Former Rose Art Principals commence proceedings accusing Mega Brands' officers of insider trading



    TORONTO, Sept. 22 /CNW/ - Former principals of Rose Art Industries Inc.
have filed an application with the Ontario Superior Court of Justice for leave
to commence proceedings against certain officers of Mega Brands Inc. (TSX: MB)
with respect to alleged insider trading in December 2005 and the fall of 2006.
    The application accuses Marc Bertrand, Chief Executive Officer, Victor J.
Bertrand Sr., Chairman of the Board, Vic Bertrand, Chief Operating Officer,
Alain Tanguay, Chief Financial Officer, Brahm Segal, General Counsel, and
Sylvain Duval, Executive Vice President (the "Insiders") of having
collectively sold 1,604,500 company shares in December 2005 and/or the fall of
2006 (in most cases after exercising company options) with knowledge of
confidential information that, if generally known, might reasonably be
expected to have materially affected the value of Mega Brands shares, as
summarized below.
    The first of two series of alleged insider trades occurred on December 14
and 15, 2005 shortly after the Insiders learned that a 21-month-old boy in the
U.S. died as a result of having ingested numerous small magnets from a
MAGNETIX construction toy sold by Mega Brands and before the death was made
public.
    The second series of trades occurred between September 13 and
December 15, 2006 after the Insiders became aware of serious distribution
failures on the part of Mega Brands following its integration with Rose Art
Industries Inc., yet before these problems were made public. These serious
distribution problems included unacceptably low order fill rates and poor
service to retailers, including some of Mega Brands' largest customers, during
mid-to-late 2006. As a result of these problems, the Insiders knew that these
large customers and retailers threatened to reduce the amount of their future
business with Mega Brands unless these failures were corrected.
    Loss of business from these significant distribution problems did indeed
materialize but was not publicly disclosed by Mega Brands until November 9,
2007 when the company announced its Q3 2007 financial results. According to
that announcement, "net sales in the third quarter of 2007 decreased 8.8% to
$184.1 million compared to $201.8 million in the corresponding period last
year."
    The Insiders' are accused of violating the insider trading provisions of
section 134(1) of the Securities Act and section 131(4) of the Canada Business
Corporations Act and are therefore liable to account to Mega Brands for
profits derived from their insider trading. The allegations raised in the
application have not been proven in court.
    On September 16, 2008, Mega Brands, after having previously been advised
of the insider trading allegations, announced that an independent special
committee of the company's board concluded that no action should be taken
against the Insiders. Mega Brands has refused to disclose its reasons for
failing to take action and has refused a request to disclose its independent
special committee's report generated in connection with its investigation into
these claims.
    "We are extremely disappointed with Mega Brands' decision not to take any
action against the Insiders and by the lack of particulars provided by the
company in its recent press release as to why the company concluded that no
action should be taken," said Lawrence Rosen, one of the applicants. These
claims alleging insider trading will continue to be vigorously pursued in the
Ontario Superior Court of Justice by the former principals of Rose Art
Industries Inc. on behalf of Mega Brands.





For further information:

For further information: Rochon Genova LLP, Joel Rochon, (416) 363-1867,
www.rochongenova.com


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