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- Scott + Scott, LLP - CLASS ACTONUNITED STATES DISTRICT COURT SOUlHERN DISTRICT OF NEW YORK ST. LUCm COUNTY FIRE DISTRICT FIREFIGHTER'S PENSION TRUST FUND, MARSHALL W. COLLINS, GARY DANNENBERG, THEODORE M. K.OLER, SIMON SALO AND ELMER WALKER, Individually and on BehalfofAll Others Similarly Situated, Plaintiffs, vs. OILSANDS QUEST INC. (flkla CANWEST PETROLEUM CORPORATION), CHRISTOPHER H. HOPKINS, T. MURRAY WILSON, KARIM HIRJI, GARTH WONG, RONALD PlllLLIPS, lHOMAS MILNE, GORDON TALLMAN, WILLIAM SCOTI' mOMPSON, PAMELA WALLIN, JOHN . READ, McDANIEL &:. ASSOCIATES CONSULTANTS LTD. and lD SECURITIES, INC., Defendants. Civil Action No. ll-c.~~fflij~ CLASS ACTION DEMAND FOR JURY TRIAL '; '. NATURE OF THE ACTION 1. Lead Plaintiffs, St. Lucie County Fire District Firefighter's Pension Trust Fund, Marshall W. Collins, Gary Dannenberg, Theodore M. Koler, Simon Salo and Elmer Walker ("Lead Plaintiffs"), individually and on behalf of all other persons similarly situated, by Lead Plaintiffs' undersigned attorneys, for their complaint against Defendants, allege the following based upon personal knowledge as to Lead Plaintiffs and Plaintiffs' own acts, and upon information and belief as to all other matters based on the investigation conducted by and through Lead Plaintiffs' attorneys, which included, among other things, a review of Securities and Exchange Commission ("SEC") filings and public filings with Canada's securities regulatory authorities reported on SEDAR by Oilsands Quest Inc. (f/k/a Canwest Petroleum Corporation and before that, Uranium Power Corporation), as well as media reports about the Company. Lead Plaintiffs believe that substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. 2. This is a securities fraud class action on behalf of all persons or entities who purchased the common stock and other securities of Oilsands Quest Inc. ("Oilsands Quest" or the "Company") between March 20, 2006 and January 13,2011, inclusive (the "Class Period"), and suffered losses as a result of the wrongdoing alleged herein, excluding acquisitions by Defendants and the other officers, directors and consultants of Oilsands Quest and its subsidiaries. 3. Oilsands Quest, a Company which obtained mining rights over more than a million acres of property in Canada's Alberta and Saskatchewan provinces, is a Colorado corporation, with offices in Canada, which at the beginning of the Class Period traded over-thecounter on NASDAQ and beginning on August 18, 2006 began trading on the American Stock - 2 - Exchange ("AMEX"). Though, in 2006, Oilsands Quest's capitalization exceeded $1 billion, Oilsands Quest has, to date, never earned a dollar of revenues. 4. This action alleges that, beginning in 2006, through a series of false and misleading press releases, investor presentations, and accounting manipulations, Defendants fraudulently pumped up Oilsands Quest's stock price by portraying Oilsands Quest as the largest owner of valuable rights to bitumen in Saskatchewan's oil sands, creating a modern day gold rush for what Defendants knew to be largely worthless mining rights. Although Defendants touted management estimates of more than 60 billion barrels of bitumen in place, including billions of barrels of potentially recoverable resources, and development plans using proven methods to extract more than 30,000 barrels a day from an exploratory site constituting a small portion of Oilsands Quest's acreage known as "Axe Lake," former officers, employees and consultants to Oilsands Quest have stated that, in fact: (l) the vast majority of the Oilsands Quest's properties were well known within the Company to contain no bitumen and Defendants engaged in contrived exploration and testing activities to justify the retention of worthless mining rights in order to mislead investors about the value of the Company's properties; (2) because testing had not shown there was a shale cap over the identified bitumen deposits, the bitumen could not be extracted using established methods; and (3) there was no basis for the Company's announced timetables and production plans. As one former vice president of the Company observed, because the geologic features of the deposits had yet to be identified and no bitumen had yet to be extracted by any method, Defendants had simply "pulled" the 30,000 barrels per day number "from the sky." 5. The misleading billion barrel plus resource estimates for Axe Lake included in the Company's fiscal year ended ("FYE") April 30, 2008 Form lO-K were developed by McDaniel - 3 - & Associates, and were included in the Form 10-K with its consent, and in various Company press releases, without disclosing that virtually all of this bitumen, as a practical matter, was unrecoverable. 