Several more law firms recently filed class-action lawsuits against Bennett Environmental Inc. of Oakville, Ontario, claiming that the company committed securities fraud in failing to disclose that a contract at a hazardous waste site in New Jersey was in jeopardy.
With decades of experience in the environment industry, Bennett uses high temperature thermal processing to treat contaminated soils at its St. Ambroise, Quebec facility, and another facility is almost complete in Belledune, New Brunswick. Last year, Bennett announced that it secured the largest contract cleanup ever in the history of the company, to clean up approximately 300,000 tons of contaminated soil from a creosote site in New Jersey.
However, the recent lawsuits allege that cleanup contractor Sevenson Environmental Services Inc. of Niagara Falls, New York, which had awarded Bennett the contract, planned to revise the contract by reducing the total volume of soil to be treated. It claims that Bennett failed to disclose the proposed revision in statements to investors. Meanwhile, Bennett claims that Sevenson was not authorized to re-open the contract, and that it will contest the lawsuits.
In any case, the volume of soil to be managed under the contract has turned out to be much lower than originally expected. There seems to be confusion over Bennett’s version of the contract and the U.S. Environmental Protection Agency’s version of required soil treatment. The final numbers are under scrutiny and will not be available until the fall.
When the situation was exposed on July 22, 2004 Bennett Environmental shares lost a third of their share value and have been falling ever since. Today Bennett shares are valued at $6.30 (down from a 52-week high of $28.34).
According to Bennett’s own recent admission, the project was in jeopardy since August 2003, but no public mention was made of this development. Soon after, some company insiders were selling stock, including Danny Ponn, chief operating officer, who reportedly sold 250,000 shares between September and January, and Rick Stern, the chief financial officer whose resignation was announced last month, sold 75,000 shares. (Founder and Chairman John Bennett sold none of his holdings.)
On August 5, 2004, Globe & Mail writer Eric Reguly reported that a New York law firm behind one of the class-action suits revealed that company management, including Chairman John Bennett, received a damaging letter last August from Sevenson project manager Gordon McDonald. The letter reportedly indicated that Sevenson disagreed with Bennett’s characterizations of the contract and that the contract only guarantees a minimum quantity of 500 tons. The letter was not revealed to shareholders, and so far, there has not been an explanation as to why.
That same day, Bennett released a press release stating that the company is conducting business as usual. It said that the company expects volumes of soil to be processed in the third quarter of 2004 to be comparable to the same period last year. It also announced that two new sales executives have been hired to help attain new projects in both the U.S. and Canadian markets. As for the NJ creosote contract, it conceded that it has received only 7,000 tons under the original 300,000-ton contract.
Class action lawsuits launched on behalf of shareholders currently include those from the law offices of Charles J. Piven, P.A., Kirby McInerney & Squire, LLP and Brodsky & Smith, LLC, and most recently, Berman DeValerio Pease Tabacco Burt & Pucillo. The cases are pending in the United States District Court for the Southern District of New York and include American and Canadian investors.
“Analysts were forecasting based on the big New Jersey contract,” says James Sbrolla, president of Environmental Business Consultants. “The information provided by Bennett wasn’t necessarily inflated on purpose, but perhaps it was too optimistic.”
The Ontario Securities Commission is investigating the situation and a special committee of the board has been appointed to manage the situation.
Solid Waste & Recycling’s sister publication, HazMat Management, spoke with Danny Ponn, chief operating officer, but was not given any comment. HazMat also called CEO Allan Bulckaert, who did not return the call by press time. HazMat will continue to cover this story in its October/November edition (visit www.hazmatmag.com).
For further information on the class action lawsuits, visit: http://www.primezone.com/ca