Sino-Forest defrauded investors, OSC rules

Timber company Sino-Forest and several of its top executives defrauded investors, misled investigators and “engaged in deceitful or dishonest conduct,” the Ontario Securities Commission ruled in one of Canada’s largest corporate fraud cases.

In a nearly 300-page decision released Friday, the regulator said the company and former CEO Allen Chan, as well as Albert Ip, Alfred Hung and George Ho defrauded investors by overstating the now defunct company’s timber assets and revenue.

Allegations of fraud against Simon Yeung were dismissed, but the regulator concluded he misled staff during their investigation.

The investigation into Sino-Forest was triggered in 2011 when short seller Carson Block of Muddy Waters Research published a scathing report accusing the company of exaggerating its assets and fabricating sales transactions in what amounted to “a multibillion-dollar Ponzi scheme.”

“We applaud the OSC for persisting through an undoubtedly complex investigation and hearing to see that justice is served,” Block wrote in an email Friday.

“It’s important to remember that our report was initially quite controversial and met with a good deal of hostility — at a time when the freedom of speech is under threat, this outcome is a reminder of the value of critical voices and freedom of expression.”

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.

Chan’s lawyer, Emily Cole, said her client was disappointed and would be going over the decision.

Sino-Forest, which was established in 1994, 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.