making the additional claim Charest had played host (read: sat at the head table) at a local federal Liberal Party fundraiser attended by her ‘friend,’ Prime Minister Jean Chretien. Outside the Commons, the Bloc has consistently refused to repeat any of the allegations, or name Cinar.

Record numbers

Meanwhile, Cinar has reported record earnings for the third quarter ending Aug. 31. In the period, the company delivered 38 new half-hours of animation and live action. Revenues increased 52.3% to $46.5 million, with the higher-margin Cinar Education division accounting for fully 50% of all revenues. ebitda is $12.9 million, up 71% over the same period last year, while net earnings rose more than 77% to $6.8 million, or $0.17 a share.

Nine-month revenues are up more than 40% to $133.9 million and net profits have grown 51% to $19.1 million, or $0.50 a share.