Davies Ward Philips & Vineberg Law Firm and Its Partner William Brock Charged With Unethical Conduct as Part of Misrepresentation of Financial Transac

20 April 2006

The following was issued today by Fournier Avocats Inc.:

Former Cinar president and co-chief executive officer Ronald A. Weinberg today charged in Quebec Superior Court in Montreal that Davies Ward Philips & Vineberg ("Davies"), the law firm for Cinar including its audit committee, and William Brock, a member of the Davies law firm, are guilty of unethical conduct. The Court papers show that Brock inappropriately furnished financial information from another client, Mount Real, which misrepresented financial transactions involving, among others, Mr. Weinberg, his deceased wife, Micheline Charest, Cinar, and Globe-X, a Bahamian offshore entity. Both Mount Real and Globe-X are related to Norshield, the defunct Montreal-based hedge fund now under investigation and subject to numerous litigations related to the disappearance and misuse of investor funds. Furthermore, Mount Real is now in receivership following discovery of financial improprieties relating to Norshield, among others.

As the Court documents make clear, at the same time the Davies firm was advising Cinar's audit committee and brought litigation on behalf of Cinar alleging that Mr. Weinberg, the estate of Micheline Charest and another defendant owed Cinar monies, it also represented and was directly influenced by another of its clients, Mount Real, the president and chief executive officer of which was Lino Matteo, who it is now revealed was acting also as Globe-X's representative. Furthermore, the records and the Court filings show that the financial operations of Mount Real, Norshield and Globe X all were intertwined and that John Xanthoudakis, president and chief executive officer of Norshield, was directly involved with Mount Real. These incorrectly accounted for transactions have served as a basis of the Cinar litigation against the Weinbergs. The financial information furnished to Brock by his law firm's client Matteo appears to have been designed to lower Globe-X's liability to Cinar by shifting it to the Weinbergs.

The Court documents disclose that, propping up Cinar's $10,900,295 claim against the Weinbergs, Davies filed a report prepared by Glen Harloff, a so-called "expert" accountant. However, Harloff admitted in sworn testimony this February that the source of his information was Matteo as conveyed to him by Brock. Moreover, as early as July 2002, the Weinbergs had filed with the Court an affidavit from the Gomery Commission's expert, Pierre St-Laurent, a chartered, investigative, and forensic accountant, showing that Cinar owed the Weinbergs more than $7 million and that the Weinbergs had no outstanding financial obligations to Cinar.

As highlighted in today's filing, St-Laurent in his affidavit stated:

"I have reviewed the transactions recorded in the Directors' loan accounts and the Holding companies loan accounts ... had discussions in connection thereto with Cinar's accounting staff and with Mr. Harloff ... . Based on my work, I have come to the conclusion that there existed a balance owing by Cinar to Defendants [Weinbergs] of $7,685,552 as of March 31,2000 ... . These findings are based on the initial recording by Cinar of a US$12M transfer from CIS on November 19,1999, which was credited to the benefit of the Defendants ... in Cinar's book ... This credit was later reversed by Cinar in October 2000 ... This transaction is at the heart of the litigation between the parties.

"With respect to the allegations of wrongful and improper use of Cinar's assets made by Harloff ... I believe that these allegations are misleading in that the true financial position of the Defendants ... vis-a-vis Cinar was not adequately disclosed to the Court because Harloff elected not to include on P-9 revised the cumulative balance outstanding after each of the transactions recorded on that schedule. ... [H]ad Harloff provided such information, the Court would have known most of the disbursements were not Cinar's funds but rather funds belonging to the Defendants ... .The Court would also have known that there were significant amounts owed by Cinar to Defendants ... .In my view, Harloff should have explained to the Court that the balance of $10,970,640.67 supposedly owed by the Defendants ... to Cinar is solely due to the reversal of the entry related to US$12M transfer ... . Harloff should also have explained to the Court that in the eventuality that a Court would find that the initial accounting treatment was correct, Cinar would then owe a balance of $7,109,759.33 to the Defendants ... based on his own calculations ... ."

