Ex-Auditor of Cannon Sued by Shareholder

A Cannon Group stockholder, whose shares plunged 65% in market value since he bought them Nov. 3, has brought a class-action suit against the troubled Hollywood film maker’s former auditors.

Cannon’s top officers and controlling shareholders, Menachem Golan and Yoram Globus, as well as other officers and directors also are named as defendants, as they have been in previous suits. However, the new suit was the first naming Mann Judd Landau of Beverly Hills, which was replaced Oct. 1 as Cannon’s auditors.

The latest suit, filed in U.S. District Court here late last week, alleges that the auditing firm aided Cannon in violating federal securities laws by preparing “materially false financial statements and earnings reports” this year.

Plaintiff Stanley Heineman said in his suit that he paid $31 a share for Cannon’s stock Nov. 3. It has fallen after a series of adverse developments since disclosure of an expanded investigation of its finances by the Securities and Exchange Commission several weeks ago.

Stock Hit 52-Week High

Cannon’s stock hit a 52-week low of $11 last Friday on the New York Stock Exchange. Its highest level in the past year was $45.50.

Management officials at Cannon and at Mann Judd Landau could not be reached for comment on the suit. The accounting firm was replaced Oct. 1 by Arthur Young & Co., which is doing a special re-audit of Cannon’s results for the first nine months of this year.

A series of suits have been filed against Cannon since it disclosed last August that the SEC was inquiring informally about its method of accounting for costs on its films. It revealed Nov. 12 that the federal regulators had expanded the inquiry into a formal investigation on a wide range of matters, including its financial condition.

Since then the company, which had reported profits for the first six months of this year, disclosed major writeoffs and a $14.5-million third-quarter loss. Moreover, it revealed at the same time that its figures might have to be restated at the completion of the special audit.

These include the renegotiation of terms of its $270-million acquisition last spring of Screen Entertainment Ltd., Great Britain’s largest movie theater and film production holding, from Australian Alan Bond.

Early last week, Standard & Poor’s Corp. lowered its rating on Cannon’s $240 million in ‘junk’ bonds to single-B-minus from single-B.

The rating firm said Cannon “may well produce a loss for 1986” because of its poor box office returns and “expected material restatements” of previous financial results. S&P; added that its downgrading of Cannon’s bonds “very importantly assumes the successful refinancing” of about $105 million due Bond, including about $75 million coming due Dec. 15.