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Top executives are found to have overstated now-defunct company’s assets and revenue
Investor inquiries for condos in the Toronto area are dropping as prices climb,
Timber company Sino-Forest and several of its top executives defrauded investors and misled investigators, 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 as well as former chief executive Allen Chan “engaged in deceitful or dishonest conduct related to Sino-Forest’s standing timber assets and revenue they knew constituted fraud.”
In addition, Albert Ip, Alfred Hung and George Ho were also found to have defrauded investors by overstating the now-defunct company’s assets and revenue.
Allegations of fraud against Simon Yeung were dismissed, but the regulator ruled he misled staff during their investigation.
The investigation into Sino-Forest was triggered in 2011 when Muddy Waters Research’s Carson Block, a short-seller, called the company a Ponzi scheme. Block cheered the decision Friday. “We applaud the OSC for persisting through an undoubtedly complex investigation and hearing to see that justice is served,” Block wrote in an email.
The former executives now face the possibility of being permanently banned from Canada’s capital markets, or fined up to $1million 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 Chan was disappointed and would be reviewing the lengthy 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.
The decision by the OSC follows the settlement of several lawsuits by investors in connection with the case. In 2015, several Canadian banks and other financial institutions that helped the company raise millions on the financial markets agreed to a $32.5-million settlement in a classaction lawsuit filed by investors who lost money.
David Horsley, former chief financial officer of Sino-Forest, also agreed to pay $6.3 million to the OSC and to settle class-action lawsuits in 2014, while Sino-Forest’s former auditor, Ernst & Young, agreed to a $117-million class-action settlement with investors in 2013.
The case against Sino-Forest and five of its former executives was 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.