March 28, 2024

Sino-Forest Corp. Says Its Chief Has Resigned

OTTAWA — The Sino-Forest Corporation, a Chinese company that is the focus of a Canadian securities investigation, said on Sunday that its chairman and chief executive, Allen T.Y. Chan, had resigned.

The announcement came after the Ontario Securities Commission halted trading in the company, which is listed on the Toronto Stock Exchange, on Friday after finding that Sino-Forest might have inflated its revenue and exaggerated the value its timberlands.

In brief statement on Sunday, Sino-Forest said three other employees had been put on “administrative leave” and that the duties of a fourth employee had been restricted.

The securities commission, which is Canada’s top market regulator, initially on Friday ordered Mr. Chan and four other Sino-Forest employees to resign. It withdrew that portion of its order by lunchtime, however, after concluding that such a step could not be taken without a hearing.

Through a representative, Sino-Forest said that Mr. Chan had submitted his resignation to the board “within the past week” and that the four employees were the people named earlier by the securities commission.

The value of Sino-Forest’s shares fell significantly in June after Muddy Waters Research issued an extensive report by a short-seller that called the forestry company an “established institutional fraud.”

In Sunday’s announcement, Sino-Forest said that Mr. Chan had also stepped down as a director but added that he would assume the title of founding chairman emeritus. Mr. Chan will continue to assist a special committee of directors with their investigation into Muddy Water’s accusations, the statement said.

As the company has previously suggested, the special committee’s inquiries have not been going smoothly over the last 10 weeks.

“The company’s business is complex, the scope of the review is significant and there are enormous amounts of data that have been marshaled and are under review,” the announcement said. “In these circumstances, the independent committee has not yet reached any conclusions.”

Earlier this summer, Sino-Forest dismissed the Muddy Waters findings as well as a lengthy report in The Globe and Mail newspaper that reached similar conclusions, if in a less inflammatory manner. On Sunday, Sino-Forest said the accusations by the securities regulator, “while unproven, are of a serious nature.”

Mr. Chan has been succeeded by William E. Ardell, a director who is also leading the independent committee.

Mr. Ardell was formerly the president and chief executive of Southam, once Canada’s largest newspaper publisher. After a holding company controlled by Conrad M. Black completed a gradual takeover of Southam in 1996, Mr. Black fired Mr. Ardell and assumed operating control of the newspaper chain. Southam has since changed hands two more times and no longer exists in its previous corporate form.

Sino-Forest is one of several Chinese companies that came to be listed in Toronto by taking over a dormant Canadian company trading on the exchange.

Such reverse merger companies have become an increasing subject of concern for regulators in both Canada and the United States.

Article source: http://www.nytimes.com/2011/08/29/business/global/sino-forest-corp-says-its-chief-has-resigned.html?partner=rss&emc=rss

DealBook: Canada Halts Trading in Sino-Forest of China

The price of Sino-Forest shares, seen on the Toronto exchange, plummeted after Muddy Waters Research said the company was a fraud.Norm Betts/Bloomberg NewsThe price of Sino-Forest shares, seen on the Toronto exchange in June, plummeted after Muddy Waters Research said the company was a fraud.

7:44 p.m. | Updated

OTTAWA — Canada’s top securities regulator on Friday accused a Chinese forestry company of fraudulently inflating its revenue and exaggerating the extent of its timber holdings.

The regulator suspended trading for 15 days in shares of the company, Sino-Forest, which trades on the Toronto Stock Exchange. But its directive came amid some confusion. The Ontario Securities Commission at first took the very unusual step of ordering five directors and officers of Sino-Forest to resign — only to rescind that demand just hours later.

Wendy Dey, a spokeswoman for the regulator, said that the order against the executives, which included Allen T. Y. Chan, the chairman and chief executive of Sino-Forest, was reversed after the commission determined that it could not force their resignations without holding a hearing.

Chris Nicholls, a professor specializing in securities law at the University of Western Ontario, said that he could not recall the commission previously trying to remove corporate officials without a hearing. “But that’s probably because they can’t do it,” he added. “Clearly there was some mistake.”

Sino-Forest has been the subject of considerable controversy since June, when Muddy Waters Research issued a report by a short-seller, Carson Brock, that called the company a “multibillion-dollar Ponzi scheme” that was “accompanied by substantial theft.”

A reporter for The Globe and Mail of Toronto subsequently spent two weeks visiting various properties ostensibly owned or controlled by Sino-Forest and its subsidiaries. It proved to be a trek that frequently led him to nonexistent addresses and empty offices. Like Muddy Waters, the newspaper also found evidence that Sino-Forest had greatly inflated the size of its forestry assets.

After the accusations, Sino-Forest’s stock price tumbled and the hedge fund manager John Paulson, who had been one of the company’s largest shareholders, dumped his shares. His hedge fund, Paulson Company, which had owned 35 million shares, is estimated to have lost nearly $500 million on Sino-Forest.

Neither Sino-Forest nor its public relations agency would provide comment about the order on Friday.

While Sino-Forest initially rejected the assessment of Muddy Waters and dismissed The Globe and Mail’s article, it did appoint a independent committee of directors to review the accusations. Earlier this month, it said that the review was taking longer than first anticipated because of, among other things, “challenges associated with the sourcing and verification of data in China.”

The securities commission offered no specific details about the reasons for its decision. But in addition to finding that Sino-Forest might have inflated what it owns as well its revenue, its investigators found that the company “appears to have engaged in significant non-arm’s-length transactions.” The commission now has 15 days to hold a hearing if it wants to extend the trading ban or impose the forced resignations.

According to the commission, Sino-Forest has raised about $3 billion through stock and bond issues in Ontario.

The Toronto Stock Exchange has sought to maintain its position as a center for the trading of shares in resource-based companies by actively seeking listings from overseas operations. Even before the concerns about Sino-Forest were raised, there have been questions over how North American investors can accurately assess claims made about the value of mining, energy and timber properties in remote parts of the world that are controlled by overseas corporations.

Many of those overseas companies, including Sino-Forest, now trade in Canada because they have taken over a dormant company with a Canadian stock listing. That allows them to list without first filing a prospectus.

Canadian regulators have begun an investigation into such reverse-merger companies, while the United States Securities and Exchange Commission issued a warning in June about investing in these companies.

Muddy Waters’ accusations fell into two broad categories. It claimed that Sino-Forest was fabricating lumber sales through a complex series of interrelated companies, including at least 20 corporations registered in the British Virgin Islands. At the same time, the research report said that Sino-Forest had greatly inflated the value of its timber lands, again through complicated transactions.

The company’s auditors — Ernst Young Canada — did not detect these practices, Muddy Waters claimed, because of geographical and cultural differences. The firm did not respond to a request for comment.

“When the auditors are based in Canada, and the fraud is in China, the auditors are far less versed in the games fraudsters can play in China,” the report said.

In addition to Mr. Chan, the commission initially demanded the resignations of Albert Ip, senior vice president development and operations for Northeast and Southwest China; Alfred C. T. Hung, vice president for corporate planning and banking; George Ho, vice president of finance; and Simon Yeung, an executive with a Sino-Forest subsidiary.

Article source: http://feeds.nytimes.com/click.phdo?i=840ab7e8b3587ee76cf6119ddade0f7f