Cinar Scandal

This article was originally published in Maclean’s magazine on March 20, 2000. Partner content is not updated.

As first days at the office go, it was the most bizarre in Peter Moss's career. On March 6, he reported for his first day as president of entertainment for Montreal-based children's TV programmer Cinar Corp. Moss arrived to find "the whole place had been turned upside down," he recalls.

Cinar Scandal

As first days at the office go, it was the most bizarre in Peter Moss's career. On March 6, he reported for his first day as president of entertainment for Montreal-based children's TV programmer Cinar Corp. Moss arrived to find "the whole place had been turned upside down," he recalls. That morning, Cinar, which produces the Emmy award-winning kid's series Arthur, had announced that about $179 million of its funds had been invested without the approval of its board of directors. Cinar's founders and co-chief executive officers, the husband-and-wife team of chairman Micheline Charest and president Ronald Weinberg, resigned. The company fired senior executive vice-president Hasanain Panju. That evening, at a wine-and-cheese party initially planned to welcome him, Moss tried to bolster morale. As Weinberg and Charest looked on, he told the company's employees: "People forget what Cinar does best. In 150 countries around the world, children are laughing because of the programming Cinar makes."

No one questions Cinar's ability to produce programming assets. The company has an extremely valuable cache of children's television shows, among them Wimzie's House, The Adventures of Paddington Bear and Are You Afraid of the Dark? Cinar's financial affairs, however, are very much in question. Federal authorities are investigating the company for tax fraud. It faces one Canadian class-action suit and three from the United States. It has a new president and CEO - Barrie Usher - and a new chairman - Lawrence Yelin. Cinar's stock was in free-fall last week, dropping 70 per cent on March 7. Two days later, both the Toronto Stock Exchange and Nasdaq halted trading in Cinar for a second time that week. On March 10, the company announced that it will "likely" have to change the last three years of its financial statements after an independent audit. Accountants from the Ontario Securities Commission and the Quebec Securities Commission also began gathering information on Cinar's books. "When their research is competed," said OSC spokesman Frank Switzer, "a decision will be made about what action may be required."

The first sign of trouble had appeared last October, when it was revealed that the RCMP was investigating Cinar. The Mounties were looking into the possibility that Cinar put Canadian names on scripts by American screenwriters in order to receive tax credits. Although no charges have been laid, the hint of scandal triggered a sell-off of Cinar stock; but it recovered and in February hit $39.50. The investigation seemed to have caused only a little turbulence.

But later last month, Cinar told investors that the fallout from the RCMP's investigation might seriously hurt the company's stock. Its price began to tumble again. Then came last week's breathtaking announcement that about $179 million had been invested without consent of the board, and investors stampeded. Cinar seemed to blame Panju, who denied any wrongdoing, saying the corporation was aware of the investments. On March 8, Cinar announced it had located $52 million of the funds and that the remaining $126 million was locked up in corporate bonds. The stock rallied a little, but shareholders were not mollified.

The first Canadian class-action suit landed on March 8. The Montreal law firm of Unterberg, Labelle, Lebeau & Morgan filed a claim against Cinar on behalf of the Association de protection des épargnants et investisseurs du Québec, an investor lobby group. Paul Unterberg, the lead lawyer, believes Cinar withheld information so as to buoy its stock, and he accuses Weinberg, Charest, Panju and vice-president Jeffrey Gerstein of seven violations of Quebec securities law and civil code. "There are so many unanswered questions," Unterberg says. "Cinar's press release says that the board had not approved the $179 million, but it didn't say that they didn't know about it. There is a difference."

Until last October, Cinar had a golden image. The company is one of Canada's top animation houses, rivalled only by Toronto-based Nelvana Ltd., and has partnerships with broadcasters around the world. Charest and Weinberg met in 1976 at a New Orleans film festival and that same year formed Cinar as a distribution company. They married in 1983 and a year later began producing nonviolent kids' shows. Cinar launched its first series, The Wonderful Wizard of Oz in 1987. The company became successful by turning well-known books (Paddington) and children's characters (Lassie) into successful series.

Financial worries aside, there are millions of people (read: children) whose number 1 concern is a curious aardvark named Arthur and the series that bears his name. Arthur, which Cinar created with Boston's PBS station WGBH, is its most popular offering. Based on the award-winning books by American Marc Brown, Arthur won Daytime Emmy awards in 1998 and 1999. Neilsen has ranked it the top series for kids between 2 and 11 in the United States. Says the series' publicist, Elizabeth Coté: "We have been assured that the production of Arthur will not be affected."

But the turmoil has tarnished the golden aura around Charest and Weinberg, who, in the 1990s, became almost as celebrated as the programs they produced. The parents of two teenage sons, their dedication to nonviolent programming appealed to parents and kids. Their financial acumen won them the respect of money people. Weinberg, 48, an American by birth, concentrated on finance and marketing. Charest, 46, looked after production and international deals. She was also an outspoken advocate of Canada's cultural industries. In 1997, the daily Hollywood Reporter ranked Charest the 19th most powerful woman in entertainment. In recent months, Charest and Weinberg have lowered their profile and, although they remained on the Cinar board, they did not speak with reporters last week. "Cinar has been a well-respected company for years," says Nelvana co-chief executive officer Michael Hirsh. "It is a sad day for them and for the company."

It is even more melancholy for the shareholders. Cinar's stock peaked last July at $44.50. Boston-based Fidelity Management and Research Co. is the largest investor, holding 15 per cent of Cinar's shares through six or more mutual funds. In brokerages across the country, a mute despondency set in among brokers who had once been bullish about Cinar. "I don't want to kick people when they're down," said one. "It's an ugly situation." Some analysts believe an eventual takeover is inevitable. Companies such as CanWest Global Communications Corp. and Nelvana have been pegged as possible suitors, although neither would comment.

Cinar's newest employee remains optimistic. Moss, who was vice-president of YTV and head of children's programming at the CBC, says Cinar's founders are also determined to see their company survive. "They are hurt and ready to fight back. I know it sounds crazy, but we are planning for the other side of the mountain." Since its creation 20 years ago, Cinar has specialized in happy endings. The question now: can Cinar write one for itself?

Maclean's March 20, 2000