Dec. 11 (Bloomberg) -- Biovail Corp., Canada's largest publicly traded drugmaker, agreed to pay $138 million to settle a securities-fraud class-action suit brought by investors.

Biovail shareholders claimed the company and some of its officers and directors lied about the effectiveness of the Cardizem LA high-blood-pressure drug when it was introduced in 2003, according to the complaint filed in Manhattan federal court.

The settlement is the second-largest in a securities case involving a Canadian company, behind only Nortel Networks Corp., according to a statement by the Ontario Teachers' Pension Plan Board, the co-lead plaintiff. The board was co-lead plaintiff in that case too, in which Nortel, North America's biggest maker of telephone equipment, agreed to cash and stock settlements valued at about $2.4 billion to resolve accounting fraud claims.

``This proposed settlement would eliminate the uncertainty and considerable expense associated with this matter,'' Biovail Chief Executive Officer Douglas Squires said in a statement today.

Biovail, based in Mississauga, Ontario, estimates it will pay $85 million of the settlement once insurance claims are resolved. The company admitted no wrongdoing in the accord, which must be approved by a judge.

`Outright Accounting Fraud'

Defendants in the case, including Biovail founder and former CEO Eugene Melnyk, were accused in court papers of ``outright accounting fraud,'' by Stephen Singer, a lawyer for the Ontario pension board. Biovail booked millions of dollars of ``phony profit on `sales' of CLA, which defendants knew was defective and not fit for sale,'' Singer said.

Biovail shares slumped 68 percent from June to December in 2003, as earnings fell after the company lost a shipment of its Wellbutrin XL antidepressant and was late in shipping a batch of Cardizem.

``This is an excellent recovery and reflects the impact that institutional investors like OTPP can have in securities class actions,'' Ontario pension board President and CEO Jim Leech said today in the statement announcing the settlement.

The board, Canada's largest single-profession pension plan, invests on behalf of more than 271,000 active and retired teachers, according to the statement.

The case is Re: Biovail Corp. Securities Litigation, 03-CV-8917, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Robert Greene in Washington at rgreene2@bloomberg.net; Joe Schneider at the federal court in Chicago at jschneider5@bloomberg.net.

Last Updated: December 11, 2007 14:36 EST