Alleging that CIBC understated its level of risk and the magnitude of the bank’s exposure to the U.S. subprime residential mortgage market in order to artificially inflate stock prices, investors who purchased CIBC common shares between May 31, 2007 and Feb. 28, 2008 have launched a multi-billion dollar class action suit against Canada’s fourth largest bank.

In addition to CIBC, the claim also names bank president and CEO Gerald McCaughey and several current and former executives and directors.

In a statement issued Wednesday, CIBC denied any wrongdoing. “CIBC is confident that, at all times, its conduct was appropriate and that its disclosure met applicable requirements. CIBC denies these allegations and plans to vigorously defend this action.”

The allegations raised in the claim have yet to been proven in court. The claim, which was issued with the Ontario Superior Court of Justice on Tuesday, has yet to be certified. Joel Rochon, from Toronto Law Firm Rochon Genova LLP that specializes in class action, who will represent the plaintiff and the prospective class members, says “the focus so far has been on understanding the liabilities component of the case. There is a lot of market value involved and thousands of investors effected.”

According to the claim, during the period in question — between May 2007 and February 2008 — CIBC maintained that its exposure to the crumbling U.S. subprime residential mortgages market was inconsequential there was no need to need for concern, when it was not the case — artificially propping up share price. CIBC’s financial statements for the first quarter of 2008 painted a very different pictures.

After the first quarter of 2008, CIBC disclosed writedowns of $3.487 billion, $3.379 billion of which were related to the bank’s the subprime mortgage market. According to the claim these disclosures contradicted the company’s earlier representations and disclosures during the class period. Only in December 2007, did CIBC admit that one of its principal hedge counterparties, ACA Financial Guaranty Corp. in the United States, was catastrophically undercapitalized with an asset to guarantee ratio of 1:180 — certainly in no position to provide hedge protection for its positions.

CIBC shares traded at $107.92 at the end of October 2007. By the end of 2007, CIBC shares traded at $71.43. In February common shares were trading below the $70 mark. Yesterday, CIBC shares dipped below $60, but closed at $63.29.

It remains to be seen if the claim will be certified. Class action lawsuits are “coming of age in Canada” says Shaun Finn, a lawyer with McCarthy Tétrault in Montreal. Certification effectively recognizes that the plaintiff as the representative of the class and that the class is best served by the process in question. Once a case is certified, it will proceed to hearing on the merits of the case and ultimately a decision. The certification, says Finn, “is the existential moment for a class action case.”

The plaintiff will have to prove that “there was negligence” explains Dimitri Lascaris with Siskinds in London, Ontario. “Even if they were acting in good faith — this a crititical difference with the United States where you have to show fraudulent intent and 30% to 40% of class action lawsuits are dismissed before discovery.”

“Unless the defendant decides to settle and cut short the proceedings, any class action lawsuit is a lengthy one. Years not months,” says Finn.