Royal Group Technologies Ltd. has revealed it, too, is the subject of a Royal Canadian Mounted Police probe.
For several months, the plastic extrusion giant and compounder maintained it was not included in an RCMP probe of some of its executives. Royal Group said it received a letter Oct. 18 from the RCMP stating that it, indeed, is a target of the probe.
RCMP is trying to determine if a conspiracy existed to defraud shareholders. Documents name Royal Group founder and Chairman Vic De Zen, President and Chief Executive Officer Douglas Dunsmuir and former Chief Financial Officer Gary Brown as subjects of the investigation.
Royal of Woodbridge, Ontario, was mum after the Toronto Stock Exchange and New York Stock Exchange halted trading of its shares Oct. 13. Once Royal issued an Oct. 15 news release revealing the RCMP documents, its stock was allowed to resume trading Oct. 18. The documents, called production orders, allow RCMP to obtain data from parties not under investigation themselves.
The production orders are directed at gathering banking records from the Bank of Nova Scotia. They cover the period between Jan. 1, 1996, and July 30, 2004, for Royal Group subsidiary Royal Building Systems, Royal St. Kitts Beach Resort Ltd. and two of the resort's affiliates.
RCMP also is looking at the possibility that a Royal prospectus may have included deliberately false or misleading information.
Royal tried to suppress public release of the RCMP production orders because it could affect its financial status among lenders.
Allegations against some Royal Group executives damage management's credibility, and could distract management while the firm faces challenges, said Cherilyn Radbourne, an analyst with RBC Capital Markets in Toronto.
``Furthermore, these allegations may make it more difficult for Royal to refinance a loan that is repayable in April,'' Radbourne noted in an Oct. 18 research report. The company has a term loan of C$424 million (US$337.1 million) due April 28.
Royal Group also is being investigated by the Ontario Securities Commission and Canada Customs Revenue Agency. The investigations focus on transactions Royal Group made with a luxury resort on the Caribbean island of St. Kitts, and on disclosure records, financial affairs and share trading. Royal first disclosed the investigations in late February.
On Oct. 17, De Zen issued an independent news release in which he vigorously defended himself.
``I am outraged at the serious allegations in the RCMP's production order and recent media reports that are damaging my hard-earned reputation,'' De Zen said. ``These allegations are completely wrong. I have never defrauded anyone in my life and pride myself on conducting my business affairs honestly.''
De Zen stressed that he has cooperated fully with RCMP and OSC in their probes. The St. Kitt's resort was a showcase for Royal's plastic building products, he said.
Meantime, Royal said Oct. 21 that it expanded its special board committee that is looking into transactions between the firm and the St. Kitt's resort. The committee includes all five independent members of the board. It will handle communications with police, stock regulators and the public and will determine the role within Royal of anyone being investigated, according to a news release.
Royal Group, North America's largest plastic extrusion company, reported third-quarter sales of C$555 million (US$441.8 million) and net profit of C$35.5 million (US$28.3 million).