Sino-Forest Corporation is one of the leading forest plantation operators in China and based in Ontario, Canada. The company took its shape back in 1994, by managing tree plantations and manufacturing downstream engineered-wood products. Most of its revenues seem to come from the wood fibre sales and also from Omnicorp Limited, an investment holding company, out of which Sino-Forest owns 60%. Omnicorp claims to import wood fibre into China and its main business areas include log harvesting, lumber processing and sales of logs and lumber products to China and over countries all over the world.
Since September 2009, Sino-Forest has had 757,000 hectares of trees to manage and over 700,000 hectares of trees available for purchase. The main business segments of the company include wood fibre operations and manufacturing.
All goes well, until June 2011, when Carson Block from Muddy Water Research, blamed the company that it had been inflating its assets and earnings, while Sino-Forest’s shares were actually, worthless. At that time, the Chinese company knew its peak, being listed the most valuable forestry company on the Toronto Stock Exchange and reaching a market capitalization of $6 billion.
Apparently, from June 2005 to March 2011, the company's shares rose by 340 per cent from $5.75 per share to $25.30 per share. The so-called “multibillion-dollar Ponzi-scheme” had all its hands covered in a substantial theft. After Muddy Waters published their report, Sino-Forest’s shares dropped 82%. As if it weren’t enough for the company to go down, the important investor John Paulson sold its whole stake in the company, causing $720 million loss.
Other losses included the company’s payment for Ernst and Young, a group of financial institutions, for which David Horsley, one of the formers CEOs, paid $117 million, $32.5 million and $5.6 million to settle the lawsuits coming for the investors.
The company thus collapsed in 2012.
At the moment, after 173 days of hearings, and 5 Sino-Forest executives accused of fraud, a lawyer at the Ontario Securities Commission kicked off the closing arguments in the case. Apparently, Allen Chan, the last former CEO of Sino-Forest, was the one behind the great fraud scheme that left shareholders without any values.
Hugh Craig, the lawyer, stated that Chan signed off all of the transactions of the company during the Monday meetings in court. Chan was also accused for two instances of fraud, known as "Greenheart fraud" and the "standing timber fraud." Apparently, Chan had hidden his interest in Sino-Forest's acquisition of forest products company Greenheart Group Ltd. and then the company lied to investors by overstating the value of its assets, as Yahoo News reported. Supposedly, the company owned 500,000 hectares of standing timber, worth US $2.9 billion, but the land couldn’t be found anywhere.
Former CEOs Albert Ip, Alfred Hung, George Ho and Simon Yeung were also accused of misleading the investors and lying about the assets and revenues of Sino-Forest. Further on, together with Chan, the five CEOs were accused of undisclosed relationships with suppliers and customers and providing misleading documentation to support the alleged fraud. Apparently, they issued false financial statements from 2007 to 2010.
The company’s lawyers tried to explain that all these accusations must be regarded from another point of view, which is to consider that they were actually workarounds that Sino-Forest had to make because the business practices in China are different and thus, should be seen as operational mistakes made by a fast-growing company.
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