18°c Overcast
14°c Cloudy periods
Winnipeg Free Press - PRINT EDITION
Sino-Forest fraud huge, OSC alleges
New accusations against CEO
TORONTO -- After an exhaustive investigation involving many of its most senior people, the Ontario Securities Commission alleges the short sellers were right: Sino-Forest Corp. has committed a massive and complex fraud.
The allegations, which took nearly a year to put together, imply a wide-ranging scheme by Sino-Forest insiders to inflate the value of its assets and revenues. The commission's findings support the most serious fraud allegations that were previously made against Sino, while introducing new ones.
The OSC alleges Sino held "undisclosed control" over the network of third parties through which it conducted purchase and sale transactions. In turn, these deals were backed by fraudulent contracts that were not drafted until the quarter after they allegedly took place and revenue from them was recognized.
The commission also lobbed new allegations against former chief executive Allen Chan, saying he secretly controlled companies that made $22 million when Sino-Forest acquired control of Greenheart Group Ltd., a Hong Kong firm. Five other former executives, including CFO David Horsley, have been accused of fraud. The allegations have not been proven. If proven, Sino-Forest represents one of the largest frauds in Canadian market history.
The Sino-Forest investigation was a challenging one for the OSC, as it had to overcome language and cultural barriers in China while trying to unwind Sino's web of third-party relationships.
Sources said the commission did not do anything out of the ordinary in this investigation -- it interviewed everyone it could and studied every document it came across.
Experts said the OSC moved quickly on the file, given the scope of the investigation and the difficulties involved.
"I think this is a very positive development and the OSC is to be commended for acting swiftly," said Dimitri Lascaris, a partner at Siskinds LLP, which is co-leading a class-action lawsuit against Sino-Forest.
"Relatively speaking, this is fast for any Canadian regulator."
In its statement of allegations, the commission analyzed four of Sino-Forest's transactions it claims were fraudulent. The biggest of them involves a company called Gengma Forestry.
In that case, Sino bought standing timber and land-use rights from Gengma Forestry for $14 million in 2007.
The OSC states the transaction was never recorded and Sino purported to buy the same assets from Yuda Wood (an alleged undisclosed subsidiary) for $83 million.
In 2010, the standing timber was purportedly sold for $231 million, the OSC said. However, the same assets were offered as collateral on a Sino-Forest bank loan in 2011, suggesting the sale could not have taken place a year earlier and been reported as revenue.
The OSC raised other questions about the legitimacy of Sino's purchase and sales contracts. For example, the commission stated forestry bureau employees, who provided confirmations of Sino's tree ownership, obtained gifts and cash payments from Sino's suppliers.
At its peak, Sino-Forest was worth more than $6 billion. Its epic collapse began in June of last year, when short seller Muddy Waters LLC accused the company of fraud. Sino was unable to file its 2011 financial results because of uncertainty around its third-party relationships, which forced the company into creditor protection last March. By that point, Sino's business in China was effectively destroyed by the fraud allegations.
-- Postmedia News
Republished from the Winnipeg Free Press print edition May 23, 2012 B5
More Business
- Back to Top
- Return to Business
More Business
(1 of 16 articles for today)
Weather still not co-operating as Jersey shore seeks to jump-start 1st summer after Sandy
6:39 PM 0
Poll
Most Popular Business
- Demonstrators rally against Monsanto in global anti-GMO protest
- MTS to sell Allstream to Egyptian investment group, focus on Manitoba market
- Balancing today with tomorrow
- New owner for lumber stores
- Differing dollars
- Changes to CPP rules worth looking into
- Value Partners cracks $1-B mark in assets
- Federal government looks to snag corporate sponsors for Ottawa events
- Latest round in meat war hits the streets
- Netflix eyes subscriber boost
- New owner for lumber stores
- MTS to sell Allstream to Egyptian investment group, focus on Manitoba market
- 2 men arrested in killing of Las Vegas teen who refused to give up his iPad
- New downtown tower could be 42 storeys tall: developers
- Creative industries can fuel a city's economic engine
- Microsoft reveals Xbox One as all-in-1 entertainment console, last of 3 major systems unveiled
- Value Partners cracks $1-B mark in assets
- Skyline-altering project will happen: developer
- Housing slowdown to worsen, cost 150,000 jobs, says mortgage group
- Changes to CPP rules worth looking into
- Target opens its first Manitoba stores Tuesday
- New structure to be king of downtown?
- Transcona transformation
- Target opens Manitoba stores
- New owner for lumber stores
- Mounties say crooks passing fake polymer bank notes in British Columbia
- MTS to sell Allstream to Egyptian investment group, focus on Manitoba market
- City to get a touch of glass
- Canad Inns property has personal meaning for owner
- Holiday pump jump debated
- New owner for lumber stores
- Thorough record-keeping key to power of attorney
- Japanese investor on board with Manitoba's HyLife
- Career change seeds
- Value Partners cracks $1-B mark in assets
- Changes to CPP rules worth looking into
- MTS to sell Allstream to Egyptian investment group, focus on Manitoba market
- Trust me
- Sideways move may be right way up
- New RBC policy restricts outsourcing
- New owner for lumber stores
- Value Partners cracks $1-B mark in assets
- MTS to sell Allstream to Egyptian investment group, focus on Manitoba market
- Changes to CPP rules worth looking into
- Developers to unveil plans for bold downtown tower
- Ex-'Pegger seeks to grow local businesses
- Skyline-altering project will happen: developer
- Bridging the gap
- There are lots of I's in 'team'
- More than a new boss
- New owner for lumber stores
- Transcona transformation
- New structure to be king of downtown?
- CEO, execs terminated at TCIG
- Target opens its first Manitoba stores Tuesday
- Canad Inns property has personal meaning for owner
- Winnipeg's got the REIT stuff
- Value Partners cracks $1-B mark in assets
- Older and jobless? Resource on hand
- MTS to sell Allstream to Egyptian investment group, focus on Manitoba market
Ads by Google
You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is register and/or login and you can join the conversation and give your feedback.
Have Your Say
New to commenting? Check out our Frequently Asked Questions.
The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.