Sino-Forest Corp. (TRE), the Chinese timber company whose shares were suspended in Toronto in August amid allegations of fraud, confirmed that it’s being investigated by the Royal Canadian Mounted Police.
The company is cooperating with probes by the Ontario Securities Commission and the RCMP, Mississauga, Ontario- and Hong Kong-based Sino-Forest said yesterday in an e-mailed statement.
Sino-Forest shares fell 74 percent since June 1, the day before short seller Carson Block’s Muddy Waters LLC research firm published a report that said the company was overstating its assets. The stock’s plunge cost investors including hedge fund firm Paulson & Co. at least C$3.3 billion ($3.25 billion).
Officers and directors at Sino-Forest may have engaged in acts “related to its securities” that they “knew or should have known” perpetuated a fraud, the OSC said Aug. 26. The shares were halted by the OSC that day. The company’s Chairman and Chief Executive Officer Allen Chan resigned two days later.
“We cannot comment on the RCMP investigation, but Sino- Forest’s Independent Committee is in the latter stages of its own extensive examination” of allegations made by Muddy Waters, Sino-Forest said. The company said it will respond fully by year-end.
The OSC, Canada’s main securities regulator, on Sept. 8 extended the trading ban on Sino-Forest shares to Jan. 25. The commission “has referred the matter to the RCMP and that the OSC investigation is ongoing,” Carolyn Shaw-Rimmington, a spokeswoman for OSC, said in an e-mail Nov. 10.
The RCMP doesn’t confirm or deny investigations, Sergeant Greg Cox, a spokesman for the force, said by telephone yesterday. He declined to comment further.
Sino-Forest closed at C$4.81 on Aug. 25 on the Toronto Stock Exchange. It continued to trade over the counter in the U.S. on Aug. 26 before being halted, falling to $1.38 and giving the company a market value of $338.4 million.
Regulators and investors have increased their scrutiny of Chinese companies trading in North America. The U.S. Securities and Exchange Commission began an investigation last year into the use of reverse takeovers, in which a closely held firm becomes public by purchasing a shell company that already trades.
OSC Chairman Howard Wetston said in September that Canada needs to discuss whether reverse takeovers are appropriate for Toronto-listed companies that have operations overseas.
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