Sino-Forest Accused of Breaching Ontario Securities Laws

May 23, 2012 Updated: May 23, 2012

The Ontario Securities Commission (OSC) has accused Sino-Forest Corp. of one of the largest frauds ever carried out on the Canadian stock market.

On Tuesday, the OSC published a 33-page report detailing the “Standing Timber Fraud” that the Chinese commercial forest operator allegedly carried out on unsuspecting investors.

The OSC is alleging that Sino-Forest carried out a massive scheme to make its business look much larger and more profitable than it was in order to defraud investors on the TSX.

From February 2003 until October 2010, Sino-Forest raised approximately $3.0 billion in cash from the issuance of equity and debt securities to investors, noted the report.

“From June 30, 2006, to March 31, 2011, Sino-Forest’s share price grew from $5.75 (Can) to $25.30 (Can), an increase of 340 percent,” the report said.

The OSC alleged that the company had undisclosed control over suppliers, authorized intermediaries, and other companies that were used to create a “dishonest process of creating deceitful purchase contracts and sales contracts.”

Sino-Forest issued a statement acknowledging the allegations and said the company is reviewing them and considering “what steps if any” it should take.

After a wildly successful run on the TSX, the company’s fortunes began to turn after a report by research firm Muddy Waters claimed the company had exaggerated its assets. The TSX delisted Sino-Forest on May 9, 2012.