6. Oilsands Quest has been forced to amend its April 30, 2008 Form 10-K, repeatedly, first to remove the resource estimates, and then in a restatement admitting a material weakness in internal controls, accounting "irregularities" (i. e., accounting fraud), understated compensation expense paid to Defendants and inflated values reported for the Company's mining rights. Other annual and quarterly SEC reports have been restated for these same reasons. 7. The July 2009 restatement of the Company's FYE April 30, 2007 and April 30, 2008 Forms 10-K adjusted the accounting for the August 2006 acquisition by Oilsands Quest of a minority interest in its subsidiary (the "August 2006 Acquisition"). Among other things, the August 2006 Acquisition had been used to step up the values of mining rights reported on Oilsands Quest's balance sheet -- from a cost at their original acquisition from the Saskatchewan government of a few million dollars to more than $350 million. As a result, the value of the Company's mining rights was grossly inflated in the FYE April 30, 2007 Form 10-K, and in interim quarterly accounting reports, and should have been written off as impaired in later filings -- but was not, as a result of the Company's distorted application of the "successful efforts" accounting rules. 8. Throughout the Class Period, and thereafter, in order to successfully conduct a seemingly endless parade of private placements and public offerings, Defendants insisted that the Company was the largest owner of contiguous oilsands mining rights in Canada, and that these rights were immensely valuable. In virtually every analyst report positively commenting on the - 4 - Company's prospects, the analyst would point to the extraordinary size of the Company's acreage under permit and the potential for additional bitumen discoveries that suggested. To support the illusion that the Company was progressing on its plan to commercialize these rights, Defendants manipulated their accounting, issued misleading bitumen resource reports and engaged in wasteful exploration and testing activities, including making huge undocumented payments to consultants. As the truth slowly leaked out and investors' skepticism grew in the latter part of the Class Period, the Company's stock price dropped, causing investors to incur losses of hundreds of millions of dollars. JURISDICTION AND VENUE 9. Jurisdiction is conferred by §27 of the Exchange Act. The claims asserted herein arise under §§10(b) and 20(a) of the Act and Rule 10b-5. This Court has jurisdiction over the subject matter of this action under 28 U.S.C. §§1331 and 1337, and §27 of the Exchange Act. 10. Venue is proper in this District pursuant to §27 of the Exchange Act and 28 U.S.C. §1391(b). Though Oilsands Quest is a Colorado corporation headquartered in Alberta, Canada, the Company conducts business in this District, including conducting multiple Class Period stock offerings in this District, and its common stock trades on the American Stock Exchange ("AMEX") which is located in this District. 11. In connection with the acts alleged in this Complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets. - 5 - PARTIES 12. St. Lucie County Fire District Firefighter's Pension Trust Fund, as set forth in its certification previously filed with this Court, and which is incorporated by reference herein, purchased common stock of Oilsands Quest at artificially inflated prices during the Class Period and has been damaged thereby. 13. Marshall W. Collins, as set forth in its certification previously filed with this Court" which is incorporated by reference herein, purchased common stock of Oilsands Quest at artificially inflated prices during the Class Period and has been damaged thereby. 14. Gary Dannenberg, as set forth in its certification previously filed with this Court" which is incorporated by reference herein, purchased common stock of Oilsands Quest at artificially inflated prices during the Class Period and has been damaged thereby. 15. Theodore M. Koler, as set forth in its certification previously filed with tIns Court" which is incorporated by reference herein, purchased common stock of Oilsands Quest at artificially inflated prices during the Class Period and has been damaged thereby. 16. Simon Salo, as set forth in its certification previously filed with this Court" which is incorporated by reference herein, purchased common stock of Oilsands Quest at artificially inflated prices during the Class Period and has been damaged thereby. 17. Elmer Walker, as set forth in its certification previously filed with this Court" which is incorporated by reference herein, purchased common stock of Oilsands Quest at artificially inflated prices during the Class Period and has been damaged thereby. 18. Defendant Oilsands Quest, Inc. ("Oilsands Quest") is a Colorado corporation with its corporate headquarters located at 800, 326 - 11th Avenue SW, Calgary, Alberta, Canada T2R DeS. The Company was formed on April 3, 1998 as Uranium Power Corporation. On - 6 - November 2,2004, its name was changed to CanWest Petroleum Corporation ("CanWest"). On October 31, 2006, after the Company had acquired the remaining minority interest in its primary operating subsidiary, Oilsands Quest Sask Inc. ("OQI Sask"), the Company changed its name from CanWest to Oilsands Quest Inc. OQI Sask, the operating subsidiary, is an Alberta, Canada corporation, established to explore for and develop oil sands deposits in the provinces of Saskatchewan and Alberta, Canada. During the Class Period, according to its SEC reports, the Company, including OQI Sask, had eight employees as of April 30, 2006, to a high of 80 employees (53 ofwhom were seasonal) on March 7, 2008. 19. Defendant Christopher H. Hopkins ("Hopkins") served as a director, Chief Executive Officer ("CEO") and President of the Company during the Class Period, serving as a director from August 14, 2006 to the present; as CEO from August 14, 2006 until he resigned January 15,2009; and as President from August 14,2006 until September 15, 2008. Defendant Hopkins was also the President, CEO and a director of the Company's operating subsidiary, OQI Sask, from November 10,2004 to January 15,2010. 20. Defendant T. Murray Wilson ("Wilson") served as a director, Chairman of the Board, CEO, President and Chief Financial Officer ("CFO") of the Company during the Class Period, serving as Chairman since May 1,2006 and Executive Chairman since August 14,2006, and as President, CEO and CFO from May 1,2006 until August 14,2006. On January 15,2010, Wilson resumed the roles ofCEO and President of Oilsands Quest. 21. Defendant Karim Hirji ("Hirji") served as CFO of Oilsands Quest from August 14,2006 to February 23, 2009. Hirji also served as CFO ofOQI Sask from November 10,2004 until February 23, 2009. - 7 - 21.1 Defendant Garth Wong ("Wong") served as Oilsands Quest's CFO from February 23, 2009 until February 1, 2011 and now serves as its President and CEO. Previously, Wong worked at KPMG, Oilsands Quest's outside auditor. 22. Defendant Ronald Phillips ("Phillips") is, and throughout the Class Period was, a member of the Board of Directors (the "Board") and served as Chair of the Board's Compensation Committee and a member of the Audit Committee. Phillips was also a former director of Oilsands Quest Sask Inc. from May, 2006 to August, 2006. Phillips signed the Form 10-K statement for fiscal year ended April 30, 2008. Phillips made the following sales of stock: DATE OF SALE: #OFSHARES: PRICE/SHARE: $ MADE: August 8, 2007 200,000 4.60 $920,000 December 18, 2007 411,500 4.18 $1,720,070 December 20, 2007 205,750 4.35 $895,012 July 3, 2008 100,000 5.76 $576,00 July 9, 2008 123,450 5.82 $718,479 July 17,2008 66,685 5.3 $353,430 July 18, 2008 15,615 5.39 $84,164 September 15,2008 300,000 2.75 $825,000 $6,092,157 These are his only sales of shares during the existence of the Company. Phillips resides at 6 Stillwater Lane, Weston, Connecticut and has a business address of 1281 East Main Street, Stamford, Connecticut. 23. Defendant Thomas Milne ("Milne") was a director of the Company from August, 2006 through January, 2010 and served as Chair of the Board's Audit Committee and a member of the Compensation and Governance Committee. Milne was also a fonner director of Oilsands Quest Sask Inc. beginning in November, 2004. In 2010, Milne became a member of the board of "Canshale"- the company that purchased Oilsand's oil shale assets in Pasquia Hills in - 8 - Saskatchewan. Defendant Hopkins is CEO, President, and Chairman of the Board of Canshale. Phillips signed the Form lO-K statement for fiscal year ended April 30, 2008. Milne also serves on the Board of Directors of Newton Energy, Inc. and Lakeside Steel with Defendant Hopkins. Milne made the following sales of stock: DATE OF SALE: #OFSHARES: PRICE/SHARE: $ MADE: July 12, 2007 50,000 3.13 $156,500 August 2, 2007 50,000 4.22 $211,000 July 10, 2008 24,200 5.61 $135,762 July 10, 2008 25,800 5.6 $144,480 July 11, 2008 100,000 5.78 $578,000 July 11, 2008 55,750 5.75 $320,563 $1,546,305 1/28/09 (by spouse) 18,660 1.05 $19,593 1/28/09 (by spouse) 81,340 1.03 $83,780 1/29/09 (by spouse) 64,702 1.03 $66,643 1/29/09 (by spouse) 23,348 1.01 $23,573 $1,739,894 These are his only sales of shares during the existence of the Company. Milne has business addresses of 1980 440-2 Ave. SW, Calgary, Alberta, Canada and 2311 Erlton Place SW, Calgary, Alberta, Canada. 24. Defendant Gordon Tallman ("Tallman") has been a director of the Company since August, 2006 and continues to be a member today. Tallman served as a member of the Board's Audit and Reserves and Resources Committees and Chair of the Governance and Nominating Committee. Tallman signed the Form 10-K statement for fiscal year ended April 30, 2008. Tallman resides at 210 Christie Park Green SW, Calgary, Alberta, Canada and has a business address of210 Christie Park View SW, Calgary, Albelia. - 9 - 25. Defendant William Scott Thompson ("Thompson") was a director of the Company from August, 2006 through April 30, 2007 and from June 28, 2007 to January, 2010. Thompson served as the Chair of the Board's Reserves and Resources Committee and a member of the Compensation Committee. Thompson was a director of Oilsands Quest Sask from June, 2005 to August, 2006. In 2010, Thompson became a member of the board of "Canshale"- the company that purchased Oilsand's oil shale assets in Pasquia Hills in Sasktachewan. Defendant Hopkins is CEO, President, and Chairman of the Board of Canshale. Thompson signed the Form 10-K statement for fiscal year ended April 30, 2008. Thompson made the following stock sale: DATE OF SALE: #OFSHARES: PRICE/SHARE: $ MADE: January 14,2008 54,036 4.21 $227,491 This is his only sale of shares during the existence of the Company. Thompson resides at 5193 Tortuga Trail, Austin, Texas and has a business address of 6371 Richmond, #200, Houston, Texas. 26. Defendant Pamela Wallin, OC ("Wallin") has been a director of the Company since January, 2007 and continues to be a member today. Wallin served as a member of the Board's Reserves and Resources and Governance and Nominating Committees. Wallin signed the Form 10-K statement for fiscal year ended April 30, 2008. Wallin's business addresses are 621 Victoria Bldg, Ottawa, Ontario, Canada and 205, 707-7th Avenue SW, Calgary, Alberta, and Wallin resides in New York City, Toronto, and Ottawa. 27. Defendant John Read ("Read") has been a director of the Company since October, 2007 and continues to be a member today. Read served as a member of the Board's Compensation and Reserves and Resources Committees. Read signed the Form 10-K statement for fiscal year ended April 30, 2008. Read's business addresses are 450 1st Street SW, Calgary, - 10- Alberta and 205, 707-7th Avenue SW, Calgary, Alberta, and he resides at 28 Wild Rose Drive, Calgary, Alberta, Canada. 28. Defendants Hopkins, Wilson, Hirji, Wong, Phillips, Milne, Tallman, Thompson, Wallin, and Read are referred to collectively as the "Individual Defendants." 29. Defendant McDaniel & Associates Consultants Ltd. ("McDaniel" or "McDaniel and Associates") was established in 1955 as an independent consulting firm providing oil and gas reserves evaluation services to the petroleum industry in Canada and worldwide. Today, it employs sixty professionals and technical support personnel and specializes in geological studies, reserves evaluations, resource assessments, economic evaluations, and petroleum reservoir engineering studies. McDaniel's principal business address is 2200, 255 5th Avenue SW, Bow Valley Square 3, Calgary, Alberta Canada. 30. During the Class Period, McDaniel was hired by the Company to review existing geological studies of the Axe Lake site and to provide evaluations of the resources and reserves located therein. McDaniel issued false and misleading reports, with respect to the Company's mining rights and resources, and approved their disclosure to the Company's investors, including in the Company's Form 10-K statement for fiscal year ended April 30, 2008. 31. McDaniel knew and/or had access to the Company's internal and technical information and lmew its reports were false and misleading, and omitted material information. McDaniel signed reports and consent forms included in published and misleading SEC and SEDAR filings ofthe Company. 32. Defendant TD Securities, Inc. ("TD Securities") is a part ofthe wholesale banking business of TD Bank Group which maintains its headquarters in Canada at 66 Wellington St. West, P.O. Box 1, TD Banle Tower, Toronto, Ontario. TD Securities is an investment bank - 11 - employing 2,700 people in 13 offices worldwide. TD Securities provides advisory and capital market products and services and liquidity to corporate, government and institutional clients including underwriting and distribution of new debt and equity issues and advice on strategic acquisitions and divestitures. Over the last ten years, TD Securities has been a leader in raising equity and debt capital for oilsands companies and advising them on mergers and acquisitions. 33. Throughout the Class Period, TD Securities, and particularly, Robert Mason, a Managing Director of TD Securities and one of its lead underwriters for the Company's private placements and public offerings, regularly attended the Company's Board meetings and exercised significant control over the Company's officers and directors with respect to decisions made on the Company's operations and public reporting. Among other things, TD Securities served as the Company's "fmancial advisor" for its August 2006 Acquisition. TD Securities was also the lead underwriter for the private placements of CanWest's stock that was used to set the 8.23 shares to 1 share exchange rate for the August 2006 Acquisition, and thus the purported basis for the $319 million step up of the values of the mining rights reported on the Company's consolidated financial statements thereafter. In exchange for its "financial advisor" role in the August 2006 Acquisition, TD Securities was paid a $1.6 million "success fee," as well as its usual underwriting fees paid in connection with the private placements used to fund other aspects ofthe transaction, including the buy-out ofBrock's 2.5% royalty interest. CLASS ACTION ALLEGATIONS 34. Lead Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons or entities who acquired Oilsands Quest cornmon stock and other securities during the Class Period (the "Class"). Excluded from the Class are Defendants, the officers, directors, consultants and auditors of the - 12 - Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which Defendants have or had a controlling interest. 35. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, Oilsands Quest common stock was actively traded, first over-the-counter on the NASDAQ and then on the AMEX, under the symbol "BQI." While the exact number of Class members is unknown to Lead Plaintiffs at this time and can only be ascertained through appropriate discovery, Lead Plaintiffs believe that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by Oilsands Quest or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions. 36. Lead Plaintiffs' claims are typical of the claims of the members ofthe Class as all members of the Class are similarly affected by Defendants' wrongful conduct in violation of federal law that is complained of herein. All Class members either engaged in purchases and sale transactions that were U.S. domestic transactions and/or purchases and sales of stock listed on a U.S. exchange. 37. Lead Plaintiffs will fairly and adequately protect the interests of the members of the Class and have retained counsel competent and experienced in class and securities litigation. 38. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions oflaw and fact common to the Class are: (a) whether the Exchange Act was violated by Defendants as alleged herein; - 13 - (b) whether Defendants made material false or misleading statements or omissions about the business, prospects, financial reporting or internal controls of Oilsands Quest; (c) whether Defendants made the material false and misleading statements and omissions with scienter; (d) whether Defendants' wrongful statements caused Lead Plaintiffs' losses; and (e) to what extent the members of the Class have sustained damages and the proper measure of damages. 39. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action. |
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