(CN) - French environmental services firm Veolia Environment S.A. inflated its earnings using funky accounting according to a shareholder class action filed in the U.S. District Court for the Southern District of New York.
     The alleged accounting problems resulted in one-time charges for "impairment losses on goodwill and non-current assets of approximately ¬ 686 million" for operations in Italy and Morocco and an accounting fraud in its U.S. marine services division, according to the suit.
     Between 2007 and the early part of 2011, investors claim they over paid for their shares which fell 22 percent after the company's CEO revealed the accounting fraud in conference call with analysts and investors.
     From April 2007 until August 2011, Veolia released a long string of upbeat quarterly reports emphasizing growth in its world wide waste management, transportation and utilities businesses.
     However, during the second quarter of 2011 the company says it uncovered accounting fraud in its U.S. based marine services division, stretching all the way back to 2007.
     In a conference call with investors in August 2011, Veolia CFO Pierre-Francois Riolacci emphasized that "there was no embezzlement as such... However, the results were artificially bloated by improper accounting methods."
     Riolacci explained that while the fraud inflated the division's results by about $152 million, after overpaying taxes on that amount it had to take a charge of $90 million on its balance sheet. Riolacci also stressed that those responsible for the fraud had left company in May 2011.
     However in a conference call after the release of the company's first quarter results on May 5, 2011 Riolacci did not mention the fraud and only noted that the U.S. division's returns were down because of the decrease in drilling activity after the Deepwater Horizon oil spill the year before.
     The suit filed by lead plaintiff Beth Shikiar asks for pre and post-judgment interest on unspecified damages.
     In an unrelated matter, Veolia and another French utilities company Suez Environment SA admitted recently that they were under investigation by the European Commission for collusion in the French water market.
     The shareholders are represented in New York by Marc Gross and Jeremy Lieberman of Pomerantz Haudek Grossman and Gross and Patrick Dahlstrom in the firm's Chicago office.