Sino-Forest CEO resigns amid fraud investigation

Just days after the Ontario Securities Commission accused it of fraud and halted trading in its shares, the Chinese timberland company Sino-Forest has announced the resignation of its chairman and chief executive Allen Chan.

The regulator's move followed allegations by a short-seller earlier this summer that Sino-Forest exaggerated its revenue and timber holdings.

Sino-Forest owns timber holdings in China, but is listed on several North American stock markets. The stock has been in freefall since the allegations surfaced, and the company's attempts to calm investor fears have so far been ineffective.

The company said Sunday that William Ardell, who is investigating the allegations, has been named chairman. Judson Martin, currently vice-chairman, will become the new CEO.

The regulator said Friday that it had reason to believe Sino-Forest and certain officers and directors had misrepresented some of its revenue and/or exaggerated some of its timber holdings.

It also issued a cease-trade order for Sino-Forest shares, which have been battered by the allegations. They last traded Thursday at $4.81. Their 52-week range is $25.85 to $1.29.

Sino-Forest launched an investigation by an independent committee headed by Ardell earlier this year after the allegations were first made by short-seller and research firm Muddy Waters. The allegations have not been proven in court.

The company said last week that its investigation would take longer than the two to three months that was initially predicted and is now expected to be complete by the end of year.

"The three overriding priorities of the company are to complete the work of the independent committee, to co-operate with the OSC and to preserve shareholder value," Sino-Forest said Sunday.

The OSC had also initially ordered that Chan and four other executives resign, but later backed away from the requirement.

In addition to Chan's resignation, the company said it had placed three employees on administrative leave.

Sino-Forest sells timber and logs and manufactures downstream engineered-wood products.

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OSC alleges fraud at Sino-Forest

The Ontario Securities Commission has stopped all trading in Sino-Forest shares, alleging fraud at the TSX-listed Chinese forestry company.

The regulator said Friday the company "appears to have engaged in significant non-arm’s length transactions which may have been contrary to Ontario securities laws and the public interest."

Sino-Forest's three-month stock chart on the TSX (CBC)

The company has been under a cloud of suspicion since June when U.S. short seller and research firm Muddy Waters alleged the company was effectively a giant fraud. Among other things, the firm accuses Sino-Forest of shuffling timber holdings between various divisions in an attempt to inflate their actual value.

Sino-Forest owns timber holdings in China, but is listed on several North American stock markets. The stock has been in freefall since the allegations surfaced, and the company's attempts to calm investor fears have so far been ineffective.

Sino-Forest "appear to have misrepresented some of its revenue and/or exaggerated some of its timber holdings," the OSC said in the statement Friday

The regulator accuses officers and directors at the company of "engaging or participating in acts …which they know …perpetuate a fraud."

The OSC also ordered all of the company's directors and executives to resign their positions immediately.

The company's shares have been halted in Toronto, but the company's shares in New York dropped 65 per cent within seconds of the market opening.

More to come

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