* Quebec police say Pierre Duhaime arrested
* Duhaime resigned from SNC in March
* SNC shares close down 2 pct on Toronto Stock Exchange
* Another former SNC exec charged in Switzerland (Adds comment from Duhaime's lawyer, fund manager comment, closing stock price)
By Nicole Mordant
Nov 28 In the latest twist in an ethics scandal at Canada's biggest engineering firm, the former chief executive of SNC-Lavalin Group was arrested on Wednesday on three fraud-related charges, sending the company's stock down 2 percent.
Pierre Duhaime, who resigned from SNC in March, was arrested at his home by the province of Quebec's anti-corruption squad on charges of fraud, conspiracy to commit fraud and use of false documents, said Anne-Frédérick Laurence, a spokeswoman for Unite Permanente Anticorruption Quebec, a provincial police unit.
"He was arrested this morning and he will be able to go with a promise to collaborate," she said by telephone from Montreal, the largest city in the mainly French-speaking province.
Laurence would not comment further on the nature of the charges.
Duhaime's arrest is the latest blow for the 101-year-old company, which is still reeling from an internal investigation's finding earlier this year that $56 million in funds had gone missing, paid to unknown agents on projects that did not exist. Duhaime quit after it came to light that he signed off on the mystery payments.
Duhaime's lawyer, Michel Massicotte, said that as of 5 p.m. EST (2200 GMT), it was his understanding that his client had not yet been released, although he was expected to be released on Wednesday.
Montreal-based SNC, which is one of the world's biggest engineering groups, said it had been informed of Duhaime's arrest but that it was unable to comment further.
"As we have stated repeatedly, SNC-Lavalin has and will continue to cooperate fully with all authorities who request our assistance," the company said in an emailed statement.
SNC's shares closed down 2.25 percent at C$39.99 on the Toronto Stock Exchange on Wednesday.
"The market is reacting to old news but no one likes to see anything to do with arrests when it comes to a company, even if it's the former CEO who has nothing to do with the company anymore," said Barry Schwartz, vice president and portfolio manager at Baskin Financial Services, which owns SNC stock.
The stock is down 20 percent since the start of the year.
WIDENING ETHICS SCANDAL
Earlier this week, SNC's former head of construction, Riadh Ben Aissa, was charged in Switzerland on allegations of money laundering and corruption. He had been arrested in April.
Media reports revealed Swiss police are investigating $139 million in payments to a Swiss bank account tied to large construction contracts in Libya.
Those payments are unrelated to the $56 million disclosed by SNC's investigation. Even so, SNC had said in March that Ben Aissa, who left the company in February, may have "direct and significant" knowledge of the missing $56 million.
Quebec's anti-corruption squad said in a statement on Wednesday that Ben Aissa faces the same charges as Duhaime and that it was working with international authorities.
Tunisian-Canadian Ben Aissa was a key link between SNC and the former Libyan regime of Muammar Gaddafi. Before the fall of Gaddafi, SNC had several large projects on the go in Libya, including building a prison.
Separately, Canadian police are also investigating bribery allegations against SNC executives in connection with a $1.2 billion bridge project in Bangladesh. The World Bank has suspended its loan for the development and temporarily banned an SNC subsidiary from bidding on its contracts in the country.
SNC said earlier this year it had turned over the findings of its internal investigation to Canadian police. SNC's new CEO, Robert Card, a former long-time executive at U.S. engineering and construction company CH2M Hill Cos Ltd, took the reins at SNC on Oct. 1 vowing zero tolerance for unethical behavior.
($1=$0.99 Canadian) (Additional reporting By Julie Gordon and Claire Sibonney in Toronto; Editing by Peter Galloway)