An investor class action against mining company Gatos Silver Inc. for allegedly misrepresenting its reserves is being settled, with the underwriters not part of the case.

To facilitate a settlement, the Ontario Superior Court of Justice certified a proposed class action against Tetra Tech Inc., a consulting firm that prepared a technical report that allegedly overstated the reserves of publicly traded Gatos Silver. At the same time, the court approved a motion dropping the company’s underwriters from the case.

The proposed investor class action was filed in February 2022, alleging that the company’s prospectus filings in 2020 and 2021 included material misstatements about its only operating mine. 

In January 2022, the company announced that it discovered errors in the technical report on its reserves, prompting a sharp drop in the stock price.

Now, the plaintiffs in the case have reached a tentative partial settlement. A court hearing to approve the proposed settlement will be held on April 15.

In advance of that hearing, the court granted orders certifying the action as a class proceeding against Tetra Tech and its employees who prepared the flawed report, while discontinuing the claim against several investment dealers.

The suit named the offerings’ underwriters — BMO Nesbitt Burns Inc., Goldman Sachs Canada Inc., RBC Dominion Securities Inc., Canaccord Genuity Corp. and CIBC World Markets Inc. — as defendants in the case, seeking to also hold them responsible for damages that investors who bought shares in the company following the issuance of the flawed prospectus allegedly suffered.

In approving the proposed discontinuance against the dealers, the court noted that this follows a pattern in these kinds of cases, which aims to reduce ongoing litigation costs and to maximize potential recoveries for investors by focusing on the sources of the alleged misrepresentations (the companies and their employees) rather than the underwriters. 

“Accordingly, there will be no prejudice to the proposed class resulting from the discontinuance of the action as against the underwriter defendants,” the court said in its decision. An agreement between the underwriters and the plaintiffs pauses the limitation period and gives the plaintiffs the right to re-assert their claim against the dealers in certain circumstances, the decision added.

Last June, the company also announced that it had reached an agreement in principle to settle a U.S. class action for US$21 million.