FORMER SINO-FOREST EXECS HIT WITH SANCTIONS, PENALTIES.
Executives face millions in fines, sanctions
TORONTO • The Ontario Securities Commission announced on Wednesday millions of dollars in penalties and a number of sanctions against former executives of failed timber company SinoForest Corp., the latest act in what regulators alleged was “one of the largest corporate frauds in Canadian history.”
An OSC panel ordered that ex-Sino-Forest chief executive Allen Chan, as well as several other officials, be permanently barred from buying or trading in any securities.
The OSC also ordered that the former execs be permanently prohibited from becoming or acting as directors or officers of publicly traded companies.
Chan was personally hit with a $5-million administrative penalty. Furthermore, the former Sino-Forest CEO was directed to “disgorge” to the commission nearly $60.3 million and to pay around $2 million in costs.
In addition to costs, other ex-execs were hit with penalties ranging as high as $2.65 million. They were also ordered to make disgorgement payments ranging from $1.2 million to $1.86 million.
“The duplicity demonstrated by these respondents in their actions resulting in the collapse of Sino-Forest is among the most serious misconduct engaged in by respondents in Commission proceedings, and especially by senior officers of a public company, including Mr. Chan, the purported ‘visionary’ who chose to betray the trust of the investors, employees and many other stakeholders of the company he led,” the OSC decision stated.
The sanctions announced Wednesday followed a hearing on the merits of the allegations that stretched on for 188 days over 2014, 2015 and 2016.
In July 2017, an OSC panel found Sino-Forest and several of its former executives misled investigators, made misleading statements and engaged in “deceitful or dishonest conduct” tied to the company’s timber assets and revenue.
“The Merits Panel found that during the Material Time the respondents perpetrated one of the largest corporate frauds in Canadian history,” Wednesday’s decision said. “With deliberate planning and foresight, the respondents constructed an elaborate and complex organizational structure that misled investors and resulted in the cumulative loss of $6 billion (Canadian dollars) in equity market capitalization, separate and apart from losses affecting Sino-Forest’s outstanding debt.”
A lawyer representing Chan and the others said in an email that they were “disappointed in the outcome of this phase of the proceeding” and noted that “many of our clients” had already launched a Divisional Court appeal aiming to challenge the OSC’s earlier decision on the allegations.
“We are currently reviewing the Commission’s order on Sanctions and Costs to determine whether it contains any errors that merit appellate court intervention,” wrote Adam D.H. Chisholm. “We will not be able to comment further until that review is complete.”
The sanctions announced Wednesday also come after an approximately $2.63-billion Ontario court ruling in March against Chan, wherein a Superior Court judge wrote the former exec had “abused his unique position as a fiduciary to orchestrate an extremely large and complex fraud, resulting in the loss by Sino-Forest of billions of dollars.” The OSC’s decision on Wednesday said any payments made by Chan related to that case would be credited against his $60.3-million disgorgement order.
“The conduct at issue in that proceeding overlaps to a significant degree with Mr. Chan’s misconduct in this proceeding,” the OSC noted.
Sino-Forest, which the OSC said described itself as a “leading commercial forest plantation operator” in China, had been publicly traded on the Toronto Stock Exchange before suffering a “catastrophic failure” in 2011, according to the court decision.
The failure followed a research report from Muddy Waters LLC that accused the company of being a “Ponzi scheme, rife with fraud, theft and undisclosed relatedparty transactions,” Justice Michael Penny wrote.
Chan, the OSC said, had testified that “he did nothing to cause Sino-Forest’s demise but that it was caused by a series of actions not taken after he was relieved of his duties as CEO following the Muddy Waters Report.”
A spokesperson for the OSC said in an email that the Sino-Forest matter was “unprecedented” in its size, scope and complexity.
“This case demonstrates our commitment to investigate, prosecute and sanction those who seek to harm our markets,” they added.