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Sino-Forest Investors Sue Executives for Backdated Options

Sino-Forest Corp. Chief Executive Officer Allen Chan and Chief Financial Officer David Horsley received stock options that were backdated or mispriced in violation of Toronto Stock Exchange rules, according to a lawsuit from two investors.

The options include those issued to Chan in 1996 and 2007 and to Horsley in 2005 and 2007, according to a statement of claim sent Aug. 30 by the investors to an Ontario court.

“The defendants profited handsomely from the market’s resulting appetite for Sino’s securities,” according to the claim. “Certain of the individual defendants sold Sino shares at lofty prices, and thereby reaped millions of dollars of gains.”

The class action, which is seeking more than C$7 billion ($7.2 billion), was filed by trustees of the Labourers’ Pension Fund of Central and Eastern Canada and the trustees of the International Union of Operating Engineers Local 793 Pension Plan for Operating Engineers in Ontario. The plaintiffs are seeking damages from Sino-Forest, Chan and Horsley and other defendants.

“The allegations leveled in this action assert misconduct that pervades almost every corner of Sino-Forest’s operations,” Dimitri Lascaris, a lawyer at Siskinds LLP, said in a separate statement.

The statement of claim also names Sino-Forest auditors Ernst & Young LLP and the investment-banking units of Royal Bank of Canada, Toronto-Dominion Bank and other lenders.

Trading Suspended

Stan Neve, an external spokesman for Sino-Forest in New York, declined to comment. Horsley didn’t immediately respond to voicemail messages left at his office and on his mobile phone. Chan didn’t immediately return a call seeking comment to Sino-Forest’s Hong Kong offices after regular working hours.

Sino-Forest’s shares were suspended from trading in Toronto on Aug. 26 after the Ontario Securities Commission said officers and directors of the Hong Kong- and Mississauga, Ontario-based company may have engaged in acts “related to its securities” that they “knew or should have known” perpetuated a fraud. Chan resigned as CEO two days later.

Sino-Forest insiders including Chan have sold C$81 million of shares since the end of 2006, regulatory filings show.

The case is trustees of the Labourers’ Pension Fund of Central and Eastern Canada v. Sino-Forest, 11-4311530, Superior Court of Justice (Ontario).

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