OSC Staff Commences Proceedings Before the Commission Against Sino-Forest and Others
TORONTO, May 23, 2012 /PRNewswire/ - Sino-Forest Corporation ("Sino-Forest" or the "Company") was informed yesterday that staff of the Ontario Securities Commission ("OSC" or the "Commission") commenced proceedings before the Commission against the Company and six of its former officers, Allen Chan, Albert Ip, Alfred Hung, George Ho, Simon Yeung and David Horsley (collectively, the "Individual Respondents").
In the notice of hearing and statement of allegations posted yesterday on the OSC's website (http://www.osc.gov.on.ca), OSC staff allege that the Company breached Ontario securities laws and acted in a manner that is contrary to the public interest by providing information to the public in documents required to be filed or furnished under Ontario securities laws which was false or misleading in a material respect contrary to section 122 of the Ontario Securities Act (the "Act") and by engaging or participating in acts, practices or a course of conduct related to its securities which it knows or reasonably ought to know perpetuate a fraud on any person or company contrary to section 126.1 of the Act. The alleged breaches of Ontario securities laws relate, among other things, to the following allegations:
|(a)||the Company had undisclosed control over suppliers, authorized intermediaries and other nominee companies within the business model employed by the Company to buy and sell standing timber through its British Virgin Islands subsidiaries in the People's Republic of China (the "BVI Model");|
|(b)||the Company had an undisclosed dishonest process of creating deceitful purchase contracts and sales contracts and their key attachments to buy and sell standing timber to inflate assets and revenue; and|
|(c)||the Company had undisclosed internal control weaknesses/deficiencies that facilitated and concealed the fraudulent conduct of its British Virgin Islands subsidiaries, suppliers, authorized intermediaries and other companies who bought and sold assets in the BVI Model, and the dishonest creation of purchase contracts and sales contracts, including their key attachments.|
OSC staff has made allegations against the Individual Respondents, other than Mr. Horsley, consistent with those noted above. In addition, OSC staff has made certain additional allegations against each of the Individual Respondents.
OSC staff has asked the OSC to consider whether it would be in the public interest to make a number of orders, including that trading in any securities of the Company cease permanently, that the Company pay an administrative penalty of not more than $1 million for each failure by the Company to comply with Ontario securities law, that the Company disgorge to the OSC any amounts obtained as a result of non-compliance with Ontario securities law, and that the Company pay the costs of the OSC's investigation and the costs of or related to any hearing before the OSC. OSC staff is also seeking sanctions against the Individual Respondents.
As previously disclosed, on March 30, 2012, the Company obtained an initial order (the "Order") from the Ontario Superior Court of Justice (the "Court") for creditor protection pursuant to the provisions of the Companies' Creditors Arrangement Act ("CCAA"). On April 16, 2012, the Court extended the stay period under the Order to June 1, 2012. Neither the CCAA nor the Order affects the OSC's investigation in respect of the Company or an action, suit or proceeding that is taken in respect of the Company by OSC staff or before the OSC. However, both the CCAA and the Order prohibit for the duration of the CCAA proceedings the enforcement by the OSC of any payment of an award ordered by the OSC or any non-CCAA court.
On April 9, 2012, the Company announced that it had received an "Enforcement Notice" from staff of the OSC. The Company also announced that it had learned that Enforcement Notices were also received by Messrs. Chan, Ip, Hung, Ho, Yeung and Horsley. Following review of the Enforcement Notice directed at the Company, further discussions with staff of the OSC, together with examination of issues identified in the Enforcement Notice received by the Company, on April 17, 2012, Sino-Forest announced that it had terminated the employment of Messrs. Hung, Ho and Yeung, each of whom had previously been placed on administrative leave from the Company, and that Mr. Ip, who had previously resigned as an officer of the Company, would not serve as a consultant to the Company. The Company also announced that Mr. Chan, who had previously resigned as Chairman, Chief Executive Officer and Director but continued with the Company as Founding Chairman Emeritus, had resigned from the Company and that Mr. Horsley had resigned as the Company's Chief Financial Officer but would continue as an employee of the Company, to assist with the Company's restructuring efforts.
The Company is reviewing OSC staff's allegations and considering what steps if any are appropriate for the Company to take in response to the allegations in the circumstances of the CCAA proceedings, the Order and the Company's limited financial resources.
All inquiries regarding the CCAA proceedings should be directed to the Monitor, FTI Consulting Canada Inc., via email at: firstname.lastname@example.org, or telephone: (416) 649-8094. Information about the CCAA proceedings, including copies of all court orders and the Monitor's reports, are available at the Monitor's website http://cfcanada.fticonsulting.com/sfc.
SOURCE Sino-Forest Corporation