National Post – Wednesday, August 11, 2010
By Jim Middlemiss
Canadian Imperial Bank of Commerce breached Canadian accounting standards by failing to properly disclose its exposure to subprime mortgages, says expert testimony filed in Canada’s biggest lawsuit to stem from the credit crisis. Gordon Richardson, the KPMG professor of accounting at the Rotman School of Management in Toronto, writes in his 65-page review that “CIBC failed to comply with GAAP disclosure requirements… and the information provided pertaining to credit risk was, prior to December 6, 2007, wholly misleading to the market in general and to class members who invested in CIBC.”
The lawsuit covers the period of May 31, 2007 to February 28, 2008. Mr. Richardson said, “CIBC substantially overstated its income for the last three quarters of fiscal 2007 and the first quarter of 2008 and income for these periods should be restated in order to comply with GAAP.”
A second expert witness report from a noted securities valuation firm in the United States pegs CIBC investor losses at a maximum of $6.6-billion. The filings are made in preparation for the mammoth class-action suit, which is expected to come before the Ontario Court for certification in March 2011.
CIBC spokesman Rob McLeod said, “CIBC denies these allegations and plans to vigorously defend this action.”
Joel Rochon, who is representing Thornhill, Ont., investor Howard Green in the lawsuit, which was filed on July 22, 2008, declined to comment on the expert testimony reports. The lawsuit claims CIBC misrepresented the bank’s exposure to subprime investments and failed to implement appropriate risk-management controls related to billions of dollars in investments in collateralized debt obligations and U.S. subprime mortgages.