Today's Court filing goes on to assert: " ... The Harloff Report and the Harloff Affidavit appear not to have been solely Harloff's work product." On February 7, 2006, at his examination, Harloff testified that the source of his information with respect to the US $12 million transaction was none other than the Davies law firm. Harloff reveals in that examination the following:

"A. On the third (3rd) of August ... 2000, I was advised indirectly from

persons reportedly representing Globe-X that there was a repayment to

Cinar of twelve million dollars ($12,000,000) around November of ...

1999.

Q. Who at Globe-X told you that, or who, speaking on behalf of Globe-X,

told you that?

A. Again, I received it indirectly.

Q. From who?

A. Actually, from Mr. Brock.

Q. And did Mr. Brock tell you who had given him this information?

A. I believe he did, sir.

Q. And who did Mr. Brock tell you had given him this information?

A. Believe it was Mr. Matteo ... .

Q. Do you know who Mr. Mateo was?

A. At the time, he has a position with Mount Real Investments ... ."

Thus, as shown in today's Court filing, Harloff testified that Brock informed him that Matteo, representing Globe-X, claimed that the US $12 million was a repayment to Cinar from Globe-X. However, St-Laurent, in his September 26, 2002 examination, testified under oath that Matteo told him the US $12 million transaction was a loan from Globe-X to the private holding companies of the Weinbergs, meaning the Weinbergs should have received credit for that sum rather than being charged with it.

The filing charges: "The fact that Davies has chosen to file the Harloff Affidavit, which contains only one of Matteo's versions of events ... can only mean that ... Davies has some other reason to believe that this is the only possible true version of the events and failed to disclose this reason to Harloff, or Davies willfully breached its obligations to the Court and the Advocates Code of Ethics.

" ... Whichever statement is correct, the fact that Davies' testimony is necessary to clarify facts material to the present litigation is, in itself, sufficient grounds for Davies' disqualification ... Had Davies not relied on Matteo's story, there would have been no initial claim against the Defendants ... . Davies, by instituting the present action, was also acting to protect its client, the Audit Committee of Cinar, since the Audit Committee could have been held responsible for failing to spot the alleged wrongful transactions in the financial statement of Cinar as the Audit Committee's statutory duty is to review the financial statements."

The filing reveals that, as the Davies firm was advising Cinar's directors, it was, at the same time or during part of the same time, representing Mount Real, whose chief executive was Matteo, while having discussions with the same Matteo in his additional capacity as the representative of Globe-X. Moreover, Brock was a key legal advisor to the Cinar Audit Committee with respect to Cinar's efforts to recover money transferred to Globe-X. The filing also discloses that in October 2000, two months after Matteo through Brock had advised Harloff that the $12 million were Globe-X funds paid to Cinar, Globe-X and Cinar entered into a settlement agreement confirming that payment.

As the filing states: "Presumptively, because of Davies' representation of Matteo and Mount Real up until 2000, and of its possible representation of Globe-X International Ltd., it finally fell to[another law firm] ... to commence [litigation] on behalf of Cinar ... against Norshield [entities for the same funds sought from the Weinbergs]."

"Accordingly," the filing asserts, "there are serious and compelling reasons to justify the exclusion of Davies ... . Brock and Davies have placed themselves in circumstances and positions whereby their professional independence could be called into question ... .Brock's representation and conduct now compel his being called as a witness to hearings concerning the conversations he had with Matteo and the information he gave to Harloff and requires Davies to withdraw as Plaintiffs' counsel."

The filing makes clear: Matteo was involved in Mount Real, Norshield and Globe-X. Also involved in Mount Real, Norshield, and Globe-X was Xanthoudakis. Mount Real was connected to Norshield and Globe-X. Globe-X was connected to Norshield and Mount Real. Norshield was connected to Globe-X and Mount Real. Davies previously represented Mount Real and also may have previously represented Globe-X International Ltd., a subsidiary of Globe -X Management. Brock knew or should have known that Mount Real was represented by his firm, Davies, and when he learned that the president of Mount Real also acted as a representative of Globe-X, he knew or should have known that he was in an unethical situation.

Contact: Pierre Fournier

Fournier Avocats Inc.

(514) 843-6748

For further information: Pierre Fournier of Fournier Avocats Inc., +1-514-843-6748

Source: newswire

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