First-ever Bill 198 class action commenced

November 11, 2006

Silver v. Imax Corp., Court File 06-CV-318004CP; Cohen v. Imax Corp., Court File 51579CP

In a noteworthy development, separate statements of claim have recently been filed by Marvin Neil Silver and Cliff Cohen, both would-be plaintiffs in a proposed class action against Imax Corporation and certain directors and officers of the company.  Silver’s claim is the first (by a day – Cohen’s followed hard on its heels) to invoke the secondary- market liability provisions that were recently added to the Securities Act (Ontario) under Bill 198.  These amendments require a plaintiff to obtain leave of the court to make out a claim for misrepresentations in public filings and statements that affect purchases in the secondary market – that is, subsequent to an initial public offering of shares. 

The two claims allege that Imax misrepresented its revenues during the period from March to August 2006, in that figures disclosed in its Q4 and annual reports were in excess of actual revenues.  The contention of both plaintiffs is that Imax and the individual defendants knowingly misstated the financials – according to Silver in order to inflate the company’s share price and the value of the directors’ own shareholdings.  In August 2006, Imax issued a press release stating that the US Securities and Exchange Commission had made an informal inquiry about the company’s timing of revenue recognition for its movie theatre systems, which caused a significant drop in Imax’s share price.  Both plaintiffs maintain that they and members of the putative class would not have bought Imax shares during the period from March 2006, when the allegedly inflated numbers were released, to the date of the press release, if they had known the true state of the company’s revenues. 

The disposition of these claims will be watched with interest, as it should set the ground rules for granting leave to seek a remedy under the Bill 198 amendments and may provide guidance on establishing the underlying merits of such a claim.

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