Sino Forest defrauded investors and misled investigators, OSC rules
The Canadian Press
Sino Forest, once the biggest publicly listed forestry company in Canada before its demise, and several of its top executives defrauded investors and misled investigators, Ontario’s securities regulator ruled Friday.
The Ontario Securities Commission concluded that former CEO Allen Chan, Albert Ip, Alfred Hung and George Ho “engaged in deceitful and dishonest conduct” by overstating the company’s timber assets and revenue.
Allegations of fraud against Simon Yeung were dismissed, but the regulator ruled he misled staff during their investigation.
Established in 1994, Sino-Forest was once the most valuable forestry company listed on the Toronto Stock Exchange.
Although it was based in Ontario, the company conducted most of its business in China until it collapsed in 2012.
The case against Sino-Forest and five of its former executives has been one of the most complex cases in the Ontario Securities Commission’s history.
There were more than 170 hearing days, 22 witnesses, over 22,000 pages of transcripts and thousands of exhibits.
Defence lawyers for the executives argued that what the OSC called fraud were actually mistakes made by a fast-growing company. They also argued that behaviours that may seem strange in a Canadian context were typical business customs in China.
The former executives now face the possibility of being permanently banned from Canada’s capital markets, or fined up to $1 million for each failure to comply with Ontario securities law.
A separate hearing on sanctions and costs has not been set.
In 2012 Sino-Forest received approval by a Canadian court for a bankruptcy filing, with plans to sell its vertically-integrated operations, including forestry, saw mills and floor manufacturing. Sino-Forest then launched a $4 billion anti-defamation suit against Muddy Waters and the author of the report, Carson Block. Among stock holders was U.S. investment firm Paulson & Co., which recorded a $500 million loss on Sino-Forest holdings in 2011.
The decision by the Ontario Securites Commission which is being widely reported, said CEO Allen Chan, and three vice presidents – Albert Ip, Alfred Hng, and George Ho – were responsible for the fraudulent plan. The commission will meet to determine penalities, which could be $1 million per infraction